Wednesday, June 04, 2008
Correct Pricing in Chicago (thoughts of a third realtor)
I'd like to be able to rewrite Chicago history, specifically Chicago real estate history. As I've mentioned many times in the past, I'm intrigued by all things counterfactual--i.e. What if Harold Washington never died? What if there was never a Great Chicago fire? What if Al Capone went to Divinity school? What if Lincoln Park properties were still appreciating by 7% annually?
Just so we are clear, this is a rewrite of an earlier blog I posted in an earlier sales cycle just as the Chicago real estate market was beginning to flatten out in late 2006. I published it as an All Points Bulletin to sellers across the Northside or more specifically; to all future sellers I might be encountering. I believe the piece still has legs today:
I am of the opinion that now is not the time for Chicago sellers to be "testing" the real estate market; condos, single family houses, or otherwise. Hovering above correct pricing hoping to "see what happens" only makes for agonizing market time, frustration, and interesting fodder for less optimistic writings than this; Nakedrepublic.com for one. (Ironically, NR has not posted on their site since February 18th of 2008 while a year ago they couldn't keep their negative trap shut with daily housing bubble chatter ad nauseam. They would often quote and link back this very blog only because a certain few housing bubble keywords would occasionally pop up in my writings.) To be sure, there are still hundreds of transactions a week occuring in Chicago.
When an overpriced property goes New on the market three things are immediately set into motion. The first one is Market Time. The clock starts ticking on the first day and continues until Expiration, Cancellation or Closing.
The second thing is the New property is placed in a category of similar priced properties--many of which are correctly priced and thus--superior by comparison in the eyes of the potential buyer. Its not unusual for even a correctly priced property to stay on the market for upwards of thirty days. (60 days now.)
But probably the most critical thing that occurs is the loss of the real potential buyer. The overpriced property is "off his radar" and this results in it not even being seen. By the time the inevitable Price Reduction occurs, the potential buyer has already purchased. And it may not just be one or two lost buyers. (There are often times more than a few listing agent casualties along the way as well.)
An experienced realtor (hopefully the first and only one) will strongly advise against being too aggresive in a static market as far as price is concerned. The time of just taking the listing to test the market is in the past, or at the very least, not in the present. There are still many points to negotiate in a contract such as tax prorations, closing cost credits and total earnest money held in escrow. What may seem like a concession in price in the beginning may actually net a higher bottom line at closing when the monthly carrying costs associated with a lengthy market time are reduced.
There is a saying in the real estate business that applies: First love; Second wife; Third realtor.