Is it a Seller’s market?

In many areas it most certainly is, driven primarily by short supplies. However, a broad brush attempt to label a real estate market is a slippery slope. Recently I took a deep dive into many micro markets in my immediate area, and found a broad range of supply, from 0.7 months to 6.5 months of inventory. It really depends on your immediate area, as not all micro markets experience the same dynamics. Insist that your agent be able to tell you exactly what your market is doing, and if they cannot, call me…I can do it.

(Source CAR)
THIN HOUSING SUPPLY CONSTRAINS CALIFORNIA HOME SALES IN APRIL
While sales remained above the 400,000 benchmark level, California existing home sales fell from the previous year in April as tight housing inventory continues to impede the housing market, according to C.A.R. April marked the second worst start to a spring home-buying season since the housing recovery began in 2009.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 406,800 units in April, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.

The April figure was down 2.6 percent from the revised 417,580 level in March and down 5.4 percent compared with home sales in April 2015 of a revised 430,030. The year-to-year decline was the first in five months and the largest sales drop since August 2014.

An imbalance between supply and demand pushed the median price of an existing, single-family detached California home 5.3 percent higher in April to $509,100 from $483,280 in March. April’s median price was 5.1 percent higher than the revised $484,370 recorded in April 2015. April marked the first time in nine years that the median price has risen above the $500,000 level; it is still below the pre-recession peak of $594,530 reached in May 2007.

Regulatory costs nearly 25% of a new home’s price

REGULATORY COSTS ACCOUNT FOR NEARLY A QUARTER OF THE PRICE OF A NEW HOME (Source: NAHB)

On average, regulations imposed by all levels of government account for 24.3 percent of the sales price of a new single-family home, according to a new study by the National Association of Home Builders (NAHB).

Breaking down the total regulatory costs further, the study revealed that three-fifths of this–14.6 percent of the final house price–is due to a higher price for a finished lot resulting from regulations imposed during the lot’s development. The other two-fifths–9.7 percent of the house price–is the result of costs incurred by the builder after purchasing the finished lot.

While NAHB’s previous regulatory estimates in a 2011 study were fairly similar, the price of new homes increased substantially in the interim. When applying these percentages to Census data on new home prices, the data show an estimate that regulatory costs in an average home built for sale went from $65,224 to $84,671–a 29.8 percent increase during the roughly five-year span between NAHB’s 2011 and 2016 estimates. Meanwhile, disposable income per capita in the U.S. increased 14.4 percent during that same time period, meaning that the average cost of regulation embodied in a new home is rising more than twice as fast as the average American’s ability to pay for it.

Finding clarity in the commission debate

The real estate industry in general, as well as the public, continues to wrestle with this topic, so I felt the need to provide some clarity.
Tenured national brands with massive overhead have failed to adapt to the changes taking place in the industry, including but not limited to the availability of information to the public. So-called “discount brokers” have emerged to provide property owners a different option, with limited success. Yet others scramble to position themselves somewhere in between.
The industry and it’s marketing teams use word smithing to create a public perception associated with each. Terms like “full service,” “limited service,” and “discount broker” to name a few, the latter intended to have you believe that a lower fee means a lower level of service. Perhaps, in some cases, but certainly not all. The same brokers use phrases like “the standard rate” to justify their fee, instead of describing how they’ll earn that fee. There is no standard rate.
What they’re not telling the public is that real estate fees are negotiable…they always have been. Generic terms like “full service” don’t really have any intrinsic value, for full service to one broker may be totally different to another. Every broker has different levels of experience, skill sets, technology, and work ethic. Additionally, every property is different. There is no “one size fits all,” although most agents will attempt to run their business that way. Not us, we treat every property in a unique way, simply because they are. Our fee is based on what resources we will need to use to sell your property…a market-ready property should command a lower fee than one which needs more preparation and marketing in order to draw a qualified buyer pool. It’s that simple.
I’ve charged as much as 10% on a listing, and as little as $1500…I only charge for what I intend to earn. Nothing more, nothing less.
The most prudent way to sift through the horse hockey, is to simply ask an agent what you’re getting for the money you’ll pay. Additionally, it’s a good idea to read past client testimonials, visit their website, and maybe even speak to a few of their recent clients.

Who has the leverage in your market?

How do you know whether you’re in a buyer’s market, a seller’s market, or a balanced market? You have to mine the data specific to the subject area to determine that…there is no magic algorithm or quick formula. Sure, you’ll find headlines that try to paint the real estate market with a broad brush, but the reality is that each neighborhood is unique, and therefore non-conforming.
Case in point, my office is in Riverbank, a small town in northern California. When I run the data for the entire city, I come up with 1.5 months of inventory…a definite seller’s market. However, when I run one particular neighborhood inside of Riverbank, I get a completely different picture…11.2 months of inventory. In this particular neighborhood, the buyers have the leverage.
Generally speaking, the leverage is defined as follows:
*1-3 months of inventory (supply)=Seller’s market
*4-6 months of supply=Neutral or balanced market
*7 months or more=Buyer’s market
In as much as we’ve become a “want it now” society, some things still require a bit of digging. Don’t rely on an “online evaluation” to determine your property’s value, and don’t rely on a headline to determine the market conditions. They can vary even within a few blocks.
If you want a custom evaluation of your individual market conditions, message me or call me. I can have that to you within hours, at no cost or obligation.

COMMISSION IS AN EXPENSE-TREAT IT AS SUCH.

The real estate industry has undergone some material changes in the past decade. Access to better information on both the part of the agent community, and the seller-buyer pool, has changed a lot about the way property is bought and sold. Unfortunately, there’s been little change in the way agents are paid.
Allow me to clear up a few things…first and foremost, commissions and fees are 100% negotiable…period. It’s an expense, and likely the largest expense you’ll have when it comes to selling your home. For that reason alone, you should educate yourself and truly compare what each agent can offer you before you sign a contract.
Nearly everyone knows someone who has a real estate license, and too many people blindly trust that their “friend” or relative is going to give the best service, for the best value. Not always the case.
You can pay too little and not get what you want, or pay too much and not get what you want. The agent that offers to sell your home for a low fee may offer you more, or less than the average agent. Conversely, there’s no guarantee that the agent who charges you “the going rate,” (which is a weak argument at best for justifying a fee) will deliver any more than the agent charging you 1%.
The bottom line, know exactly what you’re getting for that fee, and then hold that agent accountable. There is no “one size fits all” in real estate, as every transaction is unique. The fees paid should be commensurate with the job done…no more, no less. I’ve charged as little as $1500, and as much as 8.4%, and always earned every penny of it.

REDUCE COLLEGE HOUSING EXPENSES

As most parents are painfully aware, the cost of higher education in California has grown exponentially over the past decade or so. While many focus on the cost of tuition, the housing costs make up a larger portion of the overall expense.
My wife and I put three children through college, and to mitigate those expenses, we chose to buy and in some cases lease property to accomplish two things. One, to reduce the cost of housing while the children were in college…and two, to help them own their first home after they graduated.
In all cases, we were able to significantly reduce our housing expenses, and in every case we were able to help our child into home ownership…without breaking the bank.
Every situation is different, depending on where the child is attending, but the solutions are out there…here’s an example.
We always required our children to live the first year in the dorms, to acclimate them to college life. In the second year, however, for our youngest, we found a nice 4 bedroom home in a good part of town, within biking distance to school, and plenty of part-time job opportunities in the area.
The home was listed on the MLS for sale, after viewing it I crunched some numbers, and elected to go with a lease-option offer rather than a purchase offer. I knew the owners were investors, and that we had a shot at acceptance. The listing agent didn’t really understand these types of transactions, and stood to lose some commission, so I requested that I present the offer.
Long story made short, I made them an offer they couldn’t refuse, and that I was comfortable making, and for 5000 down I tied up the property for 3 years…the time remaining for my child in college.
After renting out the other three bedrooms, my net housing expense for the next three years was 350/mo., well below what a dorm or an apartment would have cost. Additionally, she was able to live in a very nice home, and was in a position to buy it at the end of the term.
You’re only limited by your imagination when it comes to putting deals like this together. I’ve done dozens of them, and can walk you through the options. It gets even better if you buy, with tax benefits…but the bottom line is getting your child in safe, comfortable housing, and mitigating the rising costs of education.

OPEN HOUSES-RISK VS. REWARD

“FREE ICE CREAM,” FREE HOT DOGS AND SODA,” “FREE MIMOSAS”…these are just a few of the open house teasers I noticed while driving around San Diego last weekend. Are these clever marketing ideas, or not? They’ll certainly attract hungry people…serious home buyers, not so much. Times have changed, and the way property is bought and sold has changed, commanding that we adapt or face the consequences. Consider these statistics:

*less than 1% of open house attendees make a purchase on the subject property.

*less than 40% of home buyers even attend open houses.

*most agents do little, if anything, to screen prospective attendees or verify their ability to purchase the property. This means ANYONE gets into your home.

Speaking from experience, open houses do not sell homes…they create leads for agents. For the small number of homes that do sell via an open house, it is reasonable to conclude that if that same property was marketed well, it would have sold anyway, without the unnecessary risk.

Abandon “old thinking” for a moment, and let’s apply some common sense. There is simply no good reason to let an unfiltered, unsupervised, and perhaps unqualified mob of people into your home, especially when it doesn’t increase your chances of selling. It’s a risk management nightmare that gives you a less than 1% chance of selling your home to one of those people. Meanwhile, they have complete access to your home.

If you insist on having open houses, then at the very least insist on the following:

*a sufficient number of agents/assistants to monitor the entire property.

*lock up all valuables and important papers.

*no food or drink that could result in spills.

*require in advance that any attendees provide a written proof of their ability to purchase. That’s their ticket in.

In my opinion, this would be the minimum standard…IF you’re going to have an open house. But why go through all of that? Prepare the home for market, capture the property’s best features on film and text, and syndicate that information to the places where home buyers are looking…the internet. Then, the only people coming to your home are people who may actually buy it.

Back to the FREE stuff…that may bring traffic, but dragging 50 people through your home means nothing without an offer to purchase. If it doesn’t bring you an offer, all you did is let a bunch of strangers in your home for no reason. Well, I digress…they did get FREE stuff.

That said, I enjoy the interaction at open houses, and of course generating new buyer leads…I just don’t think it’s the prudent thing to in most cases. As with anything else in real estate, there is no “one size fits all.” An open house may be the most efficient way to get traffic through your property, given the circumstances. If you choose to do or allow one, please consider the information provided here. For myself, I’ll generate those same leads in a different way, including the one that will buy your home…without the risk.

IT’S A SELLERS MARKET

THIS IS ABSOLUTELY A SELLER’S MARKET!
Typically, a real estate market is defined by supply and demand. Levels of available inventory often are used to indicate where the “leverage” lies. One to four weeks of inventory in the measured area, for the measured time frame, indicates a “Seller’s market,” as inventory levels are low and demand is high. Five to seven weeks of inventory indicates a “balanced” market, in that neither the buyers or sellers have any real advantage due to supply and demand. Eight weeks of inventory and up indicates that the measured area is a “buyer’s market,” as the levels of supply exceed the demand, putting the leverage back in the buyer’s hands.
I state the “measured area,” because it can change from one neighborhood to the next, or one town to the next. I ran Riverbank’s numbers today, using data I mined from the local MLS…here’s what it tells me:
*There are currently 42 active listings in Riverbank.
*Over the past 90 days, 53 homes were sold, or 17.66/month.
*That indicates that if we’re using the 90 day history, we have 2.38 months of inventory currently.
*However, it’s the Spring selling season, so I wanted to see the trend for the past 30 days, which shows a different picture:
*24 homes were sold in the past 30 days, reducing the inventory metric to 1.75 months of inventory.
Sellers have the leverage, folks. if you’re thinking of selling, NOW is the time. Rates are low, inventory levels are low…it won’t get any better for you than this.
If you want to see how these numbers look in your specific neighborhood, call me and I’ll run them for you.

MAKE THE OFFER

I see too many agents, and too many buyers pass on properties they would otherwise move on, simply because the seller’s price and their price are “too far apart.” The asking price is simply that…the asking price. At the end of the day, who determines the selling price? The buyer pool does. Most sellers and many agents arrive at an asking price using the wrong criteria, or in some cases, have the wrong motive. As a result, many homes are simply priced too high. Don’t let that discourage you, allow it to motivate you. There are a number of good deals out there, simply because the property is priced wrong, and too many people are afraid to “irritate the seller” or “waste their time” writing an offer when they’re too far apart on price. Understanding the seller’s motivation for selling, the market conditions, and a little salesmanship can turn a “no deal” into a “great buy.” I’ve represented buyers and even bought property myself for as much as 30% below asking price…NEVER be afraid to make the offer. What’s the worst thing that could happen? What’s the best thing that could happen?
Remember, the answer is always NO if you never ask.