Home Spotlight: 20xx Laurel

$50,000 Price Reduction

What's the big deal about a $50,000 price reduction?

They're practically run-of-the mill these days, especially in the upper price brackets.

What you don't often see is a $50,000 price reduction off of a home listed for $250,000, like the one shown above.

For the math impaired, that's a whopping 20% (vs. the more typical 3% to 5%).

Located at 20xx Laurel in Minneapolis' Bryn Mawr neighborhood, this 6 BR/4 BA Victorian with over 4,500 square feet is now listed for $200,000, after being reduced $50k on Wednesday.

Compounding the Seller's misery: they paid $560,000 for it just over three years ago (and, no surprise, the Seller discloses that it's a possible short sale).

P.S.: I discuss price reductions in much greater detail in a post titled, "Nurse! I need a price reduction, stat!!"

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").

That "Being Watched" Feeling (on MLS)

Price Push -- or Shove?

I always feel like
Somebody's watching me
And I have no privacy
I always feel like
Somebody's watching me
Tell me is it just a dream

--Michael Jackson; lyrics, "Somebody's Watching Me"

Got the feeling that someone's watching you?

If your home's on MLS, it may not be your imagination.

That's because prospective home Buyers now have an option that lets them "watch" specific listings; whenever there's a change in the home's price or status, they're instantly notified.

To a listing agent, lots of people watching your listing indicates that it's on people's radar -- but not quite compelling enough for them to move on it.

So, what's usually called for is a price nudge (vs. a price shove).

On the other hand, if few or no people on MLS have saved your listing, a more aggressive price reduction is likely in order.

P.S.: while agents can see how many people are watching their listings, unfortunately, they can't tell the identity of the individuals.

Housing Market "Do Si Do"

"Pick Your (Housing) Partner"

Swing your partner ‘round and ‘round,
And turn your corner upside down.
And turn your corner like swingin’ on a gate,
And meet your partner for
a grand chain eight,
And hurry up boys and don’t be late.

--Square dancing lyrics

What does the upcoming Fall housing market have to do with square dancing?

It's when Buyers and Sellers "pick their partners," before colder weather and the holidays slow things down. (Ditto for landlords and renters).

So here's a rare (but safe) prediction from yours truly:

The Twin Cities housing market is going to accelerate noticeably after Labor Day.

Assuming that most people want to close by Thanksgiving, and taking into account that the average interval between signing a Purchase agreement and closing is six weeks, Buyers and Sellers will want to consummate a deal by early October.

P.S.: as part of that acceleration, look for a spike in new listings and price reductions after Labor Day.

Getting Something Read Into the (Real Estate) Record

"Funny, I Didn't See Him at the Meeting"

Politico's know that a Congressman who never actually delivered a speech in the Senate or House chambers can nevertheless have their remarks "written into the record," or transcript, of that body's deliberations.

Real estate has something similar.

After each local real estate office holds its weekly Tuesday meeting, the Office Administrator ("OA") assembles and circulates a list of their office's Pre-List's, Price Reductions, Buyer Needs, etc.

Can't make the meeting (because you're prepping for Tuesday tour)?

Just email the OA.

THAT Sure Went Fast (Too Fast??)

"Now You See it . . .
Now You Don't"

In a post last month, I posed the question, "Did the Seller Leave Money on the Table? Four Ways to Tell."

That post came to mind as I scanned the particulars of 2900 Chowen Ave. South, which came on MLS this afternoon -- I'm not kidding -- as "Active" at 1:45 p.m.; was switched to "Pending" at 1:47 p.m.; then was switched from "Pending" to "Closed" at 1:49 p.m.

Total elapsed time?

Four minutes.

Sale Postmortem

Well, at least other Buyers (and their agents) had a "heads up" that 2900 Chowen was coming on the market, right?

Wrong.

I can only speak for myself -- but I live 2 blocks away, have sold over a dozen properties worth $6 million-plus within a mile, and have an extensive local network of contacts.

And I didn't hear a peep.

OK, so at least the Seller got a good price, right?

Draw your own conclusion, but the asking price was $200,000, and the selling price was $150,000. (As a percentage of market time, that just might be the world's biggest price reduction --ever.)

That compares with a tax assessed value for just the land of $196,700.

Oh . . . and a couple doors down, the lot at 2822 Chowen is now "Pending." List price: $285k -- for a lot that is 21% smaller than 2900 Chowen (6,050 square feet vs. 7,623).

Single Agent Dual Agency: Exhibit A

OK, well at least the Seller's agent negotiated hard for them, right?

Hard to say, because the Seller's agent . . . . was also the Buyer's agent.

Called "single agent dual agency," such deals are notorious for conflicts of interest.

If you're keeping track, that's 4-for-4 on my "four ways to tell" if the Seller left money on the table.

As I say . . . draw your own conclusions.

P.S.: So guess what 2900 Chowen is worth according to Zillow? (Called a "zestimate")

Give up?

Try, $406k.

Realtor Cognitive Dissonance

"Ten Showings, $10,000"

I hated discussing ideas with investors. Because I then become a Defender of the Idea, and that influences your thought process. Once you became an idea's defender you had a hard time changing your mind about it."

--Author Michael Lewis, quoting investor and fund manager Michael Burry in The Big Short (p. 56)

I've been using the long holiday weekend to do some recreational reading (yeah!), including the wonderful The Big Short by Michael Lewis (Thomas Wolfe and Lewis are my two favorite writers).

In my experience, something analogous to Burry's experience with investors (above) happens to listing agents, too: namely, in the course of pitching a home to prospective Buyers, it's easy to lose your objectivity about the home's value, and become convinced that it's worth the asking price.

Unhh-unh.

Unless the listing agent is buying the home, it's worth what someone (else) is willing to pay for it.

The Danger of Sitting Tight

That's why Realtors say, "ten showings, $10,000."

Translation: if ten serious, well-qualified Buyers view a home and all pass -- the home's (at least) $10,000 overpriced (make that 3% - 5% for a more expensive home).

So what's so bad about the listing agent thinking a home is properly priced when it's not?

They'll be slow to counsel a price reduction, which will (eventually) cause the home to linger on the market.

In turn, homes that linger on the market often need to be deeply discounted to sell.

Why I Don't Price Other Realtors' Listings

Real Estate's "Heisenberg Uncertainty Principle"

The observer influences the thing observed.

--Heisenberg uncertainty principle

It seems self-explanatory, but as a principle, I don't price other Realtors' listings.

The issue usually comes up when I do a listing presentation -- essentially, a job interview for Realtors.

In the course of interviewing Realtors, homeowners (and prospective Sellers) naturally want to know how you'll market their home; your qualifications; and what their home is worth.

While I always come to listing presentations armed with the latest, nearby market activity (and am happy to offer a ballpark range), I decline to name a specific price until the homeowner commits to using me as their Realtor.

Rationale

There are four reasons why I take that stance.

One. Time.

Carefully pricing a home (vs. haphazardly) takes a great deal of due diligence.

At least for me, the steps include: identifying and analyzing the Comp's (Comparable Sold Properties); learning the history and condition of the client's home (vs. taking the 10 minute tour after first arriving); previewing the Active listings that the client's home will be competing against; identifying any Pending homes similar to the client's home and estimating what their likely Sold price is; and pouring all the foregoing into a CMA, or Comparative Market Analysis, then crunching the related numbers.

All of the foregoing takes . . . time. Done properly and well, lots of time.

As a Realtor, the two things I ultimately have to sell are my time and expertise.

If I spent undue amounts of time working for non-clients, my actual clients will suffer.

That hardly seems fair to them.

And spending the requisite 6-8 hours carefully pricing a home that another Realtor is ultimately going to list isn't fair . . . to me!

So, I don't invest that time . . until I'm hired.

Two. My price for any given home isn't a fixed number.

Rather, it depends not a little bit on the homeowner themselves.

So, do they need/want to sell quickly, or can they be patient waiting for an offer?

Can the home benefit from staging, strategic updating, etc. , and if so, is the client willing and able to do it?

Does the client want to price aggressively -- and take the risk that goes along with that -- or do they want to price more conservatively?

And so on, and so on.

Three. My price may not be the same as another Realtor's (call this phenomenon "Real Estate's Heisenberg Uncertainly Principle").

Whereas homeowners tend to think of their home as having a fixed, objective value, Realtors (and anyone who knows marketing) understand that the actual price is a range -- a fluid range that is influenced by the skill of the professional(s) involved in the sale.

A home that is optimally staged and photographed, then aggressively and expertly marketed by an excellent Realtor at a top-flight Broker is likely to sell for one price; a home where a less-talented and motivated Realtor simply shows up, gets the requisite signatures, then puts a "For Sale" sign in the front lawn, is likely to fetch . . . another price altogether.

Four. "Buying the Listing."

The last reason I won't casually price a home is because I don't want to get caught up in what Realtors call "buying a listing."

Pretty much what it sounds like, the practice consists of appealing to a homeowner's vanity (or ignorance) by throwing out an unrealistically high price for their home, and thereby beating other Realtors' "bids."

With the listing secured, the Realtor then focuses on getting a price reduction -- or several of them -- when the home proves unsaleable at the quoted price.

Bidding wars are great for Sellers, but not so great for Buyers.

That's true for Realtors, too.

As a prospective listing agent in an already tough market, the last thing I want to do is get into a Realtor bidding war to list what is certain to be an overpriced home.

P.S.: For the record, when prospective home Sellers interview both me and another Realtor . . . they hire me the vast majority of the time.

"The First Cut is the Deepest?" Not in Real Estate

Seller Psychology

I would have given you all of my heart
But there's someone who's torn it apart
And she's taken just all that I had
But if you want I'll try to love again
Baby I'll try to love again but I know

The first cut is the deepest
Baby I know the first cut is the deepest

--Rod Stewart, "The First Cut is the Deepest" lyrics

Is the first cut the "deepest"-- the one that hurts the most -- in real estate?

Not in my experience (and many other Realtors').

That status seems to be reserved for the third cut, or price reduction.

It's at that point that many Sellers seem to reach their limit, and refuse to reduce their price anymore.

Sometimes that patience (stubbornness?) is rewarded . . . sometimes it isn't.

"Will Consider All Offers," Explained

Stealth Price Cut

What does it mean when a listing agent puts out the word -- on MLS or just verbally -- that their Seller "will consider all offers?"

Here is a rough translation: a) the Seller knows that the current asking price is high; b) but for perceived negotiating leverage, they don't want to reduce it; so . . . c) please feel free to make an offer well under the asking price.

Surprise, surprise . . . many prospective Buyers go ahead and do exactly that.

Which is why I'm not such a big fan of the strategy.

Rather than elicit offers as much as 25% below their current asking price, Sellers are usually better advised to do a smaller, incremental price cut; test that in the market for a period of time; then assess and repeat as necessary.

Spend it Now -- Or Spend it Later*

Prepping For Sale

You can pay me now, or pay me later.

--Oil filter commercial, circa 1970's

One of the more difficult conversations listing agents can have with their Sellers concerns spending (some) money to prep their home for sale.

That's an especially sensitive topic if some (or all) of the homeowner's motivation for selling is financial.

The good news is, a lot of the necessary prep is free.

So, things like de-cluttering and cleaning are simply a matter of finding the time.

As burdensome as emptying an attic full of decades of memento's is, the stark reality is that what's at issue is ultimately just timing: the stuff is going to have to be donated/thrown after the Purchase Agreement is signed -- so do it beforehand, and get more money for the house!

Out-of-Pocket Expenses

Of course, not everything on the prep list can be done for free or at a steep discount (unless the homeowner is an expert painter, landscaper, or in the carpet business).

A good Realtor will suggest cost-effective repairs and improvements, knowing that $1 spent by the owner can easily return $3 or $4 AND help the home sell faster.

Ultimately, like the car owner deciding whether to buy a good oil filter or a cheap one, the decision isn't whether to spend the money.

Rather, it's whether to spend the money before the home hits the market -- or a couple months later, after it's been sitting with little or no Buyer interest, and the owner is facing both a price reduction AND cosmetic updates.

Trust me, it's a much better investment beforehand.

*Corollary: you can de-clutter your house now, and sell for more. Or, wait until it sells, then have to empty out your home in order to move.

Great Home, Great (New) Price

Handsome Fern Hill Colonial

When: $30k price reduction yesterday!

Where: 4121 W. 28th St (28th & Inglewood Ave. So.), in St. Louis Park's Fern Hill neighborhood
What: 4 Bedrooms (all up), 3 Bath 1937 Colonial with 3,000 square feet
How much: now $549,900
Who: listed by Ross Kaplan, Edina Realty City Lakes

This Fern Hill Colonial has a lot going for it: one of the most beautiful Family Rooms I've been in -- at any price point; four Bedrooms up; formal Living and Dining Rooms; and a ton of charm and character throughout.

Oh, yes: and an attached, 3-car garage with tons of extra storage space.

Don't miss the Gazebo in back.

Please call directly (612-925-7701) to set up a private showing.

Twin Cities Market Snapshot -- March, 2010

Today's Buyers: Looking for (Affordable) Cream Puffs

My quick "snapshot" on the Twin Cities housing market as of St. Patrick's Day, 2010?

It continues to be a schizophrenic market, in which the lower end -- defined as under $200k for single family detached -- is selling (too?) briskly, and values are hard to find.

I attribute that to: 1) tax incentives (due to expire April 30) that loom larger for entry-level homes; 2) a preponderance of first-time Buyers unencumbered by existing homes they have to sell; and 3) a pronounced drop in bank foreclosures (down more than 50% locally the last six months).

Meanwhile, upper bracket homes (say, $800k and above) continue to languish, and are being aggressively discounted to move.

Two Contests: Pricing & Beauty

Another phenomenon of this market: Buyers are looking for "cream puff's"; that is, homes in mint -- or at least move-in -- condition that show great . . . and are priced great.

Or as Edina agent Jonathan Spar puts it, would-be Sellers in today's market have to win two contests: a pricing contest, and a beauty contest.

Perhaps that's why I'm seeing more listings that have been sitting, unsold, "re-debut" on the market touting the fact that they are "newly staged" (often with a price reduction, for added "oomph").

That's a tacit acknowledgement that they weren't so beautiful before -- but now they are!

P.S.: sometimes I wonder whether Buyers who fall in love with a home realize that they're buying the home, not the staging!

Blast from the Past, or, the "Hail Mary" Call

Turning Up the Heat on a (Very) Cold Trail

Once every month or so, I get a voicemail like the one I got today:

"Hi, this is Bob Smith at Smith Realty. I don't know if you remember or not, but you showed my client's home at 123 Elm Street in December(!), when it was $179,900. I don't know if your client is still looking or not, but we just dropped the price today."

While I always admire a hardworking, proactive agent, such calls -- especially at that price point -- are almost always a waste of time.

For one thing, if my client has serious, continuing interest in a listing, the other agent will know well before three-plus months have elapsed.

For another, I've probably shown or previewed several hundred homes since December. Jogging my memory on a December showing is like asking me what I had for lunch last July 17.

Sitting -- For a Reason (or Several)

But perhaps most importantly, three months of market time for a listing under $200k is an eternity -- for both Buyers and Sellers.

While the market for upper bracket homes is sluggish (to say the least), well-priced, well-marketed entry-level homes have been selling briskly, typically in less than 90 days.

That's due both to who's buying them -- first-time Buyers who by definition don't first have to sell -- but also because of the tax incentives available ($8,000 for first-time Buyers, $6,500 for move-up Buyers).

Those numbers loom much larger for homes under $200k than for $600k or $1 million homes.

So, bottom line, the only reason an entry-level home would be sitting in today's market is because of condition, price -- or both.

Which undoubtedly is what my client thought way back in December (I honestly don't recall the home; they subsequently bought something else shortly thereafter).

Oh, and the new price that the listing agent wanted me to know about?

A dramatic drop down to . . . $175,000.

"Look, Ma, No Hands!"

Just Another Day at the (Virtual) Office

Based on market time, showing feedback, etc., I advised my client that a price reduction on her home was in order, and she agreed.

So I got her the necessary paperwork, she signed it, and I forwarded it (via my front desk) to MLS for them to input.

Happens every day, right?

Except this time, I was in Arizona, my client was in Florida, and her home (and my office) are in Minnesota.

Complicating matters just a little bit: I don't travel with a scanner, and wi-fi connections proved a little less ubiquitous in Arizona than in big cities on the east coast.

Real Estate "Parents" & "Children"

So, I dropped into the Scottsdale office of Long Realty, a sister company to Edina Realty (both are subsidiaries of Berkshire Hathaway).

Thanks to Long Realty agent Kim Grabovich for letting me borrow her password to do the necessary scanning, printing, etc.

P.S.: Just like real-life siblings resemble one another, so do real estate siblings -- or more accurately, their Web sites.

The reason is that Home Services of America, the immediate parent company of Long Realty and Edina Realty, handles the agent Web site software for both brokers.

"Nurse! I Need a Price Reduction, Stat!!"

How Big a Price Reduction?

If an otherwise well-staged, well-marketed home isn't selling after a reasonable interval on the market, a price reduction is invariably indicated.

How big?

It all depends on how overpriced the home appears to be.

Toss Out the CMA

Once a home is actually on the market, interest from prospective Buyers -- or lack thereof, if there are few or no showings -- trumps pre-market research.

So, even if the listing agent's Comparative Market Analysis ("CMA") suggests that a given home is a good value, if there are dozens of showings and no offers (or even second showings!) . . . cold, hard empirical reality would strongly suggest otherwise.

How much to cut is very much a subjective call, and based on experience. Practically, it also depends on the Seller, who may not be willing to reduce the price at all.

However, in my experience, just like every deal negotiation has its own rhythm and feel, so does every listing.

How Strong a "Pulse?"

At one end of the continuum are listings that just feel primed to sell.

Interest is strong and immediate, first showings quickly progress to second showings, and second showings progress to . . . offers.

At the other extreme are homes that, for lack of a better term, lack any perceptible pulse (that's never happened to me personally, mind you, but so I hear from other Realtors).

Showings are few and far between, and follow-up interest is zip.

In between are listings that are attracting good attention, but just can't seem to elicit an offer.

Cold Splash of Water -- or Defibrillator Paddles?

For a truly lifeless listing, a dramatic price concession ("paddles") is usually in order.

Depending on the aforementioned factors, that can be anywhere from 5% to 15% or more.

For a listing that just seems to need a reviving nudge, a less extreme price reduction is obviously appropriate -- call it a "cold splash of water" (it certainly feels that way to the Seller!)

That can be as little as 2%, or, if the Seller wants to "bite the bullet" and significantly raise their chances of selling quickly, as much as 5%.

"Avatar" Meets the Housing Market

Is Virtual Staging "the Next Big Thing?"

The "next big thing" in real estate likely has nothing to do with "social media" (Facebook, LinkedIn, etc.).

Rather, my guess is that it's "virtual staging" -- using software to simulate what an empty house would look like (nicely) furnished and accessorized (wall art, area rugs, mirrors, etc.)

I'm aware of several companies that either have products on the market, or are just about to be released.

The pitch to clients?

Spend $500 on virtual staging, $5,000 on actual staging -- or list it $10,000 lower (if they're already on the market, make that a $10,000 price reduction).

I know what I'm going to recommend . . .

Is Your Agent Hoarding Listings?

Top Three Ways to Tell

Is your agent hoarding listings?

The practice -- well known to Realtors, but not to clients or the general public -- consists of accumulating listings not with the intention of selling them . . . but using them to troll for clients interested in buying other, more realistically-priced homes.

It all amounts to a sort of bait-and-switch -- and your home is the bait!

Here are the top three signs that your agent may be hoarding listings -- including yours!

One. The other agents you interviewed suggested dramatically lower listing prices --and backed up that advice with solid market data.

Two. Your agent has more than half a dozen active listings that average more than six months of market time.

Three. You've had no offers -- or even showings -- after substantial market time (Note: market time is relative to price, but generally three months is plenty of time to at least gauge whether a price reduction is appropriate).

Wouldn't owners of such homes know if their agent was using their home to attract other clients?

Not necessarily.

If your Sunday open house is a bust, all you'll know is that traffic was poor, or that prospective Buyers didn't like your home.

You won't necessarily know that they hired your Realtor to buy something else.

Telling Homeowners What They Want to Hear

Why should home owners care if their home is a "hoarded listing?"

Time on the market is the enemy of any home owner who wants a good price for their home.

Typically, the longer a home sits at an unrealistic price -- the steeper the discount down the road to move it.

It's no accident that hoarding listings goes hand in hand with another, unsavory Realtor practice: 'buying a listing.'

Exactly what it sounds like, it consists of telling homeowners not what their home is likely to fetch, but agreeing to take the listing at an unrealistic price in the hopes of reducing it later.

As that old real estate saying goes, 'better to have listed and lost, then never to have listed at all."

Price Cuts on Thanksgiving

Trees, Forests, & Price Reductions

If a tree falls in a forest and no one is around to hear it, does it make a sound?

--ancient riddle

I don't know the answer to the tree-forest question, but I do know the answer to this one: "if you drop your price when no one's paying attention, does it do any good?"

That's why I'm recommending to my listing clients that, if their home is overdue to take a price reduction, better to do it now, when the market is active, than nearer (or after) Thanksgiving, when things predictably slow down.

"Not-selling-itis"

Resisting Treatment

Imagine you had a medical condition, and sought advice from an expert.

They told you that, while there was a tiny chance that you could spontaneously recover, in the vast majority of cases the condition was degenerative. Meanwhile, there was a medicine available that was 100% effective, albeit expensive.

Would you take the medicine?

The vast majority of people in this situation probably would -- and sooner rather than later (at least assuming they could afford it*).

"Needles in Haystacks"

Now substitute "home seller" for patient, "Realtor" for expert, and "unrealistic asking price" for "medical condition" . . . and suddenly people's behavior changes.

Instead of responding rationally to overwhelming evidence that their home is overpriced for current market conditions, they opt to wait -- hoping for a stronger market, a needle-in-a-haystack buyer . . . or both.

Unfortunately, like the aforementioned, hypothetical medical condition, time is your enemy when you are trying to sell an overpriced home.

By the time the patient is resigned to taking the medicine, the chance for a "cure" may already have been squandered.

*Of course, just like some patients are willing to take medicine but can't afford it, some home sellers know that their home is overpriced, but can't afford to reduce it -- because they owe more than its fair market value.

Then, they either need to pursue a short sale, whereby the bank(s) reduce the mortgage amount, or, failing that, contemplate defaulting.