Friday, June 29th, 2007 at 1:46 PM
Guerilla Real Estate
Reader lgs remarked that recent listings around him have continued to come on the market at ridiculous prices, ignoring the fact that others have failed at lower pricing.
"But when I look at what sellers and agents are doing in the neighborhood, I just don’t get it. It’s not like anything has sold around here in six months that would give them some hope. So, really, what are these banks and agents thinking?"
1. Some sellers can’t lower their price, their loans are too high. Can’t blame them, but if they should consider cashing-out a 401k or some other source of funds. Let’s set this group aside.
2. Some say that the sellers are in denial, but I don’t agree. Denial would imply that the sellers made a thorough investigation to arrive at the right price, and ignored it and went higher. I don’t think sellers make a thorough investigation, either on pricing – or hiring a realtor. Sellers want to make a quick decision, because of their discomfort with the process – and they want to shoot from the hip. Banks included.
3. Some realtors don’t know what they are doing. There are agents who are using bad comps. Sorry, the comps have very little to do with today’s value. Especially in tract neighborhoods, where it is so easy to see where the prices have been – buyers go down from there, not up.
4. Sellers want to wait - WAITING IS BAD FOR SELLERS! The longer you languish on the market, the more confident the buyers get about their idea of value being right. Sellers need to get out in front, using aggressive pricing to keep the buyers interest.
Here’s why – lgs also said,
"The agent was there the other morning putting up some signs and doing something in the garage, but I didn’t even want to enter into a discussion because I figured asking if the sellers would accept a very low offer would just lead to him being insulted and I didn’t think it was worth the bother."
The buyers don’t want to bother inquiring about a sale, let alone making an offer.
What are we doing at Klinge Realty? Here are some examples:
1. My listing in Carmel Valley that has been featured here is closing today. It is a job transfer, handled by the employer’s relocation company. Lots of layers of management, but the pricing is left to the homeowners, who thought they had done a thorough job of investigating the market, and they did. But the condition of the home was fairly original, built in 2002 without much upgrading. It was shown every day, but no bites because the buyers want the upgrades included, or a lower price. We had started at $1.295 million, and waited patiently for the relo buyout price, which came in low after three appraisals. What do you do?
A normal agent would p[robably suggest lowering the price $20,000 to $40,000, but I knew we had to get out in front. I told them to lower their price $100,000, to $1.195 million. They wanted an extra $4,000 so we made it $1.199 million.
We got three offers in the following four days, two at full price.
2. A couple who I have as buyers were looking at a home that seemed too high, listed at $1.895 million, but had just sold and fallen out of escrow at $1.8 million. The homeowner had passed away, leaving a sizable estate to his sisters, and the house was paid off, so we figured the motivation was probably low – plus it had only been on the market for six weeks. My buyers thought it was worth $1.7 million to them – but do you start at $1.6 and work your way up, risking that it would be seen as too low? We made a bet that I could get them to accept an offer of $1.7 million straight away. I lost, they counter-offered over keeping the chandelier in the dining room. But would a typical agent have had the guts, and the ability, to offer $100,000 lower than the previous deal, and get it accepted?
3. John and Lynda (who work with me) are currently showing a buyer homes in the La Jolla and PB areas, and finding that they are many over-priced. They wanted my authorization as broker-of-record to make multiple lowball offers at the same time. I said absolutely – it is in our client best interest to find the motivated sellers quickly. They made offers on five properties simutaneously. Yes, the listing agents may not like it, but too bad, get your price right and we wouldn’t have to do it.
4. The house that I mentioned closed in Encinitas Ranch had a real hurdle at the finish line. The seller had agreed to allow access to the property upon funding the loan, so my buyers could get a head start on moving. (They had people moving into their house a day or two later). When we go to do the final walk-through, even though the sellers had completely vacated the property, Mr. Seller decides that he is going to renege on his promise and withhold the keys until he gets his money – which would normally be a couple of days later. I’m not going to let my clients be inconvenienced because of somebody else pulling a stunt like this. Escrow had funded the loan that afternoon, and expected to close the next morning. The next day I met my locksmith at the house and changed all the locks. The deal had closed (I think) and it was officially my clients house – what is the seller going to do, have me arrested for tresspassing?
Mrs. Seller came back that afternoon and blew a gasket when see figured out that we had locked her out, so we got the last laugh on that one.
The market is tough, whether you are buying or selling, hire aggressive, experienced agents to help you!
Posted on Friday, June 29th, 2007 at 1:46 PM in Thinking of Buying?, Thinking of Selling? | 15 Comments » | 
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Jim,
Seeing your coastal area ratios the past few weeks had got me thinking. LGS’s comments about folks in Santee not lowering their prices is at the core of my theory why the coastal areas you are tracking are doing well.
The area I have been looking at 92029(SW Escondido) has a median price of 650K, 92024(Encinitas)is at 700K(Current medians per Zillow). For only 50K difference, do you think it is safe to say 8 out of 10 buyers would choose Encinitas? Until the inland areas lower their prices enough to make it “worth buying†over a coastal property, you will continue to see better ratios in the coastal areas.
SMC | June 29th, 2007 at 4:07 pmSounds like you might have lowered the price too much on the CV house if you got 3 offeres in 4 days.
CVwatcher | June 29th, 2007 at 4:59 pmJim says: "They made offers on five properties simutaneously. Yes, the listing agents may not like it, but too bad, get your price right and we wouldn’t have to do it."
Why? Are they so busy with bidding wars that they don’t have the time to respond to an offer?
Robert Coté | June 29th, 2007 at 5:27 pmThanks, Jim, for responding and I think I agree with SMC’s comment, too–it integrates what is happening at the coast with what I’m seeing in the hinterlands.
I want to report another experience of mine, however, from Sacramento, if you’ll indulge another long post. I think it may be instructive on what we’ll see here in San Diego soon.
I’m a transplant from there: grew up in San Diego, but have traveled for work quite a bit and took an offer in 2004 to move back to California from the east coast, albeit Sacramento. I bought a house there in a very nice neighborhood that was awash in new construction (North Natomas, 95835) for $400K. It seemed high, but there was a year and more waiting lists for the new construction and this was a nice resale home built in 2003 for less than the current pricing of the new homes.
By early 2005, homes on my street and nearby, same model, were seling for as much as $515K. As it happened, I got a better offer in San Diego in January 2006 and decided I should take it. I put the house up for sale FSBO, after doing a lot of research, for $500K. Plenty of comps less than 60 days old had sold for more than that and I had very nice upgrades. I got nothing but showings for 45 days and decided I should hire a realtor who was better than I am at selling houses. I hired a great one, by the way, (www.bricksteam.com)–very aggressive and tireless with advertising, open-houses, and good advice. What he showed me was that inventory in the zip code had exploded just during the 30 days or so that I was preparing my house for sale. In less than 60 days, inventory more than doubled, which made it more than 5 times what it was in 2004 when I purchased.
He suggested a price drop and I suggested we go even deeper. It sold for $470K in May, 2006. (or 8% less than others had sold for in January and February). The person who bought it got foreclosed on just 9 months later (!) and the home sold by the bank for $400K in March of 2007. Back to 2004 pricing. Today, I decided to scan the for sale listings in the zip code: there are at least a dozen homes for sale within a six block area that are 500 square feet larger or more, selling for under $400K. My hunch is that for $350-360K you could buy the equivalent of my old house today. That means it’s down about 30% from the "peak"–and every newspaper in the area is talking about how things are going to go lower in the area.
I realize this is Sacramento. But I tell this story because at the time my home was about to sell for $470–and lots of other sellers were still holding out for their $510-$515K,just like the neighbors got a few months before–there was a lot of "activity." Sign twirlers, open houses *everywhere* every weekend. I mean it got bizarre right about the time I hired the realtor–in Natomas you could easily find 50 or more open houses on any Saturday. But almost no one was lowering prices. This is in a big development, but a couple thousand houses, meaning every intersection had multiple open house signs.
Then there came a moment, I’m guessing when enough 2/28 mortgages reset, that capitulation just happened. People who weren’t serious languished or cancelled listings (although inventory has never yet really slackened), but the banks started to sell, and any one who had bought in 2001-2003 (when the first phase of Natomas was built) had enough equity to drop to 2004 prices to just get out if they really needed to, and transactions started happening at lower prices. Once that ball got rolling, there was no turning back. No one was going to pay $515K again when they say my house at $470K and then others follow at $450K and below all the way down to the $400K foreclosure sale–and I wouldn’t be surprised to see 2001-2002 pricing again in Natomas soon, since banks are foreclosing on so many homes in the development and inventory just keeps building.
The same absurd level of weekend "activity" (not selling, mind you, but lots of activity) is starting to look familiar in Santee and perhaps areas of San Marcos that I’ve driven through when going to see if there are neighborhoods there I’d consider moving into.
I think the "bubble sitters" are going to be rewarded handsomely. Although I sometimes think this will take a long, long time to play out, it’s possible there will be a very "lumpy" process with a steep decline or two, if there is a legitimate parallel to the trend in Sacramento to what’s happening here in San Diego.
lgs | June 29th, 2007 at 5:57 pmI agree that a high level of activity doesn’t mean that a sale is imminent, more like a school of piranhas swarming. My house was shown to >85 parties, many twice, some three times, before finally selling for 20% lower than the peak after 5 months. All the activity kept me from lowering my price quicker. My realtor had a fancy wireless lockbox that would email me everytime a realtor showed the house (or entered anyway). For all those bubblewatchers who are actually out there looking at houses, I think you are actually delaying the crash by giving the sellers HOPE. This certainly happened in my case.
anon | June 29th, 2007 at 6:40 pmJim,
I want you as my realtor! Bummer I’m looking over 100 miles away from your area.
Ok, could you do an article on how to do multiple low-ball offers? How does one structure the offer? I assume no "good faith" money is to be deposited until the counter offer?
Obviously this can only be done when inventory is abnormally high… But its what I plan to do in nominally 18 months.
As to the ANON comment on hope… there is always a market. I doubt there are very few days where homes do not go into escrow in a large Metropolitan area… and most involve large family meals.
But I will sit and build my down payment… but there will be a day I buy. My concern is that by then my company decides that sellers won’t ever meaningfully lower prices and relocates me.
We’ll see…
Got popcorn?
Neil | June 29th, 2007 at 6:56 pmNeil
CV watcher,
It’s common to think the price is too low if you get a bunch of offers. Here’s my rationale:
The sellers had to move, the job was waiting and we had tested the market for six weeks. We were clear – we weren’t going to get close to the $1.295. The relo company’s buyout price was 10% below list, you can guess they are tired of holding the bag on these and are being very conservative.
If we went to $1.25, would it make a difference?
Not much, $40,000 less isn’t that much different than $1.295, in fact, when you look at the numbers, they look very similar. And if that didn’t work, we’d be at $1.199 anyway, just a few weeks later. Or if somebody offered, they’d want a discount due to condition.
The discount for condition had to be priced in – it was coming one way or another, you might as well use it to your advantage. I’ve said it here plenty, as a seller you have to go first, if you want to get buyers off the fence.
We cut to the chase because we guessed that we could end up there anyway, and with the job calling, we might as well get it done.
Could we have gotten higher? Maybe, but how to get there has to be balanced with the time spent, and we had already spent too much time trying for more.
The sellers were convinced that the relo company’s offer would be above $1.2, and when it took them six weeks to provide the buyout number, it limited how much time we had left to work with.
I don’t want to get stuck with any listing 90 days or more, and risk the DOM Death Spiral.
Jim the Realtor | June 29th, 2007 at 7:20 pmAnon,
Thanks for the chuckle. I had said over a year ago when the blame game starts, you know the bubble has really started to burst. What I meant was Realtors blaming loose money, mortgage folks blaming loose regulations, everyone blaming the government, government blaming everyone back and so on. But to say those of us still not willing to over pay for a house is the reason prices haven’t gone down is a great new twist.
We were not part of the run up, so why would we bail out the people that caused the mess by coming in and overpaying for their property?
Jim has stated before that you can get great deals but it will take a ton of work in this market, because sellers are unwilling to lower their prices. I will let the market do the work for me and when prices are back in line with fundamentals, I will buy.
SMC | June 29th, 2007 at 7:31 pmRobert,
Good question, and I can’t honestly answer you about what the listing agents are doing. Two of the five have yet to respond, and here we are almost two days later.
Honestly, I think sellers and agents alike are completely paralyzed with ignorance. They think a low offer is a bad offer, when it might be the only offer they EVER get.
Agents have a fiduciary duty to their sellers to respond to all offers, and try to make a deal – that is our job.
How the sellers and agents respond is critical. Even if it’s a lowball offer, try to MAKE A DEAL! Respond with an aggressive counter so the buyer is at least impressed that you went further than the rest of them, and throw in the kitchen sink too. Not just old comps to substantiate price, but other deal-makers, like closing on the buyer’s timetable, include appliances and other goodies, offer to pay closing costs or credit for improvements, etc.
And listing agents should give up on insisting on choosing their title and escrow companies – let the buyer’s agent have a say. You need their cooperation more than ever these days.
Jim the Realtor | June 29th, 2007 at 7:33 pmWifey the gatekeeper wants me to mention that even though the locksmith and I were mobilized before closing, his lockpick did not go into the lock until we had comfirmation of closing by telephone (we were walking up to the door). No crimes were committed.
While we’re on keeping it legal, all of the mortgages I’ve taken out over the last few years have been full-doc, and marked non-owner-occupied if I didn’t live there.
Jim the Realtor | June 29th, 2007 at 7:38 pm"Sellers want to wait – WAITING IS BAD FOR SELLERS!"
our current landlord tried to sell in 2006 and did not get their price.
they decided to wait this market out by renting it out.
the latest comparable home for sale in the tract is $80,000 less than their purchase price, or more than $100,000 after commissions and all that.
Jim’s right, it doesn’t pay to wait for the sellers.
Innovest’s foreclosure numbers are on track to over 800 foreclosures for the month of June in SD. that even breaks the population adjusted foreclosure record! foreclosure # link
ocrenter | June 29th, 2007 at 7:51 pmSMC
I think you are onto something. I think you are likely to see a see-saw effect of home sale locations between the coast and inland. Once all the foreclosures in 4closure Ranch get their price lowered the sales will migrate there. Then the coast will respond and back and forth it goes. I believe Carmel Valley has had the largest year over year price declines which has allowed it to maintain its sales rate. Jim do you have any insight?
downtownrenter | June 29th, 2007 at 8:25 pmTo the person that wrote:
"Sounds like you might have lowered the price too much on the CV house if you got 3 offeres in 4 days".
How so? The alternative would be sitting on the market for weeks if not months with limited showings and zero offers. Simple question "do you want to own this property or do you want to sell this property?"
You did a great job, Jim.
Regards,
pjt | June 30th, 2007 at 2:17 amJim,
You did a great job with your clients! It shows in the number of transactions you’re completing.
SMC,
I agree 100% with your theory. It’s the "price compression" which is often seen at the transition points in the RE cycle.
I’ve mentioned here before that homes were selling in our former starter neighborhood in O’side for about $50K-$100K less than better, bigger homes in La Costa (older section). Up until that point, LC prices and activity had basically stalled (in 2004) while O’side kept going up (into late 2005/early 2006).
Once we saw the price compression, though, everything changed & O’side fell through the floor while activity picked up in La Costa (& other upper-mid areas) again.
It’s that "substitution" issue simone mentioned in another thread. Buyers will migrate to the better deals. When/if we get to a point where nice homes (bigger homes, single-story, nicer lots) in Escondido can be had for $250K-$300K, I think people would be surprised at how many people would quickly leave the coastal market if prices here stayed above $600K for lesser properties.
BTW, I think anon was referring to bubble-sitters **looking at** (while not buying) properties which gave delusional sellers hope. I don’t think he/she was suggesting we go out & buy, just that we should stop looking (giving the appearance of a lot of interest & activity) — I was initially confused at first, too.
CA renter | June 30th, 2007 at 9:48 amIt’s not just the sellers, you’d be surprised how "activity" fools agents too. I hear it often how agents think that people looking at houses means the "market is coming back".
Jim the Realtor | June 30th, 2007 at 1:57 pm