Source: The Los Angeles Times
Real estate agents are using overpriced properties as negative examples to sell similar homes with lower asking prices.
A setup or pinball property is a house listed with an unrealistically high asking price that pulls in lots of visits by agents and shoppers, but no offers. The problem is this: Real estate agents, including even the listing agent, are using the overpriced house as a negative example to sell similar homes in the area that carry lower asking prices.
“It’s like a pinball machine,” said Debbie Cook, an agent with Long & Foster Real Estate in Silver Spring, Md. The “setup” is the foil — the house that agents show clients to make other, more realistically priced listings look better. Maybe the sellers — encouraged by reports of rising sales and low mortgage rates — insisted on the aggressive asking price and wouldn’t list for anything less. Or maybe the sellers’ agent, not wanting to lose the listing, didn’t fully brief them about what the house could command in today’s conditions.
Whatever the specifics, such houses tend to see heavy foot traffic but go nowhere until the sellers drop the asking prices, usually by significant amounts. Before then, however, they may be used without the sellers’ knowledge to market other houses. Since no one seriously expects them to sell at their original asking price, agents are happy to exploit the overpricing to facilitate other sales.
“We’re definitely seeing it,” said Sandy Nichols Acevedo, an agent at Prudential California Realty in Oxnard. “Some people think they can go higher now because the market seems to be doing better.”
Joe Manausa, owner-broker at Century 21 First Realty inTallahassee, Fla., who wrote about the phenomenon on Active Rain, a Seattle-based industry blog with more than 220,000 members, offers this hypothetical example: “If two very similar homes are near each other, with one priced at $250,000, and the other at $280,000, the higher-priced home is often shown first. Then the real estate agent says, ‘If you like this home at $280,000, you are going to love the home down the street at $250,000!'”
Bill Gillhespy, an agent in Fort Myers Beach, Fla., has a real-life example: He has a listing on the 14th floor of a luxury condominium project overlooking the Gulf of Mexico. The asking price is $450,000. There’s a unit on the same floor with similar views, similar square footage and layout, but with a more updated decor, that is listed for nearly $150,000 more. When Gillhespy is asked by another agent or a prospective buyer to see his unit, he often says, “Let me first show you a unit just down the hall. It’s one of the nicest in the entire building.” The higher-priced model shows well, but shoppers immediately remark on the $150,000 difference “and they can’t see how it’s justified.”
Perrin Cornell, a broker at Century 21 Exclusively in Wenatchee, Wash., says some sellers in the mid-to-upper price brackets in his area “are exuberant” that we’re finally out of the recession and are tempted to disregard agents’ more sobering recommendations on pricing.
What happens to such listings? “Unless we’re using it for a setup,” Cornell said, “we stop showing it” until the seller agrees to lower the price to a sensible number.
But as a matter of principle and ethics, should realty agents accept listings from homeowners who refuse to listen to reason? Manausa is adamant that they should not.
“If you list a property at a price you know will not sell,” he said, “you are misleading the seller. Effectively you are saying, ‘I don’t think it will sell, but I’ll put my name on anything hoping to get paid.”
Acevedo agrees that agents have a fiduciary duty to educate even the most headstrong owners about sobering market realities, but has a compromise solution: Take the listing but require the seller to sign a contractual agreement requiring an automatic price reduction to a specified level if the house doesn’t sell in the first two to three weeks.
Bottom line here for owners thinking about selling in modestly improving markets: Get as much information as you can about sale prices of comparable houses in your area. Talk to multiple realty agents before listing. Sure, you can try pushing a little on price, but if you go overboard, you risk becoming the unwitting setup, the pinball, the out-of-touch competition everybody else loves to visit.
Earlier this week, CNN Money posted this video highlighting a few ways buyers can make the most of their money in today’s real estate market.
The panel here makes some very valid points about the positive effects of recent housing trends. For example with mortgage rates so low, buyers that are waiting for prices to drop more should consider what could happen if mortgage rates increase. If the price drops but the mortgage rate increases, they could very well end up paying more for the house in the end.
Bottom line: With the long term outlook for buyers right now so good, it’s never been a better time to invest in a home.
The New York Times reported on Tuesday that, according to a recent study by Zillow, homeowners are having trouble accepting how much their property’s value has fallen in the years post-real estate bubble burst.
The Zillow study found:
Current sellers who bought their homes in 2007 or later, an analysis of the site’s home listings shows, are overpricing their properties by an average of 14 percent.
Sellers who bought their houses before the bubble, and those who bought during the big run-up in home values, also are overpricing their homes, but not by as much. Those who bought before 2002 are pricing their homes roughly 12 percent over market value
One explanation offered by the study suggests that many sellers who purchased their homes post-2008 feel that they were able to avoid for the most part, the damage done to the housing market, and thus tend to overprice their homes as a result. Warns, Stan Humphries, Zillow’s chief economist, warns:
Traditionally, people tend to overprice their homes a bit anyway, to allow room for negotiation. But unrealistic overpricing in the current environment means properties stagnate.
One of the overpricing downfalls sellers often make when pricing their home is taking into consideration how much they paid for the home and how much they owe. This practice does not take into consideration present market conditions, and the market is what determines interest from potential buyers. As Humphries points out, “The buyer doesn’t care what you paid or what your mortgage is.”
What should you consider when pricing your home? Sellers should focus mainly on what comparable properties are selling and asking for in your neighborhood.
Full article available here.
Selling your home can be a tough process, especially in this market. As a seller, there are certain things you should– and shouldn’t–do to help make the process easier. RealtyTimes.com recently posted this article, Top Five Mistakes Sellers Make by Phoebe Chongchua, discussing some of the most common mistakes and misconceptions that sellers have about selling their home.
1 – Underestimating Cleaning Up
Tidying up around the house when you know potential buyers will be viewing it can seriously make a world of difference. First impressions can be everything. As Chongchua points out, “If you can’t take the time to wipe the grime off the refrigerator doors, tidy up the kids’ rooms, take out the messy diapers, put away the food, and take the dogs out of the house for a while, then you’ll likely find buyers will quickly move on to the next home on their list.”
2 – Lingering During Showings
It can be tempting for sellers to want to hear what feedback potential buyers may have after a showing, or hang around to hear how the open house went. Generally this is not a good idea: “Sellers who tend to linger during showings often make the buyers uncomfortable. Buyers like to have time to explore the home at their own pace and without feeling any pressure.” You can always find out all of the details from your agent as soon as the open house or showing is over. After all, says Chongchua, “That’s what you’re paying your agent for! Let them do their job. Just make sure that your agent has all the home’s selling points and any additional features that make this home standout.”
3 – For Sale By Owner Trap
While many people feel that they’ll be able to do it themselves, selling your home is rarely a by-the-book process. Indeed, “maybe they can sell their own home, but it likely won’t happen without some headaches. Trained specialists are called ‘experts’ for a reason. An expert real estate agent knows the market, has connections, guides you through the process, negotiates on your behalf, and will make the process of selling your home simpler.” A great example: the unqualified buyer. Without an agent, you may be getting tons of traffic through your home, but it’s not really important if none of them is a serious buyer–“Instead they’re just looking and satisfying their curiosity at your expense. Agents know to ask the right questions to make certain the lookers are truly potential home buyers.”
4 – Not Interviewing Agents
Not all agents are the same, not all will have experience with properties like yours, not all will offer you the same services for the same result. Oftentimes, “choosing the wrong agent for the job will be a headache and slow the process down. There must be a connection, understanding, and good communication between the seller and the agent.” You will be much happier in the end if you take the time initially to seek out and interview the top real estate agents in your neighborhood.
5 – Pricing a Home Incorrectly
This is one of the most serious mistakes a seller can make. Your agent wants you to get the best price for your property just as much as you do. As Chongchua notes, “Real estate agents see homes every single day. They know the neighborhoods and the comps. They are there to help you understand what homes have sold for in the recent past and what they’ll likely sell for during the current market conditions.” Get a market evaluation from your agent and have a discussion about what your home is worth.
At the end of every month, Berman and Kandel likes to put together a market update for all of the local communities. Here’s a look at what’s been going on in your neighborhood and around town!
Marina del Rey – Peninsula
- 3209 Ocean Front — $3,150,000
- 5318 Pacific — $2,675,000
- 20 Topsail — $2,325,000
- 27 Quarterdeck — $1,925,000
- 3710 Esplanade — $1,800,000
- 124 Buccaneer — $1,695,000
- 6 Voyage #204 — $1,499,000
- 24 Buccaneer #2 — $1,350,000
- 24 Buccaneer #1 — $1,345,000
- 114 Buccaneer — $749,999
- 4105 Pacific #6 — $739,000
- 30 Driftwood #3 — $719,000
- 20 Catamaran #304 — $679,000
- 14 Ketch #1 — $1,100,000*
Year to Date:
- Listed in 2011 — 44
- Sold in 2011 — 16
- Currently Listed — 37
Marina del Rey – Silver Strand
- 146 Channel Pointe — $2,875,000
- 311 Bora Bora #310 — $710,000
- 3722 Via Dolce — $629,000
- 4200 Via Dolce #134 — $559,000
- 311 Bora Bora #306 — $439,900
- 4600 Via Dolce #210 — $439,000
- 4319 Roma Ct — $1,825,000*
- 310 Tahiti Way #107 — $425,000*
Year to Date
- Listed in 2011 — 30
- Sold in 2011 — 17
- Currently Listed — 24
Playa del Rey – Beach
- 7301 Vista Del Mar #22 — $2,175,000
- 7301 Vista Del Mar #6 — $1,288,888
- 7301 Vista Del Mar #37 — $1,200,000
- 7301 Vista Del Mar $42 — $1,199,000
Year to Date
- Listed in 2011 — 26
- Sold in 2011 — 4
- Currently Listed — 25
Playa del Rey – Bluffs
- 8115 Zitola Terrace — $1,675,000
- 8152 Billowvista — $1,599,000
- 8307 Zitola Terrace — $1,099,000
- 8211 Billowvista — $875,000
- 8115 Colegio — $620,000
- 8221 Tuscany — $841,000*
- 8216 Tuscany — $837,000*
- 8101 Tuscany — $800,000*
- 8138 Tuscany — $751,000*
- 7337 W 85th St — $625,000*
Year to Date
- Listed in 2011 — 31
- Sold in 2011 — 21
- Currently Listed — 16
- 5625 Crescent #221 — $725,000
- 6020 Seabluff #129 — $720,000
- 13173 Pacific Promenade #103 — $585,000
- 5935 Playa Vista #109 — $549,000
- 13045 Pacific Promenade #125 — $525,000
- 5625 Crescent #110 — $479,000
- 12975 Agustin #417 — $449,000
- 6400 Crescent #122 — $349,000
- 12975 Agustin #319 — $338,400
- 6400 Crescent #113 — $335,000
- 5739 Dawn Creek — $875,000*
- 12975 Agustin #408 — $550,000*
- 13045 Pacific Promenade #136 — $539,136*
- 13173 Pacific Promenade #230 — $529,000*
- 5400 Playa Vista #6 — $516,500*
- 6400 Crescent Park #224 — $460,000*
Year to Date:
- Listed in 2011 — 74
- Sold in 2011 — 55
- Currently Listed — 32
Venice Beach and Canals
- 480 S Venice Blvd — $1,450,000
- 2309 Grand Canal — $2,750,000*
- 412 Sherman Canal — $2,250,000*
- 36 30th Ave — $1,300,000*
- 2908 Grayson Ave — $1,149,000*
- 3010 Grayson Ave — $750,000*
- 36 Breeze Ave #1 — $710,000*
Year to Date
- Listed in 2011 — 21
- Sold in 2011 — 15
- Currently Listed — 13
*Price per MLS data
In a press release issued Wednesday, June 29, 2011, Realtor.org reported that May’s housing activity indicates a rise in home sales in the second half of the year. The projected increase is due to a strong rise in Pending home sales in May, with all regions showing gains from a year ago. According to Realtor.org:
“The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 8.2% to 88.8% in May from an upwardly revised 82.1 in April and is 13.4% higher than the 78.3 reading in May 2010. The data reflects contracts but not closings, which normally occur with a lag time of one or two months.”
The article implies that this “absorption of inventory” will play an important role in stabilizing prices, a sure sign of improvement for the housing market, and welcome news for homeowners and buyers.
Article in full available here.
The latest edition of the CAR’s bi-monthly magazine, California Real Estate, is focused entirely on understanding the short sale process. One article in particular, “Anatomy of a Short Sale,” did an excellent job of breaking it down.
“With nearly 1 out of every 3 homeowners nationwide owning homes that are worth less than their mortgages, the number of short sales tatewide is expected to increase as owners and banks seek a solution to the underwater market dilemma.”
Navigating a short sale can be daunting and time-consuming process. As a seller, the right agent–one with exceptional negotiation skills, who is overly-attentive to paperwork, and whose patience never seems to end–can make a WORLD of difference.
Experts in the short sale process advise that it would be wise for sellers to seek a Realtor with short sale training, “on the issues, options, and solutions involved in handling these transactions, which are changing from minute to minute in today’s economy.”
Step 1: Is a short sale right for you?
The 1st step in the process is determining whether or not a short sale is even the best option available. Sellers should speak with a CPA or attorney BEFORE listing their home with an agent to determine the right course of action for their particular situation.
Step 2: Who is the lender?
The process for a conventional short sale will be different at every bank, while FHA loans will use the same guidelines every time. Negotiating a short sale with Wells Fargo will be different from Bank of America, or Citibank.
“Sellers may also qualify for the Home Affordable Foreclosure Alternatives (HAFA) program, a government-sponsored program that sets certain standards for the short sale process and provides financial incentives to lenders that participate. Requirements, however, are numerous. If a seller does not qualify for the HAFA program, short sale terms can still be negotiated with the lender outside of HAFA.”
Step 3: Offer and Approval
In a short sale situation, the short sale involves the seller’s lender approving a loan payoff that is less than the balance owed. Once the seller is presented with an offer that they subsequently accept, the offer and other paperwork–i.e. documentation of the seller’s financial hardship, status of their finances–are submitted to the lender to review.
“Unfortunately, that first offer is usually a teaser…The agent is forced to do this in order to find out what offer the bank will accept. If the bank counters with a price that’s higher than the buyer can afford, the agent will have to go through the process again, resubmitting all the paperwork with a new offer.”
It is up to your agent to make sure that the bank receives all of your documents for submission. Time is of the essence, and delaying at any point could seriously impact your short sale eligibility. Ultimately, the sooner that you contact agents regarding a short sale situation, the better your position will be.
As a Buyer:
Waiting for a decision from the bank on a short sale can take a lot of time. It’s not uncommon for buyers to continue seeing other properties even after the contract has been entered into. In the interest of protecting the buyer, the standard short sale contract will have a 45-day commitment clause, which allows the buyer to walk if, after 45 days, they see other opportunities.
You can find this month’s edition of California Real Estate in full here.