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b-LOG: The Seller’s Market Ratchet

b-LOG: The Seller’s Market Ratchet
Date Posted: 04/08/2020

Every (real estate) market has its own unique tempo.

Fast and hectic.

Sloooooow and drawn out.

Carefree and balanced.

Think of a typical drive up north to cottage country. There is the fast and hectic (think QEW or the first 7 minutes of the 400). Then the slow and drawn out through King City into Barrie. Then once you make that bend and traffic starts to splinter off, you’re in the carefree and balanced part of the drive where the stress starts to dissipate as you near your glorious cottage destination.

Each section of the trip (or market) comes with its own unique narrative and set of emotions.

Let’s look at the Niagara real estate market for July 2020.

For this blog, we’re looking specifically at the areas that are deep in a seller’s market, which is much of Niagara. Seller’s market meaning that inventory is tight, buyers are plentiful and the sellers are holding most of the cards.

Enter the Seller’s Market Ratchet.

As more and more seller’s jump in to capitalize on this market, prices creep up. More cars come pouring in from the on ramps. Driver A is less willing to let Driver B merge. The overall atmosphere goes from simmer to the beginnings of a rolling boil. Frantic, stressful and difficult to navigate.

123 Main Street sells for a record price. 125 Main Street is listed for a new record price (note: not sold, but listed).

4 offers come in on 25 King Street. 9 King Street immediately goes on the market at that sale price + 7%. Buyer’s feel like they’re getting cut-off and left out. Disappointment, frustration and fatigue starts to set in. Suddenly you’re driving faster than you probably should in a lane that is slightly (significantly) uncomfortable.

128 Main Street goes up for sale at an even higher number than any previous home. “Woah. This market is crazy!”

125 Main sold but only got 1 offer. “I heard they sold but didn’t quite get asking.”

28 McBonkers Lane goes on the market for a new record price. “I don’t understand this market anymore”.

As the market (and pricing) slowly ratchets up, the tension (and buyer tolerance) can only be sustained so far. Think back to highway 400 when traffic is thick and people are weaving in and out to gain that all important 11 feet of space. Eventually something goes wrong. So, as a seller in a highly ratcheted market, it is crucial to listen to the market. Watch when those brake lights go on and people start to take unnecessary chances. Be careful that you’re not driving like that dude in the tricked out Subaru.

When your home first goes on the market at a market relevant price, the buyers will feel angst and urgency. “We can’t miss out on this one.” “We LOVE the looks of the kitchen. When are they looking at offers?” “Get us in there NOW!” But when that price starts to creep up and above a reasonable threshold, buyers will still be interested. Just less so. “Ooh, I like that one. Let’s try to get through it later this week.” “That’s gorgeous. Yikes on the price though eh?”

As prices escalate, the buyer activity and interest will naturally level off once the numbers reach a certain point. There are only so many buyers for a particular price segment. Less so as you go higher.

We all love pizza but at some point, we would stop eating it if the price just continued to increase. …try not to think about such a horrible thought.

The danger for you as a home seller is pricing your home in a heavily ratcheted market. As that number pushes to new highs, you are closer to the point where a buyer will press pause or hold back. “It’s ok. We’ll wait. This isn’t the one.” And then the conversation changes. Rather than the quotes previously mentioned, we as listing Realtors, are asked: “hmmm, yeah, it’s a great home no doubt. {pause} How long have you been on the market?” “That’s been on the market for a little while now eh?” “They really like it … but….”

In a market averaging 8 or 12 days on the market, 25 days is an eternity. And at 25 days, all of a sudden, you as the home seller have kindly handed over a significant amount of the negotiating leverage to the buyer. It’s now the buyer’s turn to stamp their feet and call the shots on the negotiation. And in a market like this, the buyers are hungry for a win.

The Moral of the Story?

While prices and activity are at a heightened level, be careful that you aren’t caught out of your depth. As soon as the teeter starts to totter in the other direction, you may find yourself waving your feet looking for solid ground.

Questions on your home, your street or the market in general?

We are here and happy to chat anytime.