Are Price Reduced Homes the Best Deals?
An interesting news announcement came to me the other day. The title was “Trulia Introduces ‘Hair Cut’ Search Engine”. This is a new feature that allows someone searching for real estate listings on Trulia to weed out listings that haven’t had a price reduction, and thus view only listing that have had a price reduction.
Trulia CEO Pete Flint says:
“It doesn’t matter if your price point is $200,000 or $2 million, in these difficult times people are searching for the best deals they can find on homes. Our new price-reduction functionality makes it easier for people to find the home of their dreams without laboring through unwanted results.”
Oh brother. What a bunch of hogwash. This does not in any way make it easier to identify better deals. And why would a listing that hasn’t had a price reduction be an “unwanted result?” This gimmick joins the list of stupid and useless features and functionality pushed out to unwitting online consumers who gladly eat it up because they don’t know any better. It does give Trulia a reason to push a news release, but their programmers could have been better utilized doing something less worthless than this. Such is the world we live in today.
News flash for Trulia: the best priced listings are already marked “Pending”, and most went Pending before a price reduction occurred. OK? This is an ascertainable fact, not a marketing gimmick to boost web traffic.
For example, of the 75 listings currently pending in SW Austin, 10 had price reductions. That’s 13% of the listings that have already been deemed the best out there by real buyers writing real offers. Of the 173 listings still on the market in SW Austin (MLS Area SWW), 39 have had price reductions, which is 23% of the available listings. Which homes are a better buy? The ones that are Pending, or the 23% of homes still available that have had a price drop? And why would someone only want to know about 23% of the available listings in an area when searching for a home? Only a really stupid buyer would restrict his search in such a manner, Mr. Flint.
So, what factors do help us determine which listings are a good buy?
Basically it comes down to a comparative market analysis (CMA), same as always. Same as in 1950, 1976, 2005 and yes, 2009. The CMAs I run never take into account whether the price has been dropped, or how long the property has been on the market. Nor will the appraisal ordered by the bank. Why not? Because it doesn’t matter, at all. In fact, I don’t even care about the list price. Those things matter not at all when determining the value of a property or the purchase price that would represent a “good deal”.
Instead, I’m simply going to determine what I think the house is worth, based on market trends and activity in the area, supply and demand, and the attributes of the specific home. Then I tell my buyer what I think a good offer would be, in the context of their level of urgency and pickiness. Sometimes the offer might happen to be at or near full price, for a variety of reasons (usually buyer deciding “this” is “the” house they want) and the buyer nonetheless feels like they got a great deal, or sometimes 10% below market (CMA) value is a best deal for a value focused buyer who has set low price as a top criteria. It’s up to the buyer. A “good deal” means different things to different buyers, and it’s not always about price.
While I’m discussing irrelevant information, some other things than don’t mean a hill of beans when making offers are 1) how long the seller has owned the property, 2) how much the seller owes, 3) how much the seller paid, or 4) why the seller is selling.
Buyers often want me to find out the answers to these questions. The reality of it is, however, that none of these things can accurately predict how a seller will respond to an offer, so therefore none of these data points matter when deciding how much to offer. You might as well ask me if the seller is a vegetarian, or if he has a beard. It simply won’t tell us whether your offer will be accepted or not, nor will it determine our offer price or negotiation strategy.
I’ve seen upside down sellers be as flexible and accommodating on price as any buyer could hope for, and I’ve seen sellers who owned a property free and clear be 100% inflexible in price.
So, from my vantage point, those things might seem logical to know, but end the end they really don’t matter. If you like a house and want to make an offer, determine what it’s worth to you and make your offer without getting hung up on a bunch of meaningless information, such as whether or not there have been price drops.
Finally, if Trulia were to ask me then what “best deal” metrics would be valid, since they have to admit the Price Drop feature is 100% bogus, I’d tell them that an algorithm that ranks the value of a listing in relation to price per square foot and the average or median sold values of comparable homes in the surrounding area would be a better (though not perfect) metric.
In other words, if a 2,000 square foot home is listed for 5% to 10% below the average sold prices and/or price per square foot for similar homes, 1800 to 2200 sqft, within a 10 year certain age bracket, that home might be one worth exploring further. But price drops?…worthless information. They don’t matter, at all.