When a market changes from a strong seller’s market to a more balanced one, it can be difficult to know what will happen when you list your home. In March, 65% of listings sold in the first 45 days, today that number is 35%. Inventory is up, buyers are taking longer, condition & pricing has become more important than ever and subtle changes are occurring in the negotiation process. In other words, “Be prepared!” This Q3 Real Estate update is going to cover some very recent shifts in the market and hopefully prepare you for what to expect if you are planning to sell your home in the next year or two. Simply stated, a lot of the rules for sellers have changed in the last 4 months, and a lot of us think these trends will continue for a while as we deal with a market described by many as more “normal.” First, inventory has gone up to almost 800 homes for sale. That is double what it was a year ago. Because of this, homes are taking longer to sell in all price ranges – in some cases a lot longer. Further, once homes are in escrow, they are falling out at a rate that we haven’t seen since the decline of 2007-2011. About 16% of the homes opening escrow in the last 4 months have had to open a new escrow with a new buyer after falling out, and that number is rising. Last, we have seen over 500 price reductions in Santa Clarita in the last 5 months as sellers and their agents attempt to find what buyers will pay in today’s market. Yet, as I explain to potential sellers every day, just because homes are taking longer to sell doesn’t mean prices are necessarily going down. And just because homes are having price reductions doesn’t necessarily mean homes in your neighborhood are going down in value. It simply means that, more than ever, you and your agent have to understand how these changes apply…to you.
There are a lot of headlines recently about “slowdowns,” a lack of strong & qualified buyers to drive our market and even questions about a “bubble” that will cause prices to drop. Well, there are fewer buyers in general. My theory is that a lot of people bought in late 2012 and 2013 when they perceived that the bottom of the market had come and gone and they better buy before prices went up. I personally helped dozens of buyers that had been waiting for “the bottom.” Also, because of the appreciation of 2013-2014, there is no doubt that many potential buyers simply can’t afford today’s prices. So the buyer pool is likely smaller. However, even with all the price reductions of the last 5 months, we still aren’t looking at any “bubble” in Santa Clarita. 800 homes is less than a 3 month supply and we would need about 1500 homes to have a 6 month or “normal” supply. What we have, then, is a market in which neither buyer nor seller has a clear upper hand in most cases. Great homes still sell with multiple offers in the first 30 days, especially if they are the best price and condition for their area. Conversely, homes that have a lot of competition when they list, or aren’t in show-ready condition will likely not sell quickly as they might have in the past. Here are some examples of things happening in today’s market to be aware of before you attempt to sell, so that you aren’t surprised when it takes time and work to achieve success.
First, price matters… a lot! You wouldn’t see over 500 price reductions if those sellers weren’t convinced by the buying public that they needed to be more competitive with price. Even the red-hot under $350,000 price point has far more condos for sale than 6 months ago. In an analysis for a seller in Canyon Country, there were over 70 condos of 2 bedrooms or more that she potentially competed against. Buyers looking at those condos have plenty of selection and they are going to want the best value for money. Price is where value for money starts. This has led to a trend we haven’t seen for a while – offers coming in below asking! In some cases, especially if the home has been available for a while, well below asking. Also, buyers are again asking for sellers to help them with closing cost credits to help them purchase. It doesn’t mean the sellers will take it, or that they should. But being mentally prepared for it really helps. Before listing your home make sure that you know all of the homes your likely buyer will be comparing your home to. Ideally try to find out if those competing listings are likely to reduce their price anytime soon. If they have been on the market awhile, try to determine what the issue is. Usually price is a factor.
Next and somewhat related to value for money, is that buyers are not simply buying the lowest priced home in an area and fixing it up. This is partly due to the type of buyer we have today versus two years ago. Specifically, the “investor” and “buy & flip” buyers are gone. Today’s buyer is going to live in the home. Therefore, they will often select the more upgraded home and PAY MORE FOR IT than the “fixer-upper.” This often confuses potential sellers who think that because they are the lowest priced home they will sell first – sometimes yes, sometimes no. Here is a good example. I had 2 fairly similar 2,800 square foot homes for sale in Stevenson Ranch listed $70,000 apart. The more expensive home with totally remodeled kitchen & baths, molding throughout, shutters and wood/stone floors sold in less than 30 days with 3 offers. The more modest home with base tile, original carpet, fresh paint and original kitchen took 90 days to get an accepted offer and had to reduce $25,000 in the process. That amounted to a difference of almost $100,000 and 70 extra days to sell. Why? Because buyers look at today’s low interest rates and ask themselves if they would rather take the time & cash out-of-pocket to do the work, or pay more per month (tax deductible) and just move in to a “turnkey” home? Today’s buyer is choosing the already improved home, unlike the buyer in the past. They do this because they have the confidence to pay today’s higher prices IF the home is in superior condition. The market has stabilized and they are comfortable doing this.
Last, and this is huge, the “best” buyer in today’s market for many sellers is actually a contingent buyer! Not contingent on selling, but rather on closing. This buyer already has their home in escrow and now MUST buy. They are highly motivated and will complete the transaction. In the beginning of this blog, when I referenced the much higher fall-out rate for escrows, I can assure you that the majority of these were due to buyers either getting cold feet or having an issue with inspections. The non-contingent buyer often doesn’t have the same sense of urgency to complete sales because in many cases, they think another home will come up for them if the one they are in escrow with doesn’t work out. This almost never happened before, but it is happening now. The buyers cancelling escrows are mostly buyers that don’t HAVE to buy. Meaning, they are renting or staying with family, don’t need to sell anything before buying. They have no required timeframe to get into a home. This is why I advise every seller evaluating an offer that the MOST important thing for me to evaluate is the buyer’s motivation. How serious and committed to your home are they? Why are they buying it? The buyer already in escrow that HAS to buy almost always completes the transaction. They aren’t “tire kickers,” they are REAL buyers. Even though there is another transaction (or 2 or 3!) that needs to close for us to have success, they do close when properly vetted out. Sellers may think this isn’t an ideal buyer, but in today’s market they are and will likely be the key to driving transactions for the next few years. There is simply not enough of non-contingent buyers out there today to pick and choose.
Here are a few final thoughts for potential sellers. Homes are taking longer to sell so give yourself more time than you might think you need. Next, make sure you know what your competition is and how you compare before you list your home. If there are a lot of competing homes for sale in your area, if may make sense to wait if you can. Last, the most frustrating part of a changing market is that there may only be 1 buyer for your home at a given point in time. I have seen dozens of homes get an offer quickly at a good price only to have the deal fall apart and then take months before there is a new buyer…sometimes at a lower price. Again, an agent that is experienced and knows the right questions to ask can help avoid these potential problems that a changing market can bring. Knowing not just what to expect, but how to avoid the potential problems, is the key to selling in today’s market.