A Few Thoughts on the Real Estate Market Q4 2019
As we enter the last two months of 2019 I have a few open escrows, a few listings and just had two transactions close over the past 2 weeks. In other words business as usual. But this is a different market for sure and I want to share some of the trends I am seeing. Whether you are a buyer, seller, investor or another agent, I hope you find this information helpful.
Before we get started, when I refer to the “current generation of buyers”, I literally mean the buyers currently in the market not a certain age bracket. But you can also infer that I am heavily referring to millennials (hey, sometimes I think I’m a millennial in a baby boomer’s body) because they are a large buying segment right now. And throw in first time buyers because that’s also who is out there. As you know there’s not a lot of traditional “move up” or downsizing buyers.
And by the current market, I mean literally right now. Over the past few years the markets have shifted rapidly and cycles that would have been years or months previously have now been compressed into months or weeks. Why is that? Maybe 24 hour cable news or the plethora of social media platforms. But change is constant. I’ll come back to that theme later.
Let’s get started.
PROPRTY CONDITION
Buyers want turnkey homes and may even pay a premium for them. Dated, tired, needs updates, bad floor plan, the seller has to price appropriately or the listing will sit on the market.
A lot of buyers today are having a really tough time making the psychological transition from renters to home owners. Think of it as the Uber generation of buyers. If you don’t own a car you don’t have to think about getting the oil changed or replacing the tires. But if you own a home you have to do a lot more, starting with changing the lightbulbs when they are out. Here’s two anecdotes and I am not making this stuff up.
Over the last month I actually received a request for repair on one of my listings asking for a light bulb to be changed. Really. It was in a bedroom that had 4 recessed lights and one was out. You could clearly see the indication of a burned out bulb. But the buyer wanted a new bulb installed prior to the close of escrow and checked it at the final walk through. Presumably they were concerned that while the other 3 bulbs were working there was some wiring issue in a 5 year old home. Possible I guess but not the intent of the RR form imho.
And speaking of light bulbs I was recently doing a final walk through when the buyer turned the light switch on in a bedroom and - no lights. There were outlets and if you had a lamp connected to the outlet I guess it would have come on. But it took quite a bit of explaining for the buyer to grasp this concept.
Maybe that’s more like putting gas in the car than changing the oil. But back to the oil and tires…..
Whether it is painting, new flooring, updating appliances or other relatively minor cosmetic fixes, buyers don’t want to deal with it. I’m not talking about moving walls, or major kitchen or bath remodels. I’m talking about the easy stuff that buyers used to not only assume they would be doing but like doing because it makes the house their home when it is personalized. Not today. Buyers want to walk into the home with the wide plank floors, LED lighting, Quartz countertops, barn doors, white and gray paint, etc. I’ve seen more than one listing (said sarcastically) sit and sit because the buyers could not see past the presentation and they didn’t want to do the work themselves. I even offer to get it done for them after COE. No dice.
And outdated floor plans and layouts? Fuhgeddaboudit.
75 inch TV doesn’t fit? House doesn’t get sold. No room for the Range Rover in the garage = no sale. Can’t add an electric car charger to the garage? Keep looking. The list goes on and on. Low ceilings, no dual sinks on the master, no direct access garage, etc. The buyer lists are long and not always very flexible because of……
BUYER’S REMORSE
I’ve seen more deals canceled this year than ever before. Buyer’s remorse is a very strong emotion and I’ll probably do another post on it at some point. Here’s a few tales from the crypt of dead sales.
I received an all cash offer on one of my listings from a buyer doing a 1031 Exchange. Loved the property and thought it would be a great rental. And it was in turn key condition. Nothing much comes up at the inspection. Buyer cancels anyway. Why? She thought it would be too noisy. She wasn’t going to be living there. Investment property. But too noisy for an investment? The next buyer paid more so I guess that was good for my sellers.
I had another set of buyers who had immediate buyer’s remorse. Like the minute the offer was accepted. And a strong case of “millennial-itis” . They were just looking for any reason to get out of the deal and save face and kept moving the goal post until they eventually cancelled because you can’t prove for sure that something doesn’t exist. The next buyers paid over $10K more when it came back on the market and my buyers are still renting. I hope that’s working for them. And they had a lock on a 2.75% loan which they won’t be seeing again anytime soon.
I had another instance of a buyer with so much buyer remorse that I had to literally renegotiate the sale price after the offer was accepted by tens of thousands of dollars. Ouch.
Fueling the current buyer’s remorse epidemic is…..
PRICE REDUCTIONS
There’s a lot of over priced properties on the market. Let’s call it unsold inventory as opposed to active listings because they just aren’t too active. Many sellers just listed too high and the current generation of buyers aren’t as interested in making low ball offers as in the past.
How many price reductions?
As of this post here’s a random sample (well not that random):
North Redondo Beach 49 listings 18 price reductions (37%)
Manhattan Beach 98 listings 45 price reductions (46%)
Hermosa Beach 60 active listings 31 price reductions (52%)
Are there really that many delusional sellers or incompetent agents? Apparently yes. Years ago I heard someone say that that if you lined up 100 agents outside of a house 98 of them could probably tell you exactly what it will sell for. I’m not sure if that is quite true but there seem to be a lot of agents who don’t want to level with their seller clients as to the real value of the property. Why? because we have been in a market for the last almost ten years where a listing was a paycheck. That has changed. Not anymore. And as I learned a long time ago listings that don’t sell really aren’t any benefit to agents. You just become the person who couldn’t sell the neighbor’s house. Or worse yet, for buyers you are the agent with the over priced listing.
Real world story.
I went on a Silicon Beach listing appointment a few months ago. Great sellers and we really hit it off except I made the mistake (not really) of telling the sellers what they should list at and tried to set reasonable expectations as to what the selling price might be. The last comp as $1,925,000 for a very similar property. I advised them not to go over $1,949,000 at the most. Guess what? They listed it with the agent with the flashy celebrity shtick for $1,965,000. And, as I could have told them, it sat for over 50 days before it was reduced to $1,899,000. I could have sold it at that price in 3 days the way I market properties. So not only are they costing themselves money, but a lot of time as well.
Simply put, you can’t over price in this market. By even one cent. And don’t list with the agent who tells you the highest price. Go with the agent who has the best plan to sell your home. And make sure that agent has…
CREATIVITY
It takes more to get deals done these days. As I write this, I am also negotiating a VA deal with early possession on a 1031 Exchange for one of my seller clients. Agents need the experience to understand how to structure deals and get sales to close.
I also had a recent sale that involved the buyer paying their broker directly (through escrow) and deducting the commission from the sales price. Easier said that done because I had to make sure that my seller clients were protected and the other broker wasn’t going to try to collect the commission from them. So knowing the paperwork and how to structure the contract when we get outside of the playing field is super important. For the record I am not trying to reinvent real estate practice and like standard sales when possible. But that may not be today’s market because….
EXPERIENCE COUNTS
If you had a really bad stomach ache I hope you wouldn’t grab a steak knive, go to WEBMD and start cutting (yourself). Yet that’s what I see consumers do everyday, figuratively speaking. I get it. You can to Zillow and check prices and listings and you watch HGTV. But the real world of real estate isn’t easily “appified” beyond searching for listings (PropTech BS aside). You can’t Google the experience in my head. You haven’t been involved in hundreds of transactions. I have. And don’t get sucked in by brokerages touting…..
PropTech
I need to do a separate post about this but for now let me just say that there’s no “there” there.
A number of Brokerages and startups are pushing this concept and positioning their firms as “tech companies”. They are not tech companies of they are selling real estate. Well maybe with the exception of Zillow who is a tech company and now also buys and sells homes in some markets,
It is one thing to use technology to market properties and many of us, including yours truly, employ this in our bag of tricks. But at the end of the day, real estate is still a very physical business - you have to see homes in person and while advances have been made in the use of technology, more of them are in the back office such as DocuSign and SkySlope than on the search and acquisition front.
So that’s what’s on my mind today - let’s see what tomorrow may bring.