There is a saying in real estate that buyers can pick two of three: Size, Condition, Location.
I’m going to modify it slightly, because price should be in there.
Home Buyers – Pick Two: Price,Condition, Location.
If a buyer wants a home in fantastic condition and in a great location, then expect to pay a premium.
If a buyer wants to get a great price, then they can expect to sacrifice on condition and/or location.
If you don’t care about location, keep driving further out until you can find a great house at a great price.
Getting all three is miracle work – buy a lottery ticket while you’re at it.
Here’s my version for home sellers:
Home Sellers – Pick One: Price, Condition, Convenience.
Want your price? Then spend big money on a tune-up and vacate the home for max showings.
Selling the home in its current condition? Hard to say when it will sell, and for how much.
If you want the proceeds on a certain date, then sell to a flipper or auction the home.
There are many variables but you get the idea. Those who have a specific need can sacrifice in other areas to get the results they want. Typically, you don’t get everything!
The Fed came through yesterday and lowered their rate by 1/4%.
It caused mortgage rates to come all the way back to….7%.
This is probably as good as it will get for the next few months.
The market feels fairly balanced currently, with some tilt towards a buyer’s market for the fixers and older listings. Creampuffs are still selling for a premium!
I think any distractions from the election have passed and the housing market should be better than expected for the rest of the year! Those who are thinking about selling in 2025 and who are ready to go now should consider expediting their plans.
When to sell your home:
When no one else is.
When you have good comps.
When you know where you’re going.
If you have all three going for you now, let’s go!
We’ve heard of the metric that measures the supply and demand in residential real estate sales. Lance called it the key housing metric going into 2025, but he is suspicious of its accuracy:
A rule of thumb in real estate is that anything below a 6-month supply of inventory is considered a ‘seller’s market,’ while anything above a 6-month supply is a ‘buyer’s market.’
However, that hasn’t always held true this cycle, and ResiClub’s view is that this rule of thumb is a bit outdated. In many housing markets, including Austin’s metro area, where house prices began to decline in June 2022 with only 2.1 months of inventory, that rule hasn’t applied effectively.
In fact, despite Austin’s months of inventory only reaching a high of 4.8 as of August 2024, house prices have already dropped by -19.8% from their 2022 peak in Austin. A better measure of this incoming pricing weakness was the abrupt active inventory jump that occurred in Austin in spring/summer 2022 (going from 0.4 months of inventory in February 2022 to 2.1 in June 2022), which quickly pushed active listings above pre-pandemic levels.
I agree that using six months is outdated, and four is probably too high also.
Let’s use three months as the new standard.
It is hard to believe how well our local market is doing.
There have been 120 closed sales this month between La Jolla and Carlsbad with a median sales price of $2,617,500 which is about 9% higher than last month when there were 165 sales! With the 120 sales already in the books, it means the final count should be around 150 sales in October – even with the political circus going on!
There are 470 NSDCC houses for sale currently, and the number has been steady.
Let’s do the math: 470/150 = 3.13
If three is the new standard, it means we are at the limit of a seller’s market. With higher rates and election backwash in November, it means this measuring stick will almost certainly be indicating a buyer’s market for the last two months of 2024.
Reader Jim G. made a couple of friendly comments on how Compass is handling our objection to the Clear Cooperation Policy. It followed what a big-mouth in L.A. said this week when he called the Compass explanation, ‘disingenuous’.
We’re all struggling to describe the new world of home sales.
It’s mostly because we liked the old way and it sure seemed to work just fine – at least until an attorney in Missouri made our life miserable. It’s a new world now because attorneys will keep suing us until we run out of money.
The main reason that the Clear Cooperation Policy needs to end is because it’s a mandatory requirement. The government is the only entity who can make things mandatory. If we force sellers and agents to put their home on the MLS, then it is inevitable that one of them won’t like it and they will file another class-action lawsuit.
Let’s replace the CCP with a simple description of the choices, and have the seller pick one:
The Three Ways To Sell Your Home
Open-Market Sales – This is how to reach the maximum number of buyers. If a home has the ideal combination of selling features (good condition, preferred location, attractive list price, and sold by a competent salesperson), then it should sell quickly – probably in the first ten days on the market. The tradeoff is if the home doesn’t sell right away, then buyers assume something is wrong with the price, and they expect the home to sell for less.
Will waiting longer will improve the chances of selling? Yes, but only when prices/values are appreciating, and they eventually reach and exceed your price – making the home the best deal in the marketplace. In a flat or depreciating market, time is the enemy. The longer it takes, the bigger the discount expected. This buyer sentiment happens in all markets and price points. The pricing trend in your market, and the current market conditions, should play a vital role in your decision here.
Off-Market Sales – The seller’s advantage here is that a buyer is pressured to pay your price, otherwise the home goes on the open market. There isn’t the full exposure to all buyers, but you only need one. Sellers with no time constraints and a preference for privacy can empower their listing agent to explore their off-market resources, and if a buyer isn’t found and/or the anxiety mounts, then the home can always be put on the open market later.
Auction – Homeowners willing to sell their home for what the market will bear on a specific date may want to consider an auction of their home. There is full market exposure, and the animal spirits can take over and drive the price above market value. In many cases, the commissions and closing costs get paid by the buyer too.
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The key advantage of selling on the open market or by auction? It instills urgency in the buyers. They know that if they love the home, they need to step up now and buy it before they lose another one!
This urgency isn’t required to sell a home, and it is regularly wasted when sellers and their listing agent don’t use it wisely.
But it is invaluable to the listing agents who know how to exploit it.
Before making your choice, know that the hassle factor is real – especially if you are living in the home. Getting the home ready to sell costs time and money, and then having strangers roaming through your home with little or no notice is inconvenient, to say the least. Going on vacation for a month, or moving out altogether, is worth considering.
End of sellers-choices form
Until, and unless, the industry is willing to educate the masses on the fine details about selling homes, we will keep having results all over the map. Have you noticed how some homes sell right away for retail or retail-plus, and others don’t sell at all? It’s because we allow the marketplace to be a perfect mess with little or no education, guidance or understanding. There are no rules or standards about selling a home and making a bad/wrong choice can be costly.
Let’s start with a basic description of the choices available to sellers.
The conspiring events – softer market, fewer and less-experienced agents, and lower commissions – are all leading us to the same place:
The destruction of the traditional model of residential real estate sales will be triumphed by the unknowing, but it will be the worst thing to ever happen for consumers because agents will be so tempted to tilt the table.
The only savior will be the company that brings home auctions to the masses.
People are asking about the NAR lawsuits – hat tip to Susie, Gerry, and Carl!
The lawsuit that began this week contends that realtors force sellers to pay a commission to the buyer’s agent. Two defendants, ReMax and Anywhere (Coldwell Banker, Sotheby’s, etc.) have already come to settlement agreements, though they haven’t been approved by the judge yet. The other two brokerages, Keller Williams and Berkshire Hathaway, plus the National Association of Realtors are the remaining defendants. Their attorney started the proceedings by declaring that the plaintiffs have the burden of proof, and the defense may not call a witness. It is that type of arrogance that got them into this mess!
A summary:
In their trial brief, the plaintiffs in the suit allege that NAR’s Participation Rule, which they refer to as the Mandatory Offer of Compensation Rule, is “a market-shaping and distorting rule” that stifles innovation and competition.
“The Rule requires every home seller to offer payment to the broker representing their adversary, the buyer, even though the buyer’s broker is retained by and owes a fiduciary obligation to the buyer (who may be told, falsely, that the services of the buyer broker are “free”),” the brief said.
They argue that the current practice of the seller’s agent splitting their commission with the buyer’s agent, who typically negotiates for a lower selling price for their client, works against the seller’s interest and only exists due to the alleged anticompetitive rules. The plaintiffs also note that the NAR rule in question requires a blanket offer of compensation for the buyer’s broker regardless of their experience or the level of service they provide the buyers with, and that the compensation offer was only visible to the buyer’s agent and not their clients, until very recently.
“This artificial and severed market structure created by Defendants’ conduct deters price-cutting competition and innovation, resulting in inflated commissions,” the brief states. “The Mandatory NAR Rules impede the ability of a free market to function in the residential real estate industry, and the plain purpose and/or effect of the Rules is to raise, inflate, or stabilize commission rates.”
In the brief, the plaintiffs claim that the other defendants in the suit colluded with NAR to enforce this and other NAR and MLS policies.
“The Corporate Defendants compel compliance in multiple ways, including by requiring their franchisees, subsidiaries, brokers, and agents become members of NAR; writing the NAR Rules into their own corporate documents; and requiring that their franchisees, subsidiaries, brokers, and agents become members of and participants in the Subject MLSs — entities that compel NAR membership and adopt the mandatory NAR Rules,” the brief reads.
The brief notes that Craig Schulman, the director of Berkeley Research Group and professor of economic data analytics at Texas A&M University, will be an expert witness for the plaintiffs at trial. In studying transaction data from NAR and other parties, the brief states the Schulman has concluded that “(a) the NAR Rules have anticompetitive effects; (b) the NAR Rules caused a seller to pay his adversary (buyer broker) and that, but for the conspiracy, a seller would not pay the buyer broker; and (c) all class members were impacted.”
The brief also notes that Schulman will testify that NAR’s rules have stabilized commission rates at an “anticompetitive level,” noting that commissions have remained at 6% for several years.
Unfortunately, none of the reality of what happens on the street will get introduced during the trial. Instead, it will be ivory-tower guys hoping to persuade the judge and jury (one of which has to breast-feed her infant every 1.5 hours) that the whole commission thing is out of control and someone is to blame.
But the defendants have a good point:
NAR also argued that the plaintiffs do not have the ability to sue for damages —which some believe could reach as much as $4 billion in this case — because under federal and Missouri antitrust law, only “direct purchasers” can be allowed to sue and the plaintiffs have not bought anything directly from NAR or the other defendants.
“And, according to those same Model Rules and listing agreements, Plaintiffs did not directly pay cooperating agents, NAR, or the other Defendants; sellers only directly pay their listing agents and only directly receive services from their own agents,” the brief states. “Therefore, at best, Plaintiffs might claim that they paid their listing agents (who are not parties to this case) who, only then, paid Defendants. But such an indirect claim is prohibited by Supreme Court case law.”
Home sellers pay the full commission to the listing brokerage. It is the listing agent who declares in the original listing agreement of how much of the full commission they are willing to pay the buyer’s agent. None of this will be discussed during this trial, but it’s the most important part!
The plaintiffs should be suing the individual listing agents – good luck with that!
In the end, the defendants might be found guilty, and they will appeal for years – the American way! Or it’s more likely that they will settle in the next couple of weeks because the ReMax and Anywhere settlements were only $55 million and $85 million, which is pennies.
Part of the settlement package will be that the MLS will no longer be obligated to display ANY commission to be paid to the buyer’s agent. It will cause two things to happen:
MORE steering by the buyer-agents to the homes that are paying a healthy commission (bounty).
Buyer-agents trying to convince their buyers to pay them the buyer-side commission.
Kayla is faced with this dilemma in New York City. Did you know that 2/3’s of the population in Manhattan are renters? It’s a big business! But the listing agents don’t offer a tenant-agent commission, which means Kayla has to get paid by her tenants upon finding them new home to rent.
The results:
She has had the landlord’s listing agent pull aside her potential tenant and tell her to ditch Kayla and save the money, and go through him directly. Apparently they aren’t concerned with their reputations!
She has also had her potential tenants be reluctant to sign an tenant-agent agreement because they see apartments being advertised by the listing agents. They want to reserve the right to go direct to the listing agent, and usually they do. As a result, Kayla only works with those who appreciate her advice.
The idea that home buyers will hire and pay their own buyer-agents is a great idea…..in theory.
The reality is that buyers will go direct to the listing agents when they see an interesting new home for sale. Those listing agents will be advertising to those buyers directly, and flat-out encourage them to get a better deal by going through them.
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.
