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[Listing Discount] Trulia Looks At Our Behind(edness)

One of the market indicators that people like to get their arms around is the negotiability of housing prices a la the listing discount metric. In other words, what is the spread between asking and sales price? The inference in this metric is that in a weak market (most markets in the US), sellers are more negotiable than they were a few years ago. Of course and this metric’s orientation tends to be toward the seller. If the property is overpriced, the seller has “farther to travel” to meet the buyer for a “meeting of the minds” to occur (a sale).

Trulia now has a Search by price reduction [1]tool which I think is pretty neat and I’m not aware of this available elsewhere.

Trulia’s new price reduction tool enbles home searchers to see new reductions in their neighborhood.  So whether the properties have been reduced by 4% or 14%, buyers know exactly what they’re getting.

More price slashing infers that sellers are more negotiable when the discount is higher. Trulia’s tool allows sellers to see the percentage of listings that have been reduced, the dollar amount and the percentage of reduction off the original list price. While it doesn’t connect the relationship between contract price and list price, it does help consumers understand the asking price trend.

I’d like to take the inference it provides one step further.

Rather than look at this metric as a test for how much or quickly a market is falling or how desperate a seller is, I tend to see it as an indicator of what degree sellers are “behind” the market and perhaps this is related to how quickly the situation has changed in that given market. In other words, if listing prices are declining rapidly, it is more likely for the sellers to be further behind the market when pricing their property because they tend to overprice more at the onset – and have to travel further to meet the buyer on price. It also means that real estate agents are having a more difficult time with more sellers in denial about current market conditions.

In fact, that is how I have always seen the listing discount metric. Less about negotiability or falling prices, and more about how disconnected the sellers are.

At a rate of 39% of listing, NYC is number 1 on the list so everyone else is looking at our disconnect with the market (translation: our behind) caused by our market being the last to join the housing weakness party and the suddenness (never used this word before) of the decline.