Home Owners Are Buying Their Homes Back

It’s happened again and again to us and our fellow Realtors this week. Buyers have made legitimate offers only to have them rejected by sellers that are pricing their properties too high in hopes the price will attract a higher offer. These sellers are, in effect, buying their homes back from serious qualified buyers.

Many Buyers Are Walking Away from Counter-offers

Negotiating the sales price of a home and the other contract details used to be a back and forth process that might go through several counter-offers. What we’re seeing more and more of these days is a buyer making a serious, considered offer that is being countered by a seller in hope of getting the buyer to meet them halfway, but the buyer, knowing the market is full of good deals, is just walking away from the counter-offer.

Sellers Are in a Race Against Time

What home sellers need to realize is that they are in a race against time. The more time that passes, the more the market drops. In this market, sellers need to consider every offer as if it will be the only offer they get. Pricing at the market value in a shifting market is is really over-pricing. Sellers need to price ahead of the market and in this market that means lower not higher.

The Waiting Game is a Money Losing Game

We must have talked to 30 to 40 sellers in 2007 that were going to wait until 2008 to sell in hopes of getting a better price. Those sellers are wishing they had sold last year. This year, we’re running into even more buyers gambling on improvement next year. Is anyone watching the news these days? The impact of this economic turmoil is going to take at least two more years to work out in mot real estate markets.

A Tale of Two Markets

What we are seeing these days is the tale of two markets. Homes priced to sell and homes priced to sit. 80% of homes currently on the market are priced to sit. The 20% of homes that are priced to sell are getting multiple offers.

Sellers are either in the market or out of the market. Everyday that passes in this market pushes an overpriced home farther and farther out of the market.

Many home sellers are suffering the consequences of the Down Market Curse. This malady is costing individual homeowners thousands of dollars. Guesstimates place the total impact of the down market curse upwards of $100 million nationally since the beginning of the year.

There is no telling how much the curse has cost since the correction began – $500 Million? a $billion? Who knows? One thing is for certain though, the down market curse continues to take its toll in spite of valiant efforts by experienced Realtors and lenders to keep their clients from succumbing to the curse.

The down market curse is often referred to as “chasing the market down.” Many, many home sellers hoping to maximize the net from a home sale continue to ignore the advice of their real estate agents and the reality of their local market – resulting in more victims of the down market curse.

We continue to talk ourselves blue in the face with some clients trying to prevent the curse from claiming them – but some people seem particularly resistant to accepting the reality of the current market. The common belief (hope) that many of these home sellers have is that somewhere out there is "the person" who is willing to pay the homeowner their asking price regardless of the all the evidence that the home is over priced.

These sellers seem to think spending more time, money and effort on marketing will result in selling ice cubes to Eskimos. It’s interesting to note that these same sellers do not want to pay the asking price for the home they are moving up to.

Here are a couple of down market curse examples – names and figures change to protect the afflicted – the percentages are correct as is the loss.

Young Dreamers – A young couple wanted to sell their home and move up to a bigger house in preparation of expanding their family. The market was a year into its correction and prices were still falling dramatically. Our suggested listing price was $40K lower than they were willing to go. We listed at their price and began a futile campaign from week two to get them to come down in price. Three months into the listing they agreed to drop the price – not to our suggested price, but to our original suggested price – meaning the house was still over priced for the local market which continued to settle. In the end, they took the house off the market only to relist it 6 months later. At this point they priced it to sell and it sold in a few weeks. Total loss that could have been in their pocket had they priced the home to sell when they first listed it – $120K.

Line in the Sand – This move up couple drew a line in the sand. The price on this $million home was set $50K above our suggested listing price. The home was absolutely gorgeous and had lots of appeal. We had an agreement that we would lower the price if we didn’t get any action in the first few weeks. (Sellers seem to agree to this, but fight tooth and nail when the time comes to face reality). The response from the Realtor community was very favorable on the house. Feedback on the price was it was “a little high.” Two offers came in and both were rejected – they were about 9% below the asking price. We encouraged the owners to counter in a manner that would lead to a sell, but a line in the sand was drawn – we won’t sell for less than $$$$. Time passed. Traffic lessened. No offers came in. The price inched down. The owners moved and now had two homes. Time passed with no activity. The owners decided to sell and lowered the price to rekindle interest. The home sold in two weeks. Total loss $110K – $70K below the line in the sand.

In our experience, the down market curse seems to afflict about 80% of home sellers. Fortunately the majority of sellers can face the reality of the market after a couple of weeks of the house being on the market. In the past year, we’ve had three sellers that just could not get it in time to save themselves tens of thousands of dollars.

I asked the young dreamers what we could have done to convince them – their answer – nothing. They were prisoners of the belief that somewhere there was that one person who would buy their home for what they thought it was worth. My teammate reports that the line in the sand couple are kind of kicking themselves in the head for not seriously considering those first two offers.

It’s interesting to note, that not too long ago, there was a common belief that Realtors wanted to jack up the price so they could make more commission. Then the market turned and now we hear – Realtors want to price homes low so they don’t have to work and can get an easy commission.

I know a lot of Realtors. Almost to a person, what they want is to get the client’s home sold for top dollar according to what the market will bear so their clients can get on with their lives. The East Bay housing market is still settling. If your home isn’t selling, the issues is probably price not advertising.

If there was a flurry of activity and traffic in the first few weeks and that has dropped to almost nothing – it’s the price – the market is rejecting the price point. And most likely, no amount of marketing is going to locate that one person who might want to buy an over priced home. That buyer has a lot to choose from these days.

• Finding the Pricing Sweet Spot

Real estate investors and home buyers who aren’t buying San Francisco Bay Area real estate right now, are going to miss the boat. Home owners in the East Bay have seen the worst, but don’t expect price values to start climbing until Spring of 2009.

A recent article in the Wall Street Journal backs up what we have been saying since the end of last year – the housing crisis will bottom out in the first half of 2008 and the second half of the year will see more stable prices and higher than normal sales activity.

“The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.”

 Read the article – The Housing Crisis Is Over. The article also reflects, in part, the analysis given recently by Mukesh Bajaj, Ph.D, a financial economist teaching at UC Berkely.

What we see happening with local housing markets supports the opinion given in the WSJ article. For example, we had clients in from Florida this week looking to buy. The top five properties on their list all had received acceptable offers in the 24–hour period proceeding their arrival. One of the properties had been on the market for over 120 days. Several of the properties received multiple offers.

Our last listing that entered escrow had six offers submitted. Prices are not climbing, they are stabilizing. Multiple offers are bringing the sale price up to the asking price. There are a few sales closing where the sale price is above the asking price, but this is not the norm.

What does this mean to local home buyers and sellers?

The upper end of the market will remain more sluggish than the bottom end. Investors looking for cash flow properties and buyers looking for great deals that hold the most potential for rapid appreciation are beginning to gobble up foreclosures and bank owned properties. This “bottom-feeder” activity is going to escalate and drive sales activity figures up for the second half of the year.

The increased activity is not going to drive up prices. It is going to reduce and stabilize the downward pressures on pricing.

Residents of communities like Dublin and San Ramon where there is still a significant presence of new home builders are going to see some relief as reduced new construction starts begin to impact the overall local housing markets. This is bittersweet news for existing homeowners in these communities as the value of their new homes has been hammered more than other areas.

Eastern Contra Costa County communities like Antioch and Brentwood are going to see huge reductions in inventory as investors increase their activities in these foreclosure rich areas. International investors and buyers are showing increased interest in U.S, real estate foreclosures as the weak dollar coupled with depressed prices affords them an incredible investment opportunity.

Bottom line? Home sellers have seen the worst. Buyers need to get off the fence if they don’t want to miss the boat.

Related Articles:

• East Bay Real Estate Investing
• San Francisco Bay Area Real Estate is Always Local
• REO Interest Climbing in TriValley Area

When it comes to getting your home sold in the Danville, San Ramon or TriValley Area remember – price is not everything.

Price is important and it certainly is one of the key factors in attracting the buyer’s attention as well as the attention of professional real estate agents. But, beyond price, consideration needs to be given to VALUE.

Home value comes in many forms:

• Location
• Schools
• Landscaping
• Floor Plan
• Upgrades
• And more…

To get top dollar for your home (in any market), you and your Realtor need to be clear on the home’s value and be willing to sell that as much as price.

People buy a house to improve their lives. Help interested buyers to understand these questions:

• Why will this house improve their lives?
• Will the home improve family connection?
• Will it help to organize their lives better?
• How will the home and community make them feel?
• How will the lives of their children improve?

Do YOUR buyers believe they are in the right place at the right time? Consider these headlines:

• “If you’re looking to buy, be careful. Rising home values are not a sure thing anymore.”
• “A home is where the bad investment is.”

The first quote is from the Miami Herald dated 1985, the other from the San Francisco Examiner in 1996. Real estate in Danville and San Ramon CA has certainly appreciated in value since 1985 and 1996.

Despite today’s doom and gloom headlines, people are seeking homes to improve their lives.

Top 10 Reasons
to Let a Journalist Sell YOUR Home

• Life is only a dream
• Your home is a 501(c) (non-profit organization)
• Your neighborhood is a war zone
• You prefer old data
• Buyers believe everything they read
• If it bleeds, it leads
• Money and you have never been friends
• You love Prozac
• He loves misery
• You may get your name in the paper

I just updated this week’s MLS trends for some of the markets we cover.

The charts seem to indicate that San Ramon and Dublin are seeing the most improvement or stability lately. The active listings in Dublin have fallen dramatically in the last few months and the pending sales have bumped up and are holding steady. In San Ramon, the increase in Spring inventory has not been too dramatic and pending sales are climbing sharply.

Looking at the chart, Walnut Creek seems to be the community with the numbers working against it – sharply increasing inventory and flat pending sales. Pleasanton, CA looks to be in about the same situation as Walnut Creek while Danville is in the middle of the pack.

If you’re thinking of buying new home construction in the TriValley area, here is a note of interest from the Associated Press:

For Lennar, the average sales price of homes delivered dropped to $278,000, down from $303,000 in the year-ago period, partly due to higher sales incentives offered to homebuyers. The company averaged $48,000 in incentives per home delivered in the first quarter, compared to $45,500 per home delivered in the first quarter of 2007.

As you may recall, at the end of last summer, homebuilders were trying to  reduce incentives as the market gave a slight hiccup of improvement. That attempt didn’t last long and after the end of a dismal year, the incentives have returned. New home buyers with a down payment and good credit remain in the driver’s seat with negotiating a good deal on a new home.

A real estate agent with experience in new home sales (like Tracey) can be invaluable for buyers looking at new construction. Talk to any former new home sales agent and they will confirm the value. They certainly won’t do this while they are working for a builder because the common misconception on the part of buyers is that cutting out the agent will save them even more money. The reality is totally the opposite with an experienced agent.

Move-up buyers also remain in positions of negotiating power as they did last fall and for the same reasons. The big change here is that sellers are becoming more realistic on pricing and inventory has shrunk so there aren’t as many choices. Interest rates remain historically favorable.

Don’t expect the prices to drop much more. Most agree, that our local housing markets (except for the foreclosure pockets) are stabilizing and that any further price reductions in the overall market may be negated by rising interst rates.

All-in-all it looks like it’s a great time to buy. The sellers have gone through their cycle of suffering. The group now in the batter’s box are real estate agents. The significant decline in transactions means there are not enough to feed all the hungry mouths.

The California Association of Realtors is expecting a significant drop in the number of practicing Realtors this year. Be sure to select an agent that you feel will survive the shakeout.