Feeding Frenzy
Here’s an example of what happens when three houses hit the market about the same time in Rancho Penasquitos, and the flurry of activity that ensued:
“Tremendous Activity”
There are more houses that aren’t selling, than those that are.
In a frenzied marketplace, how do you know which are the good buys?
It’s easy – the babbling listing agents will tell you.
I always contact the listing agent and ask, “How many offers are in?”. Their answer will tell me how well their list price reflects the opportunity.
Here is my guide for their answers:
- 5+ offers – it’s a good value, and at least one great agent has offered.
- 1-5 offers – retail priced.
- No offers – overpriced.
Because there are no rules or regulations for bidding wars, once we hear that at least one offer is in, we know that it is time to act.
Many agents are specifying in their confidential remarks when they will be presenting offers and/or showing the property, but don’t trust it. If they get a good enough offer, they might just take it to end the chaos.
Could a listing agent be lying about the number of offers? Maybe, but it takes a slick operator to pull it off. The good listing agents know how to put the right price on a property, and as a result, they will get multiple offers. The good buyers’ agents know a good deal when they see it too.
The listing agents to watch are the ones who tell you that they have had “tremendous activity”.
I had one last week tell me that she didn’t have any offers yet, but I should “rush” my offer in because of the “tremendous activity”. Why? If so may buyers have seen it, how come you don’t have any offers? It must be overpriced!
The most-motivated buyers see the new listings within the first day or two on the market – they are the ones that are willing to pay top dollar, and if they passed on it, then what does that tell you?
In this market, if 5-7 days goes by without any offers, be suspicious of the price – and know that the showings drop off considerably after the first week.
Why do we see houses selling after a month or two without lowering their price? It’s because the market caught up with them, which is happening in places like the under-$1,000,000 market in Camel Valley. In the 92130, there are only 15 houses for sale under $1 million, and only six of those have been on the market longer than 30 days. There are 41 pending/contingent.
In areas like that where there is no glut building, buyers are feeling nervous that they don’t see more homes coming to market, and they are jumping on the OPTs.
Buying Direct From Listing Agent
You know the market is competitive, you’ve lost a bidding war or two, and then it happens – a hot new listing pops up that is right in your wheelhouse.
The thought occurs to you. “Maybe I should buy direct from the listing agent?”
First, let’s identify how often this happens.
The last time I checked about a year ago, the listing agent represented both the seller and buyer 15% of the time. Of the 163 closed sales in NSDCC last month, there were only 10% of the sales where the same agent represented both parties.
Why doesn’t it happen more often?
- Listing agents aren’t that comfortable with dual agency. The agents who don’t sell much (less than one a month) are already nervous about their ability to handle all the phone calls they are receiving, and are paranoid about mis-representing the seller’s interests. I just saw this happen where the listing agent was talking to a buyer right in front of me, and the buyer asked the listing agent to write an offer….and the agent declined. He told the buyer that he’d have to find his own agent to represent him, even though the listing agent gave the buyer the tour of the home by appointment, and talked about it for another 20 minutes.
- Sellers are paying attention. The listing agent can help you more when the sellers are uninterested (short-sales) or long distance clerks (REOs). Today, the majority of sales are with local sellers who are involved with the process and are pushing for a top-dollar sale. The listing agent’s ability to tilt the table in your favor is minimized.
- Both parties expect a discounted commission. Listing agents are reluctant to discount, because it looks and feels like two jobs with extra liability. If they don’t see enough benefit, they won’t do much, if anything, for you.
- The listing agent sides with the seller in bidding wars. They feel like their job is to be fair to everyone, and above all, represent the seller properly. If you aren’t going to get any favors, and in effect, be unrepresented, you might as well have your own agent.
There are times when I smell a scumbag, and will tell my buyer to go direct.
I have also won a bidding war when the listing agent had her own buyer.
There are so many variables that it is difficult to know when going direct to the listing agent will pay off, but it is much less likely when the seller is local and involved. If you work with me, and we detect a situation where going direct will pay off, I’m going to help you do it, and we’ll work something out on the side for compensation.
NSDCC Prices +8% In One Month
New listings of short sales and REOs are lagging well behind previous years, but non-distressed listings are higher than last January:
NSDCC New Listings, January 1-28th:
| Year | Short Sales | REOs | Non-SSREO | Totals |
| 2010 | ||||
| 2011 | ||||
| 2012 | ||||
| 2013 |
Below you’ll see that this year’s sales are the highest since January, 2006.
Last month’s average was $403/sf – we’ve had an 8% increase M-O-M, and a 16% increase in average pricing, year-over-year:
NSDCC Sales/Pricing January 1-30th:
| Year | #Sales | Avg. $/sf |
| 2004 | ||
| 2005 | ||
| 2006 | ||
| 2007 | ||
| 2008 | ||
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 | ||
| 2013 |
Numerous bidding wars are causing buyers to pay well over list price, resulting in rapid appreciation (this month’s average SP:LP is 101%). With the large influxes of cash, it should be sustainable – until it isn’t!
Bidding Wars to Intensify
Once we get past the Super Bowl, home buyers will be out in force, resuming their hunt for a new home and hungry for a deal.
Boy, are they going to be surprised.
Not only is the active inventory as tight as ever, the new listings are dribbling out, compared to previous years. Here are the number of new listings that hit the MLS between Jan. 1-9, and their average LP/sf:
| Jan 1-9 | New Listings | Average LP/sf |
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 | ||
| 2013 |
There were 15% fewer listings this year, compared to 2012.
But look at the average list prices – the $569/sf is 42% higher than the 4Q12 average sales-price-per-sf ($400/sf). The average list price is similar to 3-4 years ago, back when sellers thought they deserved higher prices due to the homebuyer tax credit.
This is how the Big Standoff begins.
Historically the first quarter hasn’t been a time for big price increases, but admittedly, this is the new abnormal so it’s possible that buyers are willing to step it up. Here is the track record of the average $/sf of NSDCC detached-homes sold in the fourth quarter, compared to the following first quarter of the next year:
| 4Q:1Q | Avg 4Q $/sf | Avg 1Q $/sf |
| 2008 | ||
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 |
The first quarter usually comes out a little sluggish on pricing – each of the last four years has seen a lower 1Q average than the previous fourth quarter. We could break that streak, but by how much? $410/sf? $425/sf? Look how that compares with the average list prices!
With so many sellers shooting for the moon, the few who price their home realistically will be getting more attention than ever. We will be hearing more crazy bidding-war stories, and it will be because there are so few sellers who are listing for reasonable prices.
it’s not the end of the world. It just means that we can expect 2013 to be like 2012, where the first half of the year saw relatively slower sales due to buyer patience, and an active second half of the year once sellers get more realistic.
The inventory numbers will stay low by historical standards, but the unsold listings should start growing over the next couple of months. Let’s start tracking them – today there are 649 active (unsold) listings of detached-homes in NSDCC. Their average LP is $722/sf – so at least this year’s new listings are under that!
P.S. We won our first bidding war of 2013!
Getting Top Dollar
Are you thinking of selling your house? Do you want top dollar?
It is OK if you don’t want or need top dollar. Because if you want to offload your house quickly, there are many who will buy it outright, or agents who claim that they will pay you CASH for yours, if you buy their listing. Because they are re-sellers, they will offer you a wholesale price, with their ample future profits built in.
Oh, you DO want top dollar?
First let’s identify the standard operating procedure for realtors in a hot market. A couple of months ago you heard the current president of the association of realtors say on blog talk radio that once he takes a listing, he first offers it to his stable of buyers. If he doesn’t have a taker himself, then he offers it to other agents in his office before inputting it onto the MLS.
The ‘sandbagging’ method is practiced in most real estate offices in America – where management encourages agents to keep sales “in-house” (and usually offers them a better commission split). Have you seen a listing get inputted, then immediately marked ‘pending’, with the only remarks being “sold before processing”?
You have probably seen that virtually every listing inputted today cannot be shown for 5-15 days. Why? Because once on the MLS, the listing gets on all the real estate portals, giving the listing agent a big head-start at finding the buyer themselves and selling it before the open market gets a chance.
How do those sellers know that they got top dollar? They don’t, and won’t.
There is ONLY ONE WAY to know for sure that you got top dollar.
The property needs full exposure to the open market, and when done right, a bidding war ensues.
First you need a realtor who specializes in bidding wars, and if you are in San Diego County, that would be me. Hire Jim the Realtor to sell your house!
This year I’ve had 29 listings sell, and 14 of them were at, or above, list price.
My listings’ overall SP:LP ratio is 99% this year.
Here’s what I do to get you top dollar:
- Put the right price on it – at comps (doesn’t need to be under).
- Advertise on MLS and 90 websites using quality photos and video-tour to get buyers engaged.
- Conduct open house with signs everywhere the day of MLS-listing input, or Day 2.
- Create an auction-like setting by telling the bidders what price they need to beat.
- Be available, make & keep promises, and treat all parties with respect.
While this seems like simple stuff, do you ever see NAR, CAR, any of the big corporate real estate companies or franchises, or any individual realtors talking about the specific details of what they do to ensure top dollar? I don’t, and I’m looking for it. They like keeping it fuzzy and vague.
You see guaranteed-sale programs, ultra-low commission deals, and all sorts of claims about a realtor’s unique expertise. Do you wonder about the specifics, and why there are none mentioned?
Hire me, and you’ll witness a common-sense approach that ensures a top-dollar sale.
More here: http://bubbleinfo.s020.wptstaging.space/2012/08/31/multiple-offersbidding-wars/
Del Mar Hilltop
In September, 2010 the City of Del Mar auctioned off a half-acre hilltop lot.
Here’s how it looks today, with a flashback to the actual auction (auctioneer got 10%):
Here is the city’s original youtube marketing:
http://bubbleinfo.s020.wptstaging.space/2010/08/25/city-of-del-mars-view-lot/
Escalation Clause
A common ploy used to win a bidding war is the “escalation clause”. One of the agents in the Arroyo Hondo bidding war included this phrase as part of his highest-and-best offer price:
Buyer will pay $5,000 over the highest offer.
The escalation clause is an accepted form of negotiating, because most agents don’t give it much thought – it’s just looks like another trick in an environment full of gimmickry. I think most listing agents would allow it to determine the winner too.
I didn’t. Why not?
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In a $1,110,000 sale, every buyer would pay $5,000 more to win.
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I had already gone around the horn with each agent to get them to submit their highest-and-best offers, and I didn’t want to jostle them more and risk losing them. Buyers don’t like bidding wars, and if they feel like they are being played, they might bail – which isn’t good for the seller.
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The escalating buyer may be a reluctant buyer, because he got stuck with somebody else’s price + $5,000. I don’t want him to blow out later, or load up on repair requests out of spite.
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Buyers deserve a fair contest.
I discussed it with my seller, and he agreed – no escalation clause. I relayed that to the escalating agent, and told him that his current price was in last place, and to feel free to submit a higher number. They didn’t, which made me think that they might not have closed if they felt like they got stuck with a much higher price point.
I think listing agents should consider the pitfalls before employing any exotic terms – but do they think it out? My goal is to close the original escrow, because if the first deal blows up, you can’t predict that the next one will be at the same price – and historically they are usually less.
Here are other realtor viewpoints – note the cavalier attitudes:
http://www.speakingofphoenixrealestate.com/realtors-negotiation-tactics-the-escalation-clause/
Their comments show how the typical listing agent thinks – that the highest price automatically wins. If you are a buyer, it might be worth trying if you think that the listing agent is weak and inexperienced, but if you are on the seller’s side, give it some careful thought.
CA Home Prices Rise 19% in Oct
I was quoted yesterday by an AP reporter, who was doing a story on the last month’s sales that included a very sexy headline, “California Home Prices Rise 19% in October”:
Jim Klinge, a broker in north San Diego County, said one of his customers bid on 14 properties before finding a $400,000 home in Vista last month. “You can’t say there’s no inventory, it’s just that it’s getting bought up right away,” he said.
We discussed a few other points:
1. I said that there has been a shortage of active listings, not overall inventory.
The number of MLS listings in San Diego County this year is only about 9% fewer than last year – here are the YTD counts of SD listings through November 14th:
2009 – 64,300
2010 – 67,000
2011 – 62,800
2012 – 56,900
In spite of the fewer choices, year-over-year sales have jumped 12%:
San Diego County Sales, Jan 1 – Oct 31:
| Year | Jan-Oct Sales | Avg $/sf |
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 |
The combination of 9% fewer listings and 12% more sales has been enough to dramatically increase the competition for the good buys, and expect that to continue – or get more intense – for as long as rates stay in the 3%-4% range.
In the springtime we should see 5-10 offers on every decently-priced listing.
2. I said that there has been a late-season surge this year.
NSDCC detached-home sales kept accelerating August, rather than tapering off, and the momentum has been continuing through the fourth quarter – there have been 95 closings this month, which is 34% higher than the same period last November, and that’s not counting the late-reporters:
At this rate we should get off to a quick start in 2013.
3. I said that people are buying a mortgage, more than they are buying a house.
The payments are so low that people are compromising on quality of home and/or price to get in now. This will likely lead to noticeable price appreciation; probably 5% to 10% over the next 12 months in select neighborhoods.
4. I said next year will be extremely active, and be in a full-frenzy state.
The election is out of the way, rates continue to hit all-time lows, the media says that the economy is improving, flippers are making a killing everywhere, and the buzz is back throughout the populace.
I’ll go into more detail in the coming days and weeks!
Selling Off Buzz
When Grant Fry spotted a listing one night for a four-bedroom house in Orange that seemed to be exactly what he was seeking, he knew he had to move fast. He showed up at the home the next day: “We were here. Bam.” He submitted an offer five hours later, at the full asking price of $479,000.
The seller’s photos weren’t even up on the MLS yet.
“I kept hearing about bidding wars,” said Fry, 51. “I did not want to get into that.” He said he was successful “by staying on top of the listings. They change every day.” In addition to online searches, he drove as much as 45 miles a day looking at houses.
With an extreme shortage of homes on the market in Orange County and many places around the nation, homebuyers have been swarming homes for sale and open houses, driving up prices and pretty much leaving any dream of scoring a “deal” in the dust, real estate agents say.
In Huntington Beach, Realtor Bill Smith describes an open house that “looked like a carnival. There was almost no parking on the entire block.”
In Rancho Santa Margarita, Realtor Cindi Powalski saw more than 50 people attend her open house. A loan officer worked on site. The four-bedroom house, which got several offers, found a buyer that day.
In Ladera Ranch, real estate broker Brian Doubleday sold a five-bedroom home listed for $888,000 in less than a week, at full price. “The demand was outrageous,” says Doubleday, co-owner of IML Real Estate. “All the properties right now, you get a tremendous amount of response right away.”
The same scenario is playing out around the country, with inventory shrinking by 19 percent over the past year, according to a report last week by Zillow.com. In California, it was down 38 percent, the Zillow analysis shows.
“First-time homebuyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out to the growing population of people who have recently been foreclosed upon,” said Stan Humphries, Zillow chief economist.
Nashville real estate broker Brian Copeland told Inman.com that his agents are being “brutally honest” with buyers, advising them not to even bother to look at houses unless they’re ready to make an offer that day. “We sold two (homes) off of buzz ,” he said.
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
- 682 S. Coast Hwy 101, Suite #110
Encinitas, CA 92024 - (858) 997-3801 call or text
- klingerealty@gmail.com
CA DRE #01527365, CA DRE #00873197
