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Chasing a falling real estate market

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Posted 10-23-2011 at 11:24 PM by ushaggerb

I wrote a few months back about people who are trying to sell a house that fall into a pattern of “chasing a falling market.” A sale occurred earlier this year which is a perfect example.

The house came on the market in late 2009. In the following 16 months, the property reduced its asking price 6 times. The 7th time it was sold at auction. The property sold for 37.5% lower than the asking price in late 2009.

  1. The 1st price decrease came shortly after it was listed. It was a modest 2.8%.
  2. The 2nd came 3 months later, mid winter, this time for 4.9%.
  3. The 3rd came 1 month later, this time a modest 1.1%.
  4. The next was 1 month later, another modest 2.3%.
  5. The next came 1 month later, this time 11.8%.
  6. Another attempt was made 2 months later, this time for 8.1%.


As mentioned, 8 months later the property was sold, finally 13.6% below the last ask.


The house started at $335/sq ft, and ended up at $209/sq ft. [LIST][*]I you assume the auction price was below market, perhaps the end price would have been $225/sq ft.
  • If you assume the start price was high, perhaps it should have been $305/sq ft.
  • This means that, over 16 months, the property would presumably have gone from $305 to $225 per sq ft, or a decline of 26% over 16 months. In other words, an annual decline of about 20% per year. Every quarter, taking a linear approach, the property was dropping 5%.

This is a “falling market.” Sometimes it takes a bit to see you’re in it. So allow yourself 1 quarter. You started at $305, a quarter has passed, you’ve wised up, and your house is probably worth $290.


Now here’s the difference between “chasing a falling market” and “getting in front of a falling market”.

  • The “chase” scenario says you put it on the market for $290 per sq ft.

  • The “getting in front” scenario says you put it on the market for $275. Your Realtor says no way. Your friends and neighbors are angry because you’re “dropping” the market. And the Buyer who comes along knows you’re panicking, or at least he thinks you are. So he low-balls you and offers $255 and you take it.




The 6th price decline taken on this property brought it down to $242 sq ft. You beat that price by 5%, and you beat the auction price by 22%. Are you happy? No. Are you satisfied? No. Are you walking away with money in your pocket? Not much. Have you avoided default and credit destruction. Yes.

In recent sales figure it appears the average price is down +/-25% from a year ago. This is a falling market. You can bet on the bottom and “chase” it, or you can bet that you can’t know the bottom and “get ahead of it.”
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