“But they say it’s a buyer’s market!”

How many times have you heard that real estate is about three things?

  1. Location
  2. Location
  3. Location

Funny thing; after ten plus years as an active real estate agent, I can confidently state that location is a HUGE factor in the real estate market, but not the only factor. Perhaps my context is a little different from the original intention, but it is key, nonetheless.

You see, nationally, we have heard a lot about the real estate market, how buyers are grabbing great values on homes and that financing the purchase of a home has never been cheaper. And, while these are true statements, diving into them in your specific circumstance is what is necessary, should you be considering selling or buying a home soon.

Say what?

You see, while location is a giant factor in the value of a property, it is not solely what dictates whether a home should be purchased or not. For buyers, the purchase of a home is to fill any number of needs or desires. The purchase of a home could simply represent a place to lay one’s head at the end of the work day. For others, a home purchase could be used to supplement a professional image. An image where comfortably entertaining guests is a necessary feature to secure business.

For sure, the home that supplements a professional image should not be next to a gas station… unless the owner is attempting to secure more business for their gas station.

If location was the key to real estate, then price would not be an issue or that big an influence on a property’s ability to be sold. Let’s look at one big factor that is highly regional and greatly affects purchasers and their ability to purchase active properties.

Inventory

Let’s take a look at a chart with numbers. One shocking number, to be specific.

Metro Detroit Inventory
From http://deptofnumbers.com Click image for the post.

Nearly one third of the inventory from 2011 did not make it on to the market in 2012! By all accounts, buyer demand maintained, if not increased in 2012, while the number of homes available for purchasing, decreased. Hmmmm…

Let’s see, Econ 101 teaches us that…

Econ101

…as supply decreases, and demand remains steady at least, then prices will rise.

All of this is to simply state, that while there are indications that this is a great market within which purchasers can purchase a home, it is not, by any means, a “buyer’s market.” Traditionally, when inventory levels for a marketplace are below 3 months of inventory (number of homes available divided by average number of homes sold in last twelve months), this is called a seller’s market. A neutral market is between 3 and 6 months of inventory. More than 6 months of inventory, and we have a buyer’s market.

Our marketplaces, both Metro Detroit as a whole and the Ann Arbor marketplace as a micro market, are firmly planted in the seller’s market, with under 3 months inventory. In some mini-markets, popular neighborhoods for example, there is not even a month’s supply of homes to purchase.

Buyers, don’t believe everything you read or see on the television or online. Unless it applies specifically to your marketplace (inventory numbers, average sales prices, etc) take all the real estate numbers with a grain of salt. National sentiment on the real estate market is nice to know, but should not be allowed to affect your approach to finding your next home. After all, those talking heads on the nightly news will not be helping you with the monthly mortgage payment.

Sellers need to be cautiously optimistic. While your home is in demand through lack of inventory on the market, do not expect to gain premium dollar for your home. We are still a looooong way off the 2006/2007 high price points. When pricing your home in today’s market, be sure to be realistic about what your biggest concern is in the course of selling your home. Typically, it is either getting the top dollar or selling quickly. If you have some time to fish for every last dollar, price your home about 5% higher than recent sales show. The market will tell you, quickly, just how in line with the sales prices you are.

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Todd Waller Real Estate
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