A combination of mine and Leonard’s lists of sweeteners:
In an increasingly competitive environment – especially on the high end – it may be wise to sweeten the package you are selling by including some value or time-savings item.
Some mega-homes include expensive fancy cars or artwork and other gimmicks, but of course those items are factored into the purchase price and often appear as somewhat desperate. Some may want to increase the commission incentive for the buyer’s agent.
It may be wiser to include certain items that are more focused on time-savings…..and something that may have practical value to make a buyer feel there is less to be spent after closing. Here are 10 ideas:
1. A buydown of the mortgage rate probably has the best financial impact – it can last for 30 years!
2. Pre-paid real estate taxes for the first year could be appealing, or paying HOA/Mello-Roos fees.
3. How about $5-10,000 worth of new landscaping, or window coverings?
4. One year’s worth of weekly yard maintenance would be appreciated.
5. $1,000 worth of Home Depot, Amazon, or UBER dollars could be appealing.
6. If a home has gorgeous views and big windows, include a year’s worth of window cleaning.
7. Offer to have the interior painted to colors of the buyer’s choice at closing.
8. Pay for a maid service to come weekly for a year.
9. If the house is staged, offer a price list of all the furnishings that could be bought. The buyer may see great time-savings value in not having to furnish themselves.
10. Lower the price!
These are just some simple ideas that may make your listing more memorable and more appealing to some buyers…..and possibly sweeten the deal enough to make them choose your listing over another one!
Here are the histories, and forecasts, of our local Zillow Home-Value-Index for each area:
They are forecasting flat or declining prices in three of our larger areas – and they are also predicting a drop-off in values as the selling season will be getting underway in March, 2020 (which sounds far-fetched).
Their track record hasn’t been that great though. Here is their Carlsbad prediction in December, 2015, when they expected a 1.9% increase for 2016 – the actual was +7%:
The Carlsbad HVI has risen 19% since the beginning of 2016!
Can we agree on one likelihood? Prices probably won’t be going up much in the next year or two.
More data released today on pricing trends, and though San Diego didn’t make this chart, we’re probably in the normal range with Los Angeles because our Case-Shiller indicies have been similar (+1.8% vs +1.1% YoY in SD). Interesting that they call San Francisco ‘undervalued’.
Both the HPI and the Case-Shiller Index were the February readings. There is optimism that YoY pricing will pick up as the selling season rolls on, but they are predicting that prices will decline from March to April, which is unusual:
Looking ahead, after some initial moderation in early 2019, the CoreLogic HPI Forecast indicates home prices will begin to pick up and increase by 4.8% on a year-over-year basis from March 2019 to March 2020. On a month-over-month basis, home prices are expected to decrease by 0.3% from March 2019 to April 2019. The CoreLogic HPI Forecast is a projection of home prices calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.
These guys don’t make their data public. Using the Case-Shiller Index instead, we see that the last time we had a drop between March and April was in 2009, at the bottom:
Hat tip to CB Mark for sending in another article on people leaving California – I added the U.S. Census stats for San Diego County at the bottom:
People have long dreamed of moving to California, but increasingly the people in the state are looking to get out.
According to recently released data from the US Census, about 38,000 more people left California than entered it in 2018. This is the second straight year that migration to the state was negative, and it’s a trend that is speeding up. Every year since 2014, net migration has fallen.
California’s population did still increase in 2018 by almost 160,000 people, largely due to the 480,000 people born in the state. But while migration out of the state has accelerated over the past few years, the number of annual births has been steady. The trend suggests in the next decade California’s population will begin to decline.
Besides births, the main reason California’s population hasn’t already started falling has been international migration into the state. Every year since 2011, net domestic migration has been negative—i.e., more people leave California than move in from other states. But from 2011 to 2016, the number of international migrants moving into California was larger than the number of locals who were moving out.
Since then, however, domestic departures have outstripped international arrivals. In 2018, 156,000 locals left the state, compared to 118,000 international who came.
The exodus from San Diego County is picking up steam. Where the cumulative total of domestic migration over the last eight years was only 46,596 (avg. 5,825 per year), we had 10,835 leave in the most recent 12 month segment – and the international arrivals have slowed considerably too:
The percentages are quite a bit higher this year. The title of the graph could be ‘Sellers Who Are Having No Showings’ because most are (overly) optimistic this early in the selling season and hold tight on price until later. Something must be rattling them – like no showings.
An excerpt from the UT article:
Home price reductions are still common when the market is red hot. It is sometimes a selling tactic — although not usually considered a good one — to price a home higher and then come down so the buyer feels like they are getting a deal. But, the number of reductions recently shows a big change.
For instance, 8.5 percent of homes had price reductions in November 2016. In November 2018, there were 29.4 percent.
Jason Cassity, a real estate agent based downtown, said the industry has a problem shifting when there has been a big change — such as a downturn in sales at the end of last year. He said some agents are operating like there will still be a bidding war.
“If you continue pricing like it is 2016, it is going to sit on the market a long time,” he said. “Or you are going to be one of those 20 percent (in February) that have to price reduce.”
He said a lot of the reductions he has seen were listings marked up too high out of the gate, something a lot of agents could get away with for years. He said sometimes homes are priced overly high just to meet sellers’ expectation of a huge payday, not the actual value.
Cassity said he presents news articles about the real estate market to clients before they decide on what price they are going to market with.
Let’s examine what happens when a hot new listing gets taken by one of the big real estate teams in 2019.
What qualifies as a hot listing?
I think we can say that 70% to 80% of listings are priced at full retail or higher, so the rest are either priced attractively or have unique features that propel them into the ‘hot’ category – great location, newer, remodeled, one-story, etc.
First, let’s note that the leaders of the big real estate teams have hired several newby agents to carry the load. The leaders do their best to train and supervise, but once the system is up and running, everyone gets too busy to pay much attention to how the sausage is made.
The lead agent takes the hot new listing, and hands it off to the assistants.
They start the selling process with the Coming Soon round, which lasts for days or weeks. While the bosses intend this to be a pre-marketing campaign, if a buyer contacts the assistant-squad during the Coming Soon period and wants to buy it….well, then, heck – let’s make a deal. If an outside agent wants to show or sell it, they are told to wait until it’s on the open market.
If the Coming Soon round is unsuccessful, then the listing goes into the MLS and onto the open market. The quality of the remarks and photos can tell you a lot. If they are brief, it’s another sign that the squad is trying to couch the listing so outsiders might miss it.
Now the games begin. This happened to me this week. Following the showing instructions, I call and text the agent, but no response. I persist, and finally catch a squad member answering the phone. He says “the occupant needs more notice to show”, even though I had begun my inquiry six hours prior, to which there was no response. He says he’ll get back to me once he can schedule something with the occupant. This goes on for two days, until he finally answers his phone again…..and you know what’s coming. “Oh, we just accepted an offer on that one!”
The team leader insulates himself from the gritty details by not publishing his phone number. For showings, they list a separate phone number in the MLS so they know it’s an agent calling. Then the squad gets just a little too busy to call back those inquiries.
The seller has no clue how the squad’s actions denied him the chance to get more offers – heck, he’s just glad it sold quick. The broker doesn’t supervise that closely and really doesn’t want to know, and the team leader looks the other way, because this was part of the recruiting process to build the squad, and take more vacation.
Home sellers who have been on the market for 30 or more days and are tired of not selling may eventually consider a price reduction – but by how much?
There are a number of reasons why a home isn’t selling. Thankfully, you don’t have to be an expert on why – because price will fix anything:
Funky floor plan
Few or no comps
Buyers are willing to pay within 5% of the list price. So if you are getting showings and offers, then the list price is about right.
If you’re not getting offers, then the list price must be more than 5% wrong.
Won’t buyers make an offer, even a low one? No – it’s too easy for buyers to stay on the fence while they wait-and-see, rather than make a low offer. In fact, we rarely see an offer that is lower than 5% below the list price because buyers would rather not bother – plus they don’t want to offend anyone.
A proper price reduction re-ignites the urgency and enthusiasm in buyers, which makes them want to write a good offer.
How much is needed to get buyers to engage?
Lower the price by 5%.
You see sellers lowering their price by 1% or less, but that’s not impressing the buyers – if anything, it reminds them that your price is still wrong because it still looks too much like the old price.
Lowering the price by 5% not only re-engages the existing buyers who are considering your home, but it also picks up a new set of buyers who weren’t looking as high as your previous price.
It may sound bold, but what else can a seller do to regain momentum?
Two things: a) Complete repairs/improvements to bring the home’s value up, or b) cancel the listing and try again a few month later.
If you don’t want to bother with repairs and really want to sell now, then do this exercise:
How does your home compare to the active listings priced at 5% below their current price – are you winning that test? Is your house the best of that bunch? Find the group of active listings where your house is the obvious winner, and you’ll know the price that will work.
If 5% sounds like too much, and waiting longer for that perfect couple with 2.2 kids to come along is easier to swallow, then no problem. It could happen.
But if you’re tired of waiting and will consider a price reduction, then 5% is the recommended amount – which isn’t giving it away. It’s just recognizing that the initial list price was too optimistic, and a more-realistic price is needed.
Smaller reductions won’t cause buyers into doing anything different than they’ve been doing – waiting for a fair price/value for today’s market.
This is advice I sent this morning to a potential seller of a 1970s-built home. He asked whether I thought pricing would increase in the next few months.
I wouldn’t be too optimistic about prices increasing – if it happens, consider it icing on the cake.
The sales price will be a direct reflection of the number and quality of the improvements made. Buyers will be happy to deduct off the price the money you don’t spend – but it’s usually 2x for the inconvenience.
You should list for $X, and see what the market says in the first 1-2 weeks. We’ll know everything by then.
If we’re going to list for retail anyway, should we spend nothing, and take our chances? No, because of the 2x factor, and losing those buyers who only want turn-key, or close. Fix as much as you can in order to expand the buyer pool.
This market is tough on engineers because you’re used to facts and certainty. You want to organize those in a way that predicts the outcome. But the biggest variable is what your neighbors do in the interim – and even if I survey dozens of them today, things change quickly and 2-3 months from now they could present a whole new set of challenges.
Yesterday I was talking about mortgage rates getting close to 4%, and boom, this morning we get hit with a ‘monster’ jobs report that’s going to cause mortgage rates to climb 1/4% in one day.
Spend as much as you are comfortable with, and I’ll do the rest to sell your home for top dollar!
Homes sell in a 5% to 10% range compared to those nearby, and the final sales prices is determined by location, condition, and who is selling them.
A year ago, I guessed our NSDCC sales would be down at least 5% in 2018, and it looks like it will be closer to -10%. While I’m confident that sellers will refuse to lower their price expectations much in 2019, I doubt that home buyers will just go along as they have in the recent past.
The disconnect will probably mean that the 2019 sales of detached-homes between La Jolla and Carlsbad will drop another 20%, which will change the landscape considerably from the robust sellers’ market we’ve enjoyed over the last nine years.
Homeowners waiting for the top of the market will move closer to the exits, and we will probably have 5% to 10% more listings early next year – with no let up in pricing. Potential homebuyers who are starved for quality guidance will be conservative and adopt the wait-and-see approach.
It guarantees a slow start to 2019, and a real standoff.
The worst part about the real estate industrial complex is that they provide no help whatsoever on how to deal with market conditions. They push Yunnie up to the microphone every month to report the latest sales counts, but that’s it.
Consumers and realtors are left to their own devices to figure out what to do.
Buyers will want somebody else go first.
Who will go first? With the rise in mortgage rates, we have already lost almost the entire move-up market. My rule-of-thumb is that if you want to stay in your same area, you have to spend 50% more than what your house is worth to make the move. In other words, if your house is worth a million, the houses you see listed for $1.1 or $1.2 million nearby aren’t enough of an upgrade – you only get, what, one more bedroom?
But if you bought that home for $800,000 with a mortgage rate of 3.5%, the thought of having to spend $1,500,000 with a 5% mortgage rate will send your head spinning:
Mo. Payment w/taxes
Your home’s appreciation generated the bigger down payment, but you have to pay more than twice as muchmonthly, and it isn’t fully tax deductible either. How many people NEED to move that bad?
So if the move-up market is comatose, then who’s left?
Those who don’t own a house here yet – the first-timers and newcomers.
They are at a disadvantage from being new the area, and are probably somewhat unfamiliar to the game – so it’s likely that they will be conservative. But the 2019 market will be entirely dependent upon them paying what the sellers want, or close.
I doubt we’re going to see fewer listings next year, so if there are 5% to 10% more listings – all with optimistic prices – and buyers are waiting to see what happens, there will be many more for-sale signs around. That alone will cause buyers to pause.
Only the vastly-superior homes will be selling, and everyone will struggle to get the price gap right between the creampuffs and dogs. The fixers will need heavy discounts, but thankfully, there is a floor. I’ve probably taken 100 inquiries on my Brava listing – the flipper/investor action is still strong, though they are slightly more conservative about next year too.
Realtors could provide the solutions, but will they?
Here are the typical responses to taking a higher-priced listing:
SELLERS: “Let’s add a little mustard to my list price.”
TOP AGENT: “The market is soft, and virtually all active listings are priced above what the market will bear. An attractive price will help to set us apart, and our expertise will help to clinch the sale in a timely fashion.”
REGULAR AGENT: “Let’s try the value range pricing!”
NEW AGENT: “What the heck, we can always lower the price later!”
Will the home sellers be sufficiently motivated to price their home sharply? For those who have been waiting for the top of the market, the answer is no. They are only selling if they can get their price – especially if they plan to move up in the same area.
We’re headed for a showdown – who will blink first?
There will be a healthy market for for the well-location remodeled homes, but the rest will sit a while before they figure it out – and many will not.
Annual sales dropping 20%?
We’ve been here before, and survived it. We will survive this round too – we don’t have the shock of a market driven by no-qual loans all of a sudden shifting to qualifying-only, like we did in 2008:
NSDCC Detached-Home Sales
Where will prices go? It will be a very soft landing, because without foreclosures and short sales, there won’t be desperate sellers dumping on price – they will wait it out instead.
Heck, they’ve waited this long, what’s a couple more years?
It will be case-by-case though. There will be a few great deals, some retail sales, and a lot of standing around. Welcome to Stagnant City!
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