Here is a map showing homes for sale, as drawn by Zillow.com. This excludes homes in foreclosure or bank owned properties that are not yet listed; adding in those homes increases the number by about one-third. This is just one area in North Spokane.
From a sampling of listings on Zillow, many homes have asking prices close to or well below their original purchase price going back as much as ten years. Many homes bought since 2005 are having a hard time. For the seller, add in 6% commission, plus maybe 2% expenses of sale and closing, and possibly an additional 2% for buyers demanding the seller pay a part or all of their loan costs and Spokane real estate sellers are having another tough year – that’s another 10% cost after taking a loss on the sale.
Spokane promoters push the “cheap housing” meme. But buyers should consider why homes are cheap – and often becoming cheaper in recent years.
See “Update” after the chart.
In a tough market, buyers can push for and often get “seller concessions”. For example, a buyer can demand that the seller pay not only all closing costs (versus splitting this 50:50), but can have the seller pay the buyer’s own loan costs including “points” and other loan fees that can amount to thousands of dollars. These concessions do not (often) show up in the officially recorded sale price.
For example, a home receives an offer for $150,000. This is the officially recorded price of the home at sale. However, as part of the offer, the buyer demands that the seller pay all closing costs and $2,000 of the buyer’s loan origination costs, plus the costs of inspections. Because the market is weak, the sellers often concede and eat the costs. The effect of this is the “real” sale price is $145,000 (or less). But in the official records, the price is recorded as $150,000. Even though from the seller’s perspective, the real price is $150,000 minus a $5,000 discount.
This keeps the median price high and the realtors still get paid their 6% commission based on the fictitious $150,000 sale price. By keeping the median price higher than it actually is, realtors can issue misleading price trend reports making home prices look higher than what the actual market clearing price has been for actual homes. Because of the commission structure, they have a built conflict of interest bias is encouraging these types of transactions.
A lot of variables go into the market price of a home. The price of a home is not just the price of the home – it also includes the current price of money. Interest rates are the “price of money”. When the price of money is cheap, the price of the home can be higher than it otherwise would be – or the buyer can choose to buy higher priced, more upscale homes. For most home buyers, all that matters is the total monthly payment which is determined by the home price, the size of the loan, and the current interest rate.
Obviously, other factors impacting home prices include the local economy and job growth/income growth, and the supply of homes.
In a flat or down market, however, buyers can seek seller concessions, described above. This creates an artificial “median sales price” that is higher than the true market price. The “median sales price” is the value put out in press releases by the local real estate sales agents associations – but as you can see, the official median sales price may not be an accurate reflection of the market, especially when sellers are making “off the record” concessions to the buyers. The median price is also influenced by the mix of homes that are selling – lower interest rates can lead to buyers choosing more expensive homes (for the same monthly payment), driving up the median.
Another example of how seller concessions are hidden from buyers of other area properties. Basically, a buyer relies on their real estate sales agents input on selecting a bid price. The agent shows the sales price of local homes but does not disclose the VA/FHA loan fees being paid by the seller. The buyer sees an inflated and untrue price for the local homes and therefore, ends up being tricked into making an offer above a fair price .
And always remember
Offering bogus statistics
If a client is hesitant about offering too much, an agent will sometimes share rosy predictions about where the market is heading. The National Association of Realtors is usually a good source of overly optimistic market forecasts.