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Market News and Trends, The Business of Real Estate

“Shop high” usually doesn’t pay off


In a couple of recent posts I discussed the market environment in various price ranges around the Austin/Central Texas area, and pointed out that some market segments here are clearly moving well regardless of the “typical” price range in the area, while others are moving VERY slowly.  (See Austin sales performance by price range, 05/07/11 and Austin/Central Texas market performance — what’s selling?, 05/10/11.)  There is no direct correlation across the area between “market velocity” and price range.

The second of those posts included a table that showed the “Austin West-Westlake” region with the largest gap between the average list price of homes on the market and the average sale price of homes that had sold recently.  That statistic understandably prompted a reader to ask whether they should shop for homes well above the price range in which they hope to buy.  I replied to that question directly, but the issue of “shopping high” comes up frequently (almost as often as sellers want to “start high” on list price), so I’ll discuss  it again here.

As a starting point, consider all homes in Austin West-Westlake:

Austin West-Westlake

First, notice that the inventory of Active listings (Active + Active-Contingent) represents a 6.5 month supply based on that 90-day pace of sales — almost exactly what most analysts consider a “balanced” market.  But note that this is an extremely diverse market area, with active list prices ranging from $72,000 to $12,000,000!  The weighted average price of Active and Active-Contingent listings is $1,316,000.  You can see almost the same range among homes that are under contract — list prices from $140,000 to $1,299,000, but the average list price of pending listings is $595,500 — less than half the average Active list price.   Looking at Sold properties — ninety days’ history as of the date of that table —  the range is narrower, but the average actual sale price was $704,000.  That is noticeably higher than the list prices of Pending listings, but still just 53% of the current average asking price.

The question I received focused specifically on the $800,000 to $1,000,000 price range:

Austin West-Westlake $800K-$1,000K

There is nothing particularly surprising in that data.  Inventory relative to sales is slightly higher at a little over 7 months, but not badly out of balance.  Recent sales closed at 96.5% of their final list prices — respectable.  The notable difference in this price range is that actual sale prices averaged just 90% of their original list prices — a clear sign that many sellers chose to “test” above-market prices before adjusting to the point at which they received acceptable contract offers.  To make that number a little more real, consider that 10% of the average sale price here is almost $90,000!

But by limiting the search above to list prices in the target price range, did we miss properties that actually sold in in the target range while actually priced much higher?  To answer that, this table shows only Sold properties with sale prices from $800,000 to $1,000,000:

Austin West-Westlake Sold $800K-$1,000K

Twenty-three sales is not a huge sample, but it is interesting that over this three-month period not one sale in this price range was priced outside the range when it went under contract!  And in the end these homes sold for 97% of list price.

That’s not unusual in anything approaching “normal” market conditions.  In this situation, I suggest that prospective buyers shop for homes that are priced in their target range.  Sure, you might across your dream house and a seller who is on the verge of reducing the price to meet the market.  But with 55 houses to choose from that are already “priced right” in this market segment, and new listings still appearing, staying focused on your target makes more sense.  You’ll see those other houses if and when the sellers finally face reality anyway.

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About Bill Morris, Realtor

More than thirty years of business experience (high tech, client service, business organization and start-up, including many years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs: -- Seller Representation is a comprehensive process that begins with thorough market analysis and consultation, continues with properly staging the home to achieve the highest price possible in a reasonable time on market, a complete program of marketing and promotion, ongoing updates and communication, closing coordination, and follow-up throughout (and after) the sale. -- Buyer Representation is also full service: shopping, previewing, price and market consultation, contracting, negotiating, coordination of inspections, appraisals, repairs, and closing details, and follow-up beyond the closing of your purchase to ensure your lasting satisfaction. Because the real estate industry is becoming more sophisticated and challenging every day, you need a professional that understands the industry and is positioned to stay ahead of the game. I go the extra mile to help you achieve your goals. That's why I constantly research the market and property values so your home is priced effectively from day one. I also make sure the public knows your home is for sale by using innovative advertising and marketing techniques to attract potential buyers.

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