Typically when Realtors talk about “chasing the market”, we are referring to a seller who has priced his home to high. The property sits on the market for some time without offers, and then the seller decides to reduce the price. This new price may have been attractive when the house was first listed, but now the market has changed – prices have dropped further, and even though the property is sporting a new, lower price, it’s ultimately still overpriced. This can happen again and again… price reduction, wait, price reduction, wait… but with each price reduction the seller never seems to catch up with the changing market, and he ultimately chases the market down hill. This trend is what drives Realtors to recommend to their sellers to price the home right at the beginning. They may be asking for less than what they would like to get for their home, but it will be more money than what they will ultimately make if they start too high.
But these days “chasing the market” can also be applied to buyers. There has been such high demand in so many markets with extremely low inventory that competition has spiraled out of control. Buyers lament that they went $20, 30, 40 thousand over the asking price and they still didn’t get the house. And after missing out on property after property, they learn their lesson. On the next listing, they come in like gangbusters, make the offer of the century, and blow everyone else out of the water. Ultimately, each home that is sold sets a new benchmark. And the next listing can start at the new level and go up from there. The sooner a buyer gets super aggressive the better, because she will secure her home and get out of the race while prices continue to go up. The buyers that continue to hem and haw and make conservative offers will chase the market up and possibly price themselves out of the market or pay a great deal more money than they would have had to pay just a few months prior.
As a Realtor, I don’t enjoy having the conversation with my buyer clients that they need to make an offer over the asking price. I’m much happier when my clients feel like we did a good job negotiating and they got a good deal. But not all markets work that way. And when you find yourself in a market that has rising prices, the sooner you are aggressive, the better.
Redondo Beach, CA 90278
For instance in North Redondo, the price of a 4 bedroom, upgraded town home was selling in the mid to high $800,000s at the end of 2012 and into early 2013. They are currently selling for low to mid $900,000s, and in a couple of cases close to $1,000,000. It’s a big price swing in a short amount of time. If a buyer was aggressive back in January, he could have purchased 2109 Huntington Lane, #B for $829,000 or new construction at 1905 Plant Ave, # B for $859,000. (These are sold prices.) In the past 6 weeks, buyers have paid $998,000 for 1906 Morgan Lane, #B, $960,000 for 2208 Warfield Ave, #B, and $950,000 for 2118 Pullman Lane, #B.
The key to buyers “chasing the market” is that at any time it can stop. Once buyers decide enough is enough and they feel prices are too high, they will pull back and prices will come back down again. But until then, the competition is stiff and sellers are in the driver’s seat. And for once they are not the ones chasing the market.