Buyer Feedback: 'Win, Place, or Show'

Category #4: 'Out of the Money'

My favorite metaphor for how close a listing is to selling is temperature ("Listings and Pots of Water").

So, a new listing starts out at room temperature, heats up as showings (and second showings) accelerate, and reaches a boiling point by the time a strong offer (or two) comes in.

I still think that that applies, but based on the feedback my listings have been getting recently, a new metaphor seems in order: horse racing.

Four Categories

Specifically, listings these days seem to fall in to one of the following four categories:

Win: The best of what's out there. Offer imminent.

Place: First or second. The Buyer's next likeliest step is a second showing, to see both homes "fresh," dig in on the Seller's Disclosure, etc.

Show: Top three. The home had many nice attributes, and the price is in the ballpark -- but it was eclipsed by the finalists being considered by the Buyer.

Out of the Money: Didn't make the cut -- no further interest.

If a home is repeatedly "out of the money," action on the Home Seller's part is indicated: that can be either reducing the price and/or enhancing the home's appeal (by addressing whatever the most consistent objections have been).

On the other hand, if the home is making Buyers' short list, "standing pat" -- i.e., waiting for the competition to sell -- can be an option (and is certainly the path of least resistance for Sellers).

However, in a Buyer's market, I wouldn't recommend it.

That's because it risks being overtaken by new, better-priced horses -- er, listings, as well as existing listings that are not standing still, and instead are aggressively improving their price and/or appeal.

Realtor Refrain: 'Put it in Writing'

Realtor Broken Record

Like a lot of Listing Agents (representing Sellers) these days, I find myself sounding like a broken record.

As in the following:

"Would your client entertain a really low offer?"

"Put it in writing."

"Would your Seller consider an offer 30% below their asking price?"

"Put in writing."

"Would your client pay $10,000 in closing costs, replace the (functioning) furnace, and throw in the plasma TV in the den?"

"Put it in writing."

Probes and Posturing

If the Buyer's agent and their client won't even spend an hour putting together an actual, written offer, they're not very serious (or, they're simultaneously probing multiple Sellers to sniff out a truly desperate one).

It's also the case that it's NEVER a good idea for a Seller to negotiate with themselves.

Which is why the standard response to any question beginning with, "Would your client take . . .?" is, "I'm sure that they'd accept a full-price offer; anything else, I'll have to run by them once I've got it in writing."

Motivated Sellers . . . & Realtors!

Trolling for Offers

I don't know how motivated Sellers are at the moment, but their Realtors sure seem to be!

I showed perhaps half a dozen condo's within a mile of Lake Calhoun over the weekend, which means that today is "feedback day."

If you didn't know, it's customary for the listing agent, who represents the Seller, to shoot an email form to the Buyer's agent requesting feedback.

The forms vary a bit by broker, but basically, they all inquire about the property's condition (inside and out), staging, the prospective Buyer's opinion as to price, and future interest.

Lukewarm Interest

My client is just starting out, which means that they're learning the market, and not yet ready to buy. On top of that, they didn't love any of the choices.

Which is pretty much what I relayed to the various listing agents via the feedback form.

Notwithstanding that very equivocal feedback, almost every listing agent left me a voicemail indicating that the Seller was motivated, and asking what might get my client to consider making an offer -- any offer -- now.

That doesn't happen in Seller's markets.

I suppose the alternative explanation is that, 10 days ahead of Thanksgiving, the listing agents have a little extra time to follow up.

Selling Your Own Listings

Buyer's Market Phenomenon:
More "Dual Agency" Deals?

I don't have any hard data, but at least anecdotally, it seems like the number of homes being sold by the listing agent -- that is, they represent the Buyer as well as the Seller -- is on the rise.

(One of the quirks of real estate is that the agent representing the Buyer is called the "selling agent"; when one agent represents both parties, it's called "single agent dual agency").

It further seems like that phenomenon is happening more in the upper brackets.

Assuming I'm right about that, what's the explanation?

"Forlorn Listings"

Here's my shot:

When a home first comes on the market -- especially if it's a a "hot property" that's in great condition, priced well, etc. -- Buyers' agents practically line up to get their clients in the door.

Six months or twelve months later . . . not so much.

Showings drop to a trickle, if that. (Showings are when Buyer's agents take their clients through a home privately.)

Often times, the only agent driving any traffic to the home is the listing agent, via open houses.

As a result, the odds of the listing agent also finding the Buyer (or vice versa) go up significantly.

Upper Bracket Phenomenon?

So, which homes are sitting on the market the longest?

Not the entry-level homes, roughly defined as under $200k; those have been selling briskly all year.

Rather, the homes with the longest projected market time now are the most expensive homes. According to MLS recently, there is now a three year supply of $1-million plus homes on the market in the Twin Cities.

With all that competition and scarce Buyers, a Realtor who wants to sell such a home had better be prepared to do it themselves.

Upper Bracket Buying Strategies

Great Price + Seller-Paid Pts. = No Deal?

We may be small, but we're slow.

--Cal Tech football team slogan

If you're a Buyer contemplating an offer on an upper bracket Twin Cities home, congratulations!

You've never had more choices -- or more eager Sellers.

Just one word of caution, though:

Decide whether you want a great price, or, a generous helping of Seller-paid closing costs.

Trying for both is a tough sale -- literally . . .

"It's Too Nice for Us"

Quirks of a Buyer's Market

One of the more surprising things Buyer's agents are hearing in today's market is clients who say, "it's too nice for us" (or at least, I'm hearing it).

Huh?

What I think is happening is actually a couple things.

One, prices of bigger homes, in very nice neighborhoods, have now dropped enough that there really are some steals out there. And Buyers viewing these homes know it.

However, the home represents such a big step up for the Buyer, it would literally swallow all their existing furniture and not even burp.

So, the prospective Buyers have to factor in a small fortune to furnish and re-decorate the home.

That contemplated expense, plus the much higher mortgage payment and property tax bill they'll be assuming, can be a deal-breaker.

"Our kids will trash it"

Another, more practical consideration is what their kids will do to an impeccably maintained, fine home (assuming it is).

I think there's a legitimate debate about whether kids today have worse manners, or, their parents are both working so hard that they have less time to supervise them.

Regardless, my clients who have several, young kids want homes that they can "let their hair down" in.

Homes that are owned by down-sizing empty nesters, full of lots of fragile collectibles and fine art, make them nervous -- really.

As objections go, that's certainly a good one ("the location stinks" is tough).

However, I think it's something for prospective Sellers -- and their stagers -- to consider.

"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."

Realtors & Buyer's Markets

Realtors & Buyer's Markets:
Feeling Sellers' Pain

It was the best of times, it was the worst of times.
--Charles Dickens

In a Buyer's market, Sellers' pain is Buyers' gain. And the vast majority of Buyers today are represented by Realtors, too (acting as a Buyer's Representative).

So it seems fair to ask:

Why isn't a Buyer's market, with dropping prices and lots of inventory (at least in most parts of the Twin Cities), as good for Buyer's agents as it is bad for listing agents (representing Sellers)? (Of course, most agents typically play both roles.)

The short answer is, for some Realtors, it is. Especially for agents representing lots of first-time Buyers, this is a once-in-a-lifetime market. However, for many experienced agents, this a trying market (to say the least).

Here are three obvious (and perhaps not-so-obvious) explanations:

One. Commissions are based on home prices.

To dispense with the obvious, Realtors' income, at least collectively, is a direct function of home prices. When the average Twin Cities home sale (vs. home -- BIG difference) falls from $220k in 2006 to $165k today -- a drop of 25% -- Realtors' income falls 25%, too.

Of course, Buyer's markets are also frequently characterized by a drop in sales volume -- especially in the early stages (look at Manhattan now). That delivers a second blow to Realtors' incomes.

"Fatigue Factor"

Two. Balky Buyers. I'd characterize the mood of my recent buying clients as "cautious" or even "anxious" rather than "celebratory." They are naturally pleased -- if not delighted -- by how much house they can buy now.

However, they're equally nervous about home prices falling further. Depending on their job security, they're also worried about the recession hurting (or eliminating) their income.

As a result, Buyers today seem to be viewing more homes, and taking longer to make purchase decisions, than when the market favored Sellers. The net result -- at least for their agents, if not for them: an increased "fatigue factor."

Three. Realtors tend to identify with Sellers more than Buyers, because of how the business works (and used to).

Until perhaps 20 years ago, Buyer's agents didn't even exist: if you sold residential real estate, your client was always the Seller, even if the agent worked with and otherwise assisted the Buyer.

Even today, when Buyer's agents are rapidly reaching parity with Seller's agents, it is the Seller who pays both agents' commission (who split again with their respective brokers). So, there's what could be called a "vestigial" identification with Sellers.

Feeling Sellers' Pain

Too, as Realtors gain experience, their client mix often shifts from mostly Buyers to mostly Sellers ("agents who list, last").

That's so because Sellers tend to favor established Realtors. After all, who would you trust to sell your $300k (or $1.3M) home: someone who's done it three other times, or someone who's been selling homes for 10 years?

Given that real estate is a famously transient business -- four out of five Realtors are out within five years -- over time, the nucleus of the Realtor ranks becomes dominated by experienced Realtors whose clientele is weighted towards Sellers.

When they hurt, their Realtors feel their pain . . .

Picked-over Inventory?

Wanted: 'Something Not on the Market'

One of the puzzles of a supposed Buyer's market, with 27,000-plus single family homes for sale area-wide, is having serious Buyers who can't find what they're looking for (see my earlier post, "Buyer's Market Conundrum").

Which is why you increasingly hear Realtors who are networking for their clients say, "I'm looking for something not already on the market."

What they're really saying is: 1) my clients have already seen everything currently for sale that meets their criteria; and 2) they don't like it.

How is that possible?

If you're looking for a specific kind of home in a specific location, suddenly, 27,000 homes collapses to perhaps 10-15. Assuming that one-third of these are overpriced, and another one-third have updating and/or floor plan issues (which ultimately amounts to being overpriced), the number of suitable homes dwindles to a handful.

Of the remaining, "legitimate" contenders, you'd further expect several to sell quickly, because they are relatively scarce. (In fact, many would-be Buyers can tell you that that's happening.)

Voila! Your clients have already "seen everything that's for sale."

Firing Your Realtor -- Part 1

How to Know When: Four Signs

Just because a home hasn't sold doesn't mean that the Realtor is doing a bad job.

But, if your home is lingering on the market, it's imperative to know why. Here are four signs that the problem may not be your home, but your Realtor.

One. Mediocrity (or worse).

Fortunately, egregious Realtor ineptitude is usually easy to spot.

Examples include omitting or misstating key information about your home on the Multiple Listing Service ("MLS") database or marketing materials; lack of familiarity with the contracts you've been asked to sign; and thinking a "virtual tour" is something that museums offer (in residential real estate, it refers to streaming video that lets prospective Buyers see your home from multiple angles on the Internet).

Not as obvious, but just as harmful, is when your Realtor fails to showcase your home's best selling points -- in which case, other Realtors and the public are likely to miss them, too.

In today's Buyer's Market, if your home isn't shown off to maximum effect --online, inside, and from the curb -- it's likely to stay on the market longer, fetch a lower sales price . . . or both.

Two. Under performing the competition.

With more than 30,000 homes currently for sale in the Twin Cities, the market time for practically all homes is higher than 2-3 years ago.

However, that doesn't explain why the 3 Bedroom, 3 Bath Colonial down the block sold in six weeks, while yours has been on the market for four months (and counting).

If seemingly inferior homes are selling while yours sits, your Realtor should have a ready explanation.

Sometimes, a nearby home that appears less impressive on paper in fact has a remodeled kitchen, a superior floor plan, etc. Or, your home may have one or more warts that, after years living in it, you either take for granted or can't see anymore.

Next: Firing Your Realtor -- Part 2

Buyer's Market Conundrum

"I Can't Find Anything I Like"

"Water, water everywhere [but] nary a drop to drink."

--Samuel Taylor Coleridge, "The Rime of the Ancient Mariner"

One of the conundrums of a housing market supposedly flooded with inventory is Buyers who lament that they can't find anything they like.

What's going on? Is it just their imagination?

Actually, I think it's a combination of a couple things.

While Twin Cities inventory is actually coming down now, it's still at a high level.

However, it's not at a high level everywhere.

If you're looking for a foreclosure in Minneapolis' Phillips or Camden neighborhoods, you can literally pick from hundreds of houses.

However, I can think of several neighborhoods where there appears to be a shortage of homes for sale right now. To pick just one example, the inventory in Linden Hills seems surprisingly thin at the moment, especially between $500k and $800k.

Clearly, some would-be home sellers are waiting for a stronger market. So Buyers who can't find what they're looking for aren't necessarily hallucinating.

But another factor is that the homes that are on the market can be underwhelming.

One aspect of that is real, the other more psychological.

In a softening market, it's not unusual for Sellers to overprice. When that happens -- surprise! -- their homes don't sell. As time passes, the owner becomes a little less vigilant about prepping the home for showings. Instead of all the lights on, it's dark; the once spotless Kitchen now has dirty dishes in the sink; the beds aren't necessarily made. And Buyers notice.

But it's also true that Buyer scrutiny increases as a direct function of time on the market.

The reason why the first week or so on the market is so critical is because that's when interest is highest. On a first date, little imperfections like a nasal laugh or big ears (Seinfeld fans could add significantly to this list) are endearing.

Six months later, every flaw, however minor, is put under a microscope.

So, too, with homes.

Finally, in a recession, people have less money to spend (not exactly a shock).

So owners who a few years ago might have spent a few thousand dollars on dressing up their home with new paint and carpet may not be able to do that now. Or, not see the merit in doing that. Ditto for perceived "extra's" like staging.

As a result, to my subjective eye, fewer of the homes debuting on the market now seem to have the same sharpness and appeal that they did when it was a Seller's market.

"New" vs. "Re-List"

Q: When is a "new list" not new?
A: When it's a re-list

"'Insanity' is doing the same thing over and over again and expecting different results."
--Albert Einstein

January in Minnesota is about snow, subtly lengthening days (finally!), and -- to Realtors -- re-lists. Lots and lots of re-lists, especially this year.

If you're not familiar with the phenomenon, cancelling and re-listing a property is the preferred way for Sellers (and their Realtors) to raise the profile, however briefly, of a home that's been for sale for awhile and starting to get "tired."

Like Craig's List, the Multiple Listing Service ("MLS") database is a dynamic river of new information. The main difference is that the flow is vertical -- specifically, top to bottom -- not horizontal.

The vast majority of prospective Buyers (as well as Realtors) focus on the newest properties to hit the market. If you're seriously shopping for a home, and your criteria are reasonably crystallized, you'll quickly become familiar with all the existing inventory that meets your criteria (or doesn't, as the case may be). So you keep your eyes on what's new to market every day.

For Sellers, the catch is that so much comes on every day that any single listing is quickly buried. After 60-90 days in a market the size of the Twin Cities, it's likely that thousands of listings have come on the market since yours.

So how do you get your home put back on top of the pile? By canceling and re-listing.

Three types of Re-Lists

In truth, there are really three kinds of re-lists.

One. The Serial Re-Lister.

If once is good, several times is better, right? Definitely, positively, not.

Re-listing doesn't really fool anyone, at least not for very long. That's because the MLS has two links, "CDOM" and "History," which show what's really going on. "CDOM" stands for "cumulative days on market," and is exactly that. No matter how many times you cancel and re-list, you can't re-set CDOM (the only way is to take your home off the market and wait one year).

"History" shows, line by line, every change in a home's sales status. The categories include "Active" (same as new); "Pending" (there is a consummated contract, but the deal hasn't closed); "Closed" (equals "sold"); and "Expired."

When an experienced Realtor sees a property history with row after row of status changes, they know that: a) the property was seriously overpriced initially; b) the Seller isn't serious about selling; or c) both a) and b).

Invariably, the answer is (c). When that's the case, the inevitable, final row is usually . . ."Expired."

"Line in the Sand?"

Two. "The Line in the Sand" Re-list.

One of the features of the current, Buyer's market is frustrated, increasingly inflexible Sellers. When their home first doesn't sell, such Sellers may respond by reducing the price in conjunction with making some cosmetic improvements, investing in better staging, etc.

Eventually, however, their willingness (or ability, depending on what they owe) to accept further price reductions evaporates. So, they instruct their realtor to cancel and re-list . . . but at the same price.

This time of year, the MLS database is clogged with homes that either were cancelled around Thanksgiving, and are now being brought back on as new, or, are simply being cancelled and re-listed on consecutive days, with no change in price.

Unfortunately for such Sellers, along with the economy generally, the housing market in most areas has continued to weaken the last few months. So an asking price that was too high in November is even more unrealistic now.

Such a mindset evokes Einstein's definition of insanity: doing the same thing over and over again and expecting different results.

It also recalls an anecdote about Ben & Jerry, of ice cream fame. The two had the same sixth grade Phy Ed teacher, who told the students that if they couldn't do that day's required exercise --running a mile in less than 12 minutes -- they'd have to do it over again until they did.

Ben and Jerry supposedly looked at one another (one can presume neither one would have been mistaken for Carl Lewis), shrugged, and asked the obvious question: 'if we couldn't run a mile in 12 minutes the first time, what makes him think we can do it the second (or third, or fourth)?"

Three. Which leaves the legitimate cancel-and-relist.

Whatever the initial asking price, the re-list price is now at -- or even slightly below -- current market value. Along with the new price, the Realtor freshens the listing's marketing language, and updates any photos that may have become seasonally stale. The owner addresses any cosmetic, easily corrected objections from previous showings.

And perhaps most crucially, the listing agent couples the cancel-relist-price reduction with an aggressive marketing push. That includes networking the price reduction, putting the home back on broker tour (Tuesday's), and holding the house open the next Sunday.

In my experience, such an orchestrated "surge" (oops, bad term) often results in a deal in relatively quick order.

Deal . . or No Deal?

Another Steep Discount From Listing Price

If you have to sell Christmas week in what is already a soft market . . . you may not like the price.

This is the second instance I've seen of a property sold then accepting a very deep discount from the most recent list price. The home is located in Minneapolis, just northwest of Cedar Lake:

http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-39406710-836

In this case, the last list price was $299,900; the selling price was $220,500, a 26% discount!

So did the Buyer get a deal?

I didn't see the interior, and therefore can't speak to either floor plan or condition (the home was a foreclosure). However, I do know the neighborhood, tax value (almost $400k), what the last Buyer paid ($490k in 2004), and the home's tortured selling history (almost 3(!) years of market time, starting at $539,900).

And perhaps most crucially, I've got a very educated guess about when the deal was struck: going by the off-market date, January 2, you'd infer that the Purchase Agreement was consummated right after Christmas, and that the Inspection occurred shortly thereafter (most Inspection Contigencies play out within a week).

Based on the foregoing, I'd guess "yes" -- unless the Inspection turned up a major issue (or several of them).

Closing Deals in a Soft Market: Understanding Buyer Psychology

What’s the difference between a good real estate agent and a great one? A good agent thinks that their job is to attract a well-qualified buyer willing to pay the seller’s asking price. A great agent thinks their job is to find . . . three or four of those buyers.

Especially in a buyer’s market like the current one, the difference is crucial, for four reasons.

One. Leverage. A seller negotiating with a solitary buyer doesn’t have any leverage: if the seller doesn’t like the buyer’s offer and can’t get them to raise it, their only other choice is to wait. In the meantime, the seller must pay the mortgage, property taxes, insurance, utilities, and maintenance. In a weakening market, waiting also means anticipating new listings that compete with their home, hoping interest rates don’t rise, etc.

Two. Motivation. Buyer’s markets are characterized not just by a scarcity of buyers relative to sellers, but by unmotivated, even spoiled buyers who lack any sense of urgency. The same sense of anticipation that grinds down sellers and fills them with angst has the opposite effect on buyers: their attitude is, "there will be even better choices tomorrow than today, at even lower prices, so why rush?"

Often, the only thing that can counter that psychology is the appearance of a second buyer interested in the same home. In fact, multiple offers in buyers’ markets (yes, they still happen) often start out with several buyers noncommittally circling a property. Then, once one "fence-sitter" jumps, they all do.

Why? Because suddenly the time horizon for buying a given home is no longer infinite, but very finite. And if someone else wants the home the buyer is interested in -- out of all the dozens that are available -- maybe there really is something unique and appealing about it, validating their own judgment.

Three. Follow-Through. Great agents know that there are many, many steps between a would-be buyer submitting an offer, and consummating a deal with that buyer at closing. Buyers who don’t hear footsteps drive hard bargains. They make low offers that they raise slowly, if at all; put down little earnest money; and ask for steep discounts for any issues identified during the inspection.

By contrast, buyers who know they have competition try not to rock the boat. They overlook inspection issues, and are careful not to do anything to drive the seller into the arms of another suitor.

Four. Deal Insurance. Great agents know that even solid-looking deals can derail. The parties may not be able to resolve a major inspection issue; or, the buyer’s financing may fall through. Even when a buyer receives a firm financing commitment, if they lose their job or suffer a financial setback, the lender may still back out.

That’s why great agents keep the pressure on, aggressively marketing a property until the buyer’s inspection contingency is removed. Identifying backup buyers in advance not only minimizes the fallout from a broken deal, it actually reduces the risk of that happening, by lessening the buyer’s willingness to test a deal to the breaking point.