I picked a great day to start the mortgage-rate tracker in the right-hand column! >>>>
Mortgage rates haven’t been in the 6% range since 2008:
How many agents have operated in a 6% environment? It will be less than half of the active agents today. To check, their license number would have to be around 01850000 or lower (real estate license numbers in California are sequential).
Wondering how to cope? Here are my tips:
Sellers – Offer to Pay Points. Even if the buyer won’t use your lender, offer to pay 1%-2% of the loan amount to buydown their interest rate. If their lender keeps the money instead of giving a lower rate, well then, heck, at least you tried. But the buyers should appreciate the effort, and two points should reduce the rate by at least 1/4%.
Sellers – Carry the Financing. If the seller carries all or part of the financing at a reasonable rate, it will help the buyers. Plus, sellers only pay capital-gains taxes on the money you receive, so you’ll get a break there. The big bonus will be if the buyer stops paying – you’ll get your house back too!
Buyers – Get a Short-Term Mortgage. We call them ARMs, or adjustable-rate mortgages which sounds scary after the neg-am debacle last time. But they offer a fixed-rate for the initial term – just get a seven-year or ten-year loan and refinance once we go into recession and the Feb has to back off again (because they owe $30 trillion themselves, it will probably happen sooner than later).
While the impact on the buyers’ monthly payments is real, it’s the market psychology that will make it worse. Buyers will be expecting lower prices, so instead, consider one of my tips above as an alternative.
A few years ago, some friends appeared on a house-hunting reality TV show. They had a blast, but afterward, they revealed something that surprised me:
It was all staged. They’d already purchased a house when they filmed the episode, and that house wasn’t featured on the show at all. The houses they did look at weren’t even for sale.
Like any normal person, I accept that so-called “reality” TV is scripted to a certain extent, but I’d previously assumed there had to be some truth to those real estate shows: that the information they presented was somewhat reliable, and that you might be able to pick up at least some basics about real estate and home renovation from watching them.
The actual reality is: Nope.
Whether it’s a house-hunting show, a home renovation show, or a house-flipping show, the only thing you can rely on is that you’re probably being lied to. Buying or selling a house is more complicated than looking at three homes and having a conversation over a glass of wine, buying a fixer-upper probably isn’t a bargain, and the Property Brothers are not going to spend weeks in your house personally hanging drywall and grouting tiles.
But it’s worse than mere fakery—a lot of the information these shows give out is completely wrong. If you base your life decisions on what you see in real estate shows, you’re going to be very sorry. Here’s why.
Last week, reader TOB talked about a buyer he knew who walked away from a deal over the Rampart fireplace. Here’s a list of other issues that might be deal-killers, but we try to find a way to solve them before giving up!
Our Carmel Valley listing closed escrow yesterday!
It was the 3br/2.5 ba, 1,804sf home built in 1989 that we completed about $60,000 worth of upgrades in preparing for market (it had been a rental for years). The before-and-after photos were featured here:
The house looked great and it was vacant but this was when I did the blog post about spring break interrupting the market’s momentum. We decided to forge ahead, and I inputted the listing onto the MLS on the Thursday morning before spring break with immediate showings available that day – in hopes of catching any buyers that might be leaving for vacation the next day.
We had six showings on Thursday and Friday, and 100+ people came to open house over the weekend.
In January, I predicted that we would list for $1,750,000, and sell for $1,900,000.
On March 31st, we hit the MLS priced at $1,750,000, and closed for $1,875,000.
We received one offer.
Thankfully, the only offer included a $125,000 premium to incentivize the sellers to take the deal, instead of waiting for two in the bush. But we were already on Day 4 of open-market exposure, so I knew we were at peak market and our chances of selling for over list price would start dropping .
We contemplated whether we should counter-offer on price, or extend the two-week escrow period because we wanted the extra time for the sellers’ 1031 exchange. But given the fact that we only had one offer, the sellers signed it.
We had already completed a home inspection in advance, and thought we had fixed everything. The buyers did their own home inspection – which we always recommend to our buyers as well, and here’s why.
Their inspector noted that the water-meter gauge was running, even with all faucets being off. It’s the sign that a leak had developed, and the hot-water heater was operating the entire time too. The sellers checked their history of utilities and found their costs spiked on March 31st.
We have a ‘slab leak’, and we knew it was the hot side!
Just the thought of a slab leak causes grave concern and panic for most people. But we’ve handled them before, and know that they can be fixed with money like any other home repair.
Donna’s vendors jumped on it, and we closed in 16 days, instead of fourteen.
When thinking about selling, homeowners (especially the long-timers) complain about paying the capital-gains tax on their net profit above the $250,000 exemption per person. With the rapid escalation in values lately, it has turned into a six-figure tax for many!
Here’s something to think about and I’ll give credit to Doug because it’s been one of the main reasons he has wanted to move. The problem is that people don’t move enough.
Want to avoid paying capital-gains tax?
You should move every time your equity approaches the exemption amount!
The last big frenzy in the early-2000s was fueled by people taking advantage of their tax-free profits by moving repeatedly, and getting rich in the process.
It’s when I came up with my favorite motto:
Don’t Unpack, I’ll Be Back!
Of course, I think everyone should move every 6-12 months – it’s exciting!
During the inspection of the fixer in Olde Carlsbad, it was determined that further investigation was warranted due to the slope in the floor.
A geologic engineer came out with his fancy altimeter and found that there was a 5-inch difference between the foundation height from one side of the house to the other.
Here’s how it looked. When you have seen me do this, I have set the ball down and let it go where it goes. In this case, the buyer rolled the ball in one direction, only to have it make a U-turn and go the other way…..and it picked up speed:
In the course of the discussion, I asked, “What is the worst you have seen?”
The engineer said, “A nine-inch differential.”
I said, “Ok, so this is kinda in the middle”.
To which I added a solution. Install the popular wood-tile, and have the installer add some extra mortar to help make up the difference. It doesn’t have to get to zero – if it was down to 2-3 inches it wouldn’t be as noticeable.
The buyers asked for a $50,000 reduction in price, and the seller agreed. It could have been worse – cancelling this sale and finding a new buyer who would pay more than $1,050,000 seemed unlikely.
Our sale closed on Tuesday, a couple of days after this closed nearby:
The state has a new rule that any home that is within the Very High Fire Hazard zone must be inspected for compliance when selling. Each fire district has developed their own way to handle the requests, and Carlsbad charges $149 to visit the property and issue their report on the same day.
Here’s how our first inspection went:
Once the report showed some issues, it’s negotiation time because nothing in the contract dictates who is responsible – and the city doesn’t require compliance or does any reinspections.
Donna received the report promptly, and called me and asked what she should do.
But I had already handled it with the buyer’s agent.
I traded the responsibility for the fire hazards for the fridge!
The NFL added a 17th game this year, and pushed back the Super Bowl to the second weekend of February.
It will be about as long as buyers can wait, and the following weekend should be gang-busters.
If you’re not putting your home on the market in the next 2-3 weeks, then February 19th would be a good target date for listing your home for sale.
“Oh Jim, wouldn’t it be smarter to wait until momentum builds with other comps closing escrow, and then sell in April/May and pick up an extra 5%?”
Sure, if you’re a gambler.
What could go wrong:
A couple of neighborhood fixers sell for less.
Another sells to an ibuyer based on those prices.
Another is getting divorced and quick-sells their house based on those new comps.
If you get submarined by other sales nearby, then you’ll just be happy to get what you could have gotten in February. The worst part will be your spouse telling you repeatedly, “I told you we should have sold sooner”.
Yes, the frenzy will last into 2022, and you will sell for a ton of money no matter what. But I’ve gotten more inquiries this month about selling a home than any month this year – people are preparing to go!
For those who are thinking of selling next year and plan to do some improvements, don’t wait to begin.
In fact, start today!
Yesterday, I contacted three different flooring contractors, and all were booked into December. Our GC is currently booked for two months, our pool-repair guy has work scheduled for the next FIVE MONTHS, and our plumber gave up and suggested that we find someone else.
If you want us to provide an initial consultation and give opinions of what repairs/improvements would be smart to complete prior to selling, feel free to contact us – now. We can call in favors if needed – the pool guy got started within two weeks!
It made me wonder how many homeowners were in the hunt for a new house over the last 1-2 years, and have since given up on moving and decided to remodel instead.
No matter how small the percentage, it means the demand for homes for sale will be increasingly more dependent upon the out-of-towners who don’t have a house here yet. Their desperation level is higher than our current homeowners here who are comparing to what they already own……and who are finding it more difficult every day to justify a move.
More slides from the C.A.R. forecast:
They are forecasting a 5.2% YoY drop in sales in 2022, after we will likely set the all-time record for sales here in 2021. They are probably considering the slowdown in pending sales:
They also showed how 70% of the business is done by 30% of the realtors….and the rest of the agents are barely in business with less than two sales per year:
This is a repeat of the 2br house featured on my tour a few weeks ago, with the resulting sales price.
The agent admitted they priced this 2br house low on purpose to attract a crowd, and it worked. The list price was $699,000, and it sold for $1,100,000 cash. Meanwhile, the two other listings around the corner priced at $1,149,000 and $1,200,000 are still unsold.
Sellers are resistant to price attractively, but look how well it works when you Get Good Help!