How Rational?
One of the most common concerns Buyers (especially first-time Buyers) have is, “what if I commit to buying this home, and then something ‘better’ comes on the market?”
How reasonable is that fear?
Put it this way: if the Buyer has done their homework, i.e., learned the market and fine-tuned what they’re looking for, that concern is usually misplaced.
Fretful Buyers, Price-Maximizing Sellers
The explanation has to do with how today’s housing market works.
When Buyers express a fear of “missing something better,” what they’re really saying is that they’re worried that a nicer house, for less money, will come on the market.
While that’s certainly possible, in a competitive Seller’s market like today’s, such a home would quickly be in multiple offers — driving the sales price closer to (or over) prevailing market prices.
Much more likely, though, is that future Sellers of “nicer” homes will list (and sell) for commensurately more.
There are two reasons for that: 1) most (all?) Sellers want to maximize how much they get; and 2) sophisticated Sellers — guided by their agents — arrive at their list price by factoring in current market conditions.
Scenario #1: Market Price
A concrete example illustrates the point.
At the moment, the going price for a nicely updated, 3 BR/2 Bath home in Minneapolis’ Linden Hills neighborhood is approximately low to mid $400’s, depending on curb appeal, finishes, floor plan, specific block, etc.
If you own such a home, and are contemplating selling, what price are you likely to list at?
Low to mid $400’s.*
In fact, in a rising market like today’s, such a Seller might decide to push the envelope a bit, and list for mid to high $400’s, especially if the last few, similar listings have sold quickly.
Scenario #2: Mispriced
Now consider what happens if the Linden Hills homeowner hires their brother-in-law from Anoka (NOT close to Linden Hills) to handle the sale, one week after getting their real estate license.
Not knowing the market or how to price, they suggest listing the home at $350k, which the homeowner does.
What do you suppose happens next?
Invariably, several Buyers swoop in, the home goes into multiples, and the ultimate selling price is driven much higher (whether a “newbie” agent is likely to maximize the selling price in such a situation is an entirely different question).
Alternatively, it’s at least equally possible that the green agent overprices the home —say, at $500k.
Then, the most likely scenario is that the home either sits, or attracts “lowball” offers . . . in the mid to low $400’s.
Takeaway
What is the takeaway from all of the above?
It’s guaranteed that, in a city of three million people like the Twin Cities, new listings will continuously come on the market (in fact, several hundred daily during the busy Spring months).
Out of those new listings, statistically, several are likely to be “nicer” than the home current Buyers have already identified (or just closed on!).
However, when that’s the case, the odds are very high that the ultimate selling price of the new listing(s) will be higher as well.
P.S.: In economists’ parlance, the foregoing issue boils down to this question: ‘how efficient is the residential housing market?”
In a highly-educated metro area, with lots of real-time housing market data readily available, my answer is “very.”
*Skillful Realtors know that the difference between listing for — and getting — $450k instead of, say, $415k, depends on strategically preppping and staging the home, then expertly marketing it.
Step #2: managing Buyer interest — including multiple offers, should they materialize.
