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One of the most dynamic facets of this
real estate market is the historically low inventory of properties
to sell. As the law of “supply and demand” would dictate,
the scarcity of inventory has put tremendous upward pressure
on prices. Sure enough, real estate sales prices in the West
Los Angeles have reached all-time highs.
The question that I hear over and over
therefore is “why is inventory so low?” In my opinion the
answer lies in the selling process itself. First of all, this
didn’t happen over night. Inventory has been steadily diminishing
over the last 5-6 years. This was the result of much demand
encouraged by historically low interest rates.
The current state of sparse inventory
has created a market wherein many sellers are reluctant to
sell for fear that they will not be able to find a home to
purchase. The prospect of being “out in the street” is quite
terrifying to many would-be home sellers. In response many
sellers adopt the strategy of finding a home to buy, opening
escrow and immediately thereafter putting their home on the
market.
The risk in this strategy comes when that
home doesn’t sell quickly (or at all). The Seller then faces
the rather unappealing prospect of owning two homes. What
some sellers will do in this situation is use their inspection
contingency on their purchase as an “out” in the event that
their home doesn’t sell quickly. This is very risky because
the inspection contingency is only 17 days (per the pre-printed
contract) and is often shortened during negotiation to as
short as 7-10 days, especially in this “Seller” market.
The net result is a “bottleneck” of home
sellers either unwilling to list their homes for sale until
they find a home that they are willing and able to purchase
(if in fact they prevail since most homes are selling in multiple
offers), or in some cases would-be home sellers decide to
put their plans on hold and simply wait our this market.
There are some ways to navigate through
this very precarious real estate market we currently find
ourselves in. Read my next article in two weeks on this very
web site: Strategies for Sellers and Buyers to Win in a Seller’s
Market, or email me at mkessler@gte.net.
Click here
to view a selection of the California Association of Realtor's
recent Housing Forecast statistical data, graphs and charts.
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