South Bay-Beach Cities Sellers: Price...Market Value... Motivation... the keys to selling your home.

I was talking with a client who is thinking about possibly selling his home.  After looking over the comps I could tell he was not very happy about where I thought he should price the house.  As we continued to talk he said something that  is common to all sellers when faced with the fact that they are not going to get the price they want.... I want to sell... but I'm not going to give the house away. 

I don't think he was pleased by my answer.... selling your home at market value is not giving the house away... it is selling it for what it is worth in the current market.

 All too often sellers have a preconceived notion of what their home is worth.  It isn't that they don't  understand that prices have dropped  or that they won't get the price they would have received a few years ago. The problem is that a number of homeowners are totally surprised by the difference between what they want and the price they can actually get for their home in today's market.  Many have a tough time accepting the fact that  their home is not going to appraise for the number they had in mind and in this market most buyers will not pay more then the appraised value.

 There was an interesting  article on HousingWire.com a few weeks ago  noting that homeowners, on average,  reduce listing prices 10% or more during the listing period. This means that most sellers have their home on the market far longer then they would have if they had priced it at market when they listed the property.  In some cases by listing the home too high they are going to lose more money then if they had priced it right at the start because they just keep chasing the market down.

Many sellers still think that they can "test" the market by listing high.  These are usually folks who don't need to sell but would like to sell "if they get their price".   These are not motivated sellers.  Motivated sellers have a specific reason to sell.  They need a larger home, or a smaller one.  They may be thinking of relocating to be near family or for a new job.  They may be living in a three story home and find they need a single story.  They may have to sell for financial reasons.    Motivated sellers are more realistic about the value of their home.   They understand that they can only get what the home is worth which may be different from the price they want.

If you are thinking about selling your home then you need to be realistic about what your home is worth in the current market.  You can  ask any price you want but your home will only sell for market value.  You also should consider how motivated you are and if you don't need to sell then this is probably not the best time to test the waters so to speak.   Price, market value and your motivation to sell will determine  how long your home is on the market and the price you ultimately receive.

Why setting the right listing  price is essential when selling your home...







It is a fact of life that sellers always think they have priced their home too low and buyers always think it is priced too high. In "up markets" sellers can price above where the last comp sold and often get that price or more . However in "down" markets sellers who over price their home often wind up settling for a price that is considerably less then they might have received if they had priced the home at market initially.

 As we all know we are in the down cycle of our local  real estate market with prices currently hovering around 2004 levels or lower.   The Beach Cities have been fairly fortunate compared to the rest of California real estate and have not had huge numbers of foreclosures.   However I expect we will see more foreclosures and short sales on higher priced properties in the coming months... not record numbers but probably enough to influence home prices. 

So what does this mean if you are thinking about selling your home?  Along with all the givens of selling... clear the clutter, paint, spiffy up the landscaping, etc... the  # 1  item on your list should be pricing at or slightly below the current market value.   This is not the market to test the waters, so to speak,
when it comes to pricing.  

Buyers are looking for value... and value can mean $600,000 or $6,000,000 depending on the property.   I'm seeing a number of homes priced  over market that just sit.  I know  many  of these sellers priced their homes on the high side as they expected to negotiate the  price to reach their desired price.  Unfortunately many buyers who set price limits are not willing to look at homes priced over that limit in the hopes the seller will negotiate. 

Buyers don't care that you paid $XXX three years ago.  Buyers are only concerned with what the home is worth now.  The homes that are selling in today's market are priced to sell and those that aren't selling are priced too high.  The only thing that happens when you chase the market down is that you lose more money then if you priced it right in the first place.

 Often buyers not only perceive a listing as "old" they also believe there may be something wrong with it.  Consequently even when a seller eventually lowers the price,  the house carries a taint of something not quite right about it.   This leads buyers to often dismiss a property or  if they do take a look and make an offer it will be substantially lower then if the price had been on target when it was first listed.


Another major issue is appraisals.  Appraisers are now only looking at values on homes that sold within the last 90 days and often  the last 60 days.  Proximity along with time is a real issue.  You see this in East Manhattan  on homes selling north of Manhattan Beach Blvd.  In the old days appraisers would take any sale within 1-1.5 miles in all of east Manhattan.   Now they start with homes closer to the subject property and if there are enough comps they use them even if they are lower rather then move to homes sold south on Manhattan Beach Blvd.  The same is true for North Redondo when dealing with properties north and south of Artesia.  You can't justify a value on a property south of Artesia by using comps north of Artesia.

There are a number of homes in all price ranges that have been sitting for months at the same price with no offers.  As sale numbers continue to decline as we enter the fourth quarter there will be fewer comps available to appraisers and  owners who are trying to establish value.   Don't expect to get the same amount that your neighbors did 6 months ago... in this market expecting less may ultimately mean receiving more at the end of the transaction.

What do you do when your home is worth less then the price you paid?






California real estate is a cyclical market with values going up and down. The Beach Cities are no exception. While upscale markets tend to hold on longer and pick up faster after a cycle has gone through its course they are still part of the general real estate cycle and subject to the vagaries of the marketplace. The cycles generally run a 7-10 year course with flat price point periods along the way. During the down cycle a property may be worth less then the purchase price. The flip side is that the property usually is worth more when the market moves upward.



Historically these cycles had longer neutral periods between the up and down cycles. In recent years it seems the cycles are running closer together with a shorter cooling time between the up/down swings. This last cycle of course was not limited to California real estate but was a world wide phenomena which was largely caused by cheap credit and a lack of regulation for both financial institutions and borrowers.



When you review real estate prices in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo over the last few years there is no question values have declined. If you bought a home in 2005-2007 your property in most cases is worth less then you paid. In some sub markets of the Beach Cities values have dropped to 2004 levels. The big question is what do you do if the value of your home is less then the purchase price...do you stay, try a short sell or walk... The answer to that is it depends on your circumstances.



While many homeowners who are in trouble will try to obtain a loan modification. Most folks in our area will find that is not an option as loans that were made prior to last year, when loan limits increased to $729,750, are not covered. Also the decline in value of properties in most cases is far more then that allowed by the FEDS to qualify for their programs. For some homeowners who owe more then the home is worth a short sale may seem like the answer, others will have no choice but foreclosure. There are folks who will simply walk away believing this is a smart choice. The majority of homeowners however will just wait the market out. The path you take will depend on your economic circumstances and your views on homeownership.



Short sales:

Short sales are not as simple as many believe. Most homeowners think of short sales as an easy way to sell a home that is no longer worth what they paid. They don't understand that a bank will only consider a short sale if the owner can prove that they can no longer make the payment on the loan. That usually means you have lost your job, gotten divorced, had a major medical issue, filed bankruptcy or all of the above. You will need to send the bank a package that includes certifiable proof of your financial problems. Your word that you can't pay is not enough.

Even if you can document your financial issues the bank may reject your plea if they feel they can get more money if they foreclose. You should also know that a short sale will affect your credit rating almost as much as a foreclosure. In addition if you refinanced the property the lender may make you sign a note to pay the bank the difference between what the home sells for and the amount of the loan... and still ding your credit.



Foreclosure:

Foreclosure is a tough step for most homeowners. Historically homeowners would do almost anything to avoid having their home taken back by the bank. With the record numbers of foreclosures through out the country the stigma that was once associated with the process is not as much of an issue today. However, contrary to what you may find on the internet, a foreclosure will damage your credit for a long time. It may impact your ability to get insurance, buy a car, obtain a credit card or even a job. A foreclosure generally stays on your credit record for 7 years.

While the government is touting loan modification programs, a number of lenders are not working with borrowers. Loan modifications are few and far between in CA. Some of the reasons are that lenders don't have the personnel or the knowledge to deal with the issue. In other cases the bank feels that the owner simply doesn't have the wherewithal to make the payments even if the loan is modified. In some instances the bank would make more if they foreclosed on the property.


One of the biggest issues with foreclosure is that while homeowners may not be able to make their payments many still have equity in the property. This often happens to people who have owned their homes for a long time and suddenly find themselves with unanticipated financial problems. They may try to sell but often they set a price that is too high. They get caught up in what they want for the home rather then what it is worth. These are the folks who say I'm not giving away my house ...I won't take a nickle less then $XXXX... sadly after too long on the market and no deal most wind up with nothing when they could have walked with some cash. In the 90's I worked with a secondary lender who tried to get owners to sell before they actually went into foreclosure. I was constantly amazed at sellers who wouldn't budge from an unrealistic price and wound up losing everything.


Walking away:

This has become a popular option for a number of people... even those who can make the payments but choose to walk because the property has lost value. They usually had very little if any money invested in the property. Most people who take this option view homeownership as an investment rather then as shelter or a lifestyle choice. The internet has popularized this choice as a smart one and many folks believe it. They believe that walking away will have few if any financial issues for them. For some this may even be true.

However as noted above in the foreclosure section there may well be more consequences then folks think. Many lenders are talking about making it very difficult for owners who walk away who do not have financial problems. Banks don't like folks who don't honor their financial obligations.

Last year I spoke with a couple about buying a property. They were adamant about the deal they expected to get. They made sure I knew they had walked away in the 90's from a property that was upside down in value to prove how savvy they were. They walked not because they couldn't make the payment but because it was worth less then they had paid. The funny thing is that the property they walked from is worth three times what they paid for it even in today's market. Had they not chosen to walk they would be sitting on a large chunk of equity instead of starting all over years later.



Sticking it out:

No matter what you read this is the choice of most homeowners. Generally owners will stay in their homes and make their monthly payment no matter how much the value goes up or down. A few years ago the in thing was to make fun of people who had lived here for a long time and had a lot of equity in their homes. But the fact is the owners had that equity because they rode out the cycles of the market. They paid the mortgage every month whether the value was up or down. They didn't walk away when their home lost value because it was a bad investment. Their ultimate goal was to pay the mortgage off and own their home.



In the last 10 years or so the idea of owning a home over the long term and paying off the mortgage disappeared. It was replaced by the concept of moving every few years to a bigger and better property. Leverage became the in word for homeowners rather then equity. Now of course a lot of folks who moved into bigger and better too quickly have found themselves underwater as the value of their homes plummeted.


I'm not really surprised to see a number of consumer blogs advising owners to walk away from their property if the value has decreased. It has become the smart thing to view a house as a stock market commodity rather then as shelter and a lifestyle choice. If you are in financial difficulty then you may not have many options other then those listed above. However if you aren't in a financial bind then I can't help but wonder why a smart owner would walk away because the value has changed. While it is true the market is currently down it is also true that it will go back up. It may take time but the winners in real estate are those who are in it for the long not the short term.


Many years ago it was a popular pastime for young ladies to learn stitchery and show off their skills in a sampler. One of the most popular sayings was ... home is where the heart is...It may sound corny but a lot of people still believe this to be true. Posted by Kaye at 12:44 PM 0 comments

I've always said that real estate values in Manhattan Beach and the Beach Cities would hold up better then in other parts of Southern California ... and so far this has been true. I also said that all bets were off if we hit a recession. There is no question that we are in a very bad recession... with no end in sight. Today the stock market went where no one wanted to see it go. Unemployment in California jumped to 10.5% and we are going to see hikes in both Federal and state taxes. The South Bay may still be a bit better off then other parts of the state, but the outlook isn't pretty.

I thought we might squeeze by with another 10%-12% decline in home values this year but after hearing about the Administration's plans to increase revenue over the next few years coupled with the massive tax hikes in CA, and a complete lack of confidence in the market... it looks as if I was wrong. Yep... that's right... I was Wrong and I admit it.

I don't know how far prices will drop, and neither does anyone else, but the handwriting is on the wall that prices are moving lower and much faster then expected. A number of builders are in serious trouble. There are still new homes that have been on the market since 2007 without finding a buyer. Other projects didn't get off the ground until well into the market decline and are facing stiff competition for buyers. A number of homes that were rented may be hitting the market again as investors want to get their money out of the projects. You are going to see more short sales and REO's pop up on new construction. As prices on new construction float down that will put pressure on older homes.

In addition, if the recession continues much longer, a lot folks may be facing some real financial hardship over the coming year. As more people lose their jobs or have their income reduced many will opt to sell their homes in order to relocate to another area or state in search of employment. As inventory increases and buyers have more choices prices are going to fall... supply and demand on the other end of the spectrum.

A third factor in the Beach Cities might be because of the planned increase in the capital gain tax that the President wants. If I had owned a large home for a long time and planned to move to a smaller home or even out of the area I would definitely put my property on the market. There is a big difference between a 15% tax on gain and a 20% tax if you saw some major appreciation in the value of your property.

I've talked to a number of buyers in the last month or so who just don't know what they want to do. Some are dropping out of the market for a few months or a year. Others are still ready to buy but are very cautious about price. Today's low rates are enticing for those who plan to own for a long time. If you are in a quandary the best thing to do is pull out a pencil and see what the difference in your payment would be if you bought today at a low fixed rate vs if you wait and prices drop another 15% but rates move up 1%-2%.

All of these issues will put increased pressure on the South Bay-Beach Cities housing market. When you add tougher lending underwriting and down payment requirements, the pool of truly qualified buyers gets smaller. Homes are selling but at lower prices as buyers maneuver through a dicey market. Buyers are in the drivers seat for this ride and they are going to make payback rough for sellers.

8 ideas about selling your home in the South Bay-Beach Cities of Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo.

I've written a lot of posts about selling homes in the Beach Cities. For a long time the advice was pretty standard... price it right...make sure it is clean... spruce up the landscaping... advertise it everywhere and price it right. These items are market basics and should be part of any plan to sell. But in today's South Bay- Beach Cities real estate market a seller may need a few more innovative ideas to get their property sold. One of the good things about being in real estate a long time is that while every market is different they are also a lot alike. The California real estate market is one of booms and busts. It is cyclical by nature and usually changes every 7-10 years. As markets change sellers need to change with them and often must start thinking outside the box. In today's market it is even more important for Sellers to think outside the box if they need to sell.

So what can a seller do to get their property sold? Here are 8 ideas that may improve your chances...

1. Make sure that you are a seller: I know that sounds a bit strange but a lot of people with homes on the market are not really sellers. They are might be sellers... that is if they get an offer they like and if they find a new home they like then they might sell their home... These sellers are generally not serious about selling and will rarely get an offer they like. Having a home on the market is difficult at best. You have to always keep it neat and be ready to show at short notice. These sellers would be much happier if they took their homes off the market and waited a few years for the market to change or until they really need to sell. Don't think taking your home off the market until the Spring will make it more valuable.... it won't. Right now the best you can hope for is that prices will reach the point where they flatten out sometime next year. I don't think you will see prices begin to move upward again for another 4-5 years.

2. Price it right and keep the price right: This is the # 1 item on everyone's short list. But it's not always as easy as it sounds in today's market... especially now that it is taking longer to sell a home. You can look at all the comps, spiff up the house, be right on the money and still not see offers very quickly as buyers are taking their time. Then in a few weeks a new listing hits the market that is significantly lower in value because it is an REO or a desperate seller and suddenly you have new market values. You need to be aware of what is happening in the market all the time. Recently a number of listings in Manhattan Beach saw some major price reductions. If you have a home in competition with those listings the value of your home just went down. So you need to know your market and where it is headed.

3. Have a clear idea about what you want to do before you list: If you want to buy another home then you should have an idea about prices where you want to move. If you plan to rent then you need to know in advance what the rental market is like. If you are downsizing to a smaller place then you should start to go through things you may want to give to friends or relatives or to Good Will. These are seemingly small decisions that can take a lot of time. If you get a buyer who needs to move today you don't want to lose him because you are not ready to move.

4. Consult a Stager:. You know you will probably have to clear clutter, paint , possibly put in new carpet and landscape so why not get someone who knows how to do this give you a hand along with some great ideas. Sometimes a short consultation with someone is enough to determine how to make your home shine and show off the best features.

5. Make sure the house always looks great: If you are working full time or have a large family this might mean hiring a professional to spruce up the house once a week. Consider this a bonus for always having to be in the mode to show.

6. Leave the house during showings: I know a number of sellers who have lost themselves bunches of money by being too chatty with a potential buyer. It's one thing to talk about a roof problem that you have had fixed but quite another if you start discussing how you have to sell asap because of a move to New York. Remember that you are always in negotiation with the buyer and their agent. Keep your lip zipped when talking about money.

7. The First Offer may be the best: I don't know why this is true but it is almost 90% of the time. Don't disdain that first offer that is a few dollars less then you want in a down market. It could not only be the best offer you receive but the only one for a long time. Now that's not to say that all first offers are good ones... sometimes they are way off the mark... but you need to carefully evaluate the offer before dismissing it. For instance an offer that allows you to stay in the property rent free for a month if you are waiting for a home to close escrow in another area might be worth more then you think when compared to having to rent a place short term or get a hotel room and put all of your possessions in storage. If you are buying a new home then a quick escrow with cash in the bank might just get you a better deal on your up leg purchase. Again you must evaluate all offers as there is a definite time factor of money that comes into play.

8. Think about taking back a 2nd TD: While some sellers have little or no equity in this market there are still a lot that have a a great deal of equity in their homes. As lenders become more persnickety about the amount they will loan even to well qualified buyers it might be to your advantage to take back a 5%-15% second at a good interest rate if the buyer has a sizable down payment. I would not suggest it if the buyer has less then 15% down but it is something you might consider for buyers who have 15%-20% with great FICO scores but need a bit more room if the lender decides at the last minute they want 25% down which is happening a lot in our market. It's also a way to make up a little money if you settle for a lower price. You will be able to get the current market rate which will be better then rates offered by banks. I just had a long discussion with the sellers of 511 N. Dianthus about this. We went over all the good and bad points and decided that it makes sense for them to take back a note.

Selling your Beach City home in today's real estate market can be a challenge. However with some forethought and a little luck it will happen. Be patient and remember a sense of humor always helps. If you can laugh at the small absurdities of life the big ones get a bit smaller....