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Home sellers who bought after 2007 now overprice their homes 14%

Seattle real estate signs, photo by AR McLin.

Home seller behavior in modern times

According to a study performed by real estate search company, home sellers who bought their home after the housing bubble burst in 2007 overprice their homes an average of 14.1% as opposed to people who bought before the bubble (prior to 2002) and those who purchased during the bubble (2002-2006).

Home sellers who bought prior to 2002 price their homes an average of 11.6% over market value and those who bought during the bubble are the most conservative at 9.3% over market value. The bottom line here is also that listings are still roughly 10% or over market value when listed, regardless of home values struggling across the nation and sales remaining anemic.

New sales price based on the original purchase price

Most interesting to us is that the study reveals post-bubble buyers were the most likely to base their asking price on the original purchase price of their home than home sellers who bought before or during the bubble. Zillow notes that despite home values have been dropping since 2006 and are at 2003 levels, post-bubble buyers are sticking to their guns on pricing and going to market with the original price they paid rather than the current state of the market. Zillow sums up by saying, “buyers who bought during bubble years more likely to price realistically.”

Why post-bubble buyers think differently

Zillow Chief Economist Dr. Stan Humphries points to a litany of reasons. “Post-bubble buyers seem to believe they escaped the worst of the housing recession, as evidenced by how they price their homes today. But 2006 was just the beginning of the housing recession, and it is continuing in earnest to this day. That means that even people who bought after the bubble burst need to break out the pencil and paper and do serious research into what has happened in their market since they first bought their home, whether it was four years ago or six months ago.”

Zillow studied current listings but set out to do some forecasting. They surveyed homeowners who indicated they plan on selling their homes in the next four years and found that of those that purchased their home prior to the bubble, 17% noted purchase price would be the primary factor in pricing their home to sell in the next four years. Of those who purchase prior to the bubble, only 4% indicated they would use the original purchase price as the primary factor and 9% of owners that purchased during the bubble would. Homeowners who purchased after the bubble burst are four times more likely to use the original purchase price of their home to price it now or within the next four years.

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Realtors struggling with sellers to be realistic

It is unclear the impact of having a Realtor versus not having a Realtor makes on this equation and although it gives a bit of predictability to seller mentality over the next few years, it presents a challenge to Realtors struggling to get homeowners to understand market conditions.

Realtors should understand the three types of home sellers as studied by Zillow- those that bought before, during and after the bubble, and take the year of purchase into account as an indicator of seller mentality.

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  1. Rachel LaMar, J.D.

    July 14, 2011 at 9:36 am

    Great article, and spot-on. It really puts into perspective one of the most difficult challenges of the Realtor today. In order for local markets to recover and return to some semblance of normalcy, we need to price homes properly – meaning according to comparables. This is hard for many sellers to grasp, especially when comparables include short sales and REO properties. Buyers just won't even bother looking if homes are not priced right, and this costs Realtors marketing dollars and time.

  2. Jake Scheeler

    July 15, 2011 at 8:56 am

    Sorry, Rachel, but REO and short sales are NOT comparables; an indication of current prices, yes, but most definitely not comparables. If I catch an appraiser using short sales and REOs in an appraisal for a traditional sale, or any appraisal for that matter, I will not hesitate to call their competency into question and will firmly dispute and reject their so-called "market value".

    Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. REO and short sales are undue stimuli, therefore precluding their consideration in establishing "market value". I'm sorry, but it makes me cringe that so many people believe distressed sales are comparables.

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