First In First Out, Last In First Out or First In Still Here – Maybe it’s the Inventory

Housing Inventory

Anyone that has taken an accounting class has heard the terms FIFO (First In First Out)  and LIFO (Last In First Out).  Both are systems to account for the cost of inventory.  FISH is often used tongue and check for something that just won’t sell, First In Still Here.  In many real estate markets across the country the FISH Inventory method best describes homes at the upper end of the market

In most parts of the country the high end real estate market hasn’t seen the rebound that many other segments of the real estate market have seen.  Often times high end (the definition of what is high end varies greatly from market to market) properties struggle to find a buyer in what one would call a timely manner.  There are a number of reasons properties don’t sell.  Price and Location are the two most cited reasons.  Since luxury properties can’t easily be moved, price is usually the first concession sellers make in an effort to sell a property. However, Inventory is often the real culprit.  Most sellers and sadly most real estate agents don’t have an understanding of how inventory can effect the marketability of a home.  Inventory I would argue in some markets is problem.

The laws of supply and demand are as natural as gravity.  And unfortunately Say’s Law doesn’t apply well to real estate especially luxury estate.  For those unfamiliar with Say’s Law it says supply creates it’s own demand.  Often homes come on to the market in an environment where the existing inventory is so large that selling the home becomes a monumental task.

What exactly is housing inventory and how can a seller compete against the existing inventory?  Housing Inventory is simply the number of homes for sale in a given price range at a given time.  If you are marketing a $3,500,000 home in Scottsdale, AZ today  according to Zillow there are 36 homes in the price range from $3,500,000 – $4,000,000.  That means that buyers searching in your price range have over 26 other options, not to mention the possibility of building a home.  One in 25 odds aren’t horrible however when looking at inventory one needs to consider velocity or inventory turn.  In Scottsdale, AZ about 8 homes a year sell in this price range.  With the current inventory, it would take 37 months to sell all these homes.  Half of the 26 homes currently listed have been on the market for over 2 years and have endured more than 2 price reductions.

With the odds stacked against you what is a seller to do?  The only way to improve your odds of selling in a timely manner and for the best possible price is to position your property as the best buying opportunity in the market.  More and more often sellers are doing this via Luxury Auction.  An auction will tell the market you are a serious seller, and give you the ability to pick the date that your home will sell.  In other words it puts you in control of the process.  The auction process creates a sense of urgency with serious buyers.  After the date you pick the opportunity is gone.  Serious sellers desire control, and the auction process is all about putting the seller in control of the transaction.

Want to learn more about how inventory might be effecting the ability to sell your home or learn more about the auction process, hit me up on email, twitter, or give me a call.

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