Moving Towards Single Agency

It’s been obvious that the entire real-estate-selling business has been deteriorating towards single agency. I see it every day on the street, and I’ve posted evidence of the shift regularly.

The trend is moving quickly now on multiple fronts.

The DOJ is going to decouple commissions, which will prohibit sellers from offering to pay the buyer’s agent. The buyers can include it in their offer, but it likely won’t get that far. The buyer-agents who are left will want a written agreement to get paid by the buyer if the seller won’t pay. How many agents will be able to demonstrate why they are worth it? Not many, but maybe the buyers won’t ask too many questions.

Homes.com is spending millions and billions on advertising their website to compete with Zillow. Their twist? They funnel all the leads back to the listing agent, instead of farming them out to the highest bidders like Zillow does. I’ve been called by several phone jockeys from Homes.com to sign up for their enhanced listing packages, and I’ll sign up. Robert Reffkin responded positively to the Homes.com program, and you can see how Gary Keller feels about it above.

Agents are giving up on representing buyers because it’s too hard and doesn’t pay enough. Most of the unsold listings are grossly over-priced and the occasional deal gets multiple offers within minutes. Agents have to spend months or years working with their buyers before they get lucky, only to then get a reduced commission from the listing agent. Now I have to convince the buyer to pay the commission too? Great, thanks.

Listing agents are advertising for buyers to avoid paying the buyer’s-agent commission by coming directly to the listing agent instead. Realtor cannibalization is what we deserve. (link)

This house priced at $1,985,000 in Rancho Penasquitos received 15 offers and likely sold for 15% to 20% over list (an offer that was 12% over with free rentback wasn’t enough).

I remember when $2,000,000 got you a decent house in Carlsbad!

Biden Housing Tax Credits

It looks like the over-heated housing market will cause the government to do something so it looks like they care. There was a $8,000 first-time homebuyer credit back in 2009-2010 that was free money given to those who just happened to buy a house then – nobody bought a house just because of the credit. The same will happen now – it will just be free cheese for those buyers and sellers in the right place, at the right time.

How the two credits would work, according to the White House:

  • “Middle-class” first-time homebuyers would get an annual tax credit of $5,000 a year for two years. The White House didn’t specify what “middle class” means.
  • A one-year tax credit of up to $10,000 to “middle-class families who sell their starter home, defined as homes below the area median home price in the county, to another owner-occupant.”

President Biden is calling on Congress to pass a mortgage relief credit that would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years. This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home, and will help more than 3.5 million middle-class families purchase their first home over the next two years.

To qualify, home buyers must meet the following eligibility standards:

  1. Must not have owned a home in the last three years.
  2. Must not be a prior recipient of a first-time home buyer tax credit.
  3. Must not earn more than 60% above than the area’s median income.
  4. Must be making an arms-length transaction.
  5. Must be at least 18 years old.

The President’s plan also calls for a new credit to unlock inventory of affordable starter homes, while helping middle-class families move up the housing ladder and empty nesters right size. Many homeowners have lower rates on their mortgages than current rates. This “lock-in” effect makes homeowners more reluctant to sell and give up that low rate, even in circumstances where their current homes no longer fit their household needs.

The President is calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home, defined as homes below the area median home price in the county, to another owner-occupant. This proposal is estimated to help nearly 3 million families.

To qualify for the $10,000 Home Seller Tax Credit, sellers must meet the following eligibility requirements:

  • The home seller must live in the home they’re selling as their primary residence.
  • The home buyer must make the home their primary residence.
  • The home buyer must not earn more than 60% above the area median income.

Additionally, the home for sale must be a starter home which is defined as a home that sells for less than the county’s median home price. Eligible property types include single-family homes, condominiums, townhomes, multi-unit homes, and any other home zoned for residential residence.

The bill will increase available housing inventory for homes selling between $100,000-250,000 which, according to the National Association of REALTORS® Existing Home Sales report, is the fastest-selling segment of U.S. homes.

To take effect, these proposals would require Congressional approval. As of today, neither Democratic nor Republican leadership in the House or Senate has come out to support the measure.

President Biden also called on Congress to pass the Downpayment Toward Equity Act, a downpayment assistance program for first-generation home buyers that gives up to $25,000 in cash grants. The bill was originally introduced in the 2021-2022 Congress, then re-introduced in 2023. It has 44 co-sponsors in the House of Representatives. A corresponding bill is expected to be introduced in the Senate soon.

Inventory Watch

There have been 12% more listings YoY in the first two months of 2024, and buyers are responding!

Closed SFR sales between La Jolla and Carlsbad are +20% YoY in the first two months of the year!

It’s why the number of active listings (red line above) isn’t exploding, AND there have been 88 new pendings in the last two weeks – which is about twice the pace we had in January. The median LP of those 88 pendings is $2.5 million, which means pricing will be at least +10% higher than last year. Wow!

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Los Altos Price Explanation

There had to be skeptics to my Los Altos Adventure last weekend.

Did you mis-price the house by more than a million dollars on purpose – or just by accident? Come on – you were 440 miles out of your normal market area….dude….you got lucky!!

I like to pay close attention to the market activity in the days before inputting a new listing. This was the latest listing by the guy who has just captured nationwide attention of his lowball $10,000-commission offer to the buyer-agents. As of Wednesday night, this was still active, and I told my sister that I didn’t want to compete directly because mine would help to sell his. If it was still an active listing when I woke up on Thursday, then I’m not coming up and we will postpone the listing for at least two weeks due to weather:

https://www.compass.com/app/listing/764-parma-way-los-altos-ca-94024/1510956913476773969

Miraculously, when I woke up the listing was marked pending – so I left for Los Altos.

All I had to be was the most attractive new listing in a very exclusive area (Nvidia is based in San Jose). There had to be losers from the Parma bidding war who were motivated to buy the next one, and there was nothing else for sale at this price point.

I was talking it up with every agent who came to my open house, and eventually I found an agent who was in the same office as the buyer-agent of Parma – and they confirmed that it sold for $4,150,000! Do you think I told that to every person I met over the next 48 hours….yes!

Let’s note my options: Either price attractively and have buyers bid it up, or price at retail and wait.

Here’s an example. The size of house and lot are pretty similar to mine, and it’s a busy street too. How are they doing? They listed for $3,998,000, and 30 days later they are still unsold:

https://www.zillow.com/homedetails/1107-Covington-Rd-Los-Altos-CA-94024/19533609_zpid/

There is an easy guide for pricing:

The more obstacles that need to be overcome, the more attractive the price needs to be.

I’ve been showing houses to buyers the last couple of days, and this theory has never been more clear.  As we walk into a house that appears to be priced at the top of the range (or higher), the skepticism builds with every step – and we’re looking for any reason NOT to buy.

But when you walk into an attractively-priced home and see defects, they just confirm why the price is attractive – buyers don’t expect perfection when the price is attractive!

What happens once a home hits the open market depends on the listing agent. Yesterday, one was blaring his Jesus music, and another was chatting with the sellers who were still hanging around even though the open house started 15 minutes earier. Most listing agents aren’t implementing any bidding-war strategy – heck, yesterday there was one agent who didn’t even know the price of the home!

In reviewing the Los Altos comps, about half of them had closed over the list price, so I knew it was going to be hot. I knew that I was selling a house that looked all original, and was on a busy street. So we priced it attractively and I aggressively implemented my tried-and-true bidding war strategy that works!

NSDCC Active Listings By Week

The blip in active listings over the last week isn’t too concerning and could just be from the weather.

The count of active listings is a good indicator of the demand though. During the mega-frenzy conditions from late-2020 through early-2022, you can see that the new listings were being gobbled up as quickly as they came on the market, and there was no build-up of the supply. Last year, the demand was hot enough in the early months that the active-listing counts were fairly flat too.

If this year’s count of active listings surges above 400, it will mean that we are exiting the frenzy days, and the market’s normalization is underway.

It is subject to the overall number of listings, and I’ll reuse yesterday’s chart to show the flow:

NSDCC Listings and Sales, Jan 1 – Feb 15

The total number of listings in 2024 is still in the frenzy range.

It’s the number of active listings that help demonstrate the velocity of the demand. Are they being gobbled up as fast as they hit the market like in recent years, leaving the number of actives fairly steady? Or are the actives starting to pile up, like they used to do? (see the 2019 green line in graph at top)

This is how we will know where the Spring Selling Season is going.

Buyers already have reason to be cautious and wait patiently because Powell opened his big yap and said he was going to lower his rate THREE times in 2024.

If the active listings break out of the frenzy range and start stacking up unsold, it will be irresistible for buyers to wait longer to see if sellers capitulate on price, while hoping rates might come down too.

Want to know where the market is going? Just watch the number/trend of the active listings!

NSDCC Jan. Listings & Sales, Prelim

As of February 1st, the January sales count is 103, with the median sales price at $2,275,000, which is a nice pop over the 87 sales from last month. The graph above shows how any momentum was thwarted by rising rates in October, and some relief now is probably contributing to more sales and activity locally (though the mortgage purchase apps were down 11% nationwide today).

By Monday we’ll be able to crown Joe as the winner of the Padres tickets!

Slightly more inventory is the best-case scenario for a healthy selling season. Too many new listings might cause buyers to pause and see where it’s going, but we’re not close to a surge today. A bigger threat would be running out of affluent buyers.

217 – January 2024 Listings (205 in January, 2023)

103 – January Sales so far (median sales price = $2,275,000)

42 – January Sales Under $2,000,000

15 – January Sales Over $4,000,000

$1,100,000 – Lowest-priced sale in January (a detached condo)

$18,500,000 – Highest-priced sale in January (Oceanfront sold off-market)

20 – Median Days on Market

February should be incredible with momentum increasing rapidly. The selling season is here!

Mortgage tip: For those getting a loan under $1,000,000, you can get an FHA rate in the high-5s today!

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