Bidding wars for Los Angeles homes peaked last quarter, according to a Douglas Elliman report.
With interest rate hikes slowing down the market, the report forecasts that bidding wars will probably decrease in the third quarter, according to Jonathan Miller, president of Miller Samuel Inc., the appraising company which assembles Douglas Elliman reports.
Many Los Angeles real estate agents agreed with the forecast, and they’re scaling back on the sale strategy of underpricing. For years it was common practice to set the asking price of a house at least 5 percent below value to set the stage for a bidding war and garner a higher closing price.
“You cannot start low to get a high price anymore,” said Derek Reilly of Westside Expert at Keller Williams based in Santa Monica. “You have to start with what it’s worth and get comfortable with the possibility of strategic price corrections. … This market has shifted. You just want offers.”
While inventory is fairly low in Los Angeles and home prices are still high, consumers’ appetite to get involved in the roller coaster of a bidding war has subsided, Reilly added.
The Douglas Elliman report found that in the second quarter, more than half of the homes sold in the the area spanning from Downtown Los Angeles to the Westside experienced a bidding war which pushed closing prices over the original asking price.
Since May, prospective buyers have not been as responsive to pressures to place a bid quickly. However, Reilly contended that the market is stabilizing, and business is still fairly good.
“Buyers don’t have to go to a property with a checkbook or cash in hand. They now have the advantage of taking some time to look around, and that’s exactly what they are doing. The new normal is that things are going to sell slower, and that’s OK because at the end of the day, homes are still selling,” he said.
Down the coast in Manhattan Beach, Cindy Carvel of Douglas Elliman also scaled back underpricing. “We’re not going to the market with event pricing of 10 percent below where you’d get a lot of eyes on the property,” Carvel said.
She and her business partner, Misty Frasier at Carvel Frasier Group at Douglas Elliman, still try to underprice when they get permission from their client.
“We’re going just below perceived market value. You’re still going to get more eyes and offers. But you’re going to close 2 to 10 percent above the asking price,” she said. By contrast, at the peak of last year’s overheated market, event pricing could drive a closing 12 to 20 percent above the asking price, Carvel noted.
Rochelle Atlas Maize of Nourmand & Associates of Beverly Hills, said she occasionally will underprice a home if the situation is right, but she finds herself increasingly managing client expectations.
“As far as pricing, it’s more directed for where it should sell for based on its comps or the true value,” Maize said. “It’s important to have a conversation and say that the market has changed. You’re going to have to be more patient. It’s still a good market, but it might not move as quickly as it did four months ago.”
She also forecast that underpricing will make a comeback, perhaps in early 2023.
“If there are no more rate hikes over a period of two to three months, if there’s no doom and gloom, then I’ll go back to implementing the underpricing strategy to attract multiple offers,” she said.