Hat tip to our seller who noticed a new paragraph in the counter-offers this year that went undetected by everyone I know – and we go to the Forms Update every year to hear about changes!
Paragraph 1C in the counter-offer identifies the Appraisal Gap:
When we first read this, it sounded like the purchase price would automatically be lowered to the appraised value without negotiation.
But Gov at the C.A.R. legal office submitted this response:
It means that if, for example, the buyer made an offer of $500,000, contingent on the property appraising at $475,000, and the Seller countered at $520,000 and the buyer accepts the counter, the buyer’s appraisal contingency is automatically adjusted to be $495,000. In other words the $25,000 “appraisal gap” is carried over in the counter. (I admit the language is a little confusing).
Here is the part of the contract that he references:
I’ve never seen anyone put a lower value in Paragraph L(2), but we just started using this version.
The touchy part was that the counter-offer comes later – after the contract verbiage above – which would mean that it would supersede it. It looked like the buyer could waive the appraisal contingency, but then the counter would make it valid again.
A great quote about higher-end listings from this free WSJ article:
Tomer Fridman, a luxury agent with Compass said the prices on some of the homes were exorbitant in the first place, so the reductions represent a long-overdue correction. “When you do a price adjustment at this level, that seller has to make it impactful,” he said. “You have to show you mean business.”
Once a home is for sale but not selling, how do you know what to do? Just dump on price? Lower in small increments and risk irritating buyers? Isn’t there a guide somewhere?
Both buyers and sellers can apply my List-Price-Accuracy Gauge:
Once on the open market, if you are……
Getting visitors and offers, you are within 5% of being right on price.
Getting visitors but no offers, you are 5% to 10% wrong on price.
Not getting visitors, then you are more than 10% wrong on price.
It’s nothing personal, it’s just a simple guide to know how close you are to selling.
The serious buyers rush out the first week to take a look, but after that it’s crickets, with only an occasional visitor. It is tough for sellers to cope, or make adjustments. But once the initial urgency has expired, you have to do something – don’t just sit there.
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How quickly should sellers make adjustments? The DOM clock is ticking!
0-14 days on market – Hot property, sellers have max negotiating power.
15-30 days on market – Buyers get suspicious, want to pay under list.
30+ days on market – The jig is up, and buyers expect deep discounts.
After being unsold for two weeks, sellers will suspect that something is wrong. But it is natural to resist changing the price and instead blame everything else.
Sellers, and agents, need to shake that off and act quickly to keep the urgency higher. The first price reduction should be for at least 5% and happen in the first 15-30 days for maximum effectiveness. If the home doesn’t sell in the next two weeks, then another 5% is in order, and by then the fluff is eliminated.
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Where do sellers go wrong? They don’t properly price in the negatives.
Typically sellers just pick apart the comps to convince themselves why their home is the best around, and then settle on a list price that will show everyone who’s the boss. If you don’t have any negatives, then you probably will get your price! But typically sellers are forced to come to grips with the negatives of their house, and adjust accordingly.
Do sellers have to lower their price? No, not neccesarily.
There are other alternatives:
1. Make your house easier to show. Listing agents who insist on buyers jumping several hurdles just to see the home aren’t realistic about today’s market conditions. Make the home easy to see!
2. Fix the problems. New carpet and paint is the best thing you can do: 1) it looks clean, 2) it smells new, 3) you have to clean out your house to install it, and 4) you are managing a business transaction now – it is the logical solution. Utilize staging too.
3. Improve the Internet presence. Have at least a 12-25 hi-res photos and a simple youtube tour.
4.Wait for the market to catch up. If unsold for 60+ days, cancel and try again later – probably next year.
5. Reset the Days-on-Market stat. As long as the MLS allows agents to refresh their listings, then it’s in the best interest of the seller to reset the DOM. It is a gimmick, and instead sellers should concentrate on creating real value for buyers – that’s what will cause them to pay more.
The longer it takes to sell, the more discount the buyers will be expecting – usually about a 1% off for each week on the market. When other homes are flying off the market, the buyers’ obvious conclusion is that your price is wrong, and they load up the lowball offers.
Even if you complete one or all of the five ideas above, don’t be surprised if you need to lower the price too. Keep it attractive!
This house first listed for sale on November 1st for $1,650,000, and got all the extras; one Coming Soon, two Holds, four price changes, two Pendings, and finally closed today for $1,397,500.
The listing agent gave it a good go, but it just looked like too much work at the higher prices. A similar-sized home nearby sold for $1,675,000 last month which demonstrates the disdain for the fixers:
This website allows you to type in an address and see how a property may be exposed to fire, flood, drought, and heat risk – all of which can impact longterm valuation as well as monthly costs as it relates to potential repairs and insurance costs:
Good tips from a local certified divorce financial analyst – if you give up your share of the house, make sure your spouse refinances in his/her name only. Just because you get quitclaimed off title doesn’t mean your responsibility for the old mortgage is relinquished. Qualifying for the refinance is usually a tipping point.
Solar is probably the most desirable upgrade for buyers. Hat tip to Eddie89 for sending this in:
Defying overwhelming public opposition, state officials voted in late 2022 to make drastic changes to California’s rooftop solar rules (called “net energy metering”).
Solar users under NEM3 will get 75% to 80% less from the utility for the extra solar energy they share with the grid. Compensation for that extra energy will go from an average of $.30 / kWh to around $.05 / kWh. NEM3 solar users will also be put on a rate plan with higher evening electricity rates. These changes will extend the payback period for a solar investment from an average of six years to more than ten years.
Here are some FAQs about the changes, often referred to as NEM3:
If you are a NEM1 or NEM2 customer and you sell your home, the new owner will take over the remainder of your 20-year lock-in period.
However, this will be different under NEM3, which has a shorter, 9-year lock-in period that is lost when a home is sold. This is another incentive for a home seller that has a fully paid off solar system that’s under either the NEM1 or NEM2 rules. The buyers get more solar bang for their bucks!
It would be natural to assume that home buyers are much more concerned about paying the right price today. Certainly, they will be perusing the recent sales very carefully, won’t they?
I’m not so sure.
Putting a sharp price on a home stopped being a priority about 25 years ago with value-range pricing. Then the frenzy obliterated it when paying $100,000 to $1,000,000 over the list price became the norm.
What now?
Have we succumbed to relying on the zestimates? Pretty much, and buyers who are in a hurry and think the zestimates are close enough will proceed with the purchase unless the spread between the zestimate and the list price is more than 10%.
What matters more is the condition of the home.
Back in the day, people were more tolerant of doing home repairs – but not now. They don’t have the time or know-how, and if they have to pay these prices, they expect more…and you can’t blame them.
Maybe the idea about pricing your home attractively isn’t for you. If the plan for selling your home in the spring is to set a new record-high list price, then it would be smart to fix everything that is visibly wrong.
Because at this point, we can say that buyers prefer to purchase an immaculate home in top condition, more than they worry about getting the price exactly right.
If you hire a salesman (like me) who knows how to pit buyers against one another to run up the score, the attractive pricing is the critical part of the equation. But if there is a struggle with attractive pricing, then doing more to spruce it up will at least ensure that you’ll get more eyeballs. Hopefully, that will be enough!
Buyers have become more reluctant about executing the terms of the contract – and the NBPs are back!
Here is the explanation on how they work:
Q. My buyer was sent an NBP on Wednesday. My question is does the NBP expire 48 hours from delivery/reception, or at 11:59:59 Thursday night?
A. The Notice to Buyer to Perform (“NBP”) provides for a two-day notice to performance (it is not calculated as forty-eight hours – there is a difference). For example, if the NBP was issued on Wednesday, day one is Thursday, and the deadline for performance would be Friday at 11:59pm. The seller may issue a Cancellation of Contract (“CC”) at 12:01am Saturday.
Conversely, if the NBP was issued Thursday, then day one is Friday and day two would end at 11:59pm on Saturday BUT the last day for performance cannot land on a weekend or holiday. In this example, the buyer would have until 11:59pm on Monday (assuming Monday does not land on a legal holiday) to perform (except under the the San Francisco Purchase Agreement).
Remember the NBP can be issued no earlier than two days prior to the Scheduled Performance Day in order for the NBP to be served in accordance with the purchase agreement. If the NBP is served improperly it would have to be sent again thereby extending the timeline for performance.
When it comes to selling your home, there are a few strategies to consider – and the most important point is to select one, any one!
There is the old traditional PPP plan – Put it in the MLS, Put a sign in the yard, and Pray.
My favorite is to spruce it up, price it right, and have a great realtor sell it promptly.
But a third option is available that is sort of a hybrid of the two.
If you worry that pricing attractively might leave some money on the table (mostly because you lack confidence in your realtor’s ability to conduct a proper bidding war), and really want to start at your aspirational price and hope for the best, then consider this plan.
List Your Home With Two Planned Price Reductions Built In
Generally speaking, the problem with price reductions is that sellers and agents don’t make them big enough to impress the buyers, and hence, you’re just throwing money away. Dropping the price in any amount does get you back on the realtor hotsheet for the day, but we are more annoyed than impressed with sellers who are dinking around over a few thousand dollars when we’re trying to sell a house today.
The amount of the perfect price reduction is 5% of the list price.
It follows my regular guideline of knowing when your list price is right:
List-Price Accuracy Gauge
If you are getting showings and offers, your price is about right.
If you are getting showings, but no offers, then your price is about 5% wrong.
If you’re not getting any showings, your price is at least 10% wrong.
It’s just common sense. If no one is coming around, it’s because buyers think that the price is way off, based on how the home is being presented. There is a glimmer of hope that improving the presentation might get some lookers, but in this market, once buyers take one look at the listing, they will cast you aside and forget all about you unless there is a drastic change in price.
I’ll understand if you don’t want to commit to any price reductions today – heck, you haven’t even signed the listing agreement yet.
But hear me out.
There will be an initial burst of activity once the listing hits the MLS – everybody jumps on the fresh meat, and hopes they are reading the presentation/price combo correctly.
But after 7-10 days, it will be crickets. Showings dry up like an old peach seed!
Plan for two price reductions in advance as a strategy to re-energize the urgency. Put it right in the listing agreement that the price is to be reduced by 5% on Day 14, and another 5% on Day 24.
As long as the initial list price wasn’t more than 10% crazy, then this strategy will get you into escrow within 30 days. If you let the listing languish for more than a month, it will only invite the lowballers, and they will be hacking off more than 10%.
