Year-End Spike in Activity?

Like most Realtors, I set up what are (or used to be) called "hot sheets" on MLS to track activity in areas of specific interest to my clients.

So, just by clicking "Update," I can see everything that's changed on the market -- across multiple neighborhoods, price ranges, etc. -- since the last time I logged on.

Normally, the waning days of December are quite slow -- which is why a flurry of December 31 MLS changes caught my eye.

Pended Sales? New listings?

Try, "Expireds."

You'd guess that the vast majority of these will likely pop back up as "Active" today or tomorrow.

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 "Due Diligence" Showing

I Guess That Qualifies as Feedback

I was wondering what was up with an agent who showed a couple of my listings near Cedar Lake in Minneapolis in the span of a few days last week.

The feedback was quick and generic, and there was no follow-up interest.

The "mystery" was cleared up this morning when I saw the agent's new listing on MLS, in the same area and general price range as mine.

Rules of the Game

Before Sellers get up in arms over the foregoing, two caveats: 1) an agent who is "just" previewing today may have a real, live Buyer tomorrow -- or work with a colleague who does.

That's especially the case if they're about to list a competing property and pull in a ton of prospective Buyers looking for a home in the same general area and price range -- Buyers who, for whatever reason, may not be candidates for the agent's new listing, but might be for yours.

If your home is for sale and on the market, there really is no such thing as bad exposure.

Caveat #2: your agent likely did the same thing before your home came on the market.

By way of clarification, most agents who want to see a home, but aren't actively working with a suitable Buyer, will set up the showing as a "preview."

That way, the home owner can hang around, and doesn't need to go through the fire drill of getting everything shipshape for an actual showing.

That's an especially nice courtesy in Minnesota around, oh, January.

P.S.: I am careful to coach my selling clients not to volunteer anything to the previewing agent if they happen to be around -- like, how many recent showings there have been, feedback from same, etc.

When the Comp's Are "Thin" -- Or Non-Existent

"Active's" Loom Larger in Pricing Decisions

Realtors and Appraisers alike rely on "Comp's" -- comparable sold properties -- to estimate fair market value for any given home.

By definition, a Comp is similar in style, condition, and size as the "subject property" (the one you're trying to price); is physically nearby; and has sold in the same market.

Given that interest rates, economic conditions, listing inventory, etc. are constantly in flux, the "same market" typically means going back no further than six months -- and sometimes three, depending on the lender and price point.

"One of a Kind"

So what happens if there aren't any homes that meet those criteria?

That's especially the case for "upper, upper" bracket homes in the Twin Cities (and elsewhere) right now, which: a) are moving very slowly in today's market; and b) by virtue of their price, size, and finishes, tend to be more unique, anyways. (To be fair, the expected market time for expensive homes is always significantly longer than for more modestly-priced homes.)

By necessity, you then have to rely more on what you're competing against.

Typically, that means scrutinizing the dozen or so "Active" listings that prospective Buyers are most likely to consider along with the to-be-priced home -- then picking a price that beats all of them!

The virtue of that approach is that it (also) satisfies prospective Buyers' insistence on getting what they perceive to be a great value -- a requirement at the top of most Buyers' lists today.

"To See, or Not to See?" (that is the question)

"Sold, Subject to Inspection" -- Explained

Upper bracket Twin Cities homes may not be moving quickly (if at all), but the pace of sales for more affordable housing -- say, under $300k -- is surprisingly brisk.

Accordingly, more would-be Buyers are being told that the home that they just asked to see is already "sold, subject to inspection," even though its status on MLS is still showing "active." (There's actually a further refinement to that status -- namely, either "good to show" or "no more showings." By definition, if the latter status applies, there's nothing for other, would-be Buyers and their Realtors to discuss.)

What does that mean? And what should prospective Buyers do with that information?

"Sold, subject to inspection" means that there's already an accepted offer on the home, but that the Buyer hasn't removed the Inspection Contingency yet. Until that happens, other Buyers are welcome to view the home (assuming the contract between the Buyer and Seller provides for that).

Which prompts the next question: should other Buyers still bother looking?

"To See, Or Not to See" (That is the Question)

Standard Realtor advice is "no." The reason is that the vast majority of the time (say, 85%-plus), inspections don't scuttle deals.

That's so either because inspections don't reveal any major issues, or, if they do, the Buyer and Seller are able to successfully negotiate them.

Per Minnesota law, a Seller who learns about a material defect in the course of a Buyer's inspection is obliged to update their disclosure. So, the choice they're confronted with is, reduce the sales price an appropriate amount now, with this Buyer -- or take a similar discount with any future Buyer.

Alternatively, the Seller can elect to fix the problem themselves, then put the house back on the market.

Either way, the cost of the repairs comes effectively comes out of their pocket.

Not surprisingly, most Sellers in this situation opt to "take their lumps" now, vs. later.

Inspection Blow-Ups

So what about the other 15%?

Three types of situations account for most of the "inspection blow-up's."

First, the inspection reveals a major issue, and the Buyer and Seller can't come to terms about an appropriate discount.

Given that there are standard price ranges for things like roofs, furnaces, radon remediation, etc., there's really no reason for that to happen if both sides are negotiating in good faith.

Second, the Buyer and Seller disagree about whether there is a material defect.

Fortunately, most home issues are objective rather than subjective in nature: the roof leaks or it doesn't, the heat exchanger in the furnace is cracked or it isn't, etc. Usually, bringing in qualified third parties -- typically, knowledgeable contractors -- can get Buyers and Sellers past this impasse.

The third type of inspection failure is when the inspection is such a disaster that the would-be Buyer isn't interested in negotiating a discount (however sizable).

More than most consumer purchases, for many people, a home purchase is especially emotional.

A disastrous inspection can cause the Buyer to "fall out of love" with a home.

When that happens, often times no amount of "rational" inducements (read, financial) can un-do the damage, and the best course of action is to simply move on.

"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.

Open House Sun. 2-4 p.m.

Linden Hills Charm

Looking for a character-filled home near Lake Calhoun that's perfect for a professional couple or family with small kids? Come by my open house at 3929 Washburn Ave. in South Minneapolis this Sunday (1/25/09) from 2-4 p.m. Highlights include: 4 Bedrooms, 2 Baths and over 2,200 finished square feet; a hillside setting with commanding views; and a private, level backyard. Price: $479,900