Laws of Real Estate
Courtesy of Tom Lyons
Keller Williams Real Estate
(925)-371-1000
Castlewood Country Club - Pleasanton Ca.
Laws of Real Estate
House prices follow the basic economic laws of supply and demand.
Low supply with high demand = higher house prices.
Low demand with high supply = lower house prices.
All economic factors such as interest rates, unemployment, condition of local economy, quality of schools, etc., affect supply and demand. House prices, and house price trends, vary from city to city, and they can vary, greatly, within a city and within price ranges within a given city.
Laws of Real Estate
What do homes sell for???
Homes sell at Market Value
Market value is defined as what buyers have paid recently for homes of similar, size, age, location, and utility. 99.9% of home sales follow these simple rules and laws!! A real estate professional can accurately determine market value on a home, land or any piece of real property.
Ruby Hill - Pleasanton Ca.
Cost Versus Market Value
Cost is what a buyers pays to acquire or improve real property. Market Value is what homes of similar utility are currently selling for. Cost and market value are not the same animal…
Owner #1 and owner #2 each own the same model house on the same street, in the same neighborhood and city. Owner #1 bought his house 25 years ago and paid $100K for it. Owner #2 bought his house last year and paid $500,000 for it. Then, owner #2 spent $25,000 remodeling. The cost for owner #1 is $100,000. Cost for owner #2 is $525,000. Simliar houses have been selling recently for $400,000. If owners #1 and #2 both list their house for sale .... what would they sell for?
Answer .... they would sell for $400,000, which is indicative of current market value. The fact that owner #2 has a cost basis for $525,000 has nothing to do with what the house is currently worth.
Laws of Real Estate
What happens in a balanced market.
(Defined as 3-4 months of home inventory available.)
In a balanced real estate market, over time, price remains unchanged and constant. Houses will sell when the asking price is on, or close to the CMV (current market value) line. Supply and demand are in balance.
Laws of Real Estate
What happens in a sellers market?
(Defined as less than 3 months of home inventory available.)
In a sellers market, real estate prices rise. This is because there is short supply of houses and plenty of buyer demand. Houses sell quickly. This is indicative of the kind of real estate market that existed in Northern California for the years 2001- 2005. In a sellers market a seller can price their house over current market value .... with prices rising, in time, the asking price will be equal to current market value and the house will sell.
Welcome to Livermore Ca.
Laws of Real Estate
What happens in a Buyers Market?
In a buyers market, when there is plenty of supply and low demand, house prices fall. For example, in a buyers market, your house is worth more today than it will be worth 3 months from now. In order to sell a house in a buyers market, the house, or real property, needs to be priced at, or below, current market value. If the asking price is above current market value, the piece of real property will not sell. A buyers market is what we are currently experiencing in California real estate for the years 2006-2009. Prices on real property are dropping.
Laws of Real Estate
In a buyers market, this is why it is important to get your home priced correctly to begin with…
In a buyers market such as the one we have been going through from 2007-2009, with prices declining over time, the longer you wait to price your house on the CMV line, the more money you lose. Your house won't sell for more money than market value because you want, or need, the money. Buyers won't care about that. With more time passing, in a severe buyers market, your home is worth less every day. Plus, as time goes on, it takes a larger price reduction to get it sold.
A larger price reduction is needed, to sell the house, the longer the house is on the market.
Laws of Real Estate
Before a buyers market can switch back to a sellers market, we first have to see the market transition. That means we have to see increased demand for houses and decreased supply. Before a sellers market can switch to a buyers market we have to see that same kind of transition. We need to see increased supply and decreased demand.
Real Estate Professionals can correctly predict and identify these transitions. Often they can do this long before it becomes common knowledge in papers, or on news shows.
Laws of Real Estate
Real Estate Law of Progression
Smaller house on street, surrounded by larger, newer, or nicer homes.
Price on smaller home tends to be higher…
Real Estate Law of Regression.
Larger house on street, surrounded by smaller, older, more run down homes.
Price on larger home tends to be lower…
Ask Tom about the current value of your home
Check the current value of your home at Zillow
Check the current value of your home at Trulia
