The hard truth about pricing!
If you are thinking about selling your home there is a little known concept that needs to be taken into consideration - the “Velocity of Sales”. As homes sell they are used as comparables for appraisal purposes. The most recent “comparable sale” for your home is the most important tool used to determine the value. The next consideration is the time since the comparable property sold; in today's market anything over 90 days is usually not considered by the appraisers. This is where the velocity of sales comes in. The number of sales in your neighborhood establishes a price range and although you may exceed those values, if your sale is out of line with the others you will probably not receive a favorable appraisal. If your neighborhood has only had “distressed sales” your new value will be reflected in those reduced prices. As unfair as this seems, it has always been this way. This works best when there is a steady volume of sales in your neighborhood, normally about 8-10% percent of the homes will sell in any given year. In that situation, if we have sufficient buyers, the value of homes tends to steadily increase and distressed sales are not considered when establishing values.
What we have now is anything but a normal market! In reality we have a sufficient number of properties being sold to approximate sales patterns of 10 years ago. This would not be good, however it would normally be large enough to keep our prices stable. So what's the problem? The problem is in the kind of properties we are selling. Our sales are predominately distressed sales! The number of normal sales is somewhat less than 50% of our business. This volume is too low to provide supportable comps in most neighborhoods therefore the only usable comps are reduced price distressed sales! If you look at only the number of sales which are not distressed our sales volume would probably be similar to 20 years ago, yet we have a large number of ready, willing and able buyers who can't find a property to buy. No one who is not in distress wants to sell in this market because the prices are too low. This creates a downward spiral; sellers do not want to sell at these prices consequently we do not have satisfactory inventory to supply our demand and the sale of distressed properties continues to influence the value of everything else. This will continue until we have a larger number of normal sales (sales that are not forced financially) which will require a sufficient number of sellers accepting the new pricing realities. This should occur much faster in the Washington, D.C. area and especially in Loudoun County. As the country continues to struggle in this economy, we receive the benefits of growth in the federal sector and it's spin off effect in the private sector. The greatest danger facing this recovery is the large number of “hybrid” ARMS scheduled to adjust in the next 2 years. These loans incorporated many varieties of bad ideas such as interest only for a large number of years, negative amortization, and craziest of all, some of them allowed the purchaser to decide how much, if any, principle and interest they would pay off each month. These were bad loans for consumers and should never have been offered by the mortgage industry.
The end result is that the current value of your property has been established at these reduced levels and until we eliminate the backlog of distressed properties we will most likely not see any price appreciation. The good news is that this is the best opportunity to buy a move up home in a long time and what you “loose” on your current property you more than make up for on the other side.
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