Monday, October 15, 2007

South Bay-Beach Cities: Real Estate Prices... Buyers Vs Sellers



This real estate market reminds me of the 8th grade sock hops when I was younger. The boys would line up on one side of the auditorium and the girls would be on the other side while the middle remained no- mans land. Eventually one gutsy guy would go up to a girl he liked and ask her to dance and soon the floor would be full.. but no one made until a move until the first guy ventured forth.

The Beach Cities real estate market is like that 8th grade dance.. no one wants to make the first move. I'm working with some very qualified buyers who want to buy. They have been looking at property that sellers want to sell. They just can't seem to meet in the middle of the dance floor.

I get calls daily from agents who want to know if my buyers are thinking about an offer. My response is so automatic that I sound like a recording.... My buyers liked the property but thought the price was on the high side... The response from the listing agent usually goes something like this... The seller knows the price is a little high but doesn't want to lower the price.. however he is ready to sell and will look at lower offers..

So here we are.... Sellers are afraid that if they lower the price the one guy who might make an offer at the higher price won't... Buyers are afraid that if the seller isn't willing to lower the price then their offer will be rejected and writing it will be a waste of time. Buyers don't want to guess where the seller is on price.. they want to have a concrete idea.

What happens is that nothing happens. Homes that are over priced continue to sit on the market while buyers keep looking for a house they believe is a good value for the money. Sellers continue to chase the market which ultimately costs them a lot of money. Buyers feel cheated as properties they might have made an offer on continue to sit month after month at prices that are over market value.

Somebody is going to have to make the first move. It was pretty scary for that 8th grade boy who asked the girl to dance but he did it and maybe won the girl of his dreams. Perhaps real estate is a lot like life.. the gutsy guy will be the one to win the prize.



** Picture courtsey of Flickr.com

15 comments:

Ricardo Bueno said...

Kaye,

I just had to tell you that I absolutely LOVE your analogy of the current real estate market!

RB

Kaye Thomas said...

Ricardo.. Glad you liked the analogy.. I don't think kids today are quite as "shy" as we were..

Our current market is interesting.. if you want to buy or need to sell then you are going to have to find some middle ground so you can come together..

Anonymous said...

i fit the profile of the buyer you described. my sense is that the sellers are in denial about the market.

the reality is that an expectation of a 5-15% decline over the next 1-2 years is being baked into market expectations. just look at the commentary coming out of CAR, the MBA convention in boston this week, speeches from bernanke, syron, mudd, etc. furthermore, any suggestion that the high end will be immune is being disproven by what is going on right now on the westside, where the nicer parts of santa monica, the palisades and brentwood have ground to a halt.

like it or not, sellers are the ones who will bear the impact of the price decline. they can do it quickly, by shaving 10-15% off of their original expectations, or they can chase this market down. it's their choice. as a qualified buyer with substantial cash and no contingencies, there's no way i'm bidding asking on anything. first offer is 15-20% off of the asking with an intent to compromise at 7-10% off of the listing price (assuming, of course, that the asking price is reasonable).

the days of offers coming at or above asking price are going to fall by the wayside as buyers make offers that reflect their assessment of where the market is going over the next 12-18 months. discounts to asking were quite common in the more normal markets of the 1990's, and it looks to me like that's where we're heading quickly. (fyi, i'm in the "soft landing" camp. i think prices soften 10-15% over the next few years, but that we don't get a big drop like the early 90's).

rational sellers shouldn't care that their house won't fetch what it could in 2006. it was always a paper gain that should have had no bearing on their day to day life. now, if they were imprudent and either bought or refi'd at the top, then i can understand their reluctance to acknowledge reality. but as i see it, that's their problem, not mine. i'm not bailing them out of a bad economic decision.

Kaye Thomas said...

Anonymous 9:20..
One of the things I'm noticing is that if a home comes on the market that is priced right or slightly below market.. there are multiple offers that may push the price over the list price.. not a lot over but still over.

This seems to say that buyers are recognizing value and responding to it...providing it meets their criteria.

I'm curious if you are also seeing this in your home search?

Anonymous said...

Anon 9:20

We are also sitting on the sidelines with lots of cash and are ready to buy with no contingencies. However, we think prices are still too high. We haven't made any low ball offers yet but might after the holidays. We are not going to use an agent. Are you?

Lydia said...

As an agent, I believe some sellers
are in denial, especially many coastal communities.

FYI- It is to a BUYERS own benefit to have an agent represent them in a Real Estate transaction.
Remember, the Seller's Agent has a fudicuary duty to look out for the seller's interest not you the buyer.(That's........ why you need representation).

Kaye Thomas said...

Lydia- I agree.. many sellers are having a hard time realizing that the market has changed.. and that they need to adjust prices to reflect that change.

Kaye Thomas said...

Anonymous 2:56.. I think this is the second time you have asked another poster about using an agent. As Lydia noted if you do not have an agent you have no representation.

However your question is intriguing and I'm going to write a post about it within the next day or two and would be interested in your thoughts on the post..

Anonymous said...

but if i hire an agent, then there will be TWO agents working AGAINST me. both agents are motivated to get the price up. both benefit by a higher price. i don't see how an angent helps a buyer at all. i'd rather have one guy working against me than 2. do you really believe that any (many) realtors take their fiduciary repsonsibilites seriously? they are out for themselves. you are almost suggesting that realtors never violate the law.

Anonymous said...

Don't listen to these agents. You're being sold a bill of goods:

http://consumermaven.wordpress.com/2007/10/10/before-you-talk-to-a-real-estate-agent-or-realtor/?ref=patrick.net

Kaye Thomas said...

Anonymous 9:46.. I'm curious about why you would think someone who was working for you would be working against you. Did you have a bad experience or are you just going by things you have read.

No question there are some lousy agents but there are also excellent agents who go above and beyond the normal obligations to help their clients.

Most agents are very serious about their fiduciary responsibilities and do care about their client's welfare. A good agent always makes sure the interest of their clients is protected. This is why it's a good idea to have your own agent who will represent your interests as a buyer. The agent for the seller is going to protect the seller's interests as that's who the listing agent works for.

Obviously anonymous 10:10 disagrees with what I have said which is his/her prerogative.

One final note.. to find an agent you trust will take some work on your part.. but I suspect that if you take the time to find a good one you will be very pleased about your choice.

Anonymous said...

I typically do not tell anything to my realtor that I would not want the other agent to find out....my expectation is that realtors talk, there primary interest is to make the deal. I typically will not tell a realtor my income, how much money I have, or my limit for a property.

I have myself toyed with the idea myself of forgoing the realtor. Check out "freakonomics" for an interesting chapter about realtors. That being said, my suspicion is that a few years from now, agressive sellers agent (strong-arm lowballers) will be available, similar to the 90's downturn.

Kaye Thomas said...

Anonymous 9:28...
I'm curious about why you are working with an agent you don't trust with your information. While I don't believe it's necessary for me to know exactly what a client makes per year.. I need some idea of income, how much they have for a down payment .. (not necessarily how much money they have)and a price limit.

You have to be able to trust your agent and your agent has to be able to trust you... it's a two way street.

Anonymous said...

I would say it is from bad experiences dealing with several realtors. One particuliarly disreputable realtor represented the buyers for the last house I sold....I would say that my own realtor was underqualified to deal with his tactics.

The reasons for not providing the financial information should be obvious. It is very easy to let too much information slip.

It is also human psychology that the agent wants to make the sale, whichever side they are on. A few interesting trends now that it is more of a buyers market...buyers agent split of the fees are going up (buyers agents are king if they can bring a wiling buyer to the table). In Pheonix, where it is about as bad as it can be in the US, homebuilders are giving up to 12% fee to realtors that bring a buyer to the table. It sounds like builders certainly think they can sway the buyers agent, doesn't it?

That being said, the realtor is there for their experience in the area, and to make the transaction go smoothly.

Kaye Thomas said...

I'm sorry to hear you had a bad experience. Sounds as if you were in a difficult situation. It's hard on newer agents but this is the time when experience makes the difference ... especially when dealing with a less then truthful agent.

While I understand your reluctance to give out much financial information I find it hard to imagine working with clients and not knowing most of the picture.

We are begining to see agents leave real estate and go back to their old jobs. There are a lot of agents who have never been involved in anything but an "up" market and are not quite sure how to proceed.

We are seeing increasing fees for both buyer and seller agents in our market although not on the level you note in Phoenix.. but then we don't have huge new housing developments either. No question there are more perks to entice Buyer agents to show property to their clients. Listing agents have increased costs as properties stay on the market longer and need more and varied types of exposure.

The job of the agent has always been to make the transaction smooth for all parties. My clients value my knowledge and my expertise in problem solving. In today's market that may require a number of skills that only come with experience.

It's hard on new agents but this will be the market that determines whether they stay in real estate as a career or go back to the widget store.