Monday, December 04, 2006

California Newspapers: Realtors' Lament - Pricing, Pricing, Pricing

I wasn't originally planning to post about the December 3 L.A. Times story "Jump Start That Sale", by Diane Wedner, but when I found "When Sellers Won't Budge", a similarly flavored article by Julie Claremont in the December 3 San Francisco Chronicle, I thought that perhaps this is a milestone in our real estate mood that should be logged.

According to the L.A. Times story, savvier realtors are stressing to their clients that listing their houses at the "correct" price is critical. And to determine what is the "correct" price, looking at what comparables are listed on the market for is not the way to go. After all, most of the homes currently sitting on the market are not selling. When looking at last month's sales (which should be analyzed by square foot), clients should check to see how long those homes sat on the market, and they should compare the features in the homes that sold and price their own homes lower if such features are lacking. Consider pricing the home so it "falls" into a price range that more people will consider. Price the home so it is the "lower" end of the neighborhood price range. And above all, if the property sits on the market for a number of weeks and stirs no interest, lower the price. Other strategies suggested include deciding whether or not to list the home on the MLS (leaving it off tends to work for higher end homes), and making the home available for showing at all times.

San Francisco brokers are so intent on pricing correctly that that is what is getting hammered into the heads of realtors. They realize that sales comparables that are 3 months old are now obsolete. In spite of such attention to this detail, most offers come in below the asking price. The San Francisco story then discusses how difficult it is for realtors to tell sellers that their homes aren't worth what they used to be worth, that a home's improvements and amenities do not mean that the house will sell at last year's prices. One agent recommends pricing 10% to 12% below the most recent relative sales comparables. "In a market where you can't drive down the street without seeing 8 to 10 For Sale signs, you have to stay ahead of the curve." And even when a lot of thought is put into pricing correctly, more homes in the area can suddenly pop up for sale on the market, then the agent must go to the seller and recommend a further price cut. Agents don't want to end up with an overpriced property sitting on the market, a big advertising bill, and a withdrawal form from the seller.

While almost none of this is new to housing bubble blog readers, I think these stories say something about the psychology fueling the market into the spring selling season. Realtors are in "slash the price" mood, even if sellers are not. Some sellers interviewed in the article were persuaded by their agents to sell when they were reminded of all the properties sitting on the market that haven't sold. Will this "slasher" mentality work and pressure sellers to cave in come spring? Will a flood of new listings hit the market come spring time, changing the rules again and forcing even faster slashing?


Blogger shipitfresh01 said...

I think this coming spring things might possibly really break loose. Last year at this time (When I first began home shopping.), there were literally ZERO open homes. Last weekend in Manhattan Beach alone, there was almost 100. According to a couple of realtor friends of mine, 3 weeks before Christmas, this is unheard of. According to those same people, spring listings are usually 3-4 times what this time of year is. Is it possible that there could be 1,000 homes for sale in Manhattan Beach this coming April-May? If so, things won’t be very pretty.

11:54 AM, December 05, 2006  
Blogger bearmaster said...

I notice that inventory on Zip Realty is "hanging in there." For 90278, I noticed it had dipped into the low 220's but has been starting to climb again.

It was suggested to me by a friend from a realtor family that the time of year between Thanksgiving, and, say, Super Bowl, is pretty dead. But this year we could have something else going on. If there's a lot of "held back" inventory, we're seeing it start to seep through the cracks the way water seeps through the cracks of a dam before the dam bursts.

If the metric for spring listings is 3-4x what December has, spring will be - interesting.

By the way, in case blog readers haven't noticed, the financial media comments about a housing market bottom are approaching a crescendo. Toll Brothers came out today saying they think they see a bottom. Which do you believe, the reports coming out of Wall Street? Or what you see with your own eyes in your local neighborhoods?

12:17 PM, December 05, 2006  
Blogger Mike said...

i think it's a bit premature to call a bottom, especially in california. if the market makes it through spring in decent shape then call the bottom then (i won't be holding my breath).

i think that they're probably seeing numbers that aren't as dismal as spring/summer were, but right now is the slow season, and more than a okay slow season they need a strong spring and summer next year to declare that they're out of trouble, but i just see way to many danger signs out there to believe that spring will see much beyond ballooning inventory and falling prices.

6:35 PM, December 05, 2006  
Blogger wannabuy said...

Last year at this time (When I first began home shopping.), there were literally ZERO open homes.

Thank you shipitfresh01, I hadn't started looking then and the perspective is very interesting. The flood of open houses right now amuses the heck out of me!

I look at it this way.
1. Prices don't drop, I'll move with other jobs out of state.
2. (more likely) Prices drop and drop hard.

I've been predicting that by 2Q 2007 the bottom drops out. No predictions before then. It could drop, have a bounce... I don't claim to know. But too many negative factors slam together in the second quarter (ARM resets, forclosure rates getting above the historical average, credit tightening, job losses in construction)

Please, if you are a waiting potential home buyer, just forget about 2007. We can talk later about when the bottom might be, but please don't be stupid and catch the falling knife in 2007.

Spring will be intersting. May and June will be darn right facinating!


I've never heard of a bottom in less than 30 months. Makes me suspicious! ;)

10:48 PM, December 05, 2006  

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