When The Laws of Supply and Demand Go Haywire

The first month of every year for Redfin is like the first five minutes of a blind date: it doesn’t take long to figure out how the whole thing will go. We track every customer activity in a big database so it’s easy for us to see whether demand is strong right out of the gate.

And it is. While January and February closings will likely be weak, recent charts of early-stage Redfin demand suggest that in a few months sales volume will be just fine. From January to December, visits to our website increased 35%. Customers touring homes increased 26%. Customers writing offers increased 35%.

We aren’t in a tizzy about such growth, because most of it is seasonal. We get big jumps like this every year.

But we are seeing one trend this season that isn’t normal. And it could really crimp sales volume and, by extension, the whole economy. Inventory, which normally starts climbing steeply in January, has just kept dropping. In our wildly popular home-buying classes, which are mostly sold out, the most common complaint is that there’s nothing good to buy.

In some of the biggest counties, there were 30% – 40% fewer homes for sale this January compared to last January, and most counties saw the problem only get worse in the past month:

And the same is true of smaller counties, too; only Chicago has seen an uptick:

We see why this is happening in listing consultations across the country. We sit in people’s living rooms, explaining what they can likely sell their home for, and they just decide to wait a year instead, either because they want more money for their home, or they flat-out need more money just to pay off the mortgage.

The banks have an enormous number of mortgages in default, but, after the robo-signing scandal, foreclosures have been at or near three-year lows because it takes nearly a year to foreclose a property. In Atlanta last year, there was a 13-month supply of bank-owned homes; now there’s a two-month supply.

As a result, the limit on sales volume, which has long been demand, is increasingly now supply. American real estate is, in some places, like a giant store, the shelves half-full, often with damaged goods. Fixing this problem will be hard because it requires a fundamental re-structuring of debt, whereas stimulating demand is often a simple matter of lowering interest rates.

What this means for the individual home-seller is that Tim Ellis was right. Tim, Redfin’s real estate analyst, prepared a comprehensive analysis showing that homes listed in winter sell for more money, faster, with less risk, than homes listed in summer. The findings were so surprising that I delayed their publication for nearly a month, insisting that Tim look at possible confounding factors. After I ran out of reasons to block the report, we published it, but I still didn’t believe it.

But anyone who listened to Tim, and hung a sign in their yard this winter, is probably glad she did. Good listings have very little competition just now in most markets, and plenty of demand. Just this weekend, we sold a Portland home in 48 hours, with four offers coming in all over asking price.

This may change, as many sellers who took their homes off the market before Thanksgiving will be back on the market in February or March, after waiting the requisite 90 days for brokers to market the property as new again. But in many places now, we see a lot of demand, and not much to buy. It would be interesting to hear from real estate consumers and agents alike if your experience has been different or the same.

Should I Wait Until Spring to List My Home?

Sometimes we start a market analysis project looking for one thing and end up discovering something else entirely. Recently we decided to dig into the data to see if it supported our feeling that winter is the best time to buy, and the worst time to sell. However, when we got the results we discovered that our assumptions were dead wrong.

As we roll through the holidays and into winter, many would-be sellers will be holding off on listing their home, waiting for the spring “selling season” to put their home on the market. But if you’re ready to sell your home now, is waiting until spring the best strategy? Not according to the data, it isn’t.

We pulled a year’s worth of data on three quarters of a million homes listed across the country and analyzed sales statistics by season. Here’s what we found:

• Homes listed in winter sell faster: 46 days in winter vs. 55 days in summer
• Homes listed in winter are more likely to sell: 59.2% sell in winter vs. 53.1% sell in summer
• Homes listed in winter sell closest to their original price: a 2.7% drop from the final price in winter vs. a 5.2% drop from the final price in summer, worth more than $7,000 on a $300,000 home

Yup, you read that right: Overall, homes listed in winter sell best. 5.8% more homes listed in winter eventually sell (compared to the overall percentage of homes listed throughout the year), and they sell 1.4 percentage points closer to their original list price than the median—that’s $4,900 on a $350,000 home.

Spring wins in one category: Speed. Homes listed in spring sell the fastest, sitting on the market for 15% less time than the median. Winter comes in second in this category though, at six percent below the median, while homes listed in summer and fall both sell slower than the median (12% and 16%, respectively).

Apparently not many sellers are on to this pattern, because winter has twenty percent fewer listings added than the spring.

Of course, not all markets are alike, especially when it comes to the weather. In addition to the national roundup, we also pulled this data for most of the cities Redfin serves: Washington DC, Boston, Queens, Atlanta, Chicago, Austin, Phoenix, Las Vegas, San Diego, Los Angeles, Irvine, San Francisco, Sacramento, Portland, and Seattle. Click your city on the list to see the breakdown there.

Keep in mind that we’re measuring correlation here, not causation. Listing in the winter won’t guarantee that your home sells faster, for more money, or that it will sell at all. That said, the data does seem to indicate that winter gets a bad rap for no good reason.

Why do you think most sellers are afraid to list their homes in winter? Should they be? Let’s hear your opinion!

What day of the week should I list my home?

With home sales in the gutter, anyone thinking of selling a home today can use all the help they can get, starting with what day of the week to debut.

Serious sellers know that it is important to make repairs, stage well, and showcase their home online with professional photos, but there isn’t a consensus about which day of the week you should list your home for the best results. This is evidenced by the fact that new listings on the market are spread pretty evenly between Monday and Friday, with each day getting between seventeen and nineteen percent of the total share of listings (Saturday and Sunday are much lower at five to seven percent).

Since you only get one chance to make a first impression with your listing, we decided to dig into our data to find out whether putting your home on the market on a certain day of the week is correlated with sales success. We pulled the data on over a million listings spread throughout the nation over the last twenty-one months, and here’s what we found:

• Homes listed on Sunday get marginally more online views.
• Homes listed on Friday are toured 19% more.
• Homes listed on Friday or Thursday sell for slightly closer to original list price.
• Homes listed on Friday are 12% more likely to sell in 90 days.

The difference in views and sale-to-list ratios were not very dramatic across the week, but in the tours and sales categories, Friday was the clear winner. For the most tours and the best chance of selling your home, list it on a Friday. If you are the kind of seller that is more interested in online views than actually selling your home for a good price, listing on Sunday is a great plan. But since we’re pretty sure that kind of seller doesn’t exist, we’re confident in recommending Friday as the seller’s best day to list their home.

So why would Friday be such a great day to put your home on the market? Our theory is that since home buyers tend to tour homes on the weekends (Saturday and Sunday have 2.5x as many tours per day than Monday to Friday), homes listed on Fridays are the freshest in buyers’ minds when they’re making their weekend plans. It also seems likely that many home buyers sort their weekend “must see” lists by date listed, going to see the freshest homes first so they have the best chance of getting in on a potential good deal before other buyers. These factors put homes listed on Friday in front of more touring buyers on the weekend (which our touring data bears out). More tours leads to more offers, and more offers leads to a better price and a better chance of selling.

That’s our theory, now let’s hear yours! Also, for your viewing enjoyment, we have compiled our findings into the convenient chart form below. Note that while the sales data is based on all listings, the data on views is based only on views at Redfin.com, and the touring data is based only on homes that our agents took our customers out to see.

Which Areas Will Be Most Affected by Lending Policy Changes?

Over the weekend, the U.S. stopped guaranteeing big loans in expensive cities, and ever since the folks in real estate have been holding our breaths to see the market’s reaction. Now Redfin has released new data showing which areas are most vulnerable to the policy change.

First, some background. The reason the government began backing bigger loans in 2008 was because the banks were too jittery to fund jumbo loans on their own. Today, the banks are still jittery about jumbos, but the government is intent on letting the market take its course all the same.

In LA, San Francisco, Washington DC and New York, the government will now only guarantee loans borrowing less than $625,000, whereas on Friday the the limit was $729,750. This means that if you’re borrowing more than $625,000 in those areas today, you’ll now have to pay higher interest rates, and you may not be able to qualify for a loan at all. This could lead to fewer sales.

Projections have differed sharply. Last Monday, the head of the California Association of Realtors was apoplectic: “This is just going to kill us,” Beth L. Peerce told the LA Times’s Alejandro Lazo. But the Federal Reserve estimated that only 3.4% of the loans backed by the government last year would have been affected by the lower loan limit. The Wall Street Journal article citing this data was the most-emailed real estate news for three days straight.

So who’s right, the government or the Realtor association? It depends not just on whom you ask but where. For the areas we cover, Redfin Real Estate Scientist Tim Ellis analyzed sales activity over the last six months county by county and neighborhood by neighborhood to project which areas would be hit hardest. Let’s look first at the county data, so you can also see how loan limits changed:

As you can see, most of the U.S. won’t feel a thing at all, but a few counties will.

Where did these numbers come from? To calculate the percentage affected, we looked at closed sales where the loan would have been below the older, higher limit, but was still above the new, lower limit.

And since government-guaranteed loans require a 20% down-payment, the affected home-prices are actually higher: where you can now borrow $625,500 with a 20% down-payment, you can buy a home worth $781,850. Where the upper limit used to be a $729,750 loan, this allowed you to buy a $912,188 home.

To project how many LA or DC homes are likely to sell for more than $781,850 but less than $912,188, we looked at sales that closed between April 1 – September 30—not currently active listings—just because active listings don’t always sell for their asking price.

There is a gap in this analysis, because loans directly ensured by the FHA don’t require a 20% down-payment, thus expanding the range of homes for which demand will be affected. But we focused on conventional government-backed loans to get a simple, conservative answer.

In order to better visualize how the effect varies by location, we created zip code heat maps of each of the above-listed regions. Here’s the Bay Area, which looks like it will be hardest hit by this change. Click on any zip code to see the breakdown. Red represents 20% or more affected, Orange for 10% to <20%, Yellow for 5% to <10%, and Blue for <5%.

Here are links to the full collection of heat maps (or just zoom out and drag the above map to your area):

• Bay Area
• Washington DC
• San Diego
• Boston
• Seattle
• Los Angeles
• Queens, NY
• Sacramento
• Baltimore
• Portland

Finally, let’s break this down in list form by neighborhood and by city.

San Francisco
Within the hardest-hit county of San Francisco, we can see that the area where I used to live, the Castro and Mission Dolores, is the likely to be most affected:

• Castro: 24.2%
• Bernal Heights: 23.2%
• Mission Dolores: 19.0%
• Russian Hill: 18.6%
• Central Sunset: 18.4%
• Miraloma Park: 17.9%
• Noe Valley: 16.8%
• Potrero Hill: 15.9%
• Sunset District: 15.8%
• Marina District: 15.2%
• Twin Peaks West: 14.8%
• Richmond District: 12.0%
• Mission Bay: 11.9%
• South Beach: 11.4%
• Potrero: 11.3%
• Parkside: 10.9%
• Mission: 10.8%

San Mateo County, Northern California
Traveling south to the second hardest-hit county, San Mateo, we project that the damage will be concentrated mid-Peninsula and north:

• Belmont: 23.7%
• San Carlos: 21.1%
• Millbrae: 19.7%
• Foster City: 15.7%
• San Mateo: 10.0%
• Burlingame: 9.9%
• Redwood City: 9.0%
• Menlo Park: 8.1%
• Half Moon Bay: 6.7%

San Mateo County, Northern California
Rounding out the Bay Area in Santa Clara County, the most-affected areas are all south of downtown San Jose:

• Almaden Valley: 21.7%
• Willow Glen: 16.6%
• West San Jose: 12.8%
• Silver Creek: 11.3%

Fairfax City & County, Northern Virginia
Outside of DC, the closer you get to the Potomac River, the greater the effect:

• Wolf Trap: 20.7%
• Great Falls: 17.2%
• McLean: 15.4%
• Mantua: 14.1%
• Tysons Corner: 11.5%
• Dunn Loring: 10.3%

Arlington County, Northern Virginia
In tiny Arlington County, the most affected areas were all within Arlington, not Alexandria, so we look at the data by neighborhood:

• North Rosslyn: 18.3%
• Courthouse: 15.6%
• Rosslyn: 14.9%
• Lee Heights: 14.1%
• Radnor / Fort Myer Heights: 9.3%

Washington DC
And in Washington DC, the damage is scattered throughout town:

• American University Park / Friendship Heights / Tenleytown: 34.0%
• Southeast Chevy Chase: 30.0%
• Capitol Hill: 13.9%
• Massachusetts Avenue Heights: 13.0%
• Mount Pleasant: 12.2%
• Capitol Hill/Lincoln Park: 12.1%
• Glover Park: 11.7%
• Van Ness/Forest Hills/Wakefield: 11.4%
• Howard University/Le Droit Park: 10.2%
• Glover Park/Cathedral Heights/McLean Gardens: 10.1%
• Foxhall/Palisades/Spring Valley/Wesley Heights: 10.1%
• Stanton Park: 9.2%
• U Street Corridor: 8.5%
• Cardozo/Shaw: 7.9%
• Northwest 7.8%
• Georgetown: 7.3%

San Diego County, Southern California
In San Diego, the most-affected cities are mostly along the beach north of the city:

• Solana Beach: 27.6%
• Carlsbad: 16.9%
• Encinitas: 14.5%
• Coronado: 13.9%
• Poway: 9.3%

Orange County, Southern California
In Orange County, the damage is mostly off the coast:

• Laguna Beach: 15.1%
• Yorba Linda: 13.3%
• Ladera Ranch: 12.6%
• North Tustin & Tustin Foothills: 12.2%
• Rossmoor: 11.5%
• San Clemente: 10.1%

LA County, Southern California
In Los Angeles, the affected areas are all over the map:

• La Canada Flintridge: 17.8%
• El Segundo: 16.1%
• Sierra Madre: 14.9%
• Calabasas: 14.7%
• Westlake Village: 14.5%
• Manhattan Beach: 14.2%
• Rancho Palos Verdes: 13.3%
• Arcadia: 13.3%
• West Hollywood: 13.3%
• Rolling Hills Estates: 12.8%
• Palos Verdes Estates: 12.4%
• Redondo Beach: 12.1%
• Hermosa Beach: 12.0%
• Beverly Hills: 11.4%
• East San Gabriel: 11.1%
• La Crescenta-Montrose: 10.9%
• Santa Monica: 9.6%
• South Pasadena: 9.3%

Suffolk County, Boston Area
In Suffolk County, the hardest-hit areas are all in Boston:

• Bunker Hill/Thompson Square: 12.5%
• Charlestown: 9.8%
• City Point: 9.0%
• South End: 8.8%
• West Roxbury: 8.7%
• Downtown: 8.1%
• North End/Waterfront: 7.8%
• Central: 6.9%
• Brook Farm/Veterans of Foreign Wars Parkway: 6.8%
• Upper Washington: 6.7%
• West Broadway/D Street: 6.6%
• Jamaica Hills: 6.3%

King County, Seattle Area
And finally in King County, the areas most likely to be affected are on the Eastside:

• Sammamish: 16.4%
• Mercer Island: 11.3%
• Newcastle: 10.8%
• Redmond: 8.5%
• Bellevue: 8.2%
• Vashon: 7.9%

Within Seattle, the side of Queen Anne facing Lake Union (11.0%) will be hit hard too.

Over the next few weeks, Redfin will track whether closed sales are declining in these areas, so we’ll keep you updated on how the projections compare with reality.

If U.S. real estate inventory is so “overwhelming,” where is it all hiding?

While some housing pundits are talking about demand being “overwhelmed by supply” and others are throwing out estimates of an “excess supply” of over 3 million homes, buyers that we are serving across the country keep telling us the same thing over and over this spring: “Selection stinks!”

Worse yet, when they do finally find a home that they want, they often submit an offer only to find that theirs is one of multiple offers that the seller has received—increasingly our agents are reporting bidding wars and multiple offers in numerous markets.

So what’s going on? How can inventory be high but buyers are hitting slim pickings and multiple offers? Well, for starters, although listings may be up from January—which is true every year due to the annual winter hibernation of the housing market—on-market inventory and new listings aren’t actually all that high for this time of year. In fact, in every Redfin market except Las Vegas, new listings are down from last year:

Not only that, but new listings of non-distressed homes, which are more frequently well-kept and owner-occupied (i.e. the kind of home that most non-investor buyers are interested in), are falling over twice as fast as bank-owned (REO) listings:

This result isn’t suprising at all if you’ve spent any time talking with home owners lately. Anyone who doesn’t absolutely need to sell seems to have decided to wait out the market, either hoping for a better opportunity to list their home next year or just renting it out to take advantage of a supposedly increasingly hot rental market.

Of course, if we’re trying to figure out what’s going on in the market today, and where we’re headed, we can’t just pretend that the distressed listings don’t exist.

When it comes to pricing, REOs are selling for 20% to 50% less than similarly-sized non-distressed listings, but the price trends of the two have been moving in the same general direction over the last year (click any of these charts to enlarge):

The overall price trend (both for REOs and non-distressed homes) has been down in most markets over the last year (Boston and Washington DC’s flat prices are two notable exceptions). Meanwhile, sales are slowly clawing their way out of the post-tax-credit gutter, but a decent recovery in sales is currently being held back by a serious lack of quality inventory.

Allow me to illustrate today’s market dynamics by way of a Venn diagram (because who doesn’t love Venn diagrams?):

If we don’t start to see more listings from owners who have the equity to put their homes on the market, prices of increasingly rare non-distressed listings seem likely to stop falling soon, just due to basic supply and demand. Of course, that claim leads to the big question: how soon?

Ultimately, supply and demand are the primary drivers of the real estate market, but prices seem to react to these inputs about as fast as a three-toed sloth. While the bubble was inflating, it took over a year of declining sales and increasing inventory before prices peaked and began to fall. Although on-market inventory has been declining since mid-2008, the slow recovery of sales along with a shift in psychology away from home ownership has delayed the turnaround of prices (oh yeah, there was also that delightful government meddling in the form of a giant handout that paused a true price correction for over a year as well).

As Calculated Risk recently pointed out, home prices are not far above their historic lows, although it’s a pretty safe bet that we’ll have a bit of an overshoot on the downside, followed by at least a few years of flat prices (which is down when inflation is factored in).

Foreclosures are still quite high and will likely take three to five years to work through, but growth in both the beginning and the end of the foreclosure pipeline seem to be backing off their 2010 peaks. The worst seems to be behind us on that front.

Every region has different dynamics, but with generally lousy selection, slowly recovering sales, and years worth of foreclosures to work through, where does that put us today, and through the end of this year? Barring some unforseen economic black swan, most of us here at Redfin think prices in most regions will probably stop falling by this time next year, while the more optimistic among us expect prices to end the year higher than where they are today. Sales will continue their sloth-like increases, foreclosures will be slowly but surely absorbed (many by all-cash investors), and hopefully, non-distressed sellers will begin to return to the market.

Is this a bottom call? Not really. Nobody is able to perfectly time the market, including us. No matter where we think the bottom is, we’re probably wrong (just like certain other recent high-profile predictions). Is buying a home today less risky than it was five years ago? Absolutely. Will buying a home ever be a risk-free proposition? Sorry, nope.

Buying from a Bank? Get Ready to Play Hardball.

If you’ve been shopping for a home lately, you’ve probably encountered more than a few listings that are either bank-owned (REO) or short sales. In some of Redfin’s markets (Las Vegas, Phoenix, and San Diego) distressed sales make up more than half of what’s selling these days:

With prices that are often considerably lower than non-distressed homes, this plentiful distressed inventory can certainly seem attractive to homebuyers looking for a deal in today’s market.

Of course, we’re never satisfied just to bring you flashy top-ten lists (or top-sixteen lists, as the case may be), so we wanted to dig a little deeper into the data. What kinds of things could we learn about distressed sales that would really help a buyer who is thinking of making an offer on one? As it turns out, the data was happy to talk to us on that subject, providing us with some juicy insights to share with you.

To generate the chart below, we dug into our database to analyze nearly half a million sales that closed between the beginning of 2010 and the end of Q1 2011. The two bars for each market represent the average sale to list price ratio for distressed sales to the average ratio for non-distressed sales. A 100% ratio means that on average, that type of home is selling at exactly its list price. Below 100% means buyers are negotiating discounts, and above 100% means that the sellers are typically getting more than their asking price.

In every single market we looked at, REOs and short sales consistently sell for closer to their list price than the non-distressed homes. This held true across every price band, although the volume of distressed sales is certainly weighted toward the low end. Note that we are using the final list price in this analysis, not the original list price. It is also worth mentioning that we were originally only going to discuss REOs in this post, but the sale-to-list ratios for short sales were so similar that we decided to include them in our analysis as well.

Marcus Fleming, a Redfin Agent in Phoenix has seen this phenomenon first-hand. “Banks are very careful about getting a number of BPOs before listing a home,” explained Marcus. “When it goes on the market they are so confident the price is right that for the first 2 weeks they will accept nothing but offers at 100% of list price.” According to Marcus, even when the home has been on the market for months, banks won’t consider any offers for less than about 95% of list price.

As we were looking at the chart above, we wondered why some markets have a much larger difference between the distressed and non-distressed ratios. For example, in Austin they’re fairly close at 96.7% and 96.5%, while in Las Vegas they’re quite different, coming in at 99.6% and 96.3%. Why might that be?

In order to dig even deeper into the data, we created the scatter-plot below using the difference between the two ratios (i.e. the height of the red bar minus the height of the blue bar) as the Y-axis and the percentage of sales that are distressed (the numbers from the first chart) as the X-axis. The results tell an interesting story:

In general, the more distressed a market is, the bigger the difference between the two sale to list ratios. In other words, in a highly distressed market like San Diego, buyers are a lot less likely to get a bank to negotiate on price than they are in a less-distressed market like Denver. Admittedly, the correlation isn’t incredibly strong, but there is definitely a clear trend in that direction.

In some markets, banks are being especially aggressive with their listings, putting homes up for sale at well below the market value, leading to multiple bids and average sale prices that are higher than the list price. Across the entire data set we analyzed, distressed listings were more than twice as likely to sell for over list price than non-distressed listings (see a chart with the market-by-market breakdown here).

Anna Nevares, a Redfin agent in San Diego has definitely seen this at play in her market (where 41% of distressed sales are closing above list price). “Banks are pricing in line with the market, and sometimes even below in order to drive activity. Buyers are looking for a bargain and the banks know it. Their strategy is working,” said Anna. “Banks price their listings so well that buyers shouldn’t expect much of a discount, if any at all.” On the other hand, Anna points out that non-distressed sellers “typically list their homes with some degree of negotiability built in to the price. Many buyers won’t even look at an over-priced listing, so it doesn’t serve the seller well to price too high.”

So what does this mean for you if you’re thinking about trying to buy a distressed home? Here are our two takeaways:

• “Distressed” doesn’t mean “pushover.” Don’t expect to negotiate much of a discount from the bank. Even in Queens, where buyers of distressed homes are getting the biggest discounts, they’re only averaging 5% off the list price.
• The more distressed your market is, the better the banks are at pricing homes compared to their owner-occupied competition. If you’re seeing a lot of bank-owned homes for sale in your market, your chances of talking down the bank is going to be pretty slim.

The tide of foreclosures and short sales doesn’t look likely to recede soon, so if you’re thinking of jumping into the market, plan your offers accordingly!

A Picture is Worth a Thousand Dollars. True or False?

In our series of reports on The Real Estate Scientist we bring you data driven, no-nonsense answers to help you untangle the snarl of real estate advice you commonly encounter when trying to buy or sell a home. We’ve sifted through piles of real estate data to answer the following question: What is the true benefit of listing your home with professional quality photos?

Conventional wisdom would tell you that homes sell better when they have listing photos that were taken by a professional photographer, like the photo on the left.

Professional Photo

Amateur Photo

Never ones to be satisfied with conventional wisdom, we turned to the numbers to answer the question at the top of every seller’s mind when deciding how to market their home. Is it truly worth the money to pay for professional photography? At Redfin we believe in the power of professional photography. Every house that is listed with our brokerage is marketed with professional photos, and we pick up the tab. So, is it worth the dough?

It turns out that in most cases the answer is a resounding, “Yes!”

As The Wall Street Journal reports today, “listings with nicer photos gain anywhere between $934 and $116,076.”  The graph clearly shows that you are likely to receive thousands more if you list your home using DSLR photography than if you used a simple point-n-shoot camera to take the photos yourself.

Since the price of a DSLR camera (anywhere from $500 to $1,000+) is generally out of the price range of your average hobbyist, let us assume that photos shot with DSLR cameras are shot by professionals. Since professional photos could net you thousands more on the sale of your home, it stands to reason that spending the $100 – $500 on professional photos is a worthy investment of your marketing dollars.

Given this obvious upside, it is shocking that only 15.4% of homes in our data set were marketed using professional photography. The majority of listings, 80.9%, were photographed using point-n-shoot photography, and still another 0.7% used just a camera phone. Let’s not mince words: If you are not using professional photography to market your home, you are not really marketing your home.

A few more interesting tidbits that came from our analyses:

Homes shot with a DSLR camera:

• Receive an average of 61% more views than their peers across all price tiers.
• Have a 47% higher asking price per square foot.
• Have an increased likelihood of selling for homes priced above $300,000.
• Stay on the market an average of 10 days longer across all price tiers.

Homes with professional photographs get more page views and ultimately sell for a higher price, but they surprisingly take slightly longer to sell.

You Only Get One Chance to Make a First Impression

Last week, we published research showing that more than half of all listings activated in 2009 failed to sell by August 2010. We argued then that would-be home-sellers should hire the agent with the best track record, not the one promising the best price, because the most likely outcome was that the listing agent wouldn’t sell the property at all.

Judging from the reaction to that post, we aren’t likely to deter many sellers or their agents from experimenting with price, debuting at a high price on the rationale that you can always lower it later.

There are two problems with this approach. First, that price reductions are a signal to buyers to ask for further price reductions. Once there’s blood in the water, most sharks want another bite.

More importantly, a listing gets the most attention on its debut. As the Wall Street Journal reports today, the week that a listing goes on the market, we estimate that it gets nearly four times more visits on real estate websites than it does a month later, which is the earliest that most sellers will consider a price reduction.

Now that is one jackhammer of a graph, showing traffic declining drastically from a listing’s debut. The red line represents visits to the listing from the day of debut. The green line represents visits to the listing from the day of an update, whether that entails lowering the price or re-listing the property, with day zero set to the date of the update.

And the green line never gets anywhere near the peak of the red line. Even when a listing agent lowers the price or removes the listing from the market and re-lists it, the listing gets less than half the attention that it did on its debut.

Interestingly, we saw upticks in activity after 30 and 60 days, since some bargain hunters get alerts whenever a listing sits on the market for a month or two. About one in eight searches on Redfin filter by days on market, most to see only new listings, but some to see only old listings.

There is of course another way to look at that graph. It not only represents what happens to your individual listing, but also what would happen  in aggregate to a real estate website if no more listings came on the market. Since new listings drive traffic growth, an absence of new listings drives a decline. And as the pace of new listings has declined this summer, that is exactly what has been happening to real estate websites across the U.S. The Wall Street Journal’s website wouldn’t get much traffic either if it stopped publishing new articles.

To prepare this analysis, Redfin analyzed traffic to listings in Seattle, San Francisco, Los Angeles, Irvine, Washington DC, Boston and Chicago. We considered all listings that:

• Debuted in the first three months of 2010 (since traffic increases as the home-buying season progresses, the debut effect is likely stronger for listings that debut in April than in January);
• Sat on the market for at least 60 days.
• Had undergone at least one update: either a price reduction or a re-listing.

All told, this included 15,650 listings.

Extrapolating from its own traffic, Redfin projected how many visits these listings also got on the eight other listing search sites in the Hitwise top-20. Since real estate search is actually fragmented across hundreds of local brokerage sites, the absolute number of visits is probably significantly higher, though the ratios would be unchanged.

Star Redfin software engineer Michael “Raj” Brauwerman performed the analysis, almost entirely in the enigmatic hours between 1 and 3 a.m. Michael often talks so fast that I have to ask him what he just said. I asked him for a funny picture of himself, which he obligingly sent, but I like better this sexy surfing photo.

Many thanks to Raj for the analysis. As always, we’re anxious to hear what you think!

The Likelihood That an Agent Will Sell a Listing? Less Than 50%

A couple of weeks ago, Redfin engineers got together for a hackathon to prototype features we’d like to see on the site. One team, featuring Jane Nemenman, Jamie DeMichele, Dane Brandon and Llewellyn Botelho, built a Redfin.com widget for each listing that showed the listing agent’s track record: how many listings he had on the market, what his average discount to list price was, how long it had been since he closed a deal.

It was a great idea. But it didn’t all come from the engineers. The original insight started with our San Francisco agents, who like to size up a seller’s agent before deciding how to represent a buyer in a negotiation, on the theory that negotiating strategy is often influenced as much by the listing agent’s state of mind as by her client’s. Some agents are chronic over-pricers, expecting to give part of that away at the negotiation table. Others stand firm. And still others just need to get a deal done.

Jane, Jamie, Dane and Llewellyn wanted to give everyone this information, so that anyone using Redfin’s site could know what she was up against going into a negotiation. Then we dug into the rules that govern how we use listing data, and decided that using the broker’s database of listings to embarrass brokers publicly wasn’t a fair use of the data.

We’ll still build this into the tools our agents use, so we can help all of our customers know when to hold ‘em and know when to fold ‘em. We’ll also share with everyone the listing stats for our own agents. In the meantime, what I haven’t been able to stop thinking about was how the engineering team reacted as Jane demonstrated the widget, showing the dismal stats for one seller’s agent after another.

Folks were flabbergasted. At first, people thought it was just one agent having a tough year. But after a few minutes of  clicking from one listing agent to the next, everyone began to recognize the truth: that in 2009 it was very hard for any agent to sell a home.

So when we got back to our day jobs, Jamie DeMichele — the man who also created bracket-tracking software for March Madness — looked up the numbers for all the listings put on the market in 2009, to see how many had sold by August 11, 2010. The answer? About half. He emailed me the table below, which summarizes the success rate for broker-listed properties for sale in seven major markets:

We shared the data over the weekend with the Wall Street Journal, which just published its own analysis. As we’ve argued in the past, the basic problem is a stand-off between buyers who expect the world, and sellers who have already taken more losses than they can bear. When no one will compromise, and the banks have been slow to foreclose on overdue mortgages, listings don’t sell.

What does this mean for you if you’re trying to sell a house? Primarily: don’t hire the agent promising the highest price, no matter how flattering that may sound. Hire the agent with the best track record. If 2010 is anything like 2009, odds are that the property won’t sell at all, or at least  not  at the originally promised price.

(Picture of Jamie used with his permission, at his insistence that I use one where he’s wearing cowboy boots)

Shocker: The Average Size of a Price Drop is 10.7%

Just before going home on Friday night, Redfin’s Jeff Yee just ran a query against all the active listings in our entire database, which includes listings from brokers, banks and owners selling their own home in Seattle, San Francisco, San Jose, Los Angeles, Orange County, San Diego, Chicago, Boston and Washington, D.C. areas (see links for local statistics on price reductions).

What he found: 38% of currently active listings have undergone a price reduction at some point since going on the market. But it was the average magnitude of the drop from the original list price that shocked everyone here: 10.7%.

The data-set hasn’t been scrubbed for outliers, and it doesn’t account for price drops where the seller pulled his listing from the market and quickly re-listed at a different price. But it still provides a quick portrait of a market where discounting has begun to spur more activity among buyers.

A Seattle broker mentioned this morning that he sees sellers racing to find a buyer before Halloween, which may explain why we’re now seeing such big drops. What’s happening in your market?

Thanks to Matt Goyer on Twitter for the tip.