HOMEOWNERS: The BEST pricing strategies for this market.
HOMEBUYERS: How to get your offer accepted in a Seller’s market.
Buyers: You’re about to start looking for your new home. It’s exciting, scary and most likely overwhelming. You may not know where to start. Zillow? Trulia? Redfin? Realtor.com? You can read all the articles you can get your hands on but to truly be prepared, you need to speak with a full-time real estate agent who knows the area(s) in which you’re looking. Since inventory is lower than expected and Buyers are out in droves, you have to make yourselves as competitive as humanly possible. This is part of an agent’s job and can save you significant time and energy. Read these points to stay on top of the game and come in as a serious contender:
Step 1: Choosing Your Agent
I’ve encountered many Buyers who are hesitant to work with an agent at the beginning of their search because they don’t want to feel rushed, persuaded or “tied” to anyone, however, the right agent will be supportive and not pushy. Your agent is your point-person to make you as competitive as possible for the market, introduce you to the right lenders, find the right properties, schedule showings, advise you on all real estate related matters, help you write a killer offer and take you through the escrow process. Your agent should coordinate all aspects of escrow including inspections, the escrow company, title company, lender, listing agent and most any other unforeseen element that can, and most often does, rear its head.
When choosing an agent, make sure s/he:
1. Knows the area in which you’re looking.
2. Is available by cell phone everyday and will call you back in a timely manner.
3. Can explain offer strategies, the escrow process and field any related questions.
4. Has relationships with quality vendors (lenders, inspectors, etc).
5. Has a positive and determined attitude.
6. Is with a reputable brokerage.
7. Is a Realtor®
What’s the difference between a Realtor and a real estate agent? Realtors® are members of the National Association of Realtors® as well as a local association. We are held to a strict code of ethics and offer unique tools. A real estate agent is someone who has a real estate license but has not joined an association. All Realtors® are real estate agents but not all agents are Realtors®. Make sure yours is.
There are some amazing lenders out there and there are some that will kill your escrow. To get an offer accepted when you’re coming in with financing, it is CRUCIAL to keep the following in mind:
1. Have your credit score, bank statements and tax returns at the ready. If your chosen lender hasn’t requested a full set of documents from you, RUN!. In order to accurately pre-approve you for a loan, the lender has to input a significant amount of information into their database. Then, and only then, can your pre-approval be considered accurate. Pre-approvals are not guarantees and lenders will remind you of this with very specific verbiage. What you DON’T want to happen, and what happens way too frequently, is to have a lender who hasn’t done the work at the onset. Several weeks into escrow, when it comes time to go to underwriting, the lender finally inputs the rest of the data and finds that you don’t qualify for the loan amount for which you were originally pre-approved. The home now becomes unaffordable and you have to cancel escrow yielding wasted time, energy and money, since you’ve most likely already conducted your Buyer investigations of the property (general inspection, sewer line check, etc).
2. AVOID THE ABOVE by using established and trusted lenders. I refer excellent lenders with whom I’ve worked and trust. They are excellent in their communication, products and expertise. By suggesting lenders I’ve worked with and trust, I ensure that you are being represented by the best and avoid potentially unnecessary and costly delays.
3. Be sure your lender is accessible by cell phone or email, 7 days a week. If you need a pre-approval on a Sunday, you need someone who can deliver same-day or you risk losing an opportunity.
4. Banks or Loan Brokers? Banks are notorious for long escrows and lots of unnecessary red tape. Plus, they’re limited to certain types of loan products and may not have the loan which most works in your best interest. Long escrows = more risk for a Seller so the shorter escrow, the higher the chance of getting your offer accepted. Very few banks can promise a short escrow. Anything more than 30 days can present an unnecessary obstacle. There are exceptions to this, however, they are few and far between.
The All-Cash Offer
This is the golden goose of offers. Sellers love cash offers since they don’t have to deal with a lending institution or the risk of an appraisal coming in lower than an accepted offer. All-cash transactions usually have short inspection periods and very short escrows. If you’re going to be making all-cash offers, you can skip the next point.
Terms are important and can make or break a comparable deal. The highest price doesn’t always win the property. There are several terms in the offer contract which can be tweaked to be more attractive to the Seller while still keeping you protected, and thus, increasing your chances of an accepted offer. Make sure that your Realtor has this strategy down pat.
Researching The Comps
In this market, the comps serve the Sellers in pricing their property. The market value of a property, in terms of getting an offer accepted, is not in the comps but in how much a Buyer is willing to pay for it. In a Buyer’s market with few Buyers and lots of inventory, you can use the comps as leverage but this strategy is counterintuitive in a Seller’s market and can hurt your chances. The best question to ask yourself when deciding how much to offer is, “How much is this home worth to me?”
It’s a tough market but Buyers are snagging properties left and right. Real estate is exciting and buying a home fulfills a large part of the American dream. It can be an emotional process and quite a ride but it will never be boring. Build a good team, stay positive, committed and realistic and you’ll find the home you’re looking for.
For Sale By Owners: You REALLY Want To Read This
Every real estate agent looking for a listing will tell a For Sale By Owner that having an agent is significantly more beneficial than selling it without one. Understandably, a homeowner may be hesitant to believe someone who is, ultimately, in sales, so let’s break down WHY is this true.
These are the common arguments FOR doing a FSBO, followed by my responses that illustrate the reality, based on actual sales and transactions. Misleading and bogus sales pitches do exist, but the following is grounded in reality and intended to help Sellers:
1. “I don’t want to pay commission.”
Who would?! Commission can be a big chunk of the proceeds. This argument would hold the most water EXCEPT for the fact that an agent can most often NET a Seller MORE money than a Seller can get on his/her own, even with commission. Buyers with agent representation expect to pay fair market value for a property. If you go to a reputable department store, you expect to pay fair market value for a quality product. It’s the same mentality as in real estate. True, a $600 leather jacket isn’t a $900k home, however, the sales philosophy holds true.
On the other hand, Buyers without representation who look at FSBO’s are looking to get a deal. They know you, as a FSBO, are not paying broker commission and they use that as leverage when they give you low-ball offers. In fact, they’re usually not qualified for your asking price so they HAVE to offer lower. But don’t take my word for it. There are multiple studies conducted every few years, which corroborate this very concept.
2. “I can advertise just as well or better than any agent.”
The days of simply posting your ad in the newspaper and selling a home are over. The vast majority of buyers now turn to the online marketplace for their home searches. This means targeted Facebook ads, email blasts to thousands of local agents, letting the neighbors and surrounding communities know about your property, creating marketing pieces that have a track record of success in attracting Buyers, distributing to all of the online forums (Zillow/Trulia, Redfin, MLS, Craigslist, online news publications, etc) and fielding countless calls. The large brokerages also syndicate its agents’ listings to 70+ other sites. Since FSBO’s most always end up hiring an agent anyway, it’s a good source of business for us, so expect to be called by countless agents who want to get your business.
3. “Selling it myself will be easier with less paperwork and red tape.”
There are regulations that govern the sale of a home that most people don’t know about. Unless actively working in real estate, how would a Seller know about the retrofitting compliance that has to be done (or risk a hefty fine) or what disclosures need to be made to both inform the Buyer and protect the Seller or the nuances of the Fair Housing Act which regulates the type of language used in advertising and marketing? Not knowing ALL of the elements puts a Seller at risk. The number of real estate related lawsuits should act as a reason to take as many precautions as possible.
The sheer number of real estate lawsuits each year alone dictates that a Seller should do all they can to limit their liability. A real estate agent can help protect you by limiting your liability with the appropriate forms (some so obscure that very few, if any, non-agents would know about) and practices.
4. “I can contact real estate agents directly and tell them about my property.”
A licensed real estate agent cannot enter into a deal with an unlicensed individual. This means that, even if you find someone with an agent, who wants to purchase your home, they cannot enter into an agreement with you. If you want to pursue that Buyer, you’ll have to either find an agent to represent you or end up having the Buyer’s agent also represent you in a dual-agency.
Selling a home is truly a monumental undertaking with lots of involved legality and risk. Once you list your home, you need to market it. Once you market it, you need to be able to weed out the qualified Buyers from the average, unqualified ones. Then you need to vet their lenders to ensure they’ve gone through the appropriate D.U. requirements to give an accurate pre-approval so as to avoid long T.R.I.D. delays and potential cancellations. This is just the beginning. A legitimate agent who provides excellent customer service is worth the commission, especially when he nets you more money than you would receive on your own (fact).
*My full list of services is available upon request.
You want the most amount of it you can possibly receive for your home. As an agent, I want the same thing. First and foremost, I have a fiduciary responsibility to you, my client, to look after your financial well-being before my own. In doing so, I assure myself a commission check for a job well done and an excellent reputation leading to a long, successful career. Our goals are 100% aligned but it goes even deeper. Your agent wants the highest dollar amount and the best terms for you. Whether the highest offer is the best one for you depends on your goals. Different strategies work for different goals, so if your agent hasn’t inquired about yours, be sure to initiate the conversation ASAP.
Now that we’ve established that we share the same goals, what next? It’s time to set the listing price. Before we get to the most common pricing strategies, here are a few important things to consider:
•THE LISTING PRICE IS ONLY THE SELLING PRICE IF YOU WANT IT TO BE
•The value in a property is dictated by the market and by how much a Buyer is willing to pay to have it.
•The comparable value only matters in a Buyer’s market. In a Seller’s market with multiple offers, the comps become relevant only for appraisal value.
•A Buyer with financing can offer a ridiculously high sum for your home, however, keep the appraisal in mind.
•If the appraisal comes in below the offer price, the loan amount decreases, leaving the Buyer to pony up the difference in cash, the Seller to negotiate a lower price or leading to the cancellation of escrow.
•All-cash Buyers have no appraisal or loan contingency, usually offer shorter escrows and an easier sale, HOWEVER, all-cash offers generally come in much lower than asking.
•Homes that sit on the market become less attractive to Agents and Buyers. For example, a house on the market for 60 days may inspire people to wonder what is “wrong” with it.
Common Pricing Strategies:
1. At-Market Pricing
The Play: Price your property right at fair market value. This one is a crap-shoot. Expect a mixture of low and just-above-asking offers, but the numbers don’t usually skew too far from asking price. Today’s Buyers know what has sold in your neighborhood. If they see that your home is at fair market value, they’ll usually stick with a number around that price so they don’t “overpay.” It’s all psychology.
Example: Your home is worth between $800k and $850k. You price it at $825 and most likely sell it for around that price.
When to Employ: This strategy is perfect for a Buyer’s market where inventory is high. Many Sellers choose this option when they are not comfortable with “Price Low, Sell High” (#3) below.
2. Price High, Sell Low
The Play: Price your property at it’s upper range to bring in lower offers which reflect your true goal price.
Example: Your home is worth between $800k and $850k. You price it at $860 and close for $845k.
When To Employ: This can be a good strategy if you have a specific number that you have to hit to pay off a mortgage, liens or if you just have a set price in mind that you want to meet.
3. Price Low, Sell High
In my experience, this is, by far, the most effective strategy for selling a property quickly and for the highest dollar amount.
The Play: Price your property low to entice multiple offers and start a bidding war, bringing the price to the highest point the market will allow.
Example: A property is worth between $530k and $560. Price the property at $525 and get offers in the $550s. I employed this strategy on a home listed at $525. We received multiple offers and closed at $561k. It then appraised for $564k.
When To Employ: This strategy works in any market where it’s common to have multiple offers.
Addressing Seller Concerns: A common Seller concern when introduced to this strategy begets this question, “if I list my home at a lower price and someone offers that price, I have to accept it, right?” After speaking with legal counsel, it is my understanding that this is not true. The offer from a Buyer is non-binding on the seller until s/he accepts it and the Seller is not obliged to accept any offer at any given time*.
Remember, THE LISTING PRICE IS NOT THE SELLING PRICE unless you want it to be. It’s merely a strategy, a jumping-off point to get the ball rolling. This method is effective because you can’t underprice a home but you CAN overprice it. There is no money being “left on the table.” Trusting that your agent is looking out for your interest and not just advising for a quick sale, is paramount. It’s crucial to have an agent you trust.
Pricing your property correctly and strategically at the onset not only significantly increases your chances of a quicker sale, but can also earn a higher priced offer. Yes, the out-of-the-ordinary can happen and someone could come in with an astronomical, all cash offer in response to any pricing strategy. The question is…do you hedge your bets and do what is known to be effective or do you dig-in and risk sitting on the market with diminishing Buyer interest? Ultimately, it’s up to you.
*Please consult with your lawyer. I am not a lawyer and thus, cannot give legal advice.
One of the most common questions I’m asked as a residential real estate agent is, “When is the best time to buy/sell?” The fact of the matter is, that nobody can truly predict the market. The real estate market cycles and, depending on who you ask, you may be told that we cycle every 7ish years. Some people even see an 18 year trend. You can hedge your bets by looking at the seasonal/monthly trends as well as the up-to-the-minute data.
There are 4 phases of a cycle (Recovery, Expansion, Hyper Supply, Recession) but it’s best to focus on seasonal trends over the last few years to keep it relevant. If you’re interested in reading about the bigger picture, check out this blog article, straight from Harvard: How To Use Real Estate Trends To Predict The Next Housing Bubble
Buyer & Sellers: What does this mean to you? I’ll lay it out:
SELLERS: Should you sell?
That depends on your goals. If you want the most amount of money for your home, trends dictate that Summer is the time for you, however, keep in mind that inventory soars to its highest during this time and you’ll be competing with every other home out there. Selling in the winter months sees fewer Buyers, but the ones who are out looking are more serious. There’s usually a reason for them to be buying during the holiday season.
BUYERS: Should you buy now?
Should you wait? How long do you plan on staying in your new home? Right now is a time to buy-and-hold. The short term market (the next 2 years or so) is projected to be pretty solid but we will eventually hit another downturn, during which you probably wouldn’t want to sell. A good rule of thumb is this: If you find a home you resonate with, make an offer. That then becomes the right time to buy. Wait, and you may lose your opportunity. Many people wait for “the right time to buy” and they end up in the same spot for years, waiting for that perfect time. I’ve had clients kick themselves for missing their shot (metaphorically, of course).
Take a look at the local real estate trends since 2013. Looking at graphs can be a bit boring so I compiled a summary based on sales volume and inventory*:
1. January – Feb
The lowest sales volume of the year. Those selling/buying during this time usually need to do so and are much more motivated. You’ll find fewer lookiloos at open houses and more serious offers. All in all, lower inventory and more focused players. Sellers and Buyers start poking their heads out in February and begin to re-enter the marketplace.
2013: 5,323 – 5,312 Sales
2014: 6,300 – 6,600 Sales
2015: 6,542 – 6,634 Sales
Jan 2016: 8,181 Sales
2. March – April
The market starts to capitalize on the momentum from February and sales begin their upward climb to Summer.
2013: 7,313 – 7,954 Sales
2014: 8,124 – 9,377 Sales
2015: 9,652 – 11,003 Sales
3. May – June – July – August
Inventory and sales climb to the peak of Southern California’s real estate market. It’s a listing frenzy. Inventory is high with lots of competition for listings but also lots of Buyers buying. This is the busiest time of year.
2013: 8,906 – 9,608 Sales
2014: 9,794 – 9,760 Sales
2015: 10,896 – 10,768 Sales
Sales usually drop a bit from the summer frenzy. This downward September trend tends to be pretty reliable and consistent through the years. Home sales in September take lead from the season: They Fall.
2013: 8,184 sales
2014: 9,158 sales
2015: 10,372 sales
Although 2015 saw a bit of a drop in October sales, this time of year usually picks up a bit before the drop off to Winter.
2013: 8,654 sales
2014: 9,648 sales
2015: 9,977 sales
6. November – December
Here comes winter. Surprisingly, sales drop in November and rise during the holiday season with help from the business community. Relocating executives are looking for homes for themselves and/or their families before their January 1st start date. Sales during this time are usually driven out of necessity. There may be better pricing deals out there but inventory is low and competition amongst Buyers is high.
2013: 7,649 – 8,166 Sales
2014: 7,724 – 8,995 Sales
2015: 7,714 – 11,509 Sales
BUYERS: Buy when you find the right home, whatever the season, with the mindset of staying there for several years.
SELLERS: Our market pricing has been strong all year round. If you have the inkling to sell, do it.
USE AN AGENT. The FACTS say that using an agent can net you more money with less hassle than going about it alone, 16-22% more. We also limit your liability, which is an important protection in our litigious society . Multiple studies exist to back this statement, and can be found on the National Association of Realtors website.
I hope this answers your questions. Now, let’s get into escrow!
*Information from Infosparks, considering all single family residences (houses) sold as standard sales in the CRISNET MLS.
C.A.R. releases its 2016 California Housing Market Forecast
California home sales to increase slightly, while prices post slowest gain in five years
LOS ANGELES (Oct. 8) – California’s housing market will continue to improve into 2016, but a shortage of homes on the market and a crimp in housing affordability also will persist, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2016 California Housing Market Forecast,” released today.
The C.A.R. forecast sees an increase in existing home sales of 6.3 percent next year to reach 433,000 units, up from the projected 2015 sales figure of 407,500 homes sold. Sales in 2015 also will be up 6.3 percent from the 383,300 existing, single-family homes sold in 2014.
“Solid job growth and favorable interest rates will drive a strong demand for housing next year,” said C.A.R. President Chris Kutzkey. “However, in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability. On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”
C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.7 percent in 2016, after a projected gain of 2.4 percent in 2015. With nonfarm job growth of 2.3 percent in California, the state’s unemployment rate should decrease to 5.5 percent in 2016 from 6.3 percent in 2015 and 7.5 percent in 2014.
The average for 30-year, fixed mortgage interest rates will rise only slightly to 4.5 percent but will still remain at historically low levels.
The California median home price is forecast to increase 3.2 percent to $491,300 in 2016, following a projected 6.5 percent increase in 2015 to $476,300. This is the slowest rate of price appreciation in five years.
“The foundation for California’s housing market remains strong, with moderating home prices, signs of credit easing, and the state continuing to lead the nation in economic and job growth,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “However, the global economic slowdown, financial market volatility, and the anticipation of higher interest rates are some of the challenges that may have an adverse impact on the market’s momentum next year. Additionally, as we see more sales shift to inland regions of the state, the change in mix of sales will keep increases in the statewide median price tempered.”Continue Reading
Fall officially began Sept. 23, but that doesn’t mean you should hold off on selling your home until the new year. In fact, October, November and December can actually be good months to sell especially in Los Angeles. Now is the perfect time to plan for your home sale even you considered waiting until after the holiday season. Fall is a popular time of year for many types of home buyers including first time home buyers, retirees, and those who are relocating because of a new job or transfer. These home buyers also want to take advantage of the low mortgage rates and they want to be moved in before the holidays. With fewer houses on the market, your house may even get more attention in the fall than other times of the year.
For decades, the conventional thinking was that if you missed the spring selling season, you missed your chance. Once summer rolls around and school starts shortly after that, families are more settled, the thinking went, and therefore less inclined to pick up and move unless other life circumstances occurred like a job change or job loss. Spring is still the busiest time overall. But there’s plenty of action happening on the home front after Labor Day through the holiday season. Also, Thanksgiving, Christmas, New Year’s and the January cold snaps follow the start of school. In the past, no one wanted to take time to drive around looking at homes when all of this was happening. Things have changed. Today’s buyers aren’t necessarily timing a home purchase or sale around school schedules because people tend to settle down later in life and live longer. The result is urban expansion; more single, first-time and millennial buyers as well as baby boomers looking to buy (and sell). Also, a lot of home-shopping, at least initially, happens online and via apps. Buyers don’t have to take time out of their busy schedules to drive around — they can just sit down with a tablet on the couch. As a result of the Internet, our hectic schedules and mobile lifestyles, the fall months are no longer a real estate dead zone. True, spring is still the busiest time overall. But there’s plenty of action happening after Labor Day through Christmas, enough to make it worth your while to put up the ‘For Sale’ sign. Here’s why. Buyers are still out there: As mentioned, buyers never stop looking. A serious buyer is looking at new homes online 24/7, even through the holidays. If the right home appears, they’re ready to move. In fact, it could be that buyers in the early winter months are even more motivated than buyers in warmer months because there is less going on. They have fewer distractions and are laser focused on finding a home. There’s less competition: A lot of people still buy into the old thinking that real estate slows to a crawl by October and virtually stops from Thanksgiving until, say, Valentine’s Day. As a consequence, many potential sellers figure there’s no reason to go on the market during these months. So they wait for spring. And that’s good news for you, because less inventory on the market = less competition for you. Even January can be a good time to sell.
By now you’re probably thinking about all the disruptions to your life that selling a home during the holidays might cause. For instance, you’re in the middle of wrapping Christmas gifts when your agent calls. She wants you to leave the house right away so she can bring a motivated buyer by for another look. If the potential for disruptions concerns you, put your home on the market in January. Inventory will still be very tight, and there will still be buyers out there looking. In fact, with the holidays over, there may even be more buyers out in January than in December. Also, January buyers may be more motivated. They’ve started doing their taxes and realize they need to buy. Or they’ve set a New Year’s resolution to buy a home within the next 12 months.
Ultimately, as we enter the final quarter of 2014, there will no doubt be plenty of motivated buyers in the market, searching for just the right home at a time when there’s less inventory. Doesn’t that sound like a good time to sell? Contact me and let’s DO this.
Great news for the real estate market and the nation! The Labor Department announced that the economy added 288,000 jobs in April and the unemployment level fell to 6.3% (lowest since Sept ’08)! Expect home sales to increase nationwide!
In other news, the Feds have reduced their purchase of Treasury Bonds and Mortgage services, so expect INTEREST RATES to rise!
Current 30-Year-Fixed: 4.29% (last week: 4.33%)
Current 15-Year-Fixed: 3.38% (last week: 3.39%)
Jumbo Loans (over $417k) = 4.5% and 3.625%
This is an interesting infographic from the National Association of Realtors’ 2014 Home Buyer and Seller Generational Trends report: