Direct Mail Deluge: Are Realtors Overdoing it?
If I were a homeowner thinking about selling, and received a letter from a Realtor trumpeting that “Now is a GREAT Time to Sell!,” “I May Have a Buyer For Your Home!,” etc. — my interest would definitely be piqued.
By the time I received the third (or tenth) such letter, however, I’d start to wonder.
I might even ask myself, “If home prices are going up so fast, why shouldn’t I wait six months (or a year!), when they’ll be even higher?”
Here’s guessing that exactly such psychology — along with lots of still-underwater homeowners, who can’t sell because they owe more than their home is worth — helps explain the listing shortage Realtors are acutely aware of at the moment. See also, “Explaining the Dearth of Inventory.”
Are homeowners right to wait?
My standard response to prospective Sellers and Buyers is, “if [Fed Chairman] Ben Bernanke doesn’t know where home prices will be in a year — and all indications are that he doesn’t — no one else does, either. And the “experts” who are making the loudest, most confident predictions are invariably the biggest idiots.”
It’s also the case that — surprise, surprise — many prospective Sellers now are greatly overestimating actual market appreciation.
Outside of a few hot spots like Phoenix (up 25% in 2012, off of a ridiculously low floor), appreciation in most markets nationally the last year is around 8% to 10%.
Make that, “only around 8% to 10%.”
“Prisoner’s Dilemma” — Realtor Version
Astute readers will recognize the foregoing marketing conundrum as a variant of The Prisoner’s Dilemma.
So, if one (or just a few Realtors) send out marketing pieces trolling for listings . . . they come out ahead.
But as soon as everyone starts doing it . . . everyone loses.
That’s not just because the denominator gets bigger, i.e., the available number of listings is divvied up amongst more Realtors.
It’s also because — due to the counter-productive effect on Seller psychology — the numerator (number of homes for sale) can actually shrink, too.
In a post more than 3(!) years ago titled, “The Prisoner’s Dilemma — Real Estate Edition,” I discussed the same phenomenon as it applied to strategic defaults.
That is, homeowners walking away from their underwater homes not because they could no longer afford their monthly mortgage payments, but because it wasn’t rational to hold onto an asset that had fallen so much in value.