Readership Survey
Owners almost always have an inflated opinion of what their house is worth
BY REBECCA KENDALL
Selling a house can be a chore, but homeowners in one southern Ontario city now have information that could make the task easier and quicker, thanks to Prof. Paul Anglin, Marketing and Consumer Studies.
Using data from the Windsor and Essex Real Estate Board collected between 1997 and 2000, Anglin found that the degree of overpricing, the number of bedrooms and the way a seller describes a property can affect the amount of time a house takes to sell.
Few studies of the Canadian real estate market have been done, he says, and this particular research is the first of its kind in Canada. What makes it unique is that his data include all attempted sales rather than just the successful ones. This provides for a more accurate assessment, he says.
“People don't realize that 40 per cent of homes listed for sale don't sell, and that is rarely taken into account.”
Anglin's study also uses what is known as hazard rate analysis, a methodology that's often used to study unemployment duration and how long patients survive after certain types of medical procedures.
“Real estate is a hot topic,” he says. “Housing is a big part of many people's financial portfolio, so research like this is important and attracts attention. Searching for a home is not like searching for a loaf of bread. You have to look at how many bedrooms it has, its location, whether it has an ugly colour on the wall or whether it has termites.”
One problem real estate agents face is convincing homeowners to list their property at an appropriate price. Owners almost always have an inflated opinion of what their house is worth, says Anglin, a former chair of economics at the University of Windsor. A graduate of the University of Toronto and the University of Western Ontario, he spent 17 years at Windsor before joining U of G in 2005.
“Everyone knows a high price will discourage buyers from looking at a place, but the question is: ‘What is the magnitude of that?'”
He found that, between 1997 and 2000, houses that sold in Windsor were on the market an average of 10 weeks. More than 40 per cent of sellers in his sample had their listings expire. In those cases, they waited an average of 19 weeks before leaving the market for the first time. Some tried again, but many did not.
Sellers not only want to secure a sale, but they also want to be happy with the amount they receive and want to sell in a reasonable period of time, so striking a balance is important, says Anglin.
Although some homes sell for a price that's agreeable to both buyer and seller, about five per cent of the houses in his study sold for more than list price. He says the selling price depends on bargaining abilities and bargaining position.
“By raising the list price, you can increase the selling price, but you have to wait longer for a buyer willing to pay that price. It's a trade-off that some sellers are willing to accept and others are not. The same trade-off faces buyers when they ask themselves: ‘Am I willing to pay the extra money for hardwood floors, a good school, a large backyard?'”
Anglin also found that smaller houses sold in less time. A home with only one or two bedrooms, for example, sold nine per cent faster than average, whereas homes with five or more bedrooms took 30 per cent longer.
Houses that were described in their listings as “beautiful” sold in 15 per cent less time and at a higher selling price, and those described as a “handyman's special” sold in 50 per cent less time. In contrast, a home that was said to be a “rental” took 60 per cent longer to sell.
Anglin is currently in discussions with the Toronto Real Estate Board and hopes to conduct a similar study of that market. On average, a house in Toronto sells in five weeks, he says.
“There are puzzles in the Toronto market that I'd like to figure out. For a long time, houses have been selling quickly, and the average sale is fairly close to the list price.”
He also hopes to explore bidding wars, where potential buyers submit offers hoping to outbid one another, and the effect these “wars” have on house prices in the area as well as in surrounding areas.
