Price Drop Dynamics

by Redfin Blogger | 7 Comments

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Despite the all out economic free fall that we are in, every once in a while, there’s a spot of good news. Nationally, pending home sales increased 7.4% from July to August, according to the National Association of Realtors (NAR). Furthermore, the NAR projects sales of existing homes to rise next year in addition to a 2-3% increase in home prices.  Locally, the NWMLS reports Pending Sales up 4.1% from Year Ago, Total Inventory Unchanged, while Seattle Bubble recaps King County SFH  pendings to be up 15% from same time last year. 

Thank you also, readers, for giving some hope. Last week, I asked whether or not homesellers out there are continuing to see action, either in actual offers and sales or even in plain, old, walk through traffic. Well, I’m encouraged to hear that some of you report recent sales, and it doesn’t even scare me that most of you mention the words “price drops” in the same breath. Hey, I understand basic economics–heck, lower your price enough, and anything will sell. 

However, this has me wondering even more about exactly how much of an impact does a price drop make in attracting buyers. In what seems like an economic eternity ago, I asked sellers, Is a Low Ball Better Than a No Ball? Today, I pose the flip side of this question to buyers–would the listing price of a home actually prevent you from making an offer? I’m speaking within reason, of course, but for the purposes of this hypothetical, would a listing price prevent you from making an offer 5% below? 10% below? Or do you really need to see that price drop before you’ll make the offer?

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  • David

    That NAR, I tell ya, better than Seinfeld for laughs!! Two to three percent?? Good luck with THAT!

  • Gene

    I’m interested in seeing just how many of those pending sales actually close. I’ve heard about a lot of deals falling through lately due to financing (of course). The next few months will really tell the tale, and I don’t think it’s going to be a positive one (no matter how many realtors say “now is the time to buy”).

  • Eddie

    I agree with David, the NAR has been warning us about missing the bottom since August of ’07. Lately it’s been “interest rates are on the rise, better buy now.” Hilarious.

    To answer the question, no. A lot of the listed prices have been worth nothing more than a good laugh lately. When I make an offer, it will be reasonable based on comparable sales and trends. I don’t care if it’s 15% below asking. I’m fortunate in the fact that I’m under no pressure to buy. If they ignore me, fine, I’ll watch the value continue to decrese, like I have been for the past year, and then come back with an even lower offer.

  • sf_boomerang

    My wife and I won’t even consider buying until we see some real price drops.

    We’re currently in the Bay Area in a rent-controlled apartment, and while we can’t wait to move back to Seattle, we’re just not buying until prices drop substantially. We’re not in any rush to buy, and in the meantime, we’re just putting money in CDs.

    If we miss the “bottom” by a few months, so be it, but we’re certainly not going to let some NAR scare-tactic goad us into buying before it makes solid financial sense.

  • Christy

    Our agent has told us that in Seattle, people won’t even consider “lowball” offers. We’ve watched the market so closely that we feel we have a good idea of what houses will sell for. So far, we’ve waited for drops in the asking price rather than lowball. That is likely to change, though, as we get more motivated to buy (renting right now and don’t like it).

    When we make an offer, we’re probably going to offer 8-10 percent under asking and see what happens. I’m guessing the sellers will freak out. But we hope they won’t ignore us and will negotiate instead. And if they don’t, there are other houses for sale. We want to buy at a price that will allow us to weather the next couple years whether overall values rise or fall.

  • Buyer on the Sidelines

    Sellers in Seattle are still ridiculous about their prices. It’s as if they don’t read the news abou tightening lending standards and the constant layoffs.

    If they “really” want to sell their home, they need to list their home based on comps of recent sales within the last 3 months, and then take at least 10% (or more) off of that number.

  • Judd

    On the Eastside here in Seattle, I see so many recent listings at ~$700k which were originally built & sold at $~450 in mid 2004. Making $200k in 4 short years is a pretty ridiculous expectation in today’s market & overall economy…these people need to get real.