Biggest Mistake Buyers Make in a Hot Market
Biggest Mistake Buyers Make in a Hot Market
A Seller's market is where there is more demand for houses then supply. This creates an imbalance where a seller has pricing power.
This imbalance is making it where many houses are going far above a seller's initial asking price.
If a house is marketed at $500,000 but really sells for $575,000 then the true market value of that house is $575,000.
So the biggest mistake a buyer is making is looking at houses that initially seem to be at the top of their price range when in reality they are not really in their price range.
The issue with looking at a house that is above your price range is that you become attached to areas or finishes of the more expensive houses. It's natural for a buyer to compare one house to another house. If a buyer is constantly looking at houses that are out of their price range then this will create a level of disappointment for the buyer.
In this market, a buyer doesn't necessarily want to look at the brand new listings at the high end of their price range. They should wait until after the weekend to view the property to ensure that it hasn't received multiple offers with the bid price going above the seller's initial marketing price.
Transcript of Conversation:
- Biggest mistake when searching for a house in a hot real estate market. Hi, I'm Jeff Chubb. We got Jason Bonarrigo with us today. And make sure you stick around for the end of the video to find out what we're gonna do with this $1,000. So...
- Jeff, talk to me, what is a hot market? What's going on right now?
- So a hot market, a hot sellers market, is basically where sellers have all pricing power, all the advantages of a hot market place, if you will. So, and that's really what we're seeing today. We're seeing sellers, they can pick their terms. Pick and choose the terms.
- And I've seen it too. Obviously, talking to you guys, but you know, hey, we didn't get the house, it was multiple bids, it was 13, 14, 15 offers on it. It just seems like it's crazy now. Is this--
- You just went up against what, with 30.
- Legitimately 30?
- 30 off, yeah.
- Yeah, that's a normal market. So is this, obviously, I think I know the answer, but can you talk a little bit about, is this just solely based on inventory? I mean what--
- It's a simple supply and demand equation, right? There is more demand than there is supply. So, really, what is happening is we're seeing houses go far above a seller's initial asking price. And so, this is the biggest mistake that buyers are quite frankly making, right?
- I was just gonna ask you, does that lead to an issue with one of, let's say, my pre-approved buyers out there at 500,000? I mean, they really can't just start at 500,000, can they?
- Right. And that's the problem, right? So if you're a 500,000 buyer, and you go out and you look at a new listing that just came on the market this week at 49999, right?
- I'm sorry, yeah.
- Guess what? That's kind of the initial bid price in this market.
- Unless they know that they have room in their budget, but they have to know that kind of escalation option is there because they're all going for overlist Right, right, exactly. If you're a $500,000 buyer in this market, you need to be, and you're looking at $500,000 house, that house isn't gonna go for 500. That house might very well over 550, 560, 570. It's absolutely crazy in the sense that we're seeing it. So, if you're that $500,000 buyer, right? You should be looking at houses that are 450 range, right? And planning that that is going to be built in--
- Especially, if you're capped at that amount, right? And again, that's more on my side of things, the lender side. But I mean, if I tell you, "Hey, Mr. Jones is capped at 500. he can't go over that."
- Can't go off.
- He can't start. In the old days, he could actually look at 500,000. He could get negotiate down a little bit, but it's--
- Not in this market.
- It's actually the reverse of that.
- Yeah, and there aren't any good deals in this market, if you will, the good deals securing a house. That's a big aspect. You know, people ask me, "Hey, can I get a deal on a," no, no.
- You can't deal on a house.
- No, yeah. I got questions from people like that. "Well, I'm gonna offer this to now. " So I'm like, "Well, good luck."
- Stop wasting your time. I mean, that's what it comes down to... So, back to the biggest mistakes. So, if I'm a buyer and I'm looking at $500,000 houses that are ultimately gonna go 550 grand. The real value of that house is $550,000.
- I was just gonna ask you, what's the thing about asking price compared with real price.
- Right. So, if I'm falling in love with $550,000 houses, real value $550,000 houses. When my house, my budget's only up to 500, well, I'm gonna be really, I'm going to end up, I'm gonna be really disappointed than $450,000 houses that are really, have real value of around that 500 price point.
- So what about, I mean, and again, it goes back to expectations. What about, I mean, the little niches or maybe even boutique markets. I did this thing called stale listings, right? How does that work? What does that--
- So, it's nuts. In this market, literally, a house that has not gone under agreement in the first week is kind of considered stale.
- Okay. And not stale--
- The whole week?
- The whole weak.
- It did not go under agreement with that first week, you see these agents do these call of offers, right?
- That's insane, just so you know.
- It is absolutely insane.
- That's crazy.
- So, house didn't go under agreement at that first week. That's when we're kind of like, okay. The real market value of that property is somewhere around what that seller has listed for. So, let's just go back to that $500,000 bar, right? That house was on the market for 499.
- Okay, and a whole week goes by, they don't get any offers--
- And they sold it in a day.
- Right. That's when that $500,000 buyers should say, "Okay, now let's go take, let's not waste my time, right? I don't want to waste my time and stand in line going to this open house. Now let's go take a look
- at this property."
- Maybe there's something there. Right.
- Right, because maybe the real value of that house is actually 500 or maybe it's slightly below, and we can negotiate a little bit.
- What causes that, Jeff? I mean, obviously, is that just kind of some the realtor didn't do their job or are they overpriced, I mean, what causes a stale listing? Is it neighborhood or is it the manufacturer?
- I mean, just sometimes, the seller getting a little too aggressive on pricing. I mean, oh, my neighbor's household for this. And my house, everybody's house--
- They have a five bedroom and this guy has a ranch, and he has another different
- And everybody's house is always better than penthouse, right?
- Of course. So, oh, and I put this really nice extra expensive paint on my property--
- I put the gold kitchen in.
- And quite frankly, sellers are asking for some prices and they're getting it in this market. This marketing makes sense, if you're a seller, ask for the price.
- Because they're getting it or they have a chance to get it, why not? And then, because you can always adjust the price.
- I'm just seeing so much heartbreak from buyers, and that's why this is the biggest mistake that can be. That $500,000 buyer or the $450,000 buyer, looking at newly listed properties that are 450 grand, that are really gonna go for 500, 525, and you're just setting yourself up for--
- Right, and that's kind of how we summed it up, which was the managing expectations on both sides, right? Me as a lender, giving that pre-approval amount, making them feel comfortable that you don't want to just issue that max amount, and then you, who's obviously on the realtor side. But just letting them know what this market is really like, for good or for bad. This is the market and their expectations because obviously, you don't want a disappointed buyer, but you want a realistic buyer.
- Right. And it's something I hear, "Well, I'm just gonna wait until this market cools down." Well, you know, the funny thing as I say about that is, what about the people that said that in 2018? "Well, I'm gonna wait until this market calms down and goes back down in price." Boy, I'm sure you're really wishing you bought
- And that applies to some markets, but not in a solid metro market, depending on where you're in.
- But, so this 1,000 bucks we're gonna talk about in a second. But I'm Jeff Chubb with the Chubb Homes Team brokered by eXp Realty. Jason?
- Jason Bonarrigo, RMS Mortgage in Boston, 617-413-5038.
- And you can get us at Boston2.com or 617-480-2600. So this 1,000 bucks, when we hit a thousand subscribers, we're gonna donate 1,000 dollars to the ASPCA.
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- Thanks guys.