Today’s “buyer’s market” in Howard County is in many ways the mirror image of the seller’s market of 2002 – 2005.  So, if you are selling a home in Howard County, perhaps you can benefit from mirroring strategies used back then, only in reverse. (For a Free home price analysis on your Howard County home click here).

By definition, a seller’s market comes from an over-supply of buyers and too few homes to buy. During the heyday of 2002 – 2005 we had multiple buyers going after the same home, often out-bidding one another just to be able to buy a home.  For example, suppose in one neighborhood the most recent sale was for $400,000.  An optimistic seller might ask $420,000 for the same home but, because of an over-supply of buyers and a limited supply of homes, multiple buyers “compete” for that home and it ultimately could sell for $430,000.

During the seller’s market I saw both Howard County home buyers who “got it”, and others who didn’t. Buyers who didn’t “get it” were “too smart” to “overpay” for a home. When they saw an asking price of $420,000 and they knew a neighbor had sold the same home for $400,000, they were “smart” and bid $400,000.

During a seller’s market, these “smart” buyers would lose, twice. First, they would lose the home with their $400,000 bid, as other buyers would compete and it ultimately sold for $430,000. But, even worse, they would lose because the next home to come on the market would come at an even higher price – say $435,000 – and would sell for higher too, say $450,000.

These “smart” buyers assured themselves of either never buying a home, or if they did, of paying far more than they could have if they’d just been willing to pay a little bit more earlier on.  I would see folks bid $495,000 for a home asking $470,000, when four months earlier they refused to bid $430,000 on the same home, because they would not “overpay” on a home asking $420,000.

A buyer in a seller’s market is swimming against the tide, and being successful required being “crazy” and bidding $260,000 on a $250,000 home (so you wouldn’t later have to pay $310,000 for the same home just four months later). Crazy, yeah… like a fox.

(For access to all homes for sale today and/or for information on recent sales, click for this free service).

Flash forward to today.

In Howard County real estate today we are in a reverse market to that of 2002 – 2005, with an over-supply of homes for sale and an under-supply of buyers. And, as before, we have some sellers who “get it” and others who don’t.

Sellers who don’t get it are “too smart” to “under price” their home. When they see a neighbor sell for $400,000, they want $425,000 (because, after all, they figure their own home is nicer than the neighbor’s was).

Sadly, though, since the neighbor’s home sold for $400,000 another ten homes have come on the market, and at least four are asking $390,000 or less. So, the “smart” seller’s home with a $425,000 price just sits, unsold, while the $390,000 homes sell.

Just as the $425,000 seller begins to get it, and lowers her price to $395,000 – it’s too late, as another few homes come out asking $380,000.  By being “too smart” to “under price” her home, this seller will either never sell, or will ultimately sell for tens of thousands less than she could have if she’d only be “crazy” enough to price her home aggressively to begin with.

Back in the seller’s market it was counter-intuitive for a buyer to “over-pay”. However, the sellers market required buyers to be aggressive – and the faster a buyer understood this, the more money they “saved”.

So, too, today it may seem counter-intuitive to sellers to “under-price” their home. However, the current buyer’s market requires sellers to be aggressive – and the longer a seller take to ‘get’ this, the more money it will cost them.

For two plus years real estate sales in Howard County have been soft. And, while not as soft as other parts of the country, this has local buyers hunting for “a great deal.” But, if you are a home buyer in this market – how can you be sure of getting a “great deal”? And, if you are a home seller right now – how do you make sure that your home is a “great deal”, so that someone will buy it?

This will be the first of three short articles on the buying side of this market: (1) How to Recognize a Good Deal; (2) How to Find The Good Deals; and (3) How To Negotiate A Good Deals. Afterwards, we’ll write about this market from the seller’s point of view.

How To VALUE A Home

(RECOGNIZING a “Good Deal”)

Over the years we’ve developed something we call the Current Assessment Ratio to use as a rule of thumb to determine when a home purchase is a “good deal” or not compared to the current market.

First, we research a sampling of recent Howard County home sales. We take the average Howard County tax assessment value of these homes and then divide that number by the average sale price of those homes (less the value of seller cash credits given to buyers). 

This site allows you to search all homes for sale in Howarad County by any Realtor(R).  However, to find the records for Howard County homes that have actually sold recently, you need to contact a local realtor, like the John and Angela Team. 

Here’s an example. Suppose a sampling of 10 recent sales of single family homes shows an average sale price of $400,000, average cash credit from seller to buyer of $6,000 and an average property tax assessment value of $415,000. You would take the average sales price ($400,000), subtract the average seller cash credit ($6,000) and divide by the average property tax assessment value of $415,000 to yield a Current Assessment Value of 105.3%.

Now you have a tool to assess the reasonableness of any home’s asking price.  (For help in determining this ratio and/or for questions or other help checking the pricing of any Howard County home for sale, contact the John and Angela Team by email).

Suppose you’ve seen 10 homes and really like Elm Street the best. They’re asking $485,000 – is it a good deal?  All you need is to locate the Howard County property tax record for Elm Street, look at it’s current assessed value, multiple that value times the Current Assessment Ratio, and voila – you have a very good measure of the home’s “real” value in today’s market.

In the above example, if Elm Street’s assessment is, say, $475,000, that means it is already “priced to sell”, as it’s asking price of $485,000 is only 2.1% above it’s assessed value, while most homes are selling at 5.3% above assessed value. But, if Elm Street’s assessment was only $410,000, that means its Current Assessment Ratio is 118.3% – the owner is asking 18.3% more than its assessment value, even though most homes sell for only 5.3% above assessment value.

The Current Assessment Ratio is a tool for determining, generally, a home’s value in the current market. It does not replace the need for an appraisal, and of course different homes will sell for varying degrees above, and below, the Current Assessment Ratio. However, for being a simple-to-use rule of thumb, the Current Assessment Ratio is an excellent help for determining when a home is priced well or not.   (Contact the John and Angela Team to get more information on Howard County market trends and home prices).

Next time: How To FIND Good Deals On Homes In Howard County.

JT

Howard County home prices continued to soften last month, and may well continue to do so through the first quarter of 2009.

Realtor owned Metropolitan Regional Information Systems (“MRIS”) just released the latest figures for Howard County Maryland home sales for August 2008.  Among other services, MRIS allows Howard County home buyers direct access to all homes for sale in Howard County.

Of 1,923 homes for sale county-wide, 275 sold, or roughly 1 in 7.  The average sale price of $438,483 was a 7% drop from August 2007 ($471,740).  The average “days on market”, or time it took to attract a contract, was nearly four months at 108 days (a 54% increase over August 2007′s 70 days).

With the continuing soft real estate market in Howard County, it is more important than ever to “price it right” to begin with.  Numerous studies by the National Association of Realtors confirm that overpricing a home in the beginning typically leads to a much longer time on market and, after numerous price drops, a final sale price significantly lower than homes that are priced accurately to begin with.

How can you get an accurate idea of your home’s value?  First, focus on actual sale prices of homes that have sold, not the “asking price” of homes that haven’t sold. (You can request a list of recently sold Howard County homes here).  You can ask an local realtor to give you a market valuation (be sure they are familiar with your neighborhood or village within Howard County), or get a bank appraiser to appraise your home (typical cost $400).

One additional option – you can request a Free AccuPrice valuation of your Howard County home online.

Fall may bring a bit of relief to home sellers – we’ll talk about that in the next entry.  JT