Nearly four years into the housing crash, home sellers finally are starting to price their homes in line with reality.
Newly listed houses have lower asking prices than homes that have been on the market for weeks or months, according to Altos Research, a Mountain View, Calif., company that analyzes data for the real-estate industry.
For example, in mid-February, the median price of a new listing in Altos' 10-city index -- covering Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington -- was $437,000, compared with $483,000 for older listings.
"Sellers are pricing, in our estimation, more efficiently than they were two or three years ago," says Scott Sambucci, Altos' vice president for data analytics.
Real-estate agents confirm Altos' findings. After years of being bludgeoned by bargain-hunting buyers, sellers are now heeding their agents' advice to price more realistically. They are letting go of their dreams of getting the high bids their neighbors did at the housing bubble's top.
"Look at it like the stages of grief," says J. Philip Faranda, the broker-owner of J. Phillip Real Estate in Westchester County, N.Y. "In 2006 and 2007, it was denial; in 2008 and 2009, it was mourning; in 2010, it's acceptance."
Sellers slow to change
It's not surprising that it would take some time for sellers to come to terms with the market's rapid and drastic changes. It's a learning process -- a "price-discovery process," in economic terms.Sellers frequently concede they're harboring unrealistic expectations only after having tried and failed to sell their home. (See "Are you the reason your home won't sell?") Or they've watched other sellers reduce prices repeatedly to get buyers to even look at their homes, then seen those sellers relinquish additional ground when negotiating.
Pride often prevents sellers from seeing foreclosures as the new competition.
"If a guy with a half-million-dollar house still thinks it's worth $600,000, I can show him two or three foreclosures that are listed for $400,000 and $450,000 and ask him how he thinks I'm going to hypnotize people into buying his house for $600,000," Faranda says.
The Internet has helped change expectations. A seller traditionally blames his agent when his home isn't selling. But today, Multiple Listing Service and syndication agreements let sellers list homes for sale on a dozen or more Web sites (take a look around your neighborhood), so "all the old excuses of 'you're not advertising my house' have gone away," Faranda says.
And then there's the problem of low appraisals. Last year, a survey by the National Association of Realtors showed low appraisals have become a problem in about one in three transactions, according to Jed Smith, the association's managing director of quantitative research.
It's more common in markets with lots of foreclosures, but even in good markets buyers and sellers sometimes agree on a price only to have the appraiser deliver a lower valuation. That puts pressure on the seller to drop the price or lose the deal. And even when buyers are willing to stick with the higher price, their banks won't lend more than a home's appraised value.
A recent case in point: Sam Aborne, a Long Beach, Calif., organizational consultant, and his wife found a home that they liked in September and agreed to pay the full asking price of $539,000. Then the appraisal came in: The house, a 1,900-square-foot bungalow with three bedrooms and two baths on a big corner lot, was valued at just $519,000.
"We asked them (the sellers) to adjust the price to the appraised value, and they did," Aborne says. "Even the (sellers') real-estate agent was like, 'You need to take this. You're not going to get anything different.'"
For all of the above reasons, sellers have begun to lower their own estimates of their homes' worth. In fact, some homeowners may be overreacting.
"Many homeowners are now overly cynical and believe their own home has lost value when it has not," says Jill Simmons, a spokeswoman for Zillow.com. By Zillow's measurements, homeowner confidence fell at the end of 2009 to its lowest level in seven quarters.
Continued: Buyers out of touch