Realtors Will Add Crash Value – ‘Sharp Pricing’ Will Assist The Bubble Deflation

In December 2009, when we penned our ‘Prediction For The Coming Decade’, we neglected to add a ‘Coming Action’ factor that we have since realized is of considerable importance:
Realtors in need of income will speed the coming Vancouver RE price deflation.

By now almost all of us are aware of the cute study described in ‘Freakonomics’ where realtors selling their own homes were found to hold out longer for higher sales prices, compared with when they are selling the homes of clients. In the latter case, the closed deal (and resultant commission) is far more important to the realtor than getting their client a higher price. In that study, realtors were found to to sell their own houses for an average of 3%-4% more than a client’s comparable house, and they also kept their own house on the market for 10% longer, waiting for that better price. The message from the study is that when realtors are selling a client’s property, they want the sale a lot more than they want a good price.

Sales are down year-over-year in the lower mainland, in some areas of BC they are down as much as 50%.  There are twice as many realtors in BC now than there were 10 years ago, and they are now competing for a shrinking pie. In many markets we are seeing realtors talk about the importance of ‘sharp pricing’. They are applying pressure on sellers to drop prices to points at which they meet buyers. They are a force against the ‘sticky pricing’ that is characteristic of this stage of a bubble burst.

Through the late summer and early fall, many owners have tested the market waters. They put properties on the market, only to remove them when buyer interest proved to be reduced. We presume these owners plan to put those same properties back on the market at some point; many will likely do so in spring of 2011. Changes in volume are predictive of changes in price, and we anticipate ongoing minor drops by year end and larger drops in the first half of 2011.

When prices do inevitably start dropping we have always anticipated that waves of sellers will come into the market, many motivated by fear of further losses of paper profits. Speculators, boomers, foreign holders, overextended locals, developers. They will all be selling at the same time.
The advice given to those anxious sellers by their realtors, hungry for income and eager to close deals at almost any price, will speed the price decline.

“Realtors are saying that if you are selling your home you need to consider dropping your asking price… or be prepared to wait a long time” – A News Vancouver Island 1 Oct 2010

“Anybody looking to sell right now should get ready to cut down their expectations. … It’s going to be a long winter for some sellers. … Sellers need to adapt … People are going to have to be more open to price drops and more realistic prices on their properties.” – Marko Juras, Vancouver Island realtor, on A News Vancouver Island 1 Oct 2010

“If buyers have a lot of choice like they do right now, if your price is not reflective of today’s market, if it’s not priced at or near it’s final sale price, people are just going to let it go … [then you end up with a] four month old tired listing, people ask…’What’s wrong with it?’ “Shamus Baier, Vancouver Island realtor, 29 Aug 2010

“Owners of 1 bed condos need to forget peak prices in order to sell. Lots of buyers out there but the ‘sense of urgency’ is gone and product needs to show really well and be priced competitively.”thinktom (Vancouver realtor), at RE Talks, 12 oct 2010 10:37 am

5 responses to “Realtors Will Add Crash Value – ‘Sharp Pricing’ Will Assist The Bubble Deflation

  1. Great insight. I’ve never considered this angle before.

  2. anonymous coward

    There’s a great discussion about this in the book “Freakonomics”. It is not in a Seller’s agent’s best interest to get the most from a sale. Statistics show that there is a gap between the price a RE agent will get for their own home vs a client’s home.

  3. I’m a RE bear, but in this example there is also a buying agent whose is fine with their client overpaying for a place to ensure a quick sale too.

  4. Yes there is incentive to get a quick sale. This is common in the car sales industry too but the major difference is that you can be pretty sure the dealership owners have been around the block a few times. Any look at the salaemen’s commission structure shows this very well. The big difference is that cars don’t generally experience asset bubbles.

  5. I love how RE “Agents” have tried to rebrand themselves as RE “Advisors”.

    I subscribe to a number of newsletters from these so called advisors. Some of them are reserved and stay mostly to the facts, not editorializing too much. On the other hand, one in particular, from the Harris Group, always seems greasy. Here are some of the titles of the newsletters’ past:
    – Recessions are so yesterday…
    – Is NOW a good time to by? How ’bout now? And now?
    – How to Finance Retirement and University
    The content of the newsletter is predictable. Now is a great time to buy! and sell!

    That is, except for the one from last week. All that it had was a few article summaries in the body of the newsletter (no editorial like other newsletters).
    – Olympic village buyers trying to back out of purchases
    – RBC waves red flag over Vancouver housing market
    – Video: Vancouver’s housing market – affordable?

    Funny how these articles relate to the exact homes that he’s been pushing this entire time. The Harris Group newsletter prominently states that they are “Real Estate Advisors”. Is their intent to give me a different advice every month on a purchase that would take me 30 years to pay off? Interesting.

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