Just off the top of your head, Ms. Realtor what do you tell me what my house is worth? This is a question that so many people ask. Here is the answer. How can I know what a house is worth off the top of my head? An asset that is worth several hundreds of thousands of dollars or more can just be evaluated in an instant?
The fact that an appraiser comes out and measures your house takes photos inside and out. Then often a lengthy evaluation report of data is completed and a narrative study about the market. The appraiser uses the subject property and interprets data with comparable sales, upgrades and improvements. Other factors can be deferred maintenance and neighborhood factors. If an appraiser is doing 6 appraisals a week, then an appraisal can take 8 hours to complete.
If I didn’t know this was 2018 and not 2008, I would pinch myself and be happy we are not dealing with the attitudes of Sacramento short sales. Although, I did receive a call about a property in Elk Grove that was listed a bit over $400K, which suddenly dropped to $330K. The caller asked me if I thought $340K would work as an offer, so we had to discuss how short sales work. Why a bank would accept an offer, and how banks look at their BPOs. Still, I could work the comparable sales to arrange for a pretty good value that we could substantiate, but then the buyer never called back.
Almost 70% of my listings have been sold more than once and are now back on the market. You know what that means, right? It means that buyers are acting like the days of Sacramento short sales, i.e., eager to get into escrow but reluctant to stay put. When I talk with the exclusive buyer’s agents on the Elizabeth Weintraub Team, they say it is not unusual for them to spend a lot of time on the basics. Such as going over the purchase contract in detail, discussing how individual properties would meet long-term goals. Managing expectations.
This helps to prevent cold feet. Counseling buyers, making sure their needs are met. Not dragging them kicking and crying into escrow. Not every buyer is cut out to buy a house.
It was very common during the heydays of Sacramento short sales to have buyers cancel. But today, there is no reason other than anxiety, I suppose. Example, a starter home near downtown Sacramento has been in escrow four times. There is nothing wrong with the house. It’s been babied like no tomorrow, and the seller has been on top of every maintenance issue. We have a clear pest. But buyers are afraid.
I hope this stream of flakey buyers is just a quick rash that has stopped spreading. At least one thing is certain. We will never go back to the days of Sacramento short sales. The market might come to a slow-as-molasses rolling stop before leveling off, but it will never be a bubble bursting. Conditions for that kind of storm are non existent.
Fixing Bay Area offers without offending the parties involved often means stepping back and putting your client’s needs first and foremost. There is no easy way to tell a Bay Area agent that so much stuff in the agent’s buyer’s offer is wrong. At first blush, I was tempted to quickly judge the parties as not being serious. They made demands that nobody asks for in our Sacramento seller’s market. The buyer asked the seller to pay for things no other seller pays for. In fact, it was about as one-sided as a buyer’s purchase offer that I would have written myself in 1978, but certainly not in today’s market.
To make matters worse, it wasn’t just a matter of fixing Bay Area offers, there were also 2 or 3 other offers on the table. After talking to the sellers, it was clear to me they would like to find a way to make the Bay Area offer work. After all, it was cash, so no appraisal. Getting an appraisal on this home would be difficult because there were really no comparable sales. The home was a white elephant. Overbuilt for the neighborhood.
After every open house, buyers would ooh and ahh over the upgrades and improvements. But after driving the area, they said no thank you. It was one of the nicest homes in the area. Plus, with cars parked up and down the street, basketball hoops blocking driveways, well, it didn’t present the neighborhood in its finest light. However, we knew that walking into the situation. The sellers were patient because they didn’t have to move until the end of October. They felt now would be a good time to sell over October, and they were right.
I decided to try to find a way to make the purchase offer work because that’s what my sellers desired. The buyer was doing a 1031 exchange, although the home would not be a rental. It would be occupied by family. Not even about to argue how it is not a 1031. Not our problem. So, I asked the buyer’s agent if the buyer would consider renting back to the sellers until the end of October. The buyer said yes and named an agreeable rental amount. This was a hugely important benefit to the sellers. Not moving twice.
OK, the dilemma was how to handle the fact the buyer refused to purchase the home in its AS IS condition. The way I saw it, we could argue over the black-and-white verbiage in the purchase contract which clearly states the home is sold AS IS. Or, we could find a way to make it work. The agent said the buyer expects all repairs from inspections to be completed. What? And we didn’t even have a home inspection yet. How could we agree to do all repairs when we don’t know what they are? That sounded like a recipe for disaster.
Well, what we could do is have the seller pay for a home inspection from a reputable home inspector. Not some fly-by-night idiot. There are idiots doing home inspections in Sacramento because they don’t need to be licensed. Anybody can pretend to be a home inspector. An teenage mouth-breather can be an inspector. So I drew a counter offer that included the seller paying for a home inspection, subject to successful negotiation of a Request for Repair. We agreed not to open escrow until the Request for Repair is executed, and if it can’t be, then the offer is void and canceled.
Seemed like a perfect solution. We signed all the counter offers and the purchase offer. A few days later, the buyer’s agent noticed we were holding an open house because our status was changed to Active With Release Clause. The agent accused us being dishonest and underhanded. What? The agent threatened if we did not cancel the open house, the buyer would cancel the offer. Then, the agent tried to cancel the offer.
However, the offer could not be canceled until the terms and conditions were met. We had a binding agreement.
But they do things differently in the Bay Area, and not every Bay Area agent sells a lot of real estate. Many sell only a few homes a year. So you really can’t hold it against the agents. Some agents just don’t know what they don’t know. All I really wanted to do was spare my sellers the anxiety and drama. Very difficult under the circumstances. I was fully prepared for the buyer to make more unreasonable demands, especially after receiving all of the inspections.
However, suddenly we received the Request for Repair from the buyer and it was not completely unreasonable. Very surprised and excited over this. In keeping with fixing Bay Area offers, I also rewrote the response to the Request for Repair to make it very specific. The Bay Area agent copied the numbers from the home inspection report but it was not easily understood and could be misinterpreted. The report did not identify how to make repairs, and it alluded to further inspections. After laying out each specific repair, we went into contract. We signed the Request for Repair, which also stipulated the buyer would immediately release all contingencies.
By being very clear from the beginning, we can often avoid misunderstandings later.
This is also the first escrow I’ve ever closed in which we entered escrow ready to close. I’ve closed thousands of sales over my 40-some years in real estate, not one like this. Twenty-day closing. No monkey business, no weirdness. Oh, and it sold over list price.
The way I see it, the problem with Sacramento home buyers who offer less than list price is it’s often a case of the blind leading the blind. I’m sorry, there is just no other way to say it. You’ve got buyers who have probably never bought a home in their lives trying to figure out how much to pay. And you’ve got a buyer’s agent who probably doesn’t sell very many homes. The agent most likely has had little, if any, training about appraising a home.
Often, these are buyers who offer less than list price because they saw an HGTV show. In those mythical fairy tales, buyers are always offering less than the amount the seller asks. Talk about overly generalized. We have a Sacramento sellers market, which means sellers can hold out for and will get list price. Very few homes for sale, high demand, hello?
Further, many agents struggle with deciphering comparable sales. They might notice a comparable sale in the neighborhood that sold for a higher price and try to compare it to the the home their buyer wants to buy. The difference might be a slight variance in the lot size. But they don’t know enough to figure out that maybe the back yard of that larger lot is filled with high tension power lines. So a smaller lot size does not equate to a lower sales price for the home in question. It is very likely they also don’t realize an appraiser might give only an extra $5,000 for a slightly larger lot. For many reasons, they hand out bad advice to a buyer.
Bottom line is most buyers who offer less than list price don’t get the home. The buyers wrongly blame the seller for being stubborn when they should be looking elsewhere for answers. These guys should be examining their own inadequacies. Coupled with the skills lacking in the agent they hired. Because that’s what caused them to lose the house.
Also, take a moment to realize that comps are not the only way to figure out the value of a property. Sometimes it really does boil down to the amount the seller will accept and the sum a qualified buyer will pay. That is the true definition of market value.
In closing, if a buyer is so certain a home is not worth the asking price, why not make a full price offer anyway? If it doesn’t appraise, the seller is likely to renegotiate. But the buyer will never get to that spot if the buyer doesn’t go into escrow. When it does appraise at the sales price, just close escrow. Get on with your life. Arguing gets you nowhere. Five years from now it will make no difference whatsoever.
Should a Sacramento listing agent know the seller’s bottom line? Well, you know, if you have to ask the question, generally the answer is no. I’m just a bit more vocal about it. When I hear sellers headed that direction, I ask them to please stop. Because I don’t want to know their bottom line. It’s none of my business, actually. When we settle on a list price for a home, it becomes my job to get that price. Let’s not muddy the waters or cause more confusion by talking about how much less we will take.
Besides, it might never come to fruition. If I believe I can get the price we list at, that’s the price I tend to get. My goal is to deliver a full price offer (or better). If I spend my time considering the seller’s bottom line, it is possible I could slip up. Not intentionally, mind you, but I do multi-task at times. If I don’t know it, I can’t blurt it. And I don’t want to know it anyway. It undermines the premise of a listing agent. My fiduciary is to my seller.
I talked with a seller yesterday in El Dorado Hills who tried to tell me they would be willing to underprice a home. That tactic doesn’t necessarily work very well in a market of strong inventory. There are more homes for sale in El Dorado Hills than in other neighboring communities. Although I asked her to please let’s just focus on the price she wants, the seller continued to talk about taking less for her home. She seems very eager to get rid of it. Makes me wonder what’s wrong with it. Plus, it makes me hope she ends up listing with me over somebody else who might take advantage of this situation.
I don’t want to know the seller’s bottom line. The bottom line to me is the sales price. Buyer’s agents ask me all the time how low will the seller go? Like, if I knew I would squeal, which I wouldn’t. Or, if I would be so stupid as to venture a number. Which not only violates the fiduciary relationship, making it against the law, but geez, such an extremely ignorant thing to do. I have no idea what a seller will or won’t do. Even if they tell me, I don’t know because I am not inside their head.
Another seller yesterday owns an over-improved property in a neighborhood of mostly 1970’s homes in Citrus Heights. His home burned down a couple of years ago and he rebuilt all but one wall. It’s basically a brand new home in an area with zero new homes. He sounded like he hoped he could get an extra $100K for this home. But I have my doubts about that. People want to buy a home in a neighborhood of similar homes. If a buyer wanted to pay $100K more for a home like his, they would do it in a neighborhood of comparable properties.
In this particular case, the seller’s bottom line is probably way too much. A lesson he won’t learn until it’s been on the market for half a year. Maybe it’s better for another agent to invest that time. I don’t mind being the second agent. Sometimes, I will accept overpriced listings if the seller is reasonable. But in this case, I don’t know if the individual in question is a good risk for me to undertake. I can envision him developing frustration because things aren’t working out the way he imagined. I’ll take blame for my own mistakes but not for somebody else’s. Besides, my own are much rarer.