"Must Be One Helluva Place!!"

Rental Double-Takes

I assume that I'm not the only Twin Cities Realtor still adjusting to the addition of rental data on MLS (since Sept. 1).

So, in addition to finding "for sale" properties on searches I've saved for various clients (what Realtors call "hot sheets"), there's now the stray rental included.

If you're skimming quickly (like I am), the tip-off is price: $1,500 or some such, vs. $200,000, $450,000, etc.

So, when I saw $20,000 the other day, I did a double-take: what Twin Cities home rents for $20,000 a month??

Manhattan Prices in Mpls.?

It turns out that it wasn't a rental, it was a home for sale -- and that's the asking price!

Presumably, there's a quick solution to the above, which I've yet to do: tweak all my saved searches to exclude "rentals."

However, with only 300-odd rentals total on MLS, the problem doesn't come up that often. Yet.

P.S.: So what is the most expensive rental on MLS now?

For $9,950 a month, you can rent 1006 Wildhurst Trail in Orono, a 6,400 square foot home in Orono with 5 BR's, 7(!) Baths -- and 140 feet of shoreline on Lake Minnetonka.

Do You Really Want That $2M Listing??

Homes That Don't Measure Up
to Their Asking Price

The quick Realtor answer to the question posed above?

"No, not if the home's worth closer to $1.3M."

That's especially true if the owner with the unrealistic price expectations also expects a drumbeat of expensive marketing over the course of a year (or longer) -- the average market time now for a Twin Cities home carrying that price tag.

To bridge those expectations, more Realtors who specialize in upper bracket homes are presenting such clients with a proposition: 'I'll run as much advertising as you want, but you pay for it.

When (and if) the home sells, the Realtor then credits back the client's marketing outlay at closing.

The OTHER Reason Sellers Love Multiple Offers

Inspection Contingency Leverage

The main reason home Sellers love multiple offers is because it bumps their price -- if not over asking, then usually pretty close.

But there's a secondary reason Sellers love multiple offers: it can result in the Buyer pulling their punches during the Inspection phase of the deal.

Inspection Issues

Once the Buyer and Seller have agreed to terms, the next step typically is for the Buyer to inspect the home.

The standard for any Seller concessions is actually pretty clear-cut: usually, it's limited to a material item (depends on the deal, but typically at least a couple hundred dollars) that couldn't have been discovered beforehand.

So, a forced air furnace with a cracked heat exchanger (or what looks like one) is in bounds; the dated Kitchen isn't.

Looking Over Their Shoulder

Not all inspection issues are black-and-white, however, and how aggressively a particular Buyer pushes -- and how accommodating the Seller is likely to be -- can often turn on who has more leverage.

A Seller with a back-up offer (or several) in hand . . . has more leverage than their Buyer.

Unless.

It's not unheard of for some Buyers in multiple offer situations to make a preemptively high winning bid -- then try to use the Inspection negotiation to recoup at least some of it.

Ignoring the Asking Price

Mispriced Properties: Exhibit A

Where: 46xx 1st Ave. South in Minneapolis

What: Bank-owned (foreclosure) 3 BR/2 BA 1917 stucco home with 2,000 square feet.

How (much): asking price -- $72,900; sold price -- $130,000

When: listed -- 4/19/2009; closed --8/18/2009

In my post yesterday (Seller's Motivation: Is it Relevant?"), I made the case that the Seller's motivation (usually) isn't nearly as important as most prospective Buyers think it is.

Often times, neither is the Seller's asking price.

At one extreme, Banks selling foreclosures have been known to price ridiculously low to foment bidding wars (at least, you'd assume it was purposeful; the other alternative is that they truly have no clue. Hmm . . . ). See Exhibit A (above).

At the other extreme, lots of Sellers today have been known to pick asking prices that reflect, shall we say, "wishful thinking."

Either they've been in their home for decades, and are genuinely oblivious to how dated it has become, or, they feel the need to "pad" their asking price, to give themselves "negotiating leverage."

Unfortunately, that's not how it works.

Realtors (and appraisers) know that home prices are set exactly one way: by identifying the 3 best Comp's (similar, nearby homes that have sold the most recently), then doing a detailed compare-and-contrast between the subject home and each of the Comp's to arrive at an adjusted value.

Don't Go By Asking Prices

Sold! (For 1/3 of Tax Assessed Value)

What: 3BR/3BA walkout rambler with almost 2,600 FSF

Where: 2625 Quentin Ave. South, in St. Louis Park's Fern Hill neighborhood

How much: originally listed for $226,800 on Aug. 5.

When: closed Nov. 18 (Thursday); just posted on MLS this morning.

"Exhibit A" under the category, "don't go by asking price" would be this Fern Hill rambler.

Originally listed for $226,800 back in August, this foreclosure had a tax assessed value of $387,500. That consisted of $158,700 for the land, and $228,800 for the building.

The bank-owner took two, 5% price cuts, then finally got a deal in late October.

It closed Thursday.

So . . . . drum roll . . . . what did the Buyer pay?

Try $130,000.

No, that's not a typo.

Why So Low?

The short explanation is "supply and demand."

The longer explanation is that the house is a tear-down, due to the worst mold damage I've personally ever seen (I showed the house multiple times).

So, you toss out the building value, and focus exclusively on the land.

As I've blogged previously about valuing tear-downs, the analysis -- based on back testing dozens of Twin Cities deals the last 6-8 years -- is to determine the top of the block, add 20% for well-done, new construction, then divide by 3.5.

In this case, the corresponding formula is $400k x 120% = $480k; $480k divided by 3.5 = $137k.

Bingo! (Take off a little extra because of tight credit for new construction, and a soft market for more expensive homes.)

P.S.: and yes, you need to know the "comp's" -- which I do -- to know that the top of the block is $400k.

Knowing When to Pass (on an overpriced listing)

Realtors & Overpriced Listings

"I will not take an overpriced listing."
"I will not take an overpriced listing."
"I will not take an overpriced listing"
"I will not take an overpriced listing."

Four down, 496 to go.

There are many, many reasons it's a bad idea for a Realtor to take an overpriced listing.

Here are four of them (unfortunately, all gleaned from personal experience).

One. A homeowner who insists on an unrealistic asking price will blame you when their home fails to fetch it.

No matter that you did everything short of hire the Goodyear blimp to hover over the home -- to the Seller, it won't be enough.

They'll expect you to go broke buying ads; host endless Sunday open houses; and find fault with your marketing literature, photos, sales skills, work ethic -- you name it -- no matter how professional.

Contrary to popular myth, it wasn't Caesar but a Realtor who first said, "the fault, dear Brutus, is not in our stars, but in ourselves" (substitute "Realtors" for "stars" and "asking price" for "ourselves").

Two. Lack of cooperation. The flip side of the foregoing is that homeowners who see their home through rose-colored glasses see little or no need to spend time or money on things that undeniably make homes easier to sell, for more money (Realtors' generic term for this is "client cooperation").

That includes things like staging, fixing things, keeping the home sparkling clean (tough to do, but very important if you want to sell), and being accommodating about allowing showings (and then leaving for them!).

Three. It's expensive. For the Realtor and homeowner, both.

As the saying goes, "nothing kills a bad product faster than good marketing."

Driving a ton of traffic through an overpriced home is a waste of time and money, because prospective Buyers will inevitably be underwhelmed.

So, weeks (or months) later, when the home has been reduced to a more reasonable price, you'll need to do it all again.

Then, another axiom applies: 'it's easier to get prospective Buyers through a home the first time then to get them back in a second time.'

Of course, owners of homes that have been on the market too long discover another truth: you often need to discount below market value to get a deal done with now-skeptical Buyers.

Confronting that truth does nothing to help what by then is already a strained Realtor-Client relationship.

Four. It's demoralizing.

Selling a home that people want to buy is exciting.

There's a palpable feel to a home that's "priced to sell" (as they say): there's a buzz at the broker open; first showings kick in right away (some of which quickly progress to second showings); Buyers (and their agents) feel a sense of urgency that you pick up on.

All that energy creates momentum that gets deals done.

By contrast, trying to sell an overpriced home has all the energy of a . . . flat can of soda.

While Realtors are trained sales professionals, they're people, too. After awhile, trying to sell a home that's priced too high makes you feel like Sisyphus pushing a boulder uphill.

Instead of attending to an overpriced listing, you try not to think about it. Which isn't doing the homeowner or the listing any good.

Reality Test: Failing Grade

Twice in my eight years in real estate, I was so exasperated with a prospective Seller and their price expectations that I insisted that they view their competition.

So, I set up previews of 4-5 nearby, competing homes -- homes that not only were larger and/or in better condition, but had lower asking prices.

The would-be Sellers' reaction at the end of the tour?

Both were convinced that their asking price was too low -- and insisted on raising it!

Unfortunately, the cure for that mentality typically is market time . . . lots of it.

(There! . . . I feel better)

"Asking Price is Negotiable"

Memo to Sellers

Lots of Sellers, in lieu of reducing a too-high asking price, are instead directing their agents to tell prospective Buyers that "the [asking] price is negotiable."

Here's a news flash: they already know.

In the vast majority of these cases, the issue isn't that no offers are coming in -- low, high, or otherwise.

Rather, the problem is that no Buyers are even looking at the (overpriced) home.

No Showings = No Offers

Buyers typically don't make offers until at least a second showing, and often times a third.

If and when they reach the point of making an offer, many Buyers today feel obliged to start with a number that, to be generous, is "unrealistic" -- especially if the home is upper bracket and has lots of competition.

Once that's rejected -- and it always is -- the negotiation can begin in earnest.

P.S.: discussing hypothetical offers on a home that's not even getting showings reminds me of one of my favorite lines, "if your parents don't have kids, you won't either."

The Whitney

Where: The Whitney (downtown Minneapolis)

What: 2,400 FSF condo with 3 BR/3BA

How (much): ask price - $1.075M; sold price - $675k

When: listed June 4; closed Aug. 13

Asking prices mean a lot less to Realtors than to the general public.

Case in point: this 2,400 FSF condo at The Whitney, a high-end boutique hotel that was converted to condo's in 2006 (a little bit like Minneapolis' version of The Plaza Hotel in NY, except for The Whitney's history as a 19th-century grain mill).

When a condo that lists for $1.075M in June sells for $675k in July (closed last week), you can surmise that the asking price was inflated and/or the Seller was extremely motivated.

I haven't done the comp's, so I'm not going to wager which explanation applies . .

"Such a Deal"

Is it REALLY "Below Market Value?"

As many Sellers already know, it's a tough market out there, especially in the higher brackets.

So, to let prospective Buyers know that their home is a deal, more Sellers (or their agents) are peppering their marketing with phrases like, "asking price less than market value."

Is it?

"That's Easy For You to Say"

Without doing the "comp's" (comparable sold properties) or knowing the neighborhood, it can be hard to tell. And if it's a property that you love and want to buy, you may not to wait around to find out.

However, if a home really is under market value -- and it's not north of, say $600k -- it'll sell, quickly. Even in today's Buyer's market.

If it lingers for weeks (or months, or longer) . . . by definition, it's not "less than market value."

P.S: And no, asking less than tax value doesn't automatically make a home "below market value" these days. Depending on the part of town, I'd estimate that perhaps 50% of the homes currently listed for sale are under tax assessed value.

P.P.S.: one of my favorite New Yorker cartoons shows a father and son standing in front of a storefront covered with signs screaming "Must Liquidate," Going out of Business!!,""90% Off!," etc.

The caption: 'some day, son, this will all be yours."

(Another) Foreclosure Feeding Frenzy

Home Focus: 38xx Harriet Ave. (South Mpls.)

What: 2 BR/2 BA; 1,364 FSF in South Minneapolis' Kingfield neighborhood
When: On market 4/17/09; closed: late May
List Price: $75,000
Sold Price: $91,000
% Over List: 21%

This home sold for $91,000 -- a mere 21% over asking price. I was told that there were at least 8 offers on this home within 2 days.

Lots more of these deals are in the pipeline, because they came on the market earlier this Spring, and are just closing now.

Based on what I saw, I wouldn't be surprised to see at least a few bank-owned foreclosures that fetched 50% over asking price (imagine telling your client what the asking price is, then telling them what they likely have to bid to actually have a chance of getting the property).

I'm also hearing that Seller bad behavior is -- surprise, surprise -- begetting Buyer bad behavior: namely, the best way of winning one of these "real estate lotteries" is to buy lots of "tickets" (submit offers on multiple properties simultaneously).

As a consequence, the fall-through rate on these deals apparently is astronomical.