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Indianapolis Home Buyers - Consider Supply and Demand Before Making an Offer

Posted By Paula Henry on Monday, July 07, 2008 6:18:00 PM | 3 Comments

Many home buyers today believe they can should automatically offer a reduced price if a home has been on the market for awhile. Another fallacy is there must be something wrong with a home if the price has been reduced. Don't mistake the reduction of a home's listed price as a signal that something is wrong with the home, or that a price reduction is automatically in order when you decide to make an offer.

In many neighborhoods around Indianapolis -- the supply of homes for sale has outpaced the demand for homes. When supply exceeds demand, there is a downward pressure on price until a balance point is reached. During the recent boom in real estate, this economic equation was reversed, creating upward pressure on prices.

Nationally, some areas have seen over a 20% reduction in price since 2005. Here in Indianapolis, our average price reduction is about 2.6%. Of course some areas have seen more, some less. It really depends on the neighborhood, area of town and the home. Supply and demand in today's market can be illustrated by a seller listing their home at a price and finding few potential buyers.

When the price drops, however, more buyers suddenly show interest in the home. Further price reductions, of course, bring even more interested buyers until a deal is made and the home goes under contract. When supply exceeds demand over a long period of time, prices tend to drop and that is why a market like this one is called a 'Buyer's Market'.

There are areas in Indianapolis which are creeping close to being a nuetral market, favoring neither the buyer or the seller. Price reductions don't signal problems with a home, but merely that it was priced too high to find a buyer given the current market's supply and demand. When you find a home you want to make an offer on, take all factors into consideration before deciding you want to make a 'low-ball' offer. There could very well be another buyer right behind you who understands the market and value of the home.

Discussion

#1 Posted by Paula at 7/10/2008 5:19 PM

Mack - Exactly - what I find though, is once the home has been reduced to the appropriate price for the market - buyers seem to think there is either something wrong with the home, or because the days on market are extended, they can offer a much lower price. Either way, the seller always loses when the home is overpriced from the get-go.

A great idea having your sellers get an appraisal from the beginning. I am also starting to recommend they get an inspection. By doing these items up front, they take away buyer objections.

#2 Posted by Mack Perry at 7/10/2008 3:31 PM

What we see in the Atlanta market is that when there are price reductions the home was typically overpriced to start with and the seller is "Chasing The Market". The times of inflating a price to build in negotiating room are gone with the wind. Homes must be price competitively right from the start. I even recommend to my sellers that they get an appraisal prior to us putting the home on the market. It gives them ammunition when a low ball offer comes in. We actually make the appraisal available to everyone viewing the property.

#3 Posted by Mack Perry at 7/10/2008 5:38 PM

Paula you are right. If the seller has an appraisal prior to listing the home you and your seller have the ammunition you need to combat the low ball offers and the home is priced correctly to begin with which removes the "something is wrong with the home" connotation. Also by having an inspection and sharing the report with prospective buyers, along with receipts for repairs the buyer's walls begin to come down. Another, not so well know, report to get is a CLUE Report that covers insurability of the home.