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Inventory Watch – Full Vertigo!

On Friday morning I had a bout with vertigo, which is about the only thing that has sent my head spinning more than this market! Thankfully Richard and Donna are very capable and jumped in to ensure there wasn’t any disruption to the business, for which I am very thankful!

Once the initial shock wore off, it meant I just sat around and rested all weekend, which gave me more time to ponder. This was the equation that I found most shocking:

Year
Number of Listings Between Jan 1 – Feb 28
Number of Those Marked Pending By March 22
2020
706
296
2021
566
408

Home buyers came into 2021 fully prepared to buy a home, and didn’t need the usual warm-up period – they came out firing! The 20% decline in the number of new listings juiced the market further, and now virtually everything is selling.

Higher rates might spoil the party, but they will need to get up near 4% before having real impact. Any surge of inventory will affect the immediate neighborhood, but not do much to the overall feeling that sellers are in full control for the next few months….at least!

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Daring You To Buy

In the last couple of weeks, you may have seen prices on new listings reflecting today’s exuberance.

Homes that are priced attractively will generate the crowds, and likely get bid up over list.

Others are listed for a price that raises an eyebrow. In areas where we’ve seen 10% to 20% appreciation in the last six months, are sellers packing that much on to their list price PLUS another 5% to 10% – or more?

How do you recognize the difference?

The difference between a bidding-war listing, and a seller just daring you to pay their price?

Thoughts for Buyers Wondering If The List Price Is A Dare:

Compare to the Pendings

If you only consider the sold comps from the last six months, you probably won’t buy a house in this market – one which should last at least a couple of more months before there’s any possibility of unsold listings starting to stack up.

Who is the Listing Agent?

Known and successful listing agents aren’t going to list a home for some crazy too-high price. They know it’s better to keep it attractive, and let the market do its thing.  If you’ve never heard of the agent and he acts more like a kook from Montaluk, then know that their list price is more likely to be outrageous.

Quiz the Listing Agent

The number of showings doesn’t matter as much – the number of offers does. If there have been 50 showings but only 2-3 offers, it means the price turned off 90% of the buyers. Unfortunately most listing agents are shutting down the showings so fast that it’s hard to get an accurate count – or to get them to fess up.

The Age of the Home

The older the home is, the less likely it’s worth a premium.  The floor plans aren’t current and the upgrading over the years is likely to be inconsistent – those will be even more difficult to sell in a normal market. They do tend to be in the better locations, so the home’s age isn’t a hard stop.  But typically the older homes are less likely to be worth a big premium today, let alone in the future.

Days On Market

If you’re not sure if the price is right, then wait it out.  The initial frenzy dies off quickly, so if you don’t need this house like you need air to breathe, let ride and see if it goes unsold for the first 7-10 days.  It’s really the only way to know for sure if the price is wrong.

Stay Picky

Only pay a huge premium if it’s the perfect house for you. There’s a decent chance that appreciation flattens out over the next few years and you end up high & dry for a while. But you don’t care because you’re in it for the long haul, so make sure this home fits ALL your needs. No compromise.

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The market for the best homes has been hyper-competitive for years – it’s only because of the covid/low-rate cocktail that buyers are flooding the streets in numbers we’ve never seen before.

Maybe you should wait it out?  Aren’t all sellers daring you to buy now?

You’re just buying homes today at tomorrow’s prices. If prices go up another 10%, and appreciation flattens out and you can score a deal at 10% off, then you’re only back to where you would have been today.

Homebuyer Ages

There is a real curiosity about who the buyers are, yet there isn’t much information available about the demographic trends.  So I thought this was an interesting factoid.

My YouTube video of the listing in 4S Ranch has been seen 363 times, which is a good sample size and quite a bit above normal – which means the extra traffic was from the video being in the listing. I choose to mark the box on YouTube that my videos aren’t for kids, so I miss the Under-18 group, which is ok.  Yet, you’d think there would still be some variety among the viewers.

But the buyer pool in 4S Ranch – a typical newer tract neighborhood with good schools – is very consistent:

I don’t know how accurate their analytics are, but the 35-44 age group is similar to what I saw in person.

Market Topics

I love hearing from new readers!

Hi Jim,

I have recently stumbled upon your blog and find it very interesting as I am an appraiser in San Diego. I wonder if anyone has considered that the low inventory levels are in part because home prices are going up so fast why would anyone want to sell something that is going to be worth 10K, 20K, 50K more within just months. For example my home according to Zillow is up 22K in the last 30 days. Something else to consider that I have not seen mentioned….

Are sellers paying attention that closely? If so, then you’re right – it’s possible.  Add that extra supply to the post-covid/Prop-19/usual-spring listings and there could be a real surge. But the worst thing that will happen is there will be 3-4 houses for sale in your neighborhood, instead of one or two.

Do sellers risk it? Most are already making $200,000 to $1,000,000+ profit……are they going to purposely hold out in hopes of picking up an extra $50,000? Maybe, but I’d guess that when and where they are moving probably plays a bigger role in their decision-making.

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Sellers are indeed holding back for some reason.

In the first nine days of March last year we had 148 new listings between La Jolla and Carlsbad, and so far we’ve only had 90 this year.  More will be added to that nine-day total this week, but we’re still well under where we’ve been in previous years. March is when the inventory really picks up, historically:

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The Frenzy of 2013 was red-hot for about a year.  If the same happens this time, it means the market should flatten out by July as rates increase and buyer exhaustion sets in.

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The bump in rates over the last two weeks just threw gasoline on the fire for those who could find a house to buy.  But an extended run-up – especially if we get to 4% – should cool things off.

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I have two closings with buyers this week. One paid $135,000 over list, and the other paid $100,000 over.

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Over the weekend, I had buyers make a highest-and-best offer that was $207,000 over list….and lost.

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There is virtually no transparency – just take your shot and pray. Don’t think, and don’t blink!

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Zillow Leads

I also wanted to test the Zillow lead generator.

Now that they have buried the three Premier Agents at the bottom of the listing, how do consumers get more information – and from who do they get it?  They added the Contact Agent box at the top of the listing, which kind of makes you think you will be connected to the listing agent.  But that’s not what happens (though I do get mentioned about halfway down without a phone number or link).

Once Zillow published the listing on Wednesday afternoon, I clicked on the Contact Agent to find out.

Within minutes I received a text – here is the thread:

I was standing next to my phone and didn’t hear any ringing, but it’s possible he called.  I let it go for the rest of the night to see about their follow up, and indeed it began again on Thursday morning. A new guy connected me to Cheri, who didn’t know anything about the house but was very nice.

Once our phone call was complete, I received this by email:

Coincidentally (or not?), one of the agents from The Avenue Home Collection did show my listing yesterday.  Because their office is nearby, their broker Melissa also stopped by. She is a 19-year veteran and was brought up in the business by old-school people like me, so we got along right away.

She confirmed what I’ve been thinking.

Zillow has selected a handful of brokerages with high customer-service ratings as partners.  Zillow has their own phone team make the first contact the consumer, then forward the call to one of the agents.

She didn’t say how much she is paying, but it’s not as much as the top Zillow agent in the area who she suspected is paying around $30,000 per month for the majority of the market share.  It’s a ton of money to invest and be dependent upon the Zillow phone guys to serve up the leads fresh and hot.  The Zillow guy who called me was pathetic, though it was early (around 9am) and every phone solicitor will tell you that they need to warm up first. I was probably his first call?

They have only been Zillow partners for four months, so it’s early. I told her to hang in there, because I am constantly amazed at how casual and naive the consumers are about selecting their realtor.  Because there isn’t any transparency about an agent’s skill level, people just grab one – and with Zillow’s name recognition and horsepower, they should be able to convert viewers into buyers and sellers as well as anyone.

Realtor.com, RPR, HomeSnap, Compass, KW, CB, and others have said they might mount a challenge Zillow’s search portal, but there isn’t anyone close to spending the money on national advertising as Zillow.

It reminded me of this clip – Zillow is just waiting for a challenger – and the likely outcome:

Automated Scheduling of Showings

The industry has been abuzz over Zillow buying ShowingTime, our appointment-scheduling service.

Wouldn’t it be great if Zillow published the number of showings publicly? The intel that could be gathered would be of great interest to buyers, and help enhance the home-selling transparency.

The data is already available.

Buyer-agents who book their appointments to show on the ShowingTime mobile app can see the whole schedule of times already reserved by other agents. It also makes you wonder if listing agents are reserving a bunch of times to make their listing look more popular (no names or other info is given on the app).

If buyers knew how many showings were scheduled, it would help them decide how much to offer.

Same with the number of offers.

The trend is to do less for buyers, so when asked, most listing agents won’t discuss how many offers they’ve received – and they certainly won’t divulge the offer prices.

But they should.

It would give other buyers a number to shoot at, and that transparency alone makes them more likely to hit it, or even offer more.  It’s an old wives’ tale that you can’t divulge – the opposite is stated in the contract:

Another benefit of divulging the number of offers and their terms is you quickly eliminate the non-players.  Most buyers are comfortable offering the list price, and +/- 5%, so why not just tell them that you have an offer that is 12% over list and save them the trouble – and save the listing agent from having to process another offer that’s going nowhere.

You can then concentrate on having the real players compete against one another.

It sounds like an auction, doesn’t it?

‘No More Showings’

We see it more and more these days – listing agents who shut down showings of their listings. I’m sure most would say, “What do you want me to do? I had 20-30 appointment times available, and they all booked up!”

When faced with having to work harder, smarter, or less, agents always seem to pick less.

  • But they owe it to their sellers to find a way to show their home to every possible buyer.
  • They owe it to their fellow agents too, and their buyers.

Work Harder:

An agent over the weekend was bombarded with requests to show a newer one-story home on a half-acre lot. She TRIPLE-BOOKED the whole weekend, and designated four stations – two inside, and two outside. As visitors arrived, she explained the process, and deftly guided everyone from station to station to keep the parade moving – and it went very smoothly.

Work Smarter:

Can we please require agents to produce YouTube video tours?

If you don’t like the way you sound or you’re afraid you might say something stupid, then just don’t talk. The video is a boost to understanding the flow of the floor plan, and and a way to highlight the biggest benefits. It’s not that hard to do – you’re doing videos of your grandkids every weekend, surely you can walk around a house with a videocam and pretend you’re showing the house to a buyer – of which you have plenty of practice!  Then the buyers who got shut out from an in-person appointment can view the video and have a fighting chance to compete.

Selling homes by video should have been commonplace by now. Let’s do it!

Frenzy Report

Del Mar Heights has always been a sexy option – the access to beach/freeway/UCSD is excellent, and two of the best elementary schools in the county are a short walk. Like in other areas, the inventory has dried up, so when this one hit the market, it created a tsunami of interest.  Look at the number of views & saves:

They ended up with 42 offers!

https://www.zillow.com/homedetails/13883-Boquita-Dr-Del-Mar-CA-92014/16764209_zpid/

Talk about perfect timing!  The day after the bidding concluded on the home above, this estate sale hit the market, and about half of the disappointed group ran over here to make an offer:

They received at least 19 offers!

https://www.zillow.com/homedetails/14238-Minorca-Cv-Del-Mar-CA-92014/16764756_zpid/

We can expect both to be in the March double-digit-over-list group at 15% to 20% above.

If three-quarters of those unsuccessful buyers throw their hands up and decide to sit this out for a while, there will still be several competitors frothing at the mouth for the next one – even at $1,500,000+.

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Sell for the Zestimate?

Would you sell your house for the zestimate? They say their accuracy is within 1.9% with on-market homes – no kidding! Of course, they concoct the zestimate after the list price is published, just like Redfin does.

There’s been no shortage of news when it comes to Zillow, a company that kicked things off in the early 2000s with a home-search portal that consumers now recognize as the place to go for market inventory. Now, the Zestimate, introduced by the company in 2006, is the latest cog in a machine that has taken on an entirely new model: brokerage, iBuyer, lender, title and escrow service, and, most recently, showing service.

Zillow has just announced that it will be pairing its Zestimate with its iBuying arm, Zillow Offers, as the latest way to use technology to “simplify and streamline real estate transactions from beginning to end.”

The Zestimate is now available as an initial cash offer for eligible homes in the following cities:

  • Phoenix and Tucson, Ariz.
  • Charlotte and Raleigh, N.C.
  • Miami and Jacksonville, Fla.
  • Orlando and Tampa, Fla.
  • Portland, Ore.
  • Denver, Fort Collins and Colorado Springs, Colo.
  • Nashville, Tenn.
  • San Diego, Los Angeles, Riverside and Sacramento, Calif.
  • Dallas, Houston and San Antonio, Texas
  • Las Vegas, Nev.
  • Atlanta, Ga.
  • Minneapolis, Minn.

However, the cash offer for a property’s Zestimate is only available in a limited subset of homes in these markets. Those who own qualifying homes will see the cash offer displayed at the top of their property information on Zillow, the company reports. As Zillow Offers grows, the company expects to continue expanding the number of eligible homes for the Zestimate cash offer.

Additionally, the company states the initial offer is before taxes and fees and is subject to both eligibility and the accuracy of the property’s description.

“For 15 years, homeowners and home shoppers have come to rely on the Zestimate as an essential first step. This exciting advancement demonstrates the confidence we have in the Zestimate and the lengths we are willing to go to make selling your home truly seamless and easy,” said Zillow Chief Operating Officer Jeremy Wacksman in a statement. “This is a proud moment for Zillow’s tech team and speaks to the advancements they’ve made in machine learning and AI technology. Zillow is transforming the way people sell and buy homes. Presenting the Zestimate as a cash offer to qualifying homes up front will save time, reduce friction and provide greater transparency—getting us closer to our vision of helping customers transact with the click of a button.”

A hot-button issue in the past has been the accuracy of Zestimates. Real estate agents have long complained of sellers pushing back on proposed listing prices that don’t meet the expectations set by their Zestimate.

“Zillow’s move to use their Zestimate as the basis for a cash offer is bold, although I’m more amused than concerned. The accuracy of Zestimates have long been a running joke among the real estate community, but I wouldn’t put it past Zillow to make it work through careful selection and their continued acquisition of more data,” says Josh Harley, chairman and CEO of Fathom Realty.

Kit Fitzgerald, regional designated broker for the Kit Fitzgerald Team at Equity Northwest Real Estate, says that because the Zestimate is algorithm-based, it’s impossible to get the same accuracy that a living person such as a REALTOR® can provide. “It plugs in a bunch of numbers, zip codes, mapping, etc., and spits out a general number,” says Fitzgerald, who adds that without going inside of a home, assessing the overall condition of a home, the layout, amenities, street scene, etc., the accuracy is just not there.

According to Zillow, the Zestimate is available for nearly 100 million homes in the U.S. with a “nationwide median error rate for on-market homes of 1.9%.” To come up with a property Zestimate, Zillow reportedly uses data from public records, multiple listings services, brokers and artificial intelligence that pulls information from photographs.

Is photo-based data enough to support neighborhood comparables to come up with a home valuation, however? Michael Hickman, CEO and president of Seven Gables Real Estate, a member of Leading Real Estate Companies of the World®, doesn’t think so.

“The issue with Zestimates is the interior,” says Hickman. “Any AI can look at comps, but what about the interior improvements that an AI would not pick up? Without AI scanning interior upgrades, the Zestimate will never be accurate.”

As Harley suggests, Zillow’s recent endeavors suggest the company is seeking out more data to build out their capabilities, and according to David Serle, broker/owner of RE/MAX Services, this could be a good thing—at least when it comes to Zestimates.

“I think this is a positive thing. There have been concerns since 2006, when Zestimates first became available, about the accuracy of these valuations,” says Serle. “This will create greater transparency for the consumer and the real estate industry.”

What it comes down to, however, is that Zillow’s iBuyer solution won’t meet the needs of every home seller, according to brokers and agents, regardless of whether or not they are offering an initial cash offer based off the Zestimate.

“There is a certain amount of people who would gravitate to an iBuyer sale and many who will not,” says Serle. “Typically, a cash offer in most iBuyer programs could be as much as 10-15% off the market value, especially in a ‘hot’ seller’s market around the country. I do not believe real estate brokers or agents are competing against iBuyer programs or consumer portals; we are relationship driven and strive to push forth the best consumer experience possible. All of these tools cannot replace what an experienced, knowledgeable and excellent real estate agent does.”

In today’s market, for example, Cathy Strittmater—team leader of Cathy’s Home Team of Keller Williams Solutions—says sellers can expect multiple-offer scenarios, and that should impact decisions about going on the market or accepting an instant cash offer.

“In today’s market of multiple offers on properties, and values rising quickly, it’s in sellers’ best interests to sell their home on the open market rather than sell to a single vendor who is also ascertaining value,” says Strittmater. “I would personally consider that a conflict of interest—no differently than dual agency is also a conflict of interest.”

Fitzgerald is of the same mindset, stating a Zestimate might give sellers a general idea of their pricing ballpark, but it’s not a great overall tool to assess value.

“In an ever-changing real estate market, you’d hate to potentially leave money on the table by not opening up the sale of your home to a much larger number of well-qualified buyers,” says Fitzgerald. “The instant purchase is a good tool for some, but I believe that for the vast majority of homeowners, the open market provides more healthy competition for your home.”

While the iBuyer model won’t appeal to all, Harley does caution that industry practitioners should maintain a competitive stance when it comes to Zillow and these instant-cash business models.

“They’re smart and they are a monster of our own creation,” says Harley. “We allowed it to happen and now agents are shocked that the foil-hat wearing conspiracy theorists were actually right. iBuyer programs have a long, long way to go before they are a real threat. Right now, it’s more smoke than fire, but if we’re not careful and figure out ways to compete effectively and provide a true value exchange for our services, REALTORS® and their clients will be the ones who get burned.”

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