How to Identify a "Motivated Seller"

Keys: Price -- and Price Reductions

How do you identify a motivated seller?

No, it's not because they scream on MLS that they're "motivated," "priced to sell," "won't last," etc.

Rather, the home is priced aggressively -- and, if it doesn't sell, is reduced at regular intervals thereafter.

A good example of a home meeting the foregoing description is 6xx Drillane in Hopkins (pictured above).

Pricing Pain & "Fence Sitters"

Since debuting on the market in July at $259,900, here is its price history:

Aug. 24: reduced to $249,900

Aug. 27: reduced to $239,900

Sept. 1: reduced to $234,900

Sept. 15: reduced to $224,900

Oct. 1: reduced to $214,900

Oct. 15: reduced to $209,900

Detect a pattern??

And yes, it's certainly possible that prospective Buyers, watching the relentless price cutting, are holding back, waiting for still more.

But eventually the value will be so irresistible that someone will bite, rather than risk losing out on a great deal to another Buyer not as patient.

In fact, as I've previously blogged, one not uncommon scenario is that, once one "fence sitter" monitoring the property jumps in with an offer, others follow.

The result is multiple offers that produce a price "bounce."

Objections

So, why hasn't it sold yet?

The home needs substantial updating, which can be a hurdle for Buyers at this price point.

Plus, it's a California rambler, which means there's no basement.

Minnesotans -- especially Minnesotans with kids -- prefer basements for their storage and "rec rooms" (perhaps more accurately named "wreck room").

"The Mulligan Market"

Disregarding Buyers' First Offer

Mulligan (ˈmə-li-gən): a free shot sometimes given a golfer in informal play when the previous shot was poorly played.

So, I think I've got a good name for today's housing market: 'The Mulligan Market.'

That's because so many deals these days start out with the Buyer making an insultingly poor (out-of-bounds?) offer, simply because they believe that: a) housing prices are softer than they really are; and b) every Seller is desperate.

Once Buyers discover otherwise, if they're serious, they typically return to the table with their second, "new-and-improved" offer . . . and negotiations can commence for real.

(The trick for Sellers confronting such Buyers is not to overreact to their first, unrealistic offer.)

Selling Hurdles -- Financial & Psychological

The Psychology of a Spurned Offer

Sometimes, financial considerations prevent home owners from selling.

If they owe more than their home is worth, they must either be able to write a check for the shortfall at closing, or, persuade their lender(s) to reduce the mortgage balance.

However, such "underwater" home owners only account for a slice of the Twin Cities housing market today.

What accounts for all the "above water" homes that seemingly linger on the market month after month (and in some cases, year after year)?

By definition, such Sellers don't need to sell; otherwise, they would have.

In Realtor-speak, such Sellers are said to "lack motivation."

Psychological Hurdles

Take away economics, and that leaves . . . psychology.

Sometimes the rub is what a neighbor sold their home for.

That's especially the case if the home didn't measure up to theirs.

The catch, of course, is that market conditions can and do trump home features; I can think of dozens of Twin Cities homes that sold for more -- a lot more -- three years ago than their more impressive neighbors are listed for today.

Even closer to home (sorry, bad pun) is the would-be Seller who turned down an offer above their current asking price earlier in the listing.

In fact, I just heard about an Edina home, now under contract for $900k, that had been on the market for over 2 years, starting at over $1.2 million.

Along the way, the owner apparently rejected two such offers -- one for $1.1 million, and another, later one for $1 million.

You'd guess that they have plenty of company (albeit at less lofty prices).

Single Men, Taxi's, and "For Sale" Homes

"Serious" vs. "Non-Serious" Home Sellers

Men are like taxis. The theory is that when a man is ready for, or open to, the possibility of a relationship he turns his taxi light on. If you happen to be the girl that hails the cab (him) while the light is on, you've got a possibility of a decently long ride. But if you grab a cab with the light off, it doesn't really matter what you do, it's just not going to go anywhere.

--Candace Bushnell, "Sex and the City"

Substitute "serious home sellers" for "men" in the quote above, and you have a pretty good shorthand for what's going on in the housing market at any given moment. (And no, this isn't meant to be sexist; arguably the same phenomenon applies to single women.)

Just consider all the contrasts between "Serious" and "Non-Serious" home sellers ("motivated" and "unmotivated," if you prefer):

Serious: Price their home consistently with the Comp's ("Comparable Sold Properties").

Non-Serious: List their home at a price that nets them "what they need" -- or what their neighbor got 3 years ago.

Serious: If feedback and days on market indicate the price is unrealistic, reduces the price 3%-5% at regular intervals.
Non-Serious: Won't budge from the original list price. Or, after an eon of market time, will cancel-and-relist . . . at the same price.

Serious: Ferociously cleans and de-clutters before hitting the market. Donates accumulated stuff to charity to make their home feel as big as possible. Spends a nominal amount on cosmetic updating (painting, floor refinishing, landscaping, etc.) as needed. Brings in a stager -- and takes their advice!

Non-Serious: Thinks their home is perfect as is -- so why do anything?

Serious: Accommodates showing requests whenever possible. Cleans, empties the Kitchen sink, turns on all the lights, etc. ahead of first showings -- and especially second showings!

Non-Serious: Does none of the above. Thinks showings are a good time to water the lawn . . . in their underwear!

Serious: Has the municipal point-of-sale inspection done prior to going on the market, and fixes any items listed.

Non-Serious: Leaves the point-of-sale inspection for if/when there's a Buyer (illegal in some cities).

Serious: Hires a good, full-service Realtor who tells them all of the foregoing, markets early (pre-list) and energetically, negotiates well, knows the neighborhood, etc.

Non-Serious: Hires the cheapest Realtor they can find -- or none.

And on and on.

While serious home sellers don't literally turn on the equivalent of a taxi light -- based on all the things they do (or not) -- they're just as easy for Realtors and prospective Buyers to identify.

Sellers' Motivation: Is it Relevant?

Does it Matter Why They're Selling?

Exquisite home available only due to job transfer.

--Generic blurb on MLS

Does it matter why someone's selling their home?

Prospective Buyers certainly seem to think so; seasoned Realtors, not so much.

Here are three reasons why Realtors place much less emphasis on Seller motivation than the general public.

One. The only time you're going to know the Seller's motivation is if it serves their interests to tell you.

Divulging a job transfer can certainly make sense, especially if the owner has only been in the home a short time.

Otherwise, the Seller's "(bottom line) price, terms, and motivation" are strictly off-limits, as every Realtor has drilled into them.

The rest of the time, you're likely to hear variants of, "the Seller needs a bigger/smaller/different home" -- sort of like the coroner citing "decedent stopped breathing" as the cause of death: literally true, but meaningless.

Two. Duty to Disclose, etc.

If the Seller is moving because their home is near a toxic waste dump, sits atop an earthquake fault line, or holds some other dark secret, you'd certainly want to know.

And you would.

There would likely be multiple news accounts documenting any environmental or neighborhood issue(s). Plus, the Sellers themselves have a legal duty, at least in Minnesota, to disclose any material facts affecting their home's condition.

Even if you lived in a bubble, hopefully your Realtor doesn't, and they would alert you.

Prospective buyers also can -- and should -- avail themselves of publicly available police reports, utility bills, etc.

I even advocate knocking on neighbors' doors (during daylight hours!), debriefing mailmen, etc.

Three. The home's condition and price speak for themselves.

A good Realtor who knows the neighborhood and overall market can quickly determine if a given home is well-priced, in good condition, etc.

By the second (or third) showing, prospective Buyers likely know, too.

Just to make sure, every Buyer should expect to pay an experienced home inspector $300-$400 to carefully evaluate the home for them (call that "trust but verify").

Trust But Verify

So, how can you tell when a Seller isn't motivated? (And their home is usually overpriced, to boot)

The listing is larded with language like "priced to sell," "make an offer," "Hurry! Don't miss your chance," etc.

Often times, when you see such listings, you pull their history and discover that they've been on the market . . . since 1998!

P.S.: one of my favorite New Yorker cartoons shows a father and son in front of a storefront plastered with signs reading "Liquidation sale!" "90% off everything!" "Must sacrifice," etc.

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

Divining Sellers' Motivation

Home for Sale -- Batteries (& Owner) Not Included

Prospective home Buyers seem to attach a lot of significance to Sellers' motivation (financial distress? Job transfer? Divorce? etc.).

Realtors, not so much.

For one thing, the three pieces of information a good Realtor is never going to tell you -- at least not without authorization -- are the Seller's price (bottom line, not asking), terms, and motivation.

For another, if a home is on the market . . it's for sale.

Period. End of story.

Realtors know that what ultimately matters isn't the Seller's mindset or circumstances, but the home's location, price and condition -- all of which stand on their own.

Put it this way: I've seen chandeliers and flat-screen TV's come included with a home . . . but never the previous owner.

As far as financial motivation goes, the local MLS now has fields asking whether the home is bank-owned, in foreclosure, or a potential short sale. A field left blank invariably means . . . it is.

What is Relevant

So when is speculating about the Seller (motivation, identity, etc.) relevant?

I can think of two situations, one common and the other rare (at least in the Twin Cities).

One. Notorious Homes (or Sellers).

At one extreme, homes linked to famous people can command a premium. Mount Vernon, George Washington's estate, isn't for sale (it's now government property), but you can bet that if it were, it would command a hefty premium.

Ditto for celebrity homes in Manhattan and LA -- assuming, at least, that the celebrity is known for good taste (Madonna's garish LA home sold at a steep discount years ago).

By national standards, at least, the Twin Cities doesn't have many celebrities. Ergo, you don't see that come up much here.

At the other extreme, homes that are supposedly haunted or were the site of a violent crime (murder, suicide) can be tougher to sell.

In Minnesota, disclosure laws keep changing on this, but the general rule is that if a typical Buyer would find something relevant . . the Seller has an obligation to tell them.

Two. Thankfully, the other relevant attribute about a home's status is much more straightforward: is it vacant or occupied?

Homes combine a benefit -- shelter -- and a cost (mortgage payments, taxes, upkeep, etc.)

Take away occupancy, and all the home represents is a cost.

Even if the home is an estate sale and long paid-off, there are still property taxes and upkeep.

There's also something called "opportunity cost": what the owner(s) could otherwise be doing with the money if it weren't tied up in the vacant home.

So, yeah, I think it's reasonable to assume that owners of vacant homes hear a little bit louder "ticking clock" than other owners.

Everything else being equal, such homes logically should sell faster, for better prices.

P.S.: But not always. I've seen plenty of estate sale situations where none of the beneficiaries seem to especially need the money (lucky them!), and are content to wait however long it takes to get "their price" (however they arrived at it).

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.

What Does a Motivated Seller Look Like?

Weekly Price Reductions . . Till it Sells

What does a motivated seller look like?

This pattern of price reductions comes about as close as anything you're likely to see:

7/17/09: old price - $595k; new price - $585k
8/7/09: old price - $585k; new price - $575k
8/19/09: old price- $575k; new price - $565k
8/26/09: old price - $565k; new price - $555k
9/3/09: old price - $555k; new price - $545k

You could practically set a metronome looking at this Minnetonka home's pricing history.

Want to guess when -- and how much -- the next price cut will be, if it still hasn't sold?

Motivated Buyers

Return of the Motivated . . . Buyer??

For as long as anyone can remember, all anyone's talked about in the housing market are motivated Sellers.

As in, desperate for a deal, because their house has sat on the market for eon's and they're running out of time to make a move. Or, if they don't sell, they'll lose the house to the bank (assuming, of course, they have any equity left in it -- or ever did).

Now, I'm starting to hear and see isolated instances of Buyers feeling pressure to buy (imagine that!).

It's certainly not the case in every Twin Cities neighborhood, or at every price point, but the number of motivated Buyers seems to be creeping up.

Here are a couple of the reasons:

--First-time Buyers want to close before the end of the year to take advantage of the $8,000 tax credit.

--Buyers know that, while there are a growing number of programs to assist eligible (mostly first-time or lower-income Buyers), many of the programs have limited funding that is quickly exhausted.

--Buyers who've been looking for bargain-basement foreclosures and have lost bidding wars (yes, they're popping up again) are nervous that the next wave of foreclosed homes won't be as attractive -- or attractively priced -- as the last wave. Or, there won't be another wave.

--Buyers looking for what everyone wants -- homes in a good location, that are nicely updated, have a sensible floor plan, etc. -- are disappointed by how limited their choices seem to be in certain, higher demand areas of the Twin Cities. Instead of waiting for an even better price, they're increasingly nervous that they're going to be outmaneuvered by another Buyer willing to pay close(er) to asking price.

What all of these situations have in common is the fear of loss.

When Buyer psychology tips from fear of buying too soon, to fear of missing out . . . the market's definitely firming up.