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The anatomy of home prices in a rational market

April 6, 2018
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

One of the themes about our real estate market, which we have discussed frequently in this column, is that we have been in a very rational market when it comes to what a willing buyer will pay a willing seller for their home. When a market is rational about prices, it is generally a good thing for the sustainability of current market trends, but it is not necessarily a great thing for a home seller who has their home overpriced to the market. This brings us to another major theme we have been writing about, which is that rational buyers are looking for "reasonably priced" homes and they will be very patient in their search for such a home.

Along these lines, we have been pointing out that when we dissect home prices by tracking them from their initial list price to the ultimate price at which the sale is finalized, we find that a lot of homes are often selling for somewhere between 10 to 15 percent below their initial list price. We have also found that a surprising number of homes end up selling for 15 to 25 percent below their initial list price, so when we saw a recent report about a record setting $1.87 million home sale in St. James City, we thought we would go in for a closer look by performing a post sale, forensic price autopsy.

First, we would have to say this looked like an incredible home on the southern tip of St. James City, overlooking Pine Island Sound. The home, built in 2007, reportedly features 8,369 square feet of living area with four bedrooms, including two master suites, plus a den and six bathrooms, along with a five-car garage, a gym and a media room. It also sports a 40,000pound boat lift and a second, 10,000-pound boat lift. Here is the price breakdown.

According to the records in the Multiple Listing Service, this home was listed for sale on Aug. 16, 2017, at $2.1 million, and two months later on Oct. 15, 2017, the list price was reduced by 4.77 percent, or by $100,100 to $1,999,900. The home went under contract with a buyer in January of this year, after 159 days on the market and the sale was actually finalized as a cash deal at $1.85 million on March 9. This was $250,000 or 11.9 percent below the initial list price of $2.1 million during this listing time frame.

The part of this story that did not get reported was that this home was originally listed by another agent back on Nov. 26, 2016, at an initial list price of $2.4 million. The records indicated the home went under contract with a buyer on Jan. 8, 2017, but was put back on the market two days later at the same list price, and the listing eventually expired at an asking price of $2.399 million on June 24, 2017. Apparently, the $1,000 price reduction on this home in February 2017 was not enough to attract a buyer.

When we ran the numbers from the actual initial listing back in November 2016, to the date the sale was finalized in March of this year, it paints a somewhat different picture of this transaction. First, from the seller's perspective, it took much longer than the reported 159 days for the home to go under contract with a buyer. Second, when we look at the price differential between the actual initial list price and the final sales price, this home sold for 22.92 percent, or $550,000, below the initial list price of $2.4 million.

Bringing the story back to Cape Coral, we had a new, 2018 year-to-date high price reached in our market with a home sale that was finalized on March 30. This was a riverfront home near the Cape Coral Yacht Club, which was built in 2016 with 4,785 square feet of living area. This custom built contemporary-styled home featured two stories with great views of the river, five bedrooms, each with its own bathroom, including a master-sized suite on each floor of the home, plus two half bathrooms. The home also included a wine room and a beautiful pool area, plus it had a new seawall installed in 2015, without a dock or boat lift.

This home was initially listed for sale on Feb. 29, 2016, for $2,299,900 and it had two price increases totaling $200,100 or 8.7 percent, to bring the asking price up to $2.5 million on Nov. 6, 2016. The home went under contract with a buyer on Jan. 22, 2018, after almost 2 years on the market, with the sale being finalized on March 30, in a cash deal at $1.8 million.

In breaking down the numbers on this home, it ended up selling for 28 percent, or $700,000 below its most recent list price of $2.5 million. In what would have to be considered a fairly major price miscalculation, this home actually sold for 21.74 percent, or $499,900 below the lower initial list price of $2,299,900 from back in February 2016. Based on all of this, it would seem easy to reach the conclusion that there is a level of weakness in the Cape Coral market, however, because we track our market so closely, we can say with confidence that overly optimistic pricing on the part of many home sellers has actually been an issue for the past four years. Our market has remained fairly solid, and if anything, seller expectations have had a tendency to be a bit on the irrational side when it has come to pricing.

In fact, we would put forth that our forensic price autopsies on these homes helps to illustrate that when a home reaches its "reasonable" price range in the eyes of the market, several things will happen. One is that a buyer is likely to emerge from the pool of potential buyers, who are patiently watching the activity of homes being listed for sale in their price range. And two, the buyer will tend to remain very rational in what they are willing pay for a home in our market.

These conditions can be challenging for a seller to accept and adjust to, which is why having current, specific and realistic market information, without all of the usual hype and fluff, is a critical part of attracting a buyer and getting a home sold.

(The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County as of April 3, 2018. It was compiled by Bob and Geri Quinn, and it includes information specifically for Cape Coral single-family homes, not including condominiums, foreclosures or short sales. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 38 years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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