So Cal Real Estate News

This is the third in a series of of three posts on three listings on the same block that closed escrow earlier this year. The first two are good examples of costly but common seller mistakes. (See “A Tale of Three Listings: The probate seller’s big mistake” and “The “flipper” Realtor who didn’t think.”)

Today we look at the third listing, a good illustration of what’s going on throughout Southern California right now. It shows how we got into this mess and what it takes for homeowners to get out of it.

Meet the Johnsons:

This seller first called us around the first of the year. We’ll call them Mr. and Mrs. Johnson. They had purchased the home in June of 2002 for $275,000 with 20% down. They refinanced two years later for $325,000 and again in 2006 for $338,000.

Refinancing every two years is generally better for the mortgage broker than the homeowner, but these owners were relatively conservative. Not only did they avoid negative amortization loans, they also resisted the temptation to pull out the bulk of their equity. Otherwise, they could easily have owed over twice as much as they did.

When we first met, there were about six home listed within 150 yards of their home, including “short sales” next door and across the street. That sounds like an Inland Empire or ghetto listing, but was actually just an unlucky block in a decent part of Lakewood.

Like most sellers, the Johnsons knew that values were down, but still had unrealistic expectations for their home. Even in normal markets, most sellers tend to overprice their home, giving value to personalized “improvements” that actually are negatives to most buyers, and overlooking negatives they’ve grown accustomed to.

When we prepared for our appointment, we were pleased to see that they still had equity in their home, but it was far less equity than they had expected. However, their personal situation was such that it was a good time for them to move. They wisely chose to let their personal situation guide them in an uncertain market, rather than speculate on when the bottom might come (see “What to do when nobody knows what’s next“).

Getting Ready

Unlike many sellers, they were willing to listen to our recommendation, not just on pricing but also on timing, preparation, and staging (see “How to sell your So Cal home for top dollar in 30 days“):

• Preparation: We suggested adding some flowers in the front, fertilizing the lawn, and repainting the chipped & peeling front porch, and removing posters and repainting the teens’ bedrooms.
• Staging: This was a large home with an unusual floor plan, including a huge master bedroom with some unused space and a small utility room with a half bath.

Partly because the average seller is about 20 - 40 years older than their most likely buyer, most sellers aren’t aware of how visually dependent their buyers are. Verbal suggestions aren’t nearly as effective as properly staging a home.

In this case, we suggested using a bookcase to seclude a part of the master as a semi-private office or retreat. We felt that the utility room with a private half bath should be staged as a bedroom, and offered the use of one of our inflatable twin “instant” beds. This would also enable us to list the home as a four bedroom, two bath rather than a three bedroom with utility room, without potential buyers asking “Where’s the bedroom.”

As almost always, we also recommended removing or relocating some furniture to make the home look larger, as well as eliminating knick-knacks and clutter.

• Timing: Aware of the coming onslaught of foreclosure listings we strongly recommended the Johnsons waste no time getting their home on the market.
• Pricing: Correct staging and preparation would significantly improve the sellers’ bottom line, but locating and closing a qualified buyer using today’s tighter lending standards is often a major challenge.

The first week a home is on the market is the best opportunity to get competing offers.  So it was critical to hit the market with all staging and preparation done, and to hit it at an aggressive price. Our hope was to obtain competing offers within the first two weekends, not only so we would be in a stronger negotiating position, but also so we could focus on the buyer most apt to close the escrow.

• What not to do: Fortunately, the Johnsons called us early in the process of deciding what to do. Not only did that allow us to encourage them to speed up the process to take advantage of early spring activity in a falling market, but it also allowed us to help them focus their preparation efforts on the most productive items.

As is commonly the case, there were several repair items they wanted to fix that we felt would be better left for the physical inspection once we had a buyer. That not only saved time and effort, it also allowed the buyers to pick the repair items that were most important to them.

The Team Effort:

In order to get things moving quickly, we completed the listing paperwork that night, with a target of getting the home on the market in a few weeks, once the work was done. We agreed on a tentative list price, which would be adjusted as needed just prior to putting the home on the market.

We were amazed at how efficiently the Johnsons went to work. The bedrooms were painted and lawn fertilized within a few days. Furniture was moved out, and our “instant bed” was moved in.

There were, however, a few areas where disagreements arose. The master retreat was set up with a desk from the former utility room, but the bookcase screen never made it.

We never fully agreed on pricing, although we were only off by a few thousand dollars. In a challenging market like today’s, accurate pricing from the start is quite important. As with proper staging and preparation before hitting the market, “you never get a second chance at a good first impression.” That’s especially true now that listing information travels at the speed of light over the internet.

Still, it’s the seller’s house, and all we can do is explain our recommendations. We were very fortunate the Johnsons worked so well on preparation, staging, and timing. And we weren’t that far off on pricing, but things might have gone smoother were the initial price just 1% lower.

Our Part:

It’s not just the seller who has to work hard in this market, however. As the Johnsons were preparing the home we began working on our marketing plan into play. We’re constantly looking for and trying out new ideas, and over the last three decades we’ve incorporated quite a few that have proven effective. Selling a home for top dollar fast isn’t rocket science, but it does involve doing lots of little things right. In the Johnson’s case, this included:

• buying the home’s address for the domain for the home’s website & getting a sign printed with the domain. (1234Main.com, for example–much easier to remember than “12J75jKR Wxyz@prudential.yahoo.homes.com or whatever)
• videoing the virtual tour
• photographing, writing & printing the color flyers for inside the house & for the brochure box
• preparing 19 photos for the MLS & adding captions
• recording an audio tour & put up our call-capture “audio tour” sign so we could follow-up with buyers while they were still in front of the house.
• putting up our personalized “for sale” sign with only our cell number on it, so all calls would go to one of us, not some 18-year-old receptionist who’d never seen the house (or an agent taking “floor time” who’d rather sell the buyer his own listing).
• holding open houses with about two dozen strategically placed signs.
• over 400 flyers delivered throughout the tract to neighbors who might have friends or family looking to buy in the neighborhood.
• Bringing our local office through on tour.
• Precisely timing the inputting of the listing into the M.L.S. and onto the internet to maximize the possibility of multiple offers (we’ve actually go this down to not just which day of the week but also what time on that day.) (Sorry–that’s our secret, but we know what works. It changes based on the market anyway.)

The Results:

The good news was, we had an offer within the first two weeks, and were able to negotiate a mutually acceptable price and terms. The “challenge” (we try to avoid words like “bad news” or “problem”) was, the buyer wasn’t as strong as we would like, in terms of qualifying for the loan. They weren’t terrible, probably a little stronger than average. They were even “pre-qualified,” but that really doesn’t mean much if you check out the fine print. They were still weaker than we’d prefer.

So we dragged out the negotiating process a bit, checked with other potential buyers, but nobody else appeared, and that initial burst of activity when a new listing hits was dying down. The home was fairly unique, which also limited our pool of buyers. The seller was firm on their price, so we went with the only buyer we had. In this market, you can be too choosy.

Unfortunately, in these days of ever changing lender requirements, the lender modified the loan requirements during the escrow, if the buyers’ agent is to be believed. (BTW, the buyers’ agent is never to be believed, but there’s only so much a third party can verify. Shoot, even Presidents have been known to lie under oath!)

The buyer really wanted the home, and kept searching for a loan that would work, but after a few weeks we put the home back on the market to see if we could find a stronger buyer. Unfortunately, we were right about the declining market as well as the uniqueness of the home. We couldn’t find another buyer quite as willing to pay top dollar, but after about a month back on the market we did find a buyer who was able to successfully close the sale in less than a month within 2% of the original asking price.

The sellers are now happily moved into their new home and are getting on with their lives in the location that’s right for them. Meanwhile, four of the other six listings on their block have not yet sold, and the other two both eventually sold but for almost 20% below their original asking prices.

Bottom line:

• Sellers today need to be flexible and willing to expend some effort.
• Find an experienced, honest, diligent Realtor (or two) as early as possible.
• Take your agents’ advice very seriously.
• Beware of letting market timing or wishful thinking trump your personal needs.
• Get it right the first time–condition, pricing, staging, marketing & listing agent.

That’s what we think–we’d love to have you add your comments, thoughts, or questions below.

Tags: home selling strategies, How to sell in today's market, Los Angeles and Orange County home selling techniques, Real estate market trends

This entry was posted on Saturday, July 5th, 2008 at 5:54 pm and is filed under For Sellers, Lakewood, Market Trends and Projections, Uncategorized, perspective. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.