Home flipping is all the rage, and it complicates the demand for old houses and fixers because there are more flippers than buyers pursuing them.
Agents get calls, texts, and emails every day from flippers begging to buy their listings. They offer to have the listing agent represent them on the purchase, and then be the listing agent when they sell it – boom, three commissions!
Long-time homeowners get inundated with mailers to sell their home for cash, with no commissions, no fees, no repairs, no banks, no nothing – and close any time.
Those who are the most susceptible are the out-of-town heirs who roll in with zestimate in hand and an urge to grab quick cash.
But how much do the flippers pay?
Our listing in downtown Carlsbad – a house built in 1958 and had not sold in nearly 50 years – was a perfect candidate. I started getting solicitations the day it hit the open market and they came by the open houses too. “Jim, Jim, come on you can represent me and we’ll buy it right now!”
We received six offers, and FOUR were from flippers.
The list price was $995,000, and their offers were $800,000, $800,000, $825,000, and $866,500.
Someone called the Carlsbad Police and reported a possible murder, and later a flipper called me and said they have access to the title records and an easement runs right through the middle of the house so nobody is going to buy it – except him.
Thankfully we had two offers over $1,000,000 from owner-occupiers that were more attractive, and we made the deal with one of them.
The worst part of selling to a flipper is that once they tie you up and get into escrow, then they really go to work on you. Even if you thought their price already reflected a proper discount for condition, they will want more concessions later.
But for those antsy homeowners who just want to rid themselves of a headache and get their hands on some fast cash, it is a viable alternative!
A great quote about higher-end listings from this free WSJ article:
Tomer Fridman, a luxury agent with Compass said the prices on some of the homes were exorbitant in the first place, so the reductions represent a long-overdue correction. “When you do a price adjustment at this level, that seller has to make it impactful,” he said. “You have to show you mean business.”
Once a home is for sale but not selling, how do you know what to do? Just dump on price? Lower in small increments and risk irritating buyers? Isn’t there a guide somewhere?
Both buyers and sellers can apply my List-Price-Accuracy Gauge:
Once on the open market, if you are……
Getting visitors and offers, you are within 5% of being right on price.
Getting visitors but no offers, you are 5% to 10% wrong on price.
Not getting visitors, then you are more than 10% wrong on price.
It’s nothing personal, it’s just a simple guide to know how close you are to selling.
The serious buyers rush out the first week to take a look, but after that it’s crickets, with only an occasional visitor. It is tough for sellers to cope, or make adjustments. But once the initial urgency has expired, you have to do something – don’t just sit there.
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How quickly should sellers make adjustments? The DOM clock is ticking!
0-14 days on market – Hot property, sellers have max negotiating power.
15-30 days on market – Buyers get suspicious, want to pay under list.
30+ days on market – The jig is up, and buyers expect deep discounts.
After being unsold for two weeks, sellers will suspect that something is wrong. But it is natural to resist changing the price and instead blame everything else.
Sellers, and agents, need to shake that off and act quickly to keep the urgency higher. The first price reduction should be for at least 5% and happen in the first 15-30 days for maximum effectiveness. If the home doesn’t sell in the next two weeks, then another 5% is in order, and by then the fluff is eliminated.
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Where do sellers go wrong? They don’t properly price in the negatives.
Typically sellers just pick apart the comps to convince themselves why their home is the best around, and then settle on a list price that will show everyone who’s the boss. If you don’t have any negatives, then you probably will get your price! But typically sellers are forced to come to grips with the negatives of their house, and adjust accordingly.
Do sellers have to lower their price? No, not neccesarily.
There are other alternatives:
1. Make your house easier to show. Listing agents who insist on buyers jumping several hurdles just to see the home aren’t realistic about today’s market conditions. Make the home easy to see!
2. Fix the problems. New carpet and paint is the best thing you can do: 1) it looks clean, 2) it smells new, 3) you have to clean out your house to install it, and 4) you are managing a business transaction now – it is the logical solution. Utilize staging too.
3. Improve the Internet presence. Have at least a 12-25 hi-res photos and a simple youtube tour.
4.Wait for the market to catch up. If unsold for 60+ days, cancel and try again later – probably next year.
5. Reset the Days-on-Market stat. As long as the MLS allows agents to refresh their listings, then it’s in the best interest of the seller to reset the DOM. It is a gimmick, and instead sellers should concentrate on creating real value for buyers – that’s what will cause them to pay more.
The longer it takes to sell, the more discount the buyers will be expecting – usually about a 1% off for each week on the market. When other homes are flying off the market, the buyers’ obvious conclusion is that your price is wrong, and they load up the lowball offers.
Even if you complete one or all of the five ideas above, don’t be surprised if you need to lower the price too. Keep it attractive!
There will be one overwhelming factor in selling real estate this year:
Buyers Will Want To Pay Less.
They are coming into every situation with that mindset. Whether it’s online or in person, they will be looking for ANY reason to NOT buy this house. If they can’t find one, they will at least be doing the mental math on how much money they will have to pay to customize it to their tastes……and they will want someone else to pay for it.
It’s a 180-degree change from the frenzy era when buyers just wanted to win a house. Nothing mattered during the frenzy – bad floor plans, bad locations, bad improvements, bad agents, and bad prices didn’t stop buyers from paying insane amounts OVER the asking price. And what’s worse – those are now the comps!
Will sellers adjust?
Will listing agents adjust?
Here’s the first thought to go through their mind:
Let’s add a little extra to the list price to compensate. We can always come down later!
Oh, great.
How is it playing out so far? These are NSDCC sales from the last 30 days:
These are starter homes and mid-rangers for the area – not the high-end where it’s more challenging.
It will be easy for sellers to shrug it off, and mentally prepare to sell for 2% to 4% under their list price…..because they already added it on top! But 31% of the recent sales closed for a double-digit percentage below their list price.
Just a quick reminder of the constant grift in real estate.
Before the listing was entered onto the MLS:
After the MLS listing was inputted – at least they didn’t recreate the history graph…..yet:
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Before the listing hit the MLS:
After MLS input:
Why does it matter? Because too many people – both buyers and sellers – are relying too much on these to be their accurate value estimators. People are moving too fast, they don’t want to spend much if any time investigating, and it’s too hard to get good help. Everyone just wants to grab and go!
The second set says they are based on recent home sales? How can it fluctuate 20% in one day? These revised real estate values aren’t a result of an algorithm; they are purely derived from the list price.
You are being manipulated by the Corporate Warlords – watch yourself!
I had another 80+ people attend my open house on Sunday, and a total of more than 200 people for the weekend. Virtually everyone who came was older, and the overwhelming message was that the buyer pool for one-story homes is large and they are hungry for product.
We have received one full-price cash offer so far, and there should be 2-3 more coming in today.
This smaller tract was built by Davidson in 1996, and sold in the $300,000s originally. Only 12 of the 82 homes are the one-story floor plan – which is typical (some newer tracts don’t have ANY one-story plans). Of the 82 homes, 57 of them, or 70% were purchased for less than $1,000,000.
I sure get the feeling that there are boomers occupying most of the newer tract homes in North San Diego County’s coastal region, and they aren’t going anywhere – unless they can buy a single-story home.
The most interesting part is that my listing will be the third sale of this floor plan in 2022, in a neighborhood where there hasn’t been a sale of this model since June, 2018. It could be another few years before the next one sells, because those who have a single-story home tend to hang onto them.
The doomers want to blame higher rates for the slowdown in sales, but unless we get a flood of one-story homes for sale, the inventory will probably keep shrinking – and be mostly made up of the two-story homes where boomers have gotten lucky and snagged one of the few single-story homes coming to market, or where they gave up and left town. It makes it tough on those buyers who are coming here to retire!
Are you waiting to buy a home until you can get a sizable discount?
Is it because you know a guy who will give you a deal on any home improvements needed; you’ve got your eye on some new appliances down at the scratch-and-dent outlet; and you were thinking about going through Redfin until you heard they are cancelling their rebates? You want a deal on everything!
Well, here you go!
These late-1990s tract homes in SE Carlsbad and in the Encinitas school district are priced LOW. The pending listing on Corte Clarita should close at $2,300,000+ because it had already gone pending once in mid-August but came back on market – then the agent refreshed the listing once he found a second buyer a couple of weeks later. He told me there was no big discount happening there:
You know that my listing is going to be closing for $2,250,000 nearby, plus this one should be over $2,300,000…..so these actives are 10% to 20% under. It looks like the market is crashing….is there a catch?
Look at their locations:
The first three are on the corner of Calle Acervo, and the fourth is next door, but hey, La Costa Canyon High School is walking distance! But you have the traffic from high-school drivers too, and you know it will be a madhouse during football games. A deal is a deal though, and you can save hundreds of thousands compared to the remodeled home with larger canyon lot (in purple at bottom).
Or save millions here! This house is listed for $32,500,000, or go down the street and buy this home that was newly priced today for only $4,900,000! Both are oceanfront La Jolla!
The difference? This house is 1,167sf on a 2,982sf lot….at least for now. But it’s 85% cheaper! And the more-expensive one RAISED their price from $25,000,000.
My point? The low comps won’t suck down the expectations of future sellers of superior homes – it’s too easy for them to ignore/explain away the low comps, and will only consider pricing theirs like the other superior sales nearby – which there will be some.
Oh, what about a foreclosure? Well, they are starting to spike:
Or are you going to wait until you can rub my sizable nose in it?
Hey, I wish prices were lower, and if they crashed it would only mean more opportunity for buyers, and hopefully more volume, which is what I want. I’m not trying to coax buyers into paying too much – I’m showing you where the deals are today, if you don’t mind an inferior home or location.
I just hoping that the coming standoff only lasts a couple of years, instead of 5-10.
Chris asked how the current environment compares to the 2008 downturn.
In the summer of 2008, there were only 601 NSDCC sales between June 1st and August 31st, in spite of there being 1,348 listings that summer. For the next two years, the number of listings far exceeded the number of sales, and in the 2008-2010 period there were twice as many listings as sales. The 2010 ratio was the worst at 2.3 to 1.
This summer we only had 825 listings, and 504 sales, which is a 1.6 to 1 ratio!
The 2022 sales were 16% lower than the previous record in 2008, but there were 39% fewer listings!
We’ve never had so few listings to consider. Now that the Fed is making it so obvious that they intend to cause a recession, more potential sellers – who tend to casually read the headlines only – will delay their decision to move. Does anybody HAVE to move in 2023? Every potential seller will give it a second or third thought if they believe it will cost them several hundreds of thousands of dollars.
The NSDCC inventory next year will be the lowest ever – even Ray Charles can see that coming.
The wildcard on pricing is that every potential seller has sufficient equity to dump on price if needed.
Why a seller would give it away when there are so many other alternatives (renting, reverse mortgages, hard-money loans, etc.) is beyond me. Even flipper companies like Opendoor (who owns 197 properties in SD County today), have to pay somewhat close to retail to get business.
But there are cases where sellers can, and do, dump on price – like here, where I had the competing listing and we withdrew and rented, rather than give it away:
Those sellers paid $875,000 in 2016, so they still left town with a smile on their face – but you can guess that the neighbors didn’t appreciate it. Especially the two who paid over $2,000,000 just months earlier.
It would take a few desperate sellers dumping at the same time to call it a trend.
But if there were enough of those closings sprinkled throughout the county, the median sales price (a terrible measuring device) could fall 10% or more pretty easily.
When looking at 2023 and beyond, you can probably expect that there won’t be many realtors like me that advise sellers to hold out on price. It doesn’t change their paycheck much if they dump and run, and there won’t be anybody in the press or social media sticking up for sellers either.
There is a chance it could get ugly – just because sellers have so much equity that it feels like free money, and they will still walk with hundreds of thousands of dollars, even if they decide to give it away.
It is a true honor to have listed for sale my favorite home of all-time!
365 Marine St., La Jolla
3 br/3.5 ba, 2,894sf
YB: 2018
LP = $6,950,000
This custom contemporary was designed and carefully-crafted for over three years to be the ultimate beach house just 100 yards from the sand! The main living area has floor-to-ceiling glass panels that open dramatically to create the perfect indoor-outdoor experience with breath-taking 180-degree ocean views over Marine Street beach! The interior is loaded with so many custom features that they make this home downright sexy! Ample off-street parking and an easy walk to the village too. Architect Mark Morris said in his 20+ years of designing super-custom modern-contemporary homes in the area, this is his favorite project of all-time. The ultimate in modern contemporary design – it’s a trophy property!
