Predicting Sales Prices

The Federal Reserve Board has come up with a new way to analyze pricing trends. They are emulating the Case-Shiller Index, but applying it to the list prices of properties marked pending to predict the eventual sales prices:

Abstract: We construct a new “list-price index” that accurately reveals trends in house prices several months before existing sales price indices like Case-Shiller. Our index is based on the repeat-sales approach but for recent months uses listings data, which are available essentially in real time, instead of transactions data, which become available with signiffcant lags. Our index methodology is motivated by a simple model of the home-selling problem that shows how listings variables such as the list price and marketing time help predict the final sales price. In a sample of three large MSAs over the years 2008-2012, our index (i) accurately forecasts the Case-Shiller index several months in advance, (ii) outperforms forecasting models that do not use listings data, and (iii) outperforms the market’s expectation as inferred from prices on Case-Shiller future contracts.

Full paper (761 KB PDF)

An ideal price predictor would combine these two trends:

SD list prices vs inventory

The lowest inventory seen was February, 2013, and no surprise that when combined with the lowest rates ever that the market reached full-frenzy mode.

They show now that San Diego inventory is about 13% higher than last February, and the list prices have been fairly flat for the last few months.  Because sellers want more than the last guy, sales prices should keep increasing, at least at a moderate rate.

Proposed Tax Changes

From Forbes:

In an effort to simplify the nation’s unwieldy tax code, Rep. Dave Camp (R-Mich.) is socking it to homeowners.

income taxes and housingHis proposal as chairman of the House Ways & Means Committee, The Tax Reform Act of 2014, hits first-time home buyers, jumbo mortgage seekers, homeowners who have ratcheted up big gains in their primary residence, and even homeowners who are aiming to green their homes by making them more energy efficient. Of course, the proposals aren’t law – yet— but here’s where his plan would hit home. The context is streamlined individual income tax rates and an outsized standard deduction. But if you’re a homebody, you’re likely going to be paying more in taxes.

Drastic limit to mortgage interest deduction. Today you can deduct mortgage interest on up to $1.1 million in debt ($1 million in acquisition indebtedness and $100,000 in home equity debt) on a principal and second residence, but under Camp’s tax reform proposal that is reined in big time.

The maximum amount of indebtedness on which you could take the mortgage interest deduction would be $875,000 in 2015, $750,000 in 2016, $625,000 in 2017 and $500,000 in 2018 and later. Interest paid on home equity indebtedness would not be deductible after 2014. Special rules apply in the case of refinancing as long as you aren’t taking out a bigger mortgage.

Tightening of exclusion of gain from sale of principal residence. Camp’s proposal tightens the rules for excluding gain from the sale of your home. Currently you can exclude $250,000 ($500,000 for a couple) of gain if you’ve owned and used the residence as your principal residence for at least two of the five years before you sell.

The proposal changes the rules so that it only applies if you’ve used the residence as your principal residence for at least five of the eight years prior to the sale. It also limits the exclusion so it only applies once during any 5-year-period (up from 2 years). And it phases out the exclusion by one dollar for every dollar a taxpayer’s adjusted gross income exceeds $250,000 ($500,000 for a couple).

Read full article here:

Holdover Rent

There is an old-school habit in the home-selling business to give the seller a few days after the close of escrow to vacate.  Back in the day it would accomodate the cashing of checks, and closing escrows upstream – but with today’s standard of wiring funds and concurrent closings, the extra time isn’t always needed.

But some listing agents still insist on 3-5 days of occupancy for their sellers after closing – many times without any written agreement.  Usually it all goes fine, and they move out as planned – but I hate the potential liability for principals and agents alike.

Recently we had an example of what can happen when a seller doesn’t move.

An agent who works for me had a buyer who was getting their loan from an out-of-state mortgage lender (not recommended).  There was a delay, and all parties agreed to a two-week extension.

As the two weeks was coming to an end, it became obvious that closing in time would be tight, and the seller was asked to sign another extension fot an extra week.

He goes ballistic, and tells his agent to cancel the transaction, and put the house back at the market – at a higher price!  He thinks that, because the market is hot, he must have under-sold the property, and wants an additional $50,000.

The C.A.R. purchase contract says a seller must give a buyer a ‘Notice to Close Escrow’ that includes a time frame within which the buyer must close, or seller can cancel the deal.

He gave us one day to close escrow.

By this time, I am involved as broker/owner – all Klinge Realty agents know that I want to help determine our fate at the first whiff of a lawsuit.

I drive by the house and see that it is still occupied.  If we can close in a day, we still have a problem.  Miracles happen, loan docs get signed, and the lender goes to fund the loan the next day.

But the seller sends a letter to escrow demanding to stop the closing.  Even though we complied with his wishes, he still wants more money.

Everyone consults lawyers, and we give him a ‘Notice to Close Escrow’ and allow three business days.

His lawyer convinces him that he has to close this deal, but there is no movement at the house.  We are forced make a decision – either close with him still in the house, or cancel.

rockford1At this point, I haven’t met or talked to the seller – I’m discussing this with the manager of the other brokerage.  He tells me that they had to throw in their whole commission to try and make this guy happy – and he still isn’t.  But the message was clear – I’m on my own.

I do my best Jim Rockford impression and stake out the house.

When the seller comes back, I introduce myself and we discuss his troubles – he has work obligations. etc.  The C.A.R. form used for these situations is the SIP, seller-in-possession, and I am very familiar with it because I insist it be used on any of these possessions-after-closings.

The form calls for a rent and security-deposit amounts, but no provision for what happens if the seller doesn’t move – and without a specific agreement, this guy may never move.

We agree to give him five days free rent, and no deposit.  But I include a clause for holdover rent – if on Day Six the seller is still occupying, the rent is $500 per day.

Originally he objected, and suggested $200 per day.  But the holdover rent needs to include a heavy penalty for not moving to ensure compliance – and it doesn’t cost him a thing, if he moves out as agreed.

I stick to my guns, and he agreed.  He moved out on Day Five without fanfare, and buyers moved in.

But you have to add the holdover rent clause!

Pricing Plateau, Or?

Yesterday we saw that the San Diego Case-Shiller Index has been essentially flat since mortgage rates went up at the end of June, 2013.

Those higher rates may have tempered the frenzy around the coast too, as sales started dropping off in August.  But the average pricing has kept rising, now up to $498/sf last month (a 19% increase since July’s $418/sf):


Which segment is driving the average-pricing up?

It’s the higher-end!

Below is the graph for the Under-$1,400,000 market, where pricing has been flat since August – and last month was a blip; the average for February is $385/sf currently:

NSDCC UNDER $1.4 monthly


It’s a rich man’s game – get good help!


San Diego Case-Shiller Dec. 2013

The November Case-Shiller Index reading of 194.15 for San Diego was about the same as October (194.07). Today, the December reading was released, at 193.87, which was a decline of 0.1%.

The Y-O-Y number is still a whopping +18.0%, but that should continue to taper off, even if prices go higher. We won’t see another spring with monthly gains of +2%, will we?

March ’13
April ’13
May ’13
June ’13
July ’13
August ’13
September ’13
October ’13
November ’13
December ’13

San Diego CSI:


Three Great Rooms In A Row

The SP models at Del Sur – a limited-edition collection of elegant estate-caliber homes enhanced by generous interiors and expansive outdoor spaces. The Mello-Roos ranges from $6,600 to $7,200 per year, depending upon purchase price and square footage.  They have three canyon-front houses for sale currently, all in the $1,220,000s:

Inventory Watch – Restrained

For the analytical folks, compare the December 16th data to today’s numbers. On 12/16/13, the two middle categories had the exact same number of active listings. Today, the red-hot $800,000 – $1,400,000 category has 11% fewer listings than on December 16 (though the average LP/sf dropped 6% too), and the $1.4 to $2.4 category has the same number of listings as on December 16th. The potential for frenzy looks limited to just those on the lower end:

North SD County’s Coastal Region (La Jolla-to-Carlsbad)

The UNDER-$800,000 Market:

NSDCC Active Listings
Avg. LP/sf
Avg SF
November 25
December 2
December 9
December 16
December 23
December 30
January 6
January 13
January 20
January 27
February 3
February 10
February 17
February 24

The $800,000 – $1,400,000 Market:

NSDCC Active Listings
Avg. LP/sf
Avg SF
November 25
December 2
December 9
December 16
December 23
December 30
January 6
January 13
January 20
January 27
February 3
February 10
February 17
February 24


Urgency = Top Dollar

Are you preparing to sell a home this year?selling for top dollar

Tempted to spread the word quietly?

You’ve probably seen realtors who install their for-sale signs well before inputting the listing onto the MLS.  Their intent is to hoard both sides of the commission, not to sell for top dollar.

The ‘pre-marketing’ of a home diminishes the urgency, which is the vital ingredient to selling for top dollar.

To create maximum urgency, surprise the marketplace with a hot new offering that is decked out, priced right, and easy to see.

Urgency is a selling tool – it gets buyers to make a decision now, instead of hesitating. But any premature leaking of the opportunity drains the urgency.  Why? Because there is no fear of loss.

If the home isn’t on the MLS/open market, then buyers won’t feel like they have to decide today.  Given the chance to hesitate, buyers almost always will.  If they don’t, it’s because the price is less than top dollar.

Other ways to stick a dagger in a top-dollar sale:

1.  Letting buyers see the house while under construction.  Buyers are looking for ANY reason to pay less, and they focus on everything that isn’t fixed.  In addition, the house won’t have the ‘clean’ smell.

2.  Not having a specific price.  If you are vague about price, buyers will hesitate.  If they do offer first, it will be their price, not yours, and one that makes them comfortable.

3.  Bluffing about the comps.  The most-motivated buyers are experts on recent sales nearby – and have probably seen more of them than you.

4. Not paying a commission.  Always offer to pay a full commission to the buyer’s agent.  Why? Because if they have an agent, then it doesn’t get messy for the buyers to figure out how to include them.  If they don’t have an agent, then it gives them an obvious amount to discount off the price.  Buyers want to offer less, but are typically unsure of an exact amount.  Giving them an easy way to knock off a little is smart, especially if it doesn’t affect your bottom line (you already added the commission on top of your price, right?).

5.  Letting them leave the house.  If you are pre-marketing the home, both sides figure that the decision-making will be sometime in the future.  Buyers will either cool off, or disengage altogether as time goes on.  If you hear yourself say, “Let me know if you have any questions”, then you know top dollar just flew out the window.

Yes, there is a chance that this buyer defies the odds and pays top dollar anyway, just like there is a chance you might win the lottery.  But how do you even know if you are asking top dollar?

There is only one way to know for certain that you sold your house for top dollar:  Have your house in top-notch condition, make it easy to see, and have a great agent maximize the urgency and work the fear-of-loss in your favor.

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