Over priced real estate listing: A case study in Brawley CA Imperial County 92227
Authors note: As a real estate agent you may disagree with me, my analysis, and/or my opinions. I encourage constructive feedback, detailed commetary and a strong desire to foster rebuttal in a positive fashion. I look forward to your comments. If you're a local real estate agent, what trends do you see taking place in the market?
Case study background:
As of 09/15/08 at 5:00pm there are 659 active residential property listings in the Imperial Valley MLS in the cities of Brawley, Calexico, Calipatria, El Centro, Heber, Holtville, Imperial, Niland, Ocotillo, Seeley and Westmorland and if Salton City and Salton Sea are included, the number of active residential property listings jumps to 691 or an additional 32 listings. (Does not include multi-family, commerical, or land/ag property listings).
An active listing constitutes a listing placed into the MLS system in which the status has not changed to Pending, Sold, Expired or Withdrawn.
Currently there are a total of 118 active listings with DOM (days on market) over 180 days or status dates before March 16, 2008 and there are 30 active listings with DOM over 365 days, that's one year or older. Can we say "price reduction"?
In the scheme of things it seems as if approximately 20% of all listings are over 180 days on the market, which means the remaining 80% of the listings will get the opportunity to sell, if priced right.
As I watch the market and evaluate potential REO and short sale listings, I see many listings in the market to be at least 15% to 20% higher than what they need to be to sell.
Working coop deals with other agents outside of our local area:
The availability of "joint marketing" efforts with other agents from out of the area that have listings in the Imperial County but are not listed in the Imperial Valley MLS can be lucrative. One such listing that I am aware consists of an older 3/1.5 home on a desirable R3 lot in an established area of El Centro has been on the market since June 2008. According to the listing agent the home has been shown a few times but without any activity due to its high price of nearly $134,000 which was recently reduced.
In late August I was contacted to perform an opinion of value for this property in El Centro and based upon similar homes, neighborhoods and characteristics, the property should be priced in the $90k range, these prices are indicative of what's selling now and what will be sitting month after month joining the Six Month Club (you don't want your listing to be part of this club as its only claim to exclusivity is a waste of marketing dollars, time, and effort).
Why would an asset manager of this REO price the property so high when the listing agent advised the asset manager that it is priced more than $30k over market? Simply stated, it was an uninformed, uneducated, and unknowledgeable real estate agent who performed a BPO (Brokers Price Opinion) for nearly $140,000 on the property when it was first to be listed. WHAT? No wonder properties are sitting and sitting. Are you a real estate agent who "high-balls" BPO's? If yes, STOP!
Even if I tried to get the BPO near $140,000 for the property, it would be impossible since the highest and best use of comparable sales and listings data would bring it in to the mid-$90k's at best!
Yes, as BPO real estate agents who are doing work for the REO (Real Estate Owned) listing of the bank, the asset managers are the sellers authority on these matters and just like any other property for sale, listing agents have a duty to bring in the highest sales price for the seller, however these sellers (banks and lenders) are also highly motivated in terms of having an increasing amount of inventory piling up on their books all across the nation. Each month of no sales activity on those homes equals thousands of dollars in additional carrying costs and expenses, both realized and yet to materialize as their assets (liability) loses more and more market value with each passing calendar month.
BPOs, REOs, and Short Sales, Oh My:
My two cents (in other words, these are my opinions only). Real estate agents and brokers who perform the BPOs for banks and asset managers need to keep a pulse on the current market and watch how the trends are playing out with the ability think in a forward sales pattern fashion of 60-90 days in advance.
As it is, most sales in today's real estate market are foreclosure related accounting for as many as 65% to 75% of the listings being an REO or bank owned property, which the bank/lender is trying to dispose of the property or a Short Sale also known as "preforeclosure", where the seller is trying to get out from under the mortgage(s) they owe and more than likely they owe more than the home is currently worth therefore they will need to sell the home "short" to the bank.
Why would a bank agree to accept LESS than what is currently owed against the mortgage loan(s)? Simple, to cut their losses now and avoid getting another piece of inventory as an REO or bank owned home on their books.
Short sales are tricky but greatly benefit the homeowner whose been burdened by a hardship such as a loss of income or medical problems. Although separation or divorce is difficult on finances, most often it is not treated as a hardship directly since the parties have control over the act of separation or divorce.
Short sales are the sellers remedy to appease the bank in allowing them to accept less than what is owed on the mortgage(s). Often times if there is a second mortgage, they have the option of initiating the foreclosure, however due to costs of recovery, most second mortgages, such as HELOCs, HELs, and other second mortgages choose to get bought out for pennies on the dollar and they may go after the homeowners in a different fashion, perhaps through a civil or small claims lawsuit, depending on the loan amount and size of the second.
In many cases these types of claims are only initiated if the second mortgage is not a "purchase money loan", meaning the second was taken out after the home was purchased.
A short sale is also a means of protecting and keeping your credit history less damaged than by going into foreclosure and losing your home. A short sale credit blemish will show something that sales "partial paid claim", or "account settlement", or other similar reference, however in conjunction with the hardship that must be documented for the short sale comes the ability to correct and update your credit history on this matter.
Typically you'll have to wait about 2 years and have re-established your credit history and have gone beyond the hardship to obtain another home loan after selling short, but you will be able to do so fairly quickly.
If you have a foreclosure on your credit history you will more than likely have to wait 5 to 7 years to obtain a home loan to purchase a home. These guidelines and rules may change, however you will still have to answer the question on your loan application "...have you had property foreclosed upon or given title or deed in lieu thereof in the past 7 years", you will have to answer YES.
Bringing it all together:
How many active listings came onto the Imperial Valley MLS since August 16, 2008? Remember, this date is just about 30 days out and a recent search concludes that 179 new listings have a status date of less than 30 days old.
Out of the 691 active listings, we take out the 118 that are over 6 months old and we're left with 573 active listings. This means that 179 new listings came on within the last 30 days representing over 31% of all active listings. A total of 301 active listings have come on within the 60 days since July 16, 2008 which represents over 52% of the net active listings that are less than 6 months old and 396 active listings are within 90 days which represents over 69% of all listing. There are a total of 458 active listings, or nearly 80% of all listings have come onto the Imperial Valley MLS within the last 120 days and 525 listings are at the 150 day mark, which means the remaining 43 listings are over 150 days but within 6 months.
Based on an average of 150 new listings coming onto the market each month and an average of 65 sales each month, there are approximately 75 to 85 listings added to inventory each month and in a 6-month time frame, this amounts to as many as 350 additional listings to come onto the market pushing the number of outstanding listings to nearly 1,000 by years end.
Yes, many listings will expire and some will be withdrawn due to various reasons, however each monthly that passes by the homes are not priced correctly we will see a stacking of housing inventory which continues to push Imperial County real estate prices lower as a result of increase foreclosures and pre-foreclosure or short sale activity.
I am going to review some listings over the 6 month range in an attempt to forensically determine what their sales price should have been given sales at the time the listings were taken, as well as what the trend shows the listings should be priced now in order to go to contract within a short time frame.
Some typical characteristics I expect to see when reviewing these listings are an initial over market original listing price. Perhaps I will see several price reductions, however never keeping pace with the current market and consistently being priced over the market and not following sales rule 101 - "to be one of, if not the most competitively priced home on the market".
Note: In order to preserve objectivity, the property address will not be used, however property characteristics such as bed, bath, square feet, lot size, and other information will be used in identifying the overpriced listing.
Over priced listing #1:
Single family home in Brawley with 1,100 sf consisting of 3 bedrooms and 1 bath on a 7,500 sq ft lot active since March 18, 2008 with a sales price of $215,000. Overpriced 30-35%.
Reconstructing market analysis
Based on a search of sold properties from the Imperial Valley MLS from September 30, 2007 to March 18, 2008 (the listing date), there were a total of 8 sales in a one mile radius of the property address. The majority of sales were far superior in size compared to the listing therefore an expansion into competing neighborhoods and perhaps utilizing all of zip code 92227 is defined as the neighborhood to find comparable and competitive sales for establishing price.
Search criteria
Of the 8 listings, only one remotely comes close to the subject property in terms of size, utility and location, which is a 3/2 of nearly 1,000 sf which sold at $174,000 in December 2007 on Boswell Ct. Sales price trending and foreclosure saturation were already increasing at a rapid pace therefore "forward pricing" is necessary to establish a realistic beginning sales price in order to create buyer interest in order to go to contract within 90-120 days, which appears to be the average DOM, depending on the sales circumstances.
Expanding market reach
Expanding the search to a 2 mile radius more than doubles the sales during this period of activity from September 2007 to March 2008. 
Three sold listings come to the forefront of attempting determine a comparable sales price based on properties sold, which include a newer home of similar size on Eucalyptus Ave that sold for $160,000 in November 2007 with $5,000 in closing costs paid, meaning the true sales price is $155,000. Another property sold in a different neighborhood of similar size and utility on Roberto Noriega St for $165,000, both of these homes have garages, which the subject listing lacks.
The third sale on the 700 block of East B Street shows a home that sold for $115,000 with 1,000sf on a 7,500sq ft lot but only as a 2 bedroom 1 bathroom, however based on condition and size, this sale which took place in early March 2008 is a close match to the subject.
While this home is about the same size, buyers would also have to consider location and neighborhood as a factor to their decision, which may influence price one way or the other, however those decisions are left to personal choice and buyers must be aware of schools, shopping and amenities.
Pricing analysis
Based on the above sales data and in my opinion, I would have listed the property to sell at $139,000 to $145,000. Perhaps the sellers wouldn't have chosen to list the home for sale if that were the case, however that would be one less home on an already saturated housing market which continues to depress sales prices lower. There are obviously details I do not know, such as 1) sales motivation, moving for employment or other reasons which force a sale, or 2) property obsolescence, such as change in family size and inadequate room size or count, or 3) mortgage terms were becoming/are unfavorable, which would lead me to a conclusion of the sales price being aggressively high perhaps to cover outstanding liens, etc. Perhaps the sellers were taking a "wait and see" approach to the market, thinking it would rebound higher in 2008, however as time passes the sales price to competitively sell their home has dropped potentially another 10% to 15%.
There are countless reasons that are unknown since I am not privy to the sellers, however based on these observations an unsold listing can potentially cost the seller several thousands of dollars in unnecessary mortgage payments due to having to maintain the loan during the sales process, maintenance, repairs, and other costs that are associated with selling a property. Those with mortgage payments of $1,500/mo would easily spend over $5,000 if a property is not sold and on the market for more than 120 days.
The closing table
In closing it seems as if the agent competed for the listing and came in as being the one who offered a high sales price, perhaps a bit lower commission, or both, I really don't know but after six months of being on the market without any price reduction or sales activity, did "winning" the listing do any good for the agent? The seller? The buyer? The answer is an unfortunate no. We have at least 20% of our listinv inventory as over price.
Another note: I am not an attorney and the information provided here is not meant to substitute legal advice. As a licensed real estate professional I am knowledgable and experienced with California real estate. While other areas of the Country may have similar laws or rules regarding real estate, please understand that I am merely providing opinions based on my local market and area of expertise.
If you or someone you know is facing foreclosure or is concerned about being able to make your mortgage payments, please contact me to discuss the options available to you. I will listen to your questions and we can mutually come to a conclusion to resolve your concerns. I am here to help you.
