By Peter G. Miller
CTW Features
Question: How long should homes remain on the market? In our area we have noticed a number of houses that have been for sale for several years, some for five years and maybe longer. These homes are vacant, but they could be sold if the owners lowered the price. What is the reason to keep holding on?
Answer: We know that around the country home prices have risen with great consistency. The National Association of Realtors (NAR) says existing home values have increased 52 months in a row as of June. This is very good news, but it’s not all the news — home prices are not up everywhere. NAR also reports that as of the first quarter, real estate values actually fell in 24 metro areas, information largely overlooked and overshadowed because prices rose in 154 areas.
To make matters more complicated, we also know that generally rising home values often mask cases where values are actually falling. For instance, you might have an incorporated city or IP code where prices are up, but within these areas there are pockets where values are down. For example, last year Weiss Residential Research found that while prices seemed to be increasing in most areas, a closer look at the data showed that values were up for roughly 30 million homes but down for 12 million.
If you’re a seller and look at all the positive pricing information, you may not see that rising values are not universal. Your neighborhood, type of home, price range or home’s condition may be less desirable than other properties.
This is a harsh reality for many homeowners for several reasons: First, we naturally want the highest price and best terms for our property. A lower price does not satisfy the natural desire to do well.
Second, if a house is underwater it may not be possible to sell without a short sale or paying cash to a lender at closing. For such owners there is a strong need to sell for a higher price than may now be available. RealtyTrac estimates that 6.7 million homes were “seriously underwater” at the end of the first quarter, meaning the loan-to-value ratio was 125 percent or more.
Third, a home is not just bricks and pipes. It represents deep psychological values. A home reflects our ego and status, and it says how far we have come in the world. If a home has less than optimum value, then it may mean we’re also less valuable. That’s not a good feeling.
When the values seen by owners and market values differ, there can be big problems. For some owners the solution is to wait for the market to catch up, an option which can sometimes work. However, keeping a home on the market for a very long time does not guarantee a higher price. It’s also possible for prices to fall. Moreover, holding out has real financial costs such as ongoing mortgage payments, utility expenses and maintenance.
Owners may have reasons we don’t see for keeping homes on the market for years on end without a price cut, but such a strategy has real costs that make holding out unlikely to be justified in the end.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage” (Kindle 2016). Have a question? Please write to [email protected].