Classic Rules, still Classic!

I'm away on vacation but this past article still rings true!

Originally posted November 9th, 2018, by Rod Sager

Yes the classic rules of location, location, location, and 'curb appeal' are back. Those rules never really went away, but when the inventory was so tight that buyers had to take what they could get, those rules were temporarily ignored.

Inventory levels are starting to return to a more healthy level and that means buyers have choices again. Classic issues like, facing a busy street, outdated, functionally obsolescent design, or bad location are now affecting the price in a more traditional fashion. Some sellers and even some agents, have yet to realize this.

Getting top dollar for a house requires several things to happen. The house must have broad appeal in the market. Great location, quiet street, well maintained, excellent curb appeal, fresh and updated feel, clean and tidy appearance, etc. This brings the most possible buyers to look at the house and then of those one will like it the most and reach a little deeper to buy it. When some of these appeal factors are missing, fewer buyers will look at it, of those that do many will pass on it, leaving a small demand left. That leads to a lower price.

The items I mentioned above are not the only factors, but most of those are controllable. The home owner can't control the location, nor the street, but the others are well within the sellers reach. This market will not tolerate a sloppy house, buyers have choices and they will either pick the nicer house or low-ball the ugly one. Sellers are well advised to spend some effort making their property look as warm and inviting, positive curb appeal, and as fresh as possible.

We are in the transition to a neutral market and neutrality is healthy and sustainable.

Instant Buyers?

The latest in real estate are these so-called "instant buyer" programs from companies like 'Open Door'. I find it fascinating how this concept is tracking beyond the 'I have to sell fast' crowd. It is important for a home owner to understand that an investor takes on a great deal of risk when they buy a house with the intent to resell at a profit. This will come at the seller's expense.

I am genuinely shocked to see a rise in this kind of business. again, they serve a purpose for someone that has to sell quickly for whatever reason, new job far away, death in the family, etc. Sellers that are simply motivated by the ease and convenience of not having people look at their home are giving up a large sum of money for that convenience. Some may feel like they are getting a better deal through the "instant buyer" programs, that is highly unlikely especially in Washington State.

When a house is sold the State of Washington collects an excise tax of 1.78% from the seller. If the buyer is planning to resell the home in the near future, which is the intent of most operators of the instant buyer concept, they assume all the market risk and will have to pay that 1.78% excise tax again. Many of these programs have a 30 day closing and during that time they often attempt to sell the contract to purchase to a third party, thus gaining a fee and no exposure to market risk or costs to resell. All of this comes at the expense of the seller.

In order for the instant buyer to work for the buyer they need to acquire the home at a price at the very least 5% under market. They typically levee a fee of 5% to the seller and then the extra 5% would cover selling expenses should they be unable to sell the original contract to a third party. Few people with the resources to pay cash for any quantity of homes would be willing to do so with such a tiny profit margin.

My experience is that they acquire the rights to buy at more like 15% under market. Why on Earth would a seller not under any duress to sell, want to do that? A traditional real estate arrangement will be much better for the seller. These instant buyer or sell guarantee offers are geared to protect the buyer, NOT the seller. The fall back guarantee price will likely be well under actual market value.

Sellers can negotiate with listing agents in Washington State. If money is tight then negotiate a lower fee. Sometimes if the property is desirable, realtors® will compete for listing and the seller could easily make $10-20 thousand MORE than these "easy" instant buyer deals. Yes, the seller will have to clean the house and allow agents to bring buyers in for a tour. Seriously though, if you own a $300,000 house it is unlikely you make enough money to turn your nose up at $20 grand for what amounts to a little bit of inconvenience!

Seller beware, these "guaranteed deals" often do not pass the sniff test.

As the market softens, the classic rules apply

Yes the classic rules of location, location, location, and 'curb appeal' are back. Those rules never really went away, but when the inventory was so tight that buyers had to take what they could get, those rules were temporarily ignored.

Inventory levels are starting to return to a more healthy level and that means buyers have choices again. Classic issues like, facing a busy street, outdated, functionally obsolescent design, or bad location are now affecting the price in a more traditional fashion. Some sellers and even some agents, have yet to realize this.

Getting top dollar for a house requires several things to happen. The house must have broad appeal in the market. Great location, quiet street, well maintained, excellent curb appeal, fresh and updated feel, clean and tidy appearance, etc. This brings the most possible buyers to look at the house and then of those one will like it the most and reach a little deeper to buy it. When some of these appeal factors are missing, fewer buyers will look at it, of those that do many will pass on it, leaving a small demand left. That leads to a lower price.

The items I mentioned above are not the only factors, but most of those are controllable. The home owner can't control the location, nor the street, but the others are well within the sellers reach. This market will not tolerate a sloppy house, buyers have choices and they will either pick the nicer house or low-ball the ugly one. Sellers are well advised to spend some effort making their property look as warm and inviting, positive curb appeal, and as fresh as possible.

We are in the transition to a neutral market and neutrality is healthy and sustainable.

Seller's: A Cocky Attitude May Cost You Money

In times where the real estate market turns to a "seller's market', many listing agents become lazy and some sellers become cocky. Both can lead to a seller ultimately getting less money for their home.

The lazy agent is the one that simply figures the market is so hot they'll just toss it up on MLS and wait for the offers to pour in. Under certain circumstances that can be a wining approach. In general however, it is not. No matter how hot the market is, the home still needs to be presented to as many buyers as possible to attract the best offer. The best offer is not always the highest actual price. Some offers are better than others and what constitutes better may lay in the details of the terms presented by the buyer. A good listing agent knows this.

Cocky sellers are those that figure they can show the house when they want. Turn prospective buyers away because they don't 'feel' like showing the house. Making unnecessary and restrictive showing conditions. Yes, I have encountered this recently.

The best offer may have been coming from the client the seller just irritated to the point they passed on the house and offered on another. Lazy agents that don't council their sellers to make the best choices are equal in the blame should the house not achieve the goals the seller is hoping for.

This market needs listings. This is a good time to list a home. But even in a so called, 'seller's market', without buyers there is no sale. Believe me, frustrated buyers are leaving the marketplace. That is not good for the market. Ultimately it is not good for sellers.

The rules of selling a listed property don't change because of a surplus of buyers. The highest and best offer still comes to the seller that follows the general rules of for making a house as marketable as possible.

• Good curb appeal
• Clean and tidy interior and yard
• Minimize personal clutter
• Eliminate pet order
• Replace worn flooring and carpet
• Update kitchen
• Make bathrooms as 'cute' as possible
• Keep showing rules as loose and flexible as possible

Some realtors are having their sellers take a weekend getaway and having open showing with the intention of collecting offers and making a decision on the following Monday. For a really nice updated and move-in ready home, this can be a great tactic to get a solid offer and put the least amount of strain on the sellers. It is far less effective on homes that don't show well, need work, or are dated. Sellers should keep this in mind.

The bottom line for sellers is simply this. Don't let your strong position turn you into a $*&^%, enough buyers will walk away to keep you from getting the best price and terms on your home.

Why Listing a Home in March Works

In most real estate markets there is a sales curve that peaks in the summer months and bottoms out in the dead dark of winter. I believe that this cycle is as mental as it is anything else. People tend to be less active in the winter, especially in northern latitudes with cold and miserable weather. It is no surprise that e-commerce performs well in the winter and bricks and mortar retail does not with the notable exception of December holidays.

Information data and chart sourced from RMLS

Our real estate market locally has a modest sales spike in the summer months of roughly 10% above the annual monthly average and about 10% under in the middle of winter. That represents a total swing of roughly 20%. In some markets where winter weather is truly brutal, I would imagine the spread is significantly greater and in sunny SoCal it is probably a flatter curve. The chart above shows this annual trend with a notable exception in 2010 where the fall off came early. The 2013 curve was a more dramatic seasonal curve than the statistical average I compiled since 2001.  The 2011 curve is very typical when compared to most of the years since 2001. The 2013 curve is more like one I would expect to see in severe winter climates like the upper Midwest.

I think the best way to wrap your arms around this is to break the home buyers into two very broad classes. Those highly motivated to buy with external pressure and those buying because they can. So the first group is motivated by things such as a job transfer, loss of job, a new baby on the way, divorce, etc. This is external pressure and that makes someone willing to trudge through a foot of snow in the cold misery of January to look at houses or deal with the inconvenience of listing at a time they would rather stay indoors and visit with family.

The latter category is someone with a new job with higher income and maybe they think, "Hey, we can finally afford that dream house on five acres". Or perhaps they are empty-nesters looking to downsize. These buyers and sellers are much more likely to list or start the buying process when it is convenient. They are less likely to brave the wild elements of January looking at houses.

Anther reason there is a spike in sales in the summer is that families with school age children prefer to move over summer vacation when the kids are out school. This is especially true if the children will be changing schools after the move.

In a real estate market like this one; the biggest driver has been lack of inventory in that under median price range. When inventory increases that will relieve some of the pressure and could stabilize prices. If a seller has a home that is a little less than ideal; this is the time to list. This market is driven right now by move in ready, clean condition, updated properties. If a listing is a little outside those ideal parameters, the best way to sell it is in a market with less competition. As more listings come on the market toward May, the house can lose value and or position against superior properties that become available. March is a great way to tap into the "spring fever" of home buying a little ahead of the market. This is the time to get that slightly out of favor listing in front of buyers before a wave of potentially more desirable properties arrive on the scene.

If a seller has that perfect updated, move in ready median priced listing, then sometimes waiting till April can be a smart move so as to tap the increase in buyers actively looking that occurs in mid to late spring. Of course one way to get it both ways is to list in March at a slightly high price, gauge activity, get feedback and either sell at a high price or build a strategy based on the feedback and activity in March and April to position the listing ideally for May and June.

March Madness is amazing for college basketball and can be equally so for real estate.