Market Forces

It’s never a dull moment in this market and I really am seeing things I’ve never seen before. The market forces at work are really quite remarkable and sure do shape the way things are. Take the house at 223 Puffin for example. It’s a very nice 2945 sq ft 4 bedroom, 4 bath house that was listed for $1,168,000. It looked at offers, got 5 of them and then decided to opt for a different response. Here’s what’s printed in the agent notes on the MLS:

5 offers received on offer date. In light of resulting sales price of 221 Puffin Court, Sellers have elected to re-price the property accordingly.

It’s now priced at $1,308,000. The house at 221 Puffin is a 2460 sq ft 4 and 3 that was listed for $1,198,000. They looked at offers on April 26. It closes on May 21 so we’re not sure what it sold for. I have no doubt the folks at 223 Puffin do know…what do you think? I’m also thinking they didn’t get $1,308,000 when they looked at those 5 offers they got. This practice is fascinating because it sure could never happen in any other market. The market speaks and you say “no thanks…I want more”. I hope they get it! Everybody likes a rebel after all!

Preemptive Offers

Seems like a lot of us have gotten used to the pace and flow of this heated up market and sort of know it’s rhythms a bit…sort of. Every once in awhile there’s a phenomenon called the preemptive offer that sort of throws a wrench into that awareness. When a house hits the market it’s not unusual to have  somebody suggest that they want to write an offer and present it right away. Most of the time the listing agent will have created a game plan for reviewing offers and that will typically take it’s course within a 10 day period following the listings arrival. When I say most of the time I mean about 98% of the time. Occasionally the seller and agent will agree to look at an offer right away and not wait. This is called a preemptive offer.

The vast majority of preemptive offers are pretty much accomplished by writing a very attractive, over asking, non contingent offer. An offer that the seller most likely would receive if they waited. Of course there’s no way to be sure of that if you’re the seller but some sellers are anxious to sell their house. Maybe the idea of having groups of folks always showing up all week seems intimidating to them and they would just as soon have it all over with.

For what it’s worth, right now I think a seller probably makes a mistake taking an offer like this. I’ve been consistently surprised by what shows up on offer day and it’s pretty hard to determine on day one what will happen. I also think that if the buyer is so fired up about a house that he wants to  write a fat preemptive offer the odds of that buyer not being interested in a week or 10 days are slim. They’ll be there then too.

I have to say that it’s a pretty weird feeling showing a house on day one of it’s listing and seeing it sold that night in the MLS…just as I’m going to call to ask for disclosures. I saw 2 of these happen last weekend. I guess if you’re a buyer it never hurts to ask, but if you’re a seller I’m really thinking you’ll be better off, and at minimum at least as well off, by waiting.

The Sky Is Not The Limit

Well, we’ve reached an interesting observation point. Sellers in Foster City and elsewhere can actually overreach. After hearing about how crazy the market has been some sellers are putting their houses on the market at prices that aren’t realistic even now. It’s fascinating to me. Here’s a couple of examples, in San Mateo there’s a 2 bedroom, 1180 sq ft house on Huron that’s listed for $599,000. That struck me as a bit high when it came out…and the market seems to agree. No offers even though there was an offer date last week. Meanwhile, I had a listing just around the corner for $579,000 and we got 9 offers last night.

There were two different places in Foster City that also fell right into that equation in the last few weeks who’s names and addresses I’m not mentioning. Their prices were too high and the market sensed that. Quite often sellers now are hearing the good news about home values and think their pie in the sky ideas about how much they can get will become reality simply by showing up on the MLS. If a house is well priced and prepared it’s going to get attention…and offers. If it’s overpriced then you can still be stuck. I’m actually sort of glad this form of sanity is happening. It get’s REALLY scary when folks buy overpriced, problematic house just because their for sale.

Some Fallout

I had lunch with a friend of mine today who showed me a couple of letters he’s received at his house recently. It was interesting because I haven’t seen this type of letter at my house…but I suspect it won’t be long until I do. One was a short but sweet letter that appeared to be handwritten. It said simply:

Hi My name is _______ and my partner_________ and I would like to BUY your house at ___________

Please call me at ___ ___ ____

Simple, it sort of seemed believable to me. The interesting thing to me is the fact that it’s purporting to be from a buyer….not from an agent. We’ve apparently reached the stage where buyers are direct mailing homeowners asking to buy their place. The market is SO insane that now folks are independently going door to door looking for inventory!

The second letter my friend got was from an agent of sorts, but it wasn’t trolling on a listing. It said I want to buy your house and I’ll make it happen without an agent and save you a bundle. What I really think is that this individual is hip to how hot the market is right now and wants to find a seller with whom is uninformed about this heat. You could easily tell many people that their house is worth a November 2012 price and undercut its real value by about 25%. Seriously. The market has been SO hot that 3 month old comps are as irrelevant as 1995 comps. I really think this letter really was trying to pull a fast one on an unsuspecting seller.

But what do I know. Still, these are letters I’ve never seen before and it sure is interesting that my friend has received 3 of them in the last month.

Disclose

Here’s an interesting seller lesson. This story appeared yesterday on Yahoo and is about a homeowner in Pennsylvania that discovered through the neighbors (after she moved in) that a murder-suicide had taken place there. This fact wasn’t disclosed to her upon her purchase in 2007. The murder-suicide happened in 2006 and before the current sellers had owned the place. In looking at our disclosures the question about a death in the house specifically asks whether that event has happened within the last 5 years. Interestingly, the defendants here won both in a trail and an appeals court. The issue now is in front of the Supreme Court in Pennsylvania. It sure seems to me that a murder-suicide that took place only a year prior to this lady buying the house should have been disclosed.

This topic has come up around here on more than one occasion in the past. There was a house on Lurline in Foster City a few years ago that had this history. Of course it was fully disclosed…and the house took ages to sell and sold at a significant discount. The problem can come when the property is a foreclosure. I saw an REO listing in Belmont a few years ago that looked great, but had no disclosures. In analyzing the history of the house it had been listed previously as a short sale and I contacted that agent to ask what history the house had and was told of a murder-suicide there. That fact wasn’t disclosed at all by the bank. Theoretically, they didn’t know about it.  In some cases it pays to do a quick Google search of a properties address prior to making the offer because information like this will show up via various media outlets. That’ll only take a minute to do that. I also think it’s obviously important for sellers to fully disclose the material facts about the home they’re selling. An event like this that happened just a few short years ago would clearly effect a persons desire to buy the house…and the neighbors are going to tell the buyers when they move in.

Just How Bad Is It?

Well, just how bad is it? What I’m talking about is just how bad is this current spectacular lack of inventory on prices and thus on the overall market in general? Let’s look at a couple of cases in point. First, there’s a house for sale in Redwood Shores on Skiff that came up 20 days ago, has no lockbox or sign and when I called to ask the seller if I could show the house last weekend I was told, “No” by the seller who informed me that it was only available to show on Monday between noon and 3. “Why is that?” I asked. Because his agent couldn’t be there last weekend. See, there’s this crazy little thing called a lockbox that allows the homes to be shown without some realtor opening the door for you. Many of you may be surprised to learn this but the vast majority of us are housebroken. If the listing agent’s not there we won’t allow wild toga parties to occur in the sellers home. Now, ordinarily a marketing mistake like this would insure a lengthy stay on the market and a significant reduction in price. Skiff looked at offers today…they had 5 of them.

If you don’t like that story, how about the vacant house on Ventura in San Mateo. It came on last Friday but wouldn’t allow showings until the Tuesday broker tour. After that the agent notes say:

Special evening showing Thursday 1/24 5:30-7:00. ***No Lockbox*** Please try to make one of the scheduled showings

What happens if the buyers can’t make it tonight during that window? The listing also says that an offer date will be determined. Did I mention the house was vacant? Why on earth would it be a problem to allow a lockbox on a vacant house? Is the marketing goal to get as few prospective buyers into the house as possible? You see…that would be the case any other time! This place actually has several disclosure packets out…it’ll get offers when they want them. No matter what you do you can’t screw thing up so far in 2013.

Now lets look at what happens when a house allows access. There’s a fixer upper listed on Clipper in San Mateo that got offers a couple of days ago. It’s vacant too and allowed showings with a lockbox. In all fairness, it was listed for the incredible price of $375,000, but here’s what the listing agent put in her notes after it went pending:

Thank you to all 87 agents who submitted offers. Seller has accepted one and another is in backup

What!! 87 offers! It must have taken 5 or 6 hours just to review them…without agents presenting them! Why is this bad news? Well, if you’re a seller it sure isn’t. You could list with your wife’s cousin Iggy who has a license in Dubuque, Iowa and not California and he could put it in the Dubuque MLS and you could probably still get multiple offers at this point. If you’re a buy on the other hand you’re going to experience a whole bunch of competition. Sorry.

 

 

 

 

 

 

 

 

Offer Presentation

 

 

 

 

The second question that came up from a reader (same reader actually) asked the following:

“We are selling our house. What is the advantage and disadvantage of having the buyers agent submitting the offer in person as compared to just the written offer?”

My answer to that is simply, how much time do you have? I’d say most agents I know would prefer to present their client’s offer in person. When I present a client’s offer I really prefer to do that because it allows me an opportunity to build a bridge from the buyer to the seller. I can explain who these folks are and hopefully persuade them to accept our offer. From the standpoint of the seller that means you’ll have to spend the time listening to me. You’ll also most likely need to go to your agent’s office to do so. If you’re about to look at multiple offers count on spending quite a bit of time in your agents offer because all those agents are probably about as long-winded as I am. You could be there for hours…honestly.

It’s not uncommon now for the listing agent to ask for offers without a presentation. They’re simply e-mailed or faxed over. That allows you to relax at home while the agent does the due diligence regarding review of the offers. Honestly, it’s sort of a waste of your time when you’ve seen 3 offers that are over asking and the 4th agent presents an offer under asking and with suspect terms as well. Why sit through that? I guess I’d have to say that if I’m representing a seller I’d rather review the offers myself and then go to my clients home to show them the offers in a more comfortable and speedier time. If I’m representing a buyer I’ll fight to present it in person. Funny, huh? Being present for offers is really the polite, correct thing to do for everybody. You just need to be prepared to take the time for it.

Both Ends

I have this little link here on the blog that says “Ask me something, I know stuff”. Sometimes I even do! Technology, on the other hand can sometimes baffle me and when somebody asks a question there I’m supposed to get an e-mail. I just discovered that I haven’t been. Oops! Anyway, a seller in town asked a couple of interesting questions a month ago and I thought I should tackle them via a post or two. Here’s the first question:

“Our agent represents us as the sellers. The buyers wants him to represent the them, the potential buyer. Right now he gets 6% if he sells the house and would split it with the buyers agent if they had one. What is the % of discount should our agent give us? “

Very interesting and good question…and I think there’s several answers that are appropriate for it. First off a question…how good is the offer? If it’s a good one, why argue about the commission? You were going to pay it anyway. Second, if the offer is lower than you were hoping for, how about using the extra commission to bridge the gap…regardless of who gets it. Maybe the buyer needs it for the downpayment…why not let them have it if the purchase price is right for you? Third, I personally hate doing both ends of a transaction. Both sides end up distrusting me. I discovered that I just couldn’t win. I’ve done it and regretted it. I’d much rather give the buyer to an agent in my office to make sure I represent my client alone. Of course, that’s because I’ve been doing this for 22 years and that extra commission isn’t going to be as important as it was all those years ago.

If a home has been on the market for a long time, maybe it’s not such a bad thing to do both ends…maybe you have to! If it’s in a multiple offer environment I think I’d worry about it. It’s almost a guarantee that the playing field won’t be level.

Changing Your Mind

Historically, when you buy a home you have a contingency or two that allows you to do inspections, get a loan, get a correct appraisal and also…to simply change your mind. That, of course, has changed a bit in this crazy hot market we’re in and lots of folks are writing offers with no contingencies that assures the seller that no problems will occur en route to close of escrow. If you’re doing that you need to be sure going in that you really want the place. The point though, is that the contracts we use have provisions in them that allows for buyer contingencies and you could, if you have them, simply change your mind and back out.

Every once in a while a seller is the one who wants to back out. I’m aware of a situation recently in Foster City where that happened. The seller, a recipient of multiple offers and overbids, decides a few days into the escrow that he simply doesn’t want to sell. He thinks he has a “cooling off” period that allows that. He’s wrong. The contracts used in California have no cooling off period. No contingencies that allows the seller to back out. On the  contrary, here’s what IS included in the fine print of one of the contracts:

“Should escrow not close due to a default by the seller, or if seller
does not otherwise perform under this contract Seller may be subject to a
claim for specific performance and/or be liable for Buyer’s damages
including but not limited to, consequential damages (eg: temporary
housing arrangements, storage costs etc)and for payment of the
brokerage fee.”


Changing your mind is alot different for a seller than it is for a buyer, huh? I heard a story once about a seller who actually signed all the papers and closed the escrow, receiving her money…and then refused to move! It took a coule of weeks to legally evict her. Her adult kids had to fly in from out of state to encourage her. For some reasaon it never occured to her that selling meant leaving. It’s actually kind of amazing that you could do all that preparation work towards selling, get the house on the market, look at and ratify on an offer and then change your mind. Of course, it’s going to be a process if the seller engages an attorney and fights it all…but he odds are very long that he’ll win. It’s his signature on that contract after all.

Ducks In A Row

For a long time it’s appeared to me that large expenditures on renovation or remodeling were kind of unnecessary when getting one’s place ready to sell. It came as no surprise to me then when I saw Forbes Magazine run a segment on the 20 best and worst home improvements for the buck and almost all of the “best” in that story were simple, basic things that make nothing but sense.

Of the 10 best suggestions, according to Forbes, here’s my favorites:

1. Clean up the house.

Give your home a top-to-bottom cleaning or, better yet, hire a pro to do a deep clean. Do it even before you hiring a real estate agent. If you don’t have a regular cleaner, hire one to keep the place tidy until your house is sold.

2. Simple repairs.

It is well worth the modest cost to fix broken outlets, tiles, light switches, door latches, folding doors and ceiling fans. Buyers view such flaws as signs of deeper problems–and may lower their bids accordingly.

3. Eliminate clutter.

A 10-foot-by-10-foot locker at Public Storage or one of its competitors is likely to cost you less than your phone and cable bills. Move out unneeded dishes, linens, personal items and furniture. Try to empty closets. Your house will appear bigger and more valuable.

4. Paint your house.

This can actually be a do it yourself thing to save money. If the paint on the front of your house is peeling, scrape it and repaint. Indoors, cover up any blemishes and repaint any rooms in loud colors that may be off-putting to others.

5. Clean up the yard.

No need to break the bank here. Mow the lawn, weed the flowerbeds and pull any dying bushes. Plant flowers in bare spots.

6. Replace hardware.

It’s a mistake to replace the kitchen cabinets or closet doors. But you can convince buyers to pay a little more by installing new handles, knobs and drawer pulls where needed.

7. Replace old appliances.

A new stainless steel range will not prompt buyers to pay much more for your home. But a seriously bedraggled stove or refrigerator could scare them off. If you’ve got a junky-looking appliance, swap it out for a budget-minded replacement.

All of this makes total sense to me. Interestingly, Forbes is not gung ho about the idea of large remodeling projects or room additions to maximize value prior to a sale. They think, and I agree, that a wise use of your funds can and will bring you the biggest bang for your buck. I would go slightly further and suggest the use of a good professional stager for preparation of the home as well. Intelligent planning and decorating will really assist you in getting top dollar when the time comes.