Bernice Ross

The days of multiple offers, short market times, rising prices, and high buyer demand are rapidly becoming a distant memory. If you haven’t experienced a buyer’s market before, be forewarned: everything you know about selling real estate during the last decade is about to be turned upside down.  

In a buyer’s, or “down,” market you must shift your focus from price appreciation to price depreciation. In a seller’s market, prices will quickly soar to meet market demand. In contrast, prices are slow to fall in down markets. This is known as the “sticky pricing phenomenon.” This occurs because price declines lag behind actual market conditions by six to 12 months.  

Anyone who has experienced a buyer’s market with few transactions, plunging prices and high foreclosure rates is familiar with the concept of “chasing the market down.” It’s where delays between when a property’s price is set, when a property goes under agreement and when it closes create a significant lag between the prices in the comparable sales you’re using and where the market’s moved. 

To illustrate this point, assume that a hypothetical market peaked in March 2022, with prices subsequently falling 8 percent over the following months on an annualized basis. For a $500,000 listing taken in August 2022 that takes 60 days to sell, there will be total of six months of price depreciation since the peak – a loss of $20,000 in value.  

Now assume the buyer doesn’t qualify for a loan 60 days later due to another increase in mortgage interest rates. The seller must then put the property back on the market.  

At this point, there would have been eight months of depreciation since the peak, making the property value at that time $473,200. If that seller were to relist at $500,000, the house would be at least $27,000 overpriced.  

To avoid chasing the market down, the seller would need to price their home at least $30,000 under their original asking price, or $470,000. If prices are in a free-fall, they may need to list as low as $450,000.   

Show Sellers What’s Happening 

Helping sellers make the transition from the psychology of an increasing market to a decreasing market is no easy task.  

First, use your local MLS statistics or Realtor.com to pull up a list of all the properties that have been reduced in price and/or have expired in your local area. If it’s above 10-20 percent, your market has peaked, and prices may have already started to slide.  

Next, Check the primary automated valuation models (AVMs) such as Redfin, Realtor.com and Zillow for their pricing. Please note that Realtor.com provides an interactive graph dating back to 2017 that tracks prices from three of the most advanced AVMs: Collateral Analytics, CoreLogic and Quantarium, which includes over 900 interior features in their pricing model. Show the sellers the graphs, and if there is a flattening or dip, prices are already heading down.  

Once your market has experienced about six months of price declines, the shift will begin to show up in your MLS comparable sales. To gauge how much the market is decreasing, calculate the average price per square foot in your market area for the last 60 days.  

Repeat the process for the preceding 60 days. If the current average price per square foot has decreased, you can gauge how quickly the market has declined over the last 60 days by subtracting that number from the current average. Multiply that by the square footage in the improvements on your listing, and that will tell you how much the house has declined in value during the last two months.  

The Tried-and-True Strategy  

Explaining the rate of absorption and probability of selling concepts to sellers is golden in down markets. 

Assume, for the sake of argument, that there are currently eight months of inventory in your market. This means that if no new listings were to come on the market, it would take eight months for 100 percent of the current inventory to sell. 

When you meet with the seller, explain that this eight-month number means that one-eighth, or 12.5 percent, of the listed properties will sell each month and 87.5 percent will not sell, i.e., still be listed next month.  Make clear that their property must be priced in the top 12.5 percent of all listings in terms of both value and price if it’s going to sell that month. 

Two other persuasive techniques are giving the seller a list of the properties that have price reductions as well as those that have expired.  

Based upon previous downturns, a buyer’s market with declining prices is the most difficult type of market you will ever experience. On the other hand, for the agents who are prepared and who understand the dynamics of pricing and negotiating deals in a down market, they can have their best year ever. That certainly was the case for me in the four previous downturns, and it can happen for you if you’re adequately prepared.  

Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.