Real Estate Prices Are Set at the Margins

I’ve written about this before but after some latest bat-shit crazy listings I felt like it needed revisiting. 

Prices set at the margins means that it only takes one sale to set a new market price. 

Some dumb-ass wants to pay $1000 sqft for a livable fixer upper and now homeowners and uneducated real estate agents want to scream – “ Hey, that sold for $1000 sq ft, mine is as good or better, I’ll ask $1000 sqft too” 

Other than seeing and comparing the homes the latest sales comp is kind of meaningless. It just means that Joe was willing to pay $X to buy they house. Maybe Joe’s wife is 5 months pregnant and they have lost out on four homes? Maybe Joe just moved into town and has had his family in a tiny 2 bedroom apartment for 13 months and has to buy a bigger home or he’ll kill someone?

We don’t know. 

Let’s take a look at a townhome for sale:

887 Washington St. 90245 2bed/3bath 1265 sqft. HOA only $265 – Listed at $675K yet zillow’s bullshit Zestimate is $600k. 

173 days on! Started at $700k with one price drop. I guess they don’t want to sell it. 

But here’s where it gets weird, there are several comps in the same complex.

867 Washington a 2/1.5 bath for $620k in December. 

863 Washington a 2/1.5 sold for $700k in May 2016 

851 Washington a 3/2 with an additional 300 sq ft also sold in May 2016 for $760k

Funny enough this is an example of the price being set lower by the margin sale. $620k is now the price of that condo. Like it or not. Yes, the one that closed at $620k wasn’t as nice as the one currently listed for $675k, but it’s nothing $10k in paint, carpet and cabinets couldn’t fix. 

867 Washington took six months to sell, started at $689K and it took a 10% drop to get the deal done.  With two units in the same complex for sale it looks like one cut the legs out from the other.  

Don’t let the lack of supply and the mindset of idiot buyers determine what you think the value of a home is. Yes, supply and demand dictate the price, but if supply and demand are so out of wack that the prices seem wrong maybe you should sit this one out?


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