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iBuyer Loses $600,000

This ibuyer was new in the game and was hoping to make a splash.  Somebody there should have known in June of this year that the frenzy was wrapping up before investing $2.5 million cash into a 20-year old basic tract house on a busier street on the fringe of La Costa Valley.

My advice has been clear all along: Spruce ’em up nicely, stage it, price it attractively, and hire me to be your agent. If they would have just done some of those things, this would have turned out better.

Instead, they did no improvements, priced it for what they paid, put it on the MLS as a coming-soon listing before they actually owned it, and then did SEVEN price reductions and THREE listing refreshes before closing escrow today for $1,900,000.

About 1-2 months ago I asked the listing agent if they would take $2,000,000 cash, and he said that the offers were coming in higher than that so….no.  And then they close for $1,900,000. This is where the jimjamalama really pays off for sellers!

RSF Rental

Do I do rentals?

Sure, when they are higher-end luxury estates in Rancho Santa Fe owned by blog readers!

4124 Stonebridge Lane, Rancho Santa Fe

5 br/6.5 ba, 3,734sf

LP = $15,000 per month.

Stylish one-story contemporary home on 2.87 acres in gated Stonebridge that has recently-updated kitchen and baths, cantina doors, and hardwoods throughout! Pool/spa, solar, tankless water heater, large flat private backyard, and RV parking on site. The 4-car garage was converted to a br/office with full bath and are counted as the 5th bedroom and 6th full bathroom. Partially furnished – what you see in the photos is included. Water, pool maintenance and gardener provided by landlord.




https://www.compass.com/app/listing/4124-stonebridge-lane-encinitas-ca-92024/1176941239072495873

The 2023 Spring Selling Season

Could we have a decent spring selling season next year?

Is there any precedent of our market settling down that quickly?

Home sales had been struggling for months, and then the Lehman Brothers collapse in September, 2008 helped to trigger the Great Recession, and millions of foreclosures and short sales.

Yet, just seven months later, home pricing hit the bottom in San Diego (see graph above).

We are enduring a once-in-a-lifetime spike in mortgage rates that are rightfully taking some time to digest.  But people need to move, and by next spring, many will be buying and selling homes around here.

The Fed will have slowed down by then, the political landscape looks like it will drift more towards the center, and realtors are figuring it out that you have to have a spectacular-looking home with an attractive price to have a chance at selling.  All will play a role in giving home buyers more confidence.

My listing from two weeks ago that generated 18 offers – 17 of them financed – and got bid up by 27% over the list price is proof that, in spite of the common perception that the market is dead, there is a strong demand right under the surface, just waiting for the right house, at the right price.

Those who were reading this blog in the 2008-2013 will remember how negative we were about the market, and how long it would take before it bottomed out – most figured it would be years and years.  True, we aren’t going to get the government stimulus this time, but I don’t think we need it.

There will be a lot of skepticism in the market – and most people will wait until others go first before they think of entering the market themselves.  We probably won’t ever see the sizzling frenzy conditions again, but a healthy semi-surge for a couple of months next spring seems like a good possibility.  If it happens, it will be because sellers and agents got smart about selling in the post-frenzy era.

More on 2023 Pricing

A benefit of prices going up so fast in early 2022 was that future sellers may not have noticed – and they might be happy to sell for 2021 prices next year. But there are other items that will complicate the matter:

  1. With sales are down as much as 50%, the evidence used to determine values will be as thin as ever.
  2. Most of the listings are not selling. It’s been so long since that has happened – what do you do?
  3. Players will want to believe old principals – namely, it takes longer to sell now.
  4. There will be no change in the perception of realtors’ ability to help.
  5. Higher mortgage rates are here to stay. No help is coming, which is unusual in recent history.

The only hope is that there will be enough decline in pricing between now and March that buyers will be pleasantly surprised, and proceed with their plans to purchase.  Working in our favor are the lousy tools we use to measure ‘pricing’, and how nobody wants to look any deeper.

It was here that I estimated that sales prices would have to come down by 30% to fully offset the effect of higher rates.  I suggested that it would be a comfortable ride if that happened over the next five years, because sellers today shouldn’t mind getting 0.5% to 1% less than the last guy.  It’s the cumulative effect of years’ worth of prices dropping that could see declines of 30% or more.

Will there be sellers who go for a 30% hit next year? Very doubtful, and most would rather wait it out for years before surrendering that much equity – and they may decide to never move.

What might revive the market next spring are reports that prices are 10% to 20% lower.

Could we get there by March?

The San Diego median sales price in May was $913,750.

In October, it was $850,000, or 7% lower.

The sales volume will be hitting all-time lows over the next 2-3 months – there are only 2,756 houses for sale in the county today – and only the highly-motivated sellers will be getting out.  If the median sales price drops 2% per month, by March it will be around $770,000, or 16% lower than it was in May!

It may not impress everyone, but it should be enough to get buyers to take a look around!  Of course, a lower median sales price is a lousy gauge and it doesn’t mean prices have dropped everywhere.  There will be plenty of new listings priced really high, but will buyers keep in the fight?  They should, because there will be 10% to 20% of the sellers who really need to move – you just need to dig them out.

Get Good Help!

Bedside Manner

I don’t mind a home inspector bringing up every detail – what matters most is how they present them. We call it ‘bedside manner’; like the doctors who are able to tactfully tell their patients the truth in a way that they gently understand and accept.

After this sale fell out of escrow, the key positive was that we had 100% clear mold remediation, unlike every other house for sale (because buyers rarely test for mold). Yet when today’s very soft and afraid buyers hear the m-word, they run for the hills, instead of sensing an opportunity. We closed the second escrow at $50,000 under list, instead of $300,000 over.

Back-on-Market Discount

Our one-story listing in Aviara closed escrow today.

We had listed for an attractive $1,800,000 in mid-September, and had about 2,600 views on Zillow in the first five days (see above).  We received three offers, and accepted the highest at $2,100,000 cash.

Previously I told the story of how the home inspector’s lack of bedside manner put the buyer on edge. Their mold inspection didn’t detect anything in the air, but a swab behind a toilet did cause a positive result. We offered mold remediation and re-test to ensure the problem was corrected – the standard solution – but the buyer said she couldn’t handle the stress and cancelled escrow instead.

You never get the same buyer enthusiasm the second time around, so I knew going back on the open market in mid-October was going to be a challenge – especially now that my seller was getting used to the idea of a $2,100,000 sales price.

We completed the mold remediation so at least the problem was solved.  But I didn’t make any mention of it in the MLS or in other advertising because I wanted to control the message.  We went back on the market on Friday, October 14th, and I did the open house extravaganza on the 15th and 16th where I planned to discuss the mold remediation in person with the interested parties.

We only had about 1,580 views in the first five days – which is 40% lower than the original effort:

I had already contacted the previous bidders from the first round, and the second-place finisher who had offered $2,000,000 cash was still interested.  They weren’t willing to put another offer on the table until after the open houses were done, and when they did, it was a disappointing $1,650,000.

No one else made an offer.

We went back and forth, but the best they were willing to do was $1,750,000.

By then, it was Tuesday night and the first game of the Padres vs. Phillies playoffs.  Without any hope of another offer to rival the deal on the table, the next day the seller decided to take it, and stay on track to purchase the replacement home that we had in escrow, contingent upon this one selling.

Did the value drop $350,000 in a month?

You could say that, but it the double whammy of falling out of escrow/mold remediation didn’t help.  The original $2,100,000 offer was too optimistic to stick, and given that the eventual buyer had dropped from $2.0 to $1.75, their original offer probably wouldn’t have closed either.

An offer of $1,800,000 would have made it to the finish line, and maybe as high as $1,900,000.  Having the general negativity increasing about real estate market every day was bad enough, and then include the wicked combo of second try/mold/Padres playoff fever.  I’m glad we got as much as we did.

Another Listing Strategy

When it comes to selling your home, there are a few strategies to consider – and the most important point is to select one, any one!

  • There is the old traditional PPP plan – Put it in the MLS, Put a sign in the yard, and Pray.
  • My favorite is to spruce it up, price it right, and have a great realtor sell it promptly.

But a third option is available that is sort of a hybrid of the two.

If you worry that pricing attractively might leave some money on the table (mostly because you lack confidence in your realtor’s ability to conduct a proper bidding war), and really want to start at your aspirational price and hope for the best, then consider this plan.

List Your Home With Two Planned Price Reductions Built In

Generally speaking, the problem with price reductions is that sellers and agents don’t make them big enough to impress the buyers, and hence, you’re just throwing money away.  Dropping the price in any amount does get you back on the realtor hotsheet for the day, but we are more annoyed than impressed with sellers who are dinking around over a few thousand dollars when we’re trying to sell a house today.

The amount of the perfect price reduction is 5% of the list price.

It follows my regular guideline of knowing when your list price is right:

List-Price Accuracy Gauge

  1. If you are getting showings and offers, your price is about right.
  2. If you are getting showings, but no offers, then your price is about 5% wrong.
  3. If you’re not getting any showings, your price is at least 10% wrong.

It’s just common sense.  If no one is coming around, it’s because buyers think that the price is way off, based on how the home is being presented.  There is a glimmer of hope that improving the presentation might get some lookers, but in this market, once buyers take one look at the listing, they will cast you aside and forget all about you unless there is a drastic change in price.

I’ll understand if you don’t want to commit to any price reductions today – heck, you haven’t even signed the listing agreement yet.

But hear me out.

There will be an initial burst of activity once the listing hits the MLS – everybody jumps on the fresh meat, and hopes they are reading the presentation/price combo correctly.

But after 7-10 days, it will be crickets. Showings dry up like an old peach seed!

Plan for two price reductions in advance as a strategy to re-energize the urgency.  Put it right in the listing agreement that the price is to be reduced by 5% on Day 14, and another 5% on Day 24.

As long as the initial list price wasn’t more than 10% crazy, then this strategy will get you into escrow within 30 days. If you let the listing languish for more than a month, it will only invite the lowballers, and they will be hacking off more than 10%.

Pick a plan that gets you into escrow early!

Price Dumping As A Strategy

By now, it’s obvious that I’m a proponent of attractive pricing that creates instant urgency and a quick sale. Those who can properly handle a bidding war can work with the contestants to find top dollar, and I’ve found that it’s literally easier to go up on price, than down.

The more traditional plan of pricing high with the idea that “you can always come down later” has been the pattern for so long that most people don’t even question its effectiveness.

Here is a classic example – even after dropping from $2,995,000 to $2,199,000, it took another two months before they found the buyer, and more discounting before they settled on the sales price:

You can spruce up the house (for best results, do everything) and price attractively to create maximum urgency and sell for top dollar quickly, or you can do nothing, list for a retail price, and let the market have its way with you.

Either way, you still come out with money!

Bidding War!

Between trying to watch the Padres game on my phone and the crowds of people looking at the house yesterday, I couldn’t get any more footage than this:

After having roughly 300 people attend the two open houses, we have received 14 offers!

We have countered all of the offers because agents don’t know who will go higher – why limit the seller response to just the top 3 or 5 offers?  We countered $1,150,000 to every buyer to narrow down the group of contenders willing to go to at least that amount, and then I’ll do the jimjamalama.

Stay Tuned!

We did adjust the price upward this morning to alert the newcomers to our new starting point:

There were a few comments, mostly from neighbors, that accused me of deliberately starting with an ultra-low price to attract more people. Given the recent sales nearby, the current market conditions, and especially the active listings sitting around unsold, I thought it was an attractive price. I never fear pricing too low because I know how to handle a fair bidding process so everyone has a chance to pay top dollar.

https://www.compass.com/app/listing/6217-oakridge-road-san-diego-ca-92120/1162342864989189569

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