What is driving the large price increases on homes these days? If you read the comments on various posts on online news outlets or social media sites, public opinion sways to REALTORS® gouging prices and greedy sellers.
When in fact, it is neither. REALTORS® don’t have the power to set market prices, and a greedy seller will be rewarded with no activity on their home i.e., no buyer interest and an accumulation of days on the market.
How Is A Home’s Value Determined?
When a REALTOR® is called in to give a price opinion on a home (commonly known as a Comparative Market Analysis), they will review similar homes that have sold in a 3-6 month period to determine a base price. From that point, the home’s amenities will be taken into consideration. A sampling of elements that are relevant to determination of value would be:
- Is the location of the home on a quiet neighborhood street or a busy road?
- Is there an in-ground pool at the property?
- Are the kitchens and bathrooms updated to modern standards?
- What’s the condition of the roof and structure?
- Is the property located in a flood zone?
- Has the home been maintained by the seller or is there lots of deferred maintenance issues?
These are just a few examples of the factors that real estate professionals take into account when evaluating a home’s value. However, in today’s market, these factors alone are not solely responsible for the significant price increases we are witnessing.
An Unfortunate Series of Events (For Some)
The primary driver of soaring home prices is the imbalance between supply and demand, simplistic but true. Over the past few years, the demand for housing has surged, fueled by several factors. Firstly, historically low mortgage interest rates have made borrowing more affordable, enticing more people to enter the housing market. Additionally, changes in lifestyle and work arrangements, such as the rise of remote work, have motivated individuals and families to seek larger homes or relocate to different areas.
While demand has skyrocketed, the supply of available homes for sale has struggled to keep pace. This shortage of inventory creates intense competition among buyers, leading to bidding wars and driving prices higher. Many markets across the country are experiencing a lack of new construction, limited housing development, and a low number of existing homes listed for sale.
The COVID-19 pandemic further exacerbated the supply-demand dynamics. Construction delays, labor shortages, and disruptions in the supply chain hindered new home construction and renovations. Moreover, some homeowners decided to postpone selling their properties due to uncertainty, resulting in even fewer homes entering the market.
It’s important to understand that real estate professionals, including REALTORS®, do not have direct control over home prices. They provide guidance based on market trends, comparable sales, and property assessments. Their role is to help sellers navigate the market and buyers find suitable homes within their budget.
In the current climate, real estate professionals play a crucial role in managing the expectations of both buyers and sellers. They provide valuable insights, negotiate on behalf of their clients, and facilitate transactions in a highly competitive environment.
While it’s easy to point fingers and assign blame, it is essential to recognize that the unprecedented price increases we are witnessing is a result of an aberrant sequence of events and a resulting lack of inventory.
“Antoinette” Scognamiglio (licensed as Maria), Sales Associate, Coldwell Banker Realty, 91 Crane Road, Mountain Lakes, NJ 07046. Cell Phone: 201.240.8699. Email: AntoinetteSellsNJ@gmail.com. Website: www.AntoinettesHomes.net.
(C) Antoinette Scognamiglio, 2023. All Rights Reserved.