Latest Closing Statistics Reveal Amazing Market Trend

Westcoe Realtors, Riverside California…No matter where you get your real estate information…TV, radio, Internet, etc…some pundit is either telling you it is a buyers market and you can hack and slash prices because sellers are desperate, OR someone is telling you the exact opposite…that the bank repos are generating multiple offers and bidding wars.  The question is…who is right?  Well, the answer is that both positions are correct, but to understand why, we need to analyze some statistical information from our local MLS.

The first thing everyone needs to know is that in our greater Riverside area, we have basically two real estate markets:  the one over approximately $350,000 and the one under $350,000…and they are two completely different animals.  This is why you can get conflicting reports from the local real estate pundits, because they are trying to describe two separate markets as one, and that is not accurate.  We have two markets, and they each have two separate rules by which buyers and sellers must play.

Lets take the high side first…and please understand that this $350,000 dividing line is not set in stone.  It is a guesstimate that is a fairly accurate place at which to divide this market. 

SO…what is happening in this “high” range?  Well, sales are happening, but in a totally different way than in it’s low range cousin.  There are fewer repos in this range, which by definition means you have more individual sellers than banks.  The sales and escrow process is more professional, business is conducted at a normal pace and volume, and the pace of sales is slower and more orderly.  In short, this is the market most buyers and sellers are used too…not the one I will describe in a minute when we get to the lower price range.

In this upper range, there are more sellers than buyers, and as a result, simple supply and demand will dictate that the buyer has the upper hand when it comes to the purchasing process.  The negotiation process favors the buyer (as a general rule) since there are fewer buyers than there are homes for sale….and a statistical analysis of some MLS data bears this out.

For the month of August, 2008, in this higher price range, there were 84 closed escrows, at which 37% closed at or above the list price.  Conversely, that means that 63% of the homes that closed were at a negotiated price somewhere below the original list price.  For the month of September, there were 123 closings in this price range, with 29% closing at or above the list price.  Again, that means that 71% had a negotiated closing price at less than the list price.

Now let us compare the above with what is happening in the price range that is below the $350,000 list price.

This market is truly the exact opposite of what is described above.  This price level is dominated by bank repos, and is chaotic, hectic, a mess, and extremely frustrating for any buyer attempting to purchase a home.  Since the banks represent some un-Godly high percentage of homes for sale, eventually a buyer will be dealing with the bank on a prospective purchase…and that is generally a nightmare.  All people working on the bank side of the equation are massively overworked and under enormous pressure. The result is that there is generally horrible communication and a very erratic purchase and escrow process.

However, this is the market where “all the action” is taking place….and that makes sense because there are more people who can purchase for under $350,000 than above it.  This becomes apparent when you see that almost every purchase of a bank repo elicits a minimum of 5 offers to purchase.  The banks know they have numerous buyers to sift through, and as a result of this demand for their bank repo, the banks do the best they can to create a bidding war between all these buyers…and why not?  From the banks perspective, they are losing hundreds of thousands of dollars on their properties, so who can blame them for trying to get as  much as they can for the sale of their repo?  The bottom line is a very frenzied market of people who are all trying to purchase the same type of property.

So what are the statistics?   For the month of August, 2008, there were 377 closings, of which 64% of those properties closed at or above the list price.  For September, there were 367 closings, 72% of which also closed at or above the list price.  As you can see, this is an enormous difference from the numbers quoted above.  This lower price range real estate market has very little to do with the higher range market.  As mentioned at the outset of today’s blog, we have two distinctly different markets in the Riverside area.

So now what?  Well, for-warned is for-armed.  If you are a buyer in either of these two markets, you now have concrete information that will help you with your purchasing decisions.  In the upper market, you control the action…in the lower market, strap on your helmet because you are going to get hit a few times until you can get your home. In either case, hang in there…the values you are getting today will be worth it.