What would you do if your local automobile dealer told you that the price of the car had gone up between the time you test drove it and when the paperwork was prepared?
What if the new Adidas jogging shoes went from $59.95 on the rack to $79.95 by the time you walked to the register? You’d request them to honor their advertised price, right?
So when happens when your buyer’s agent tells you the cute brick cod cod with a slate roof and white picket fence, priced at $339,950 will probably get multiple offers and sell for closer to $370,000?
Get prepared, because that’s the kind of market we’re in.
The Market Has Changed
Whether it is an automobile or a sweater, or a pair of shoes, we have been conditioned to seek discounts. We check the discount racks, clip coupons, and keep our eyes out for sales. Paying retail means paying too much.
And when it comes to real estate, we have been conditioned to negotiate hard and that a good deal means getting the seller to take a discount.
Well, market conditions have changed that narrative quite a bit.
Supply and Demand Set Pricing
When the crash occurred in 2008, the market was substantially overbuilt. The 12,000 houses for sale in July of 2008 has dropped to less than 4,000 in 2018. And the number of contracts has spiked from 1,500 in July 2008 to over 3,000 currently.
Stated differently, the market is approximately 600% tighter today than it was in 2008.
That is a really big change.
We Could See it Coming
Flash back to 2012: We could see inventory plummeting and could literally feel the market firming up. The bidding wars hadn’t arrived yet, but the first wave of buyers who were cautiously entering the market were shocked that there weren’t more houses to choose from. It was akin to going to a factory closeout sale on the last day and wondering where the good deals were.
What was happening, and happening quickly, was a total supply crash. And when it was coupled with an increase in demand, especially at more affordable price points and closer to the urban core, we quickly moved from recovery to problem to crisis.
And so here we are.
Some things to think about
In the days leading up to the crash, it was all about the demand. Lax lending practices were creating an endless supply of buyers.
Today, it is about the supply (or lack thereof). In some neighborhoods, buying a home is like buying milk and bread the night before the blizzard hits.
We don’t want to scare you. Rather, we want our clients to enter into the process with the correct state of mind. Each of Richmond’s submarkets behaves differently.
- If you are trying to purchase a home in Church Hill or the Museum District for $300,000, you are going to end up in a bidding war – it is inevitable.
- If you are trying to purchase for $500,000 in Bon Air, you aren’t as likely to end up in a bidding war, but you might be one of two offers and likely end up at or near full price.
- If you’re looking at a million dollar home in Moseley, you can probably get a discount.
The key is working with an agent who can help you read the market.
Don’t Take Your Cues From the Past
We can no longer operate under the long held belief that refusing to pay what the market will bear for a great home is a winning strategy. The conditions that made our market what it is today are unlikely to change and owning good real estate in a stable and inventory constrained area is smart, even if you’ve got to pay top dollar to get it.