Ladybird Lake

Walking Austin’s hike and bike trail around Ladybird Lake on a recent glorious day, my husband and I ran into an acquaintance, Tom, and got into a discussion of the local real estate market. “This market’s really inflated,” he said. “Realtors are driving home prices up so they’ll get bigger commissions.”

“That’s not exactly right,” I said.

“Of course it’s right,” he said. “The commission’s based on a percentage. If you sell the house for more money, you get a bigger commission.”

“That’s true,” I said. “But even if a Realtor saw this as an incentive, she can’t charge more than the market will bear. It’s the market, not the Realtor, that determines the price.”

“But Realtors inflate the market by charging more for homes,” he said.

At that point the conversation was circular. The idea that Realtors can influence market values is embedded in buyer psychology. But we generally can’t produce a sale, however hard we market, if a home is priced too high. We advise a price range based primarily on an analysis of comparable homes that have sold recently, which tells us what people are willing to pay. We also look at what’s currenlty listed, to get a sense of the competition, which is a factor in determining the market.

A good Realtor won’t suggest the highest possible price, but will suggest a range, and relate it to a time factor. If you have to sell quickly, price at the low end of the range; if you have more time, price closer to the high end.

What if a seller wants to price a home well above the high end? A good Realtor may not take the listing. Why? When the property is priced well above market, it won’t sell, no matter how hard or creatively we market. We therefore won’t earn a commission, try as hard as we might, and yet we put hours of time and hundreds of marketing dollars into the effort.

That’s why Tom’s logic doesn’t work. If Realtors were persistently pushing for higher prices, they would almost certainly get fewer commissions. Pricing is as it is because of supply, demand, and specific property features. In a market where prices are truly “inflated,” few homes are selling. That won’t last. If homes really are selling for higher and higher prices, that suggests not Realtor shenanigans but an increasing demand and/or decreasing supply.

Realtors prefer a balanced market, which is good for everybody.

Put another way – under a six month supply of homes (absorption rate) and the real estate market is generally moving and balanced. Over a six month supply and it’s stagnant, a buyer’s market with lots of homes for sale and stable or falling prices.

When it gets much less and is definitely a seller’s market, we see lots of activity, multiple offers on homes and rising prices. Luckily for all of us, the market is self-correcting and attempts to stabilize itself, setting its own prices depending on very localized conditions.

From the Austin Real Estate Blog: in December, for the fourth month in a row, Austin real estate sales were up over the previous year. The average and median sales price were up 6 percent, and the number of active listings is down 5% from this time last year. With 1373 sales, December was still weaker than October (1783 sales) and November (1542 sales). The market’s strength is probably attributable to the Federal housing tax credit, which will expire. According to the Real Estate Blog, “For buyers the trade off is that later there might be less buyers to
compete with in the market later but interest rates might be higher.
For sellers there is no real trade off. Waiting a few months for higher
interest rates and less buyers is probably far from ideal.”

A Move.com survey suggests that “17.7 percent of Americans want to take the plunge and finally become first-time home buyers.” That’s actually a big percentage, more than half the adults who don’t own a home, according to Baltimore Sun’s Real Estate Wonk. 15.7 percent consider buying an investment property a priority.

One driver for homebuyer optimism is the extension of the Home Buyer Tax Credit.

Wondering about the inventory of homes in Austin? At the moment it’s down 9% – you can see statistics about local inventory and prices here.

The Baltimore Sun has a good overview of the homebuyer tax credit, including five tips you’ll want to read, starting with “Don’t procrastinate.”

Getting your search started now will give you a better chance of finding the right house before the credit deadline. When first-time buyers thought the credit would expire Nov. 30, people scrambled to find properties in September and October, said Pat Lashinsky, chief executive of real estate brokerage ZipRealty. In some cases, “there wasn’t inventory that fit people’s needs,” he said.

Another great tip is near the end: “Don’t take shortcuts.”

Don’t forgo any steps take just to make the tax-credit deadline. Make sure the house is a good fit for your needs and get a home inspection, Lashinsky said. Skipping steps could cost you in the long run.

If you’re thinking about pursuing the new $6,500 tax credit that is available to some current homeowners who buy another home, I recommend that you also read USA Today’s overview of “frequently asked questions.”

From Coldwell Banker’s YouTube channel: