What does it take to sell your home?
Last week’s report was on why buyers aren’t buying. As I had mentioned, in the towns in our Lakes Region of NH report, which includes all of Belknap County plus Moultonborough, there is about 21 months worth of residential inventory on the market. Six to seven months worth of available inventory is considered to be a normal, healthy market. So what does it take to sell your house in this market? I’ll take a wild guess here but I bet the answer is the correct price. To get a sense of where you might need to price a house in order to sell in this market it might help to look at what the average sales and asking prices of homes are and see how they compare to their assessed values. It is important to understand that different towns will have different average sales to assessment ratios, but for this exercise I am just trying to get an overall view of what is going on.
In the past 6 months there were 289 residential sales in these towns. Out of those 289 sales, 176 of those listings reported the town’s tax assessment in the MLS system so that I could actually do a comparison of the sales prices to assessments. That should be a pretty good representative sampling. I suppose I could look up the rest of the tax assessments, but it would take a considerable amount of time that I don’t have as I am actually trying to sell some real estate! Of those 176 homes that sold the average sales price was 88% of the town’s tax assessed values and the homes sold for an average of 93% of the asking price. They sold from as low as 28% of assessed value to 215% of assessed value (for a waterfront). This is the interesting part:
66% of the homes sold at or less than 88% of the assessed value. 83% of the homes sold at or less than 100% of the assessed value. Only 17% of the total sold over 100% of the assessed value .
Eureka! Clearly the data points to the fact that the homes that are selling are the homes that are priced reasonably close to or below the town’s tax assessment. Price and value really do matter if you want to sell a house. Of those 30 homes selling over 100% of assessed value, 10 homes were priced under $200,000 with the remaining all leaning toward the higher end markets and waterfronts. You can bet the homes that did sell over assessed values were nicer properties and had something going for them that caused the buyer to be willing to pay more for the property. It could be a more desirable location, much better than normal condition, water access, waterfront, or a view.
Now, looking at the 1199 listings currently on the market as of June 9th, there were 685 listings that had the assessed values in the MLS system. The average list price to assessed value was 123%! That’s quite a bit higher than the average sales to assessment ratio of 88%. There were some pretty crazy ratios at the top end. Ten listings were over 300% of assessed value, so even if you back those out as being way out of the norm, the ratio still comes in at 116% of assessed values. When you break down those 685 listings:
18% of the homes are listed at or below 88% of the assessed value 44% of the homes are listed at or below 100% of the assessed value 56% were listed over 100 % of the assessed value
Looking further, 23% of the homes were over 120% of assessed values and 13% of the homes listed were 1isted at 140% of assessed values. So if the average ratio is 88% for sold homes, what is realistically the chance of getting 110, 120, 130, or 140% of the assessment on an average home? The chances of a sale are pretty slim for those properties and that is why our inventory is so high. My guess is that at least 40% of the listings in this scenario are overpriced. Probably more. Again, there are above average homes that sell higher than 100% of assessment but it usually takes something unique, pristine, or otherwise extremely desirable to pull it off.
There are a lot of other factors affecting the real estate market including the state of the overall economy, job losses, and overall uncertainty. But if our current inventory was reduced at least 50% by removing the most over priced listings and under motivated sellers the market would definitely improve. Supply and demand is one of the basics in our economy and the 21 months worth of inventory we have will not be reduced by some miracle or real estate hocus pocus. I am not sure what it will take to get more buyers back into the market place. But I do know that they won’t come back to buy a home that is priced too high.
Info compiled from the NNEREN MLS system.