Cynthia Long

At a recent open house, I had an encounter that seems to be typical of the current market.  I greeted a visitor with my standard question, “Are you thinking about buying a house today?” And the potential buyer replied with what I also recognize as a current market standard.  She said, “I am.  But only if I can find a deal.” No surprises there, right?

            Buyers are taking their turn sweating out the sellers, lurking around waiting for that next price reduction.  Buyers say to me with a knowing wink, “How long has this been on the market?” as if the question somehow will ferret out the desperation of the seller and the willingness to drop the price to “deal” or possibly “steal.”  Here’s the part that buyers don’t seem to understand as clearly.  It’s not always willingness.  Sometimes it’s ability.

                This buyer and I talked as she walked through the property pointing out its flaws – a bit of a funky floorplan, a few older appliances, a pool without a child protective gate, etc.  She commented on the seller’s furniture and seemed intent on visualizing the house with one of the walls moved or removed.   Still, the property’s location in one of Diablo Valley's semi-rural neighborhood and the lovely, large lot and the recently renovated master suite are big pluses, bringing in many people each time the house has been held open. 

               The next week this buyer returned, this time with her husband. 

              To see it through a Realtor’s eyes, it looks like this.  I am holding the house open for another agent in my company.  I have a fiduciary duty to her client, connected by our broker.  Yet, I am holding the house open with my own business goals – meeting people who want to buy or sell real estate.  So when a buyer wants to purchase the property, it is in everyone’s interest that I encourage the buyer to go for it.  As soon as a buyer says he or she wants to work with me, I have their specific best interest in mind, which I define as helping them get the property they want at a price they’re willing to pay for it. 

           The next step in the dance is when the buyer says, “I want a deal, but I don’t want to insult the seller.”  This sentence right here is at the crux of why there are real estate agents.  It is my job to present my client’s offer and then to make sure both sides are still speaking.  Whenever possible, I want to present the offer in person to the seller.  A relationship will always smooth over tough numbers, and it’s my job to create a working relationship between the two parties who will be transferring ownership for cash. After all, the purchase price is just the beginning.  We will still have disclosures and inspections and repairs to negotiate before this deal will close.

              And, the truth is, if a buyer can’t get one property at a certain low price, there are others out there to pursue.   It’s just a matter of figuring out who can afford to sell for the least

             My new client wanted to move forward.  I began the fact gathering necessary to write the low offer.  This house was listed in the high $800K range.  The buyers initially wanted to pay closer to $600K. Through discussion, it came to the surface that they had seen another house sell for $725K and they thought this property was a better value.  Taking this information and thinking the buyer would at some point be happy in the mid-$700s, I then turned to my resources to do research on the seller.  What could the seller afford to sell this property for?  We determined the seller had a lien against the property of $725K which had a negative amortization clause, meaning the seller could owe as much as $795 against the property.  Add in the selling costs, and this seller would need to net $850K  just to walk away from this property. Forget profit; forget equity; just walk away clean.  It also came to light that the seller had not paid recent property taxes, a sign that the seller was shifting all cash away from this property, either to be made up in the sale, or if a sale didn’t transpire at near the asking price, preparation for the inevitable short sale or foreclosure.

            Basically, this seller was on the cusp of upside down.  My buyer could go forward with the low offer and would find out one of four things:

                           1.    The seller would reject the offer, holding out for a dream offer closer to asking price.

                        2.     The seller would counter the offer and the buyer would have become so attached to living here that the buyer would pay more than initially planned.

                   3.    The seller would have access to cash from another source that would be used to close this transaction.

             4.    The seller would accept the offer and end up in a short sale, with the lender having to approve the loss on the property.

         Now, I know what any rational person is thinking right now.  What is this property’s market value?  Well, the point of this article is to reiterate a point I wrote about in last May’s Bird’s Eye View after attending a speech by Leslie Appleton-Young, the chief economist for the California Association of Realtors.  There is no such thing as fair market value. We could look at the comps and see a house in this neighborhood for this age and condition last sold for around $425 per square foot.  We could add in value for the separate building on the property not counted in the square footage and calculate value on the improved master suite.  But truth be told, none of that matters right now.  What matters is how much a buyer with cash is willing to pay for one specific property. 

              The only way to find out, whether you are the buyer or you are the seller, is to get out there with the offer, get your agent to do his or her job of uncovering the facts and then working in the middle to help the two parties find workable terrain, and then complete the transaction between both sides.

for more information... www.cynre.com or call me at 925-413-0044
                                                                       

WALNUT CREEK – Ground Zero I live in Walnut Creek. I work in Walnut Creek. Many of my clients and friends are in Walnut Creek or they want to be in Walnut Creek. So I’m always trying to put my finger on the pulse of what’s happening here – now. How much is our little haven being rocked by the greater trends in economics?

I tend to look for macro answers in stats and then micro answers in the hearts of buyers and sellers. So here’s the scoop as of December, reflecting on the activities of November, from the Contra Costa Association of Realtors, WALNUT CREEK reports.

The market is still moving, if you look year-to-year. There were actually 10 more properties that went pending in November of 2008 than in November 2007. About 25% of the available inventory went off the market in one month, so that’s 4 months of inventory, which is low by the Realtor standard of “6 months of inventory indicates a normal market.” “Normal,” yeah, heh. However, even though more properties are selling, prices have declined, from an average sale price of $875,000 to $782,025, or a loss of 13% in equity in the year. Here are some specifics.

The lowest priced Walnut Creek detached property that went off the market in November was 80 Adak Ct, a 3/1 fixer, 1240 sqft, built in 1950. It went for $435,000 in 3 days; the asking price was $425,000, and the seller was willing to carry back 20%.

The highest was 2037 Strand Road, asking $1.5M. It’s a 4/3, 4200 sqft, and was first listed back in March for $1.899M. It’s due to close on 12/19, though it’s still showing in MLS as seeking backup offers.

Of all the properties that went pending, 5 were REOs, 6 were short sales, and 23 normal transactions. Because short sales, by nature, are difficult, drawn-out sales, it is of note that 6 buyers thought the property they were trying to own was valuable enough to go through the hassle of the short sale. For instance, 72 Ball Road, a 1917- sqft 3/2 house on a half an acre nestled at the end of a cul-de-sac in Walnut Heights, which was once listed at $1,140,000, was dropped to $699,000, and now is pending, subject to lender approval on the offer price (which can be disclosed after the property closes).

The harder part to read is the hearts and minds of the consumer. I have several clients who are hanging out in the shadows, believing the day will come when they can purchase a well-maintained, 2000 sqft 4BR home on a 1/4 acre for $500K in Walnut Creek. Are they dreamers? Right now, considering the average sale price of a home in our city is $782,025, that would be a drop of over $282K, or 36% from today’s values. That’s the type of value loss by percent we’ve seen in Antioch, an area devastated by non-owner occupying investors. Yet, do imagine that next year looks like this one and Walnut Creek slides another 13% as governments and banks stumble around trying to mop up the foreclosure calamities.

That would put the average price in the $680K range. I don’t know the answer, but if current trends ring true, that answer is 12 months and over 400 transactions in the future. What will you do in the meantime?

For more information, contact me: www.cynre.com 925-413-0044