How a Down Market Happens

  • Rachel Walsh
  • 07/18/20

I recently met with a potential client who blamed real estate professionals as the reason for his house not selling for the last 9-years, and more broadly, as the reason for the down market itself. At first, I was quick to dismiss his complete lack of respect for agents, then I started thinking about how a down market happens.

In a down market, there are many contributing factors such as a buyer’s job security, the financial markets and how they’re performing, bonus structures (in my NYC suburb, this is a large contributing factor), and more. The ‘more’ is what got me thinking more deeply.

In 2008, as we all know, we saw the loss of two major financial services firms (with 465 failed banks to follow in the next 4 years), and that started, among other things, a down market in lower Fairfield County. I’ll never forget a buyer that I took out a few months after Lehman closed who relished the fact that some former Bear Stearns and Lehman owners would become desperate sellers, therefore creating an opportunity for them. While there may have been a knee-jerk reaction for some sellers, for the most part things seemed relatively and surprisingly unchanged for a while. But then, things changed that caused a quick snowball effect.

All it takes is one low foreclosure sale or one house that sold at a much reduced price to start the local real estate market shaking. Fact is, appraisers can’t use a foreclosure sale to appraise a home for a mortgage, but a reduced sale price of a non-foreclosure property is fair game. That sale gets buyers thinking and other sellers scared. Then, a flood of homes get listed in a relatively short period of time that overwhelm the local market and that can’t be absorbed in a normal year. Add to that the impossible task a real estate agent has of pricing a home while knowing what the previous market price was for the home, seeing a form of crash diet on some properties, while dealing with the scared and prideful seller who saw his neighbor sell at a high price ‘just last year,’ and kaboom, you’ve got a buyer’s market.

Down markets are further fueled by buyers who are hesitant to take on any unnecessary risk, especially in towns with a higher price range. In addition, there is some agent responsibility because the easy response to why a house isn’t selling is to say that the house is overpriced. I’ve seen houses reduced time and time again, even at the wrong time of year or when there is an ‘empty audience’ of buyers. Fair or not, I can’t help but feel that the pressure agents feel to reduce a house has somewhat contributed to the downturn of the market.

Rachel Walsh.Compass Real Estate.203.912.5908

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