So here I am, working my first real week back from vacation.
And for whatever reason, two potential sellers with homes in the $2 million
plus range were anxious to meet. One had a beautiful custom home in Arrowcreek
with a gorgeous view and tasteful personal touches, while the other was a very
large spec home in Somersett with some beautiful attributes, and a few, um,
issues.
in Arrowcreek, with superior golf and city views and a good floor plan, though too
big for most buyers. Of course the owner is totally proud of this home as he
built it himself for his family. It is lovely, and the craftsmanship top notch,
but the stone balusters and light woods won’t appeal to everybody.
lay out the market in a series of spreadsheets. The bottom line? This market is
hostile for sellers, and in this price range, your chance of selling is about 1
in 70, and the only way you’ll ever sell is to be the best value, as in price
it low. Well, I could see he wasn’t into that as he hardly looked at the
numbers I had so carefully assembled and analyzed for him.
suggested that maybe he shouldn’t. Now’s not a good time. There’s so much
inventory out there, if you don’t need to sell in the next couple of years, don’t
do it. I walked away totally relieved that they had decided to wait, because
there is no way I could sell his house for the amount he wanted in this market.
agent takes a listing, the agent pays for all the marketing costs. The brokers
pay for little or nothing. That means that when I take on a multi-million
historic home, I’ll be investing up to five figures in marketing costs, on the
belief that I can sell it and for the added exposure it brings. But if I
can’t sell it, I’m hosed. Any listing I take, spend money promoting, and
ultimately fail to sell is a business loss.
skin off their backs because we front the costs and do the legwork. Joe
Public’s home might actually sell, which is the big win, but it also brings the
agent marketing exposure and maybe some buyers on the side. As long as agents
have lots of listings, at least half will probably sell since the national failure
rate was around 50% last I looked. Though in our market, I suppose you
could say it’s now 90% since only 10% or less of standing inventory is selling
through.
with front-row tract home views across the canyon. In some ways it’s a very nice
home, but with notable flaws that any buyer in this price range would pick up
right away. There is no way this seller will ever get the high-two-millions
price desired, and I honestly don’t think breaking even is possible at this
point. I’m guessing this house will be for sale forever, if the seller can even
find a Realtor to represent it.
encountered this week… gifting listings. At three separate agent gatherings I
attended, it became clear that since little is selling, sellers are beating up
agents all over town, and we are feeling the pain. There is also pain in the
pocketbook as we spend personal marketing dollars on homes that don’t sell.
That can’t go on for long. So the beaten agent who can’t talk a seller down to
a price that sells tries to salvage the situation by referring the seller to some
fresh meat… um, I mean, another capable agent.
what should go, I see many of my colleagues doing the same. One top agent has
turned down more than ten listings this past month, while another halved the
print budget and allegedly bullies sellers into submission on price, which
seems to be working as this top professional still moves several homes a month.
will never sell and came with a bonus crazy owner, which I politely declined.
(Hmmm, she must really hate me.) And still another and I found ourselves one
night at the Whispering Vine, comparing notes on seller number two, practically
congratulating ourselves for passing on what would surely amount to an endless marketing
money pit.
becoming common within the agent community, all a part of the natural
cycle. In time, as sellers can’t find anybody to list their homes (except maybe the
list-for-$500 discounters… man, I wish I had that option) they may begin to understand the need to lower expectations to get the sale, or simply wait it out.
In the meantime, I’ll be on the lookout for buyers. Notices of default are up, sales are off, inventory is up, so I’m thinking prices have nowhere to go but down. As a buyer, it’s a good time to be out looking, at least in research mode. Winter should be interesting.
And to my wonderful
contributors who didn’t even flinch at being likened to a dysfunctional family earlier
this week… I am asking you nicely not go off on those listings of mine you
think are overpriced. Bad business decisions will bite me in the end, so take
comfort in that. Enough said.
Lindie
“Notices of default are up. Sales are off, inventory is up, so I’m thinking prices have nowhere to go but down.”
That’s a quote from Reno Ignoramus, right?
Gee, Diane, I’m sure one of the delusional cheerleaders is going to post that you are a Doom and Gloomer, a hostile pessimist, and a bitter renter who got left out of the bubble. I’m sure they will end with a post suggesting you must live in a singlewide.
GuyJohnson
Great post, Diane. I, too, have walked away from more than one listing opportunity recently for the same reasons you mention. It really doesn’t do anyone any good for an agent to take an overpriced listing. From an agent’s perspective, sure, there is the “agent exposure” component of any listing to consider, but one must weigh the marketing dollars spent against the exposure. And in the five-figure marketing budget example you cite, you could purchase a billboard along Interstate 395 for that kind of money.
JP
Psychology of a buyer & his wife- bought in May.
It was an interesting experience. Prices were very divergent, with most of the homes being overpriced. By that I mean people with a home of little character with no unique attributes often priced their homes at the most expensive level on par with those truly unique homes.
For this reason finding the “right” home was very difficult as everything in our price range (600K-750K in 89509) included unlivable 50’s homes needing complete remodel to some real gems that had views, large lots and more.
For this reason I don’t think it’s pricing that is causing the 10% sell-through as much as the amount of true crap on the market that IS overpriced. But I argue, within every search category after weeding through the junk there are some real incredible, unique, and beautiful homes to be found. And you know what? – they are priced right. For me being a buyer in this segment the 75K differential is almost insignificant if you can find THE right home.
We searched the MLS EVERY night from December through April in that search category. And at the end of the day there were only 3 homes that made our short list, and they made the list for style NOT price.
Josh
smarten
Good for you Diane!
I don’t know if you can do this with your broker but I would suggest appealing to unrealistic sellers like these by offering two marketing options.
#1 is exactly what you did.
However if I were in your shoes, I wouldn’t even meet with the seller until I secured some preliminary information.
After all you need this information in order to present a marketing plan [things like outstanding mortgages, debt service, etc., etc.] customized to the particular seller and his/her property.
So you develop a pre-listing questionaire – just like the perspective seller has in essence done before calling you.
If the seller refuses to complete the questionaire, that probably answers all the questions you need to ask and your time hasn’t been wasted.
Question one or two in my book needs to be do you really want to sell your home at fair market value in the real world [i.e., regardless of price], or will you only sell if you get your price because you “don’t need to sell?” If the response is the latter, that too answers all the other questions you need to ask.
If you choose to go forward and actually make a presentation, I would then suggest you have a Plan B in place in case the seller rolls his/her eyes as you present the facts.
Offer to perform the level of service the seller expects and demands on a time and materials basis. NO COMMISSION; just time and materials. And have a fee schedule with you so the seller can understand in advance exactly what those costs are.
After all, the market will ultimately dictate whether or not a particular property sells [and if so, at what price]. If the seller wants to roll the dice and see what shakes out rather than let the market dictate the result, make him/her understand you won’t be a part if he/she expects you to pick up the out of pocket cost.
I realize agents don’t do this and as a consequence, sellers are primed to expect your services are performed on a contingency basis. What sellers need to begin understanding is that lawyers [sorry, wrong blog] only take a case on a contingency fee basis if the odds are overwhelming there’s going to be a successful outcome from which to apply the contingency. If the odds aren’t overwhelming, you’ll never find a lawyer [see above] to take the case on any other basis than time and materials.
Good luck!
Reno Ignoramus
So, Diane, you entitle this post
“The End of Denial.” A couple of threads back I asked you what stage of the “seller grief process” you thought we were in. You didn’t respond. Is this your response?
I would say we may be coming to the End Of Denial for realtors. Maybe. Maybe not. But the End of Denial for sellers? Nope. Not yet. Any random walk through the MLS discloses still huge numbers of grossly overpriced houses.
Your post, is indeed, right on. Perhaps if enough realtors give up their delusions about this market, and its future, sellers will have to get real. Or, maybe we will just see a big increase in the number of FSBOs.
I have one question about your post. You say you told Mr. Delusional Seller to not sell for two years. All you are doing here is advising this man to ride the market down. Let me ask you, what possibly suggests that the market will be better in two years? Just the passage of time alone?
So are realtors now entering the Anger stage?
Guy Johnson
Smarten, you raise some good points. I actually presented a loosely based “time and materials” approach to a prospective Seller recently. I didn’t have a formalized fee schedule in place as you suggest, but I asked the Seller if he would be receptive to “fronting” some of the marketing costs and then recouping them (from my commission) at the time of sale. He flatly rejected the idea.
I will give your ideas some thought and see what kind of presentation plan I develop.
smarten
Guy wrote: “I asked the Seller if he would be receptive to “fronting” some of the marketing costs and then recouping them (from my commission) at the time of sale. He flatly rejected the idea.”
Surprise! The typical seller wants something for nothing. And then he’s/she’s the first one wanting to negotiate the commission; especially on a $2M sale which of course, takes no more work than a $300K one.
So your response [IMO] should be I’m not willing to list your property on a contingency fee basis unless you’re willing to list your property for 2-1/2% less than my CMA. And when he/she refuses, you walk. At least the quality of the listings you do secure will improve.
You know this pre-listing questionaire I suggest relates back to a previous post of yours dealing with your first short sale. Had you learned the true state of your seller’s negative equity position up front and secured an agreement ahead of time that bound the seller to pony up the difference or pay your commission [even if the sale didn’t go through because the seller refused to pony up], it would have saved you a whole lot of unnecessary work and grief.
Perry
It’s interesting that you write about advertising costs starting to get to agents… Is it me or is the glossy Homes & Land much smaller this month? I’m pretty sure inventory isn’t down. Cold it be agents are taking a beating on advertising costs for product that doesn’t move?
NVMojo
Whoa, no need to take our “anger” out on Diane by trying to slame her with her own words. One realtor did not lead to all of the mess the country is in dealing with today with bad mortgages. I still blame it on the wizards who figured out a way to reap even more financial gain after the 9-11 attacks. Whoever they are, they are sitting right up there in *sshole palace with the people who reaped enormous profit from their airline stock dumping just be fore the 9-11 attacks. You know, the people Bush calls the “haves and have mores”?
What better way to keep us distracted from what is really wrong with this country and it’s relationship with the rest of the world then to make some of us temporarily know what it feels like to be a “have”?
As far as those Reno regional home sellers who still want to be a “have” and screw other home wannabees with their ATM investment homes, sorry.
http://www.16010greenspringdr.com/
We looked at a few homes like the one above this past week and couldn’t stop laughing. Reality still hasn’t hit the average fool who doesn’t follow the national news other than on Fox.
We are moving in to a rental at The Vintage for another year or so to wait out the wailing and gnashing of teeth.
NVMojo
Meant to add that we looked “from a distance” this past week. No realtor involved at this point. I’d use Guy or Diane as an agent when we finally feel it is “safe” to get saddled with “home debt” again.
Which reminds me, the Bush believers and their privatization scheme have done some horrendous stuff at privitazing our nations prisons and making their buddies in the private prison management firms rich. Hopefully, they won’t get interested in getting into the “debtors prison” scheme too.
Diane Cohn
RI, yes my friend, it was you who planted the seed that evolved into this entire post. As for the advice to wait a couple of years, that comes from a couple of places.
One, I’ve seen numerous charts from various sources forecasting a turnaround in 2009 or 2010. Now I know you’re going to jump all over this to the effect of: Are these the same fools who made charts predicting that real estate would go up forever, which is, of course a good point. I don’t have a good answer for that.
Second, I’ve been a real estate market watcher since the late eighties from the Northern California vantage point (and, I know, you’ve probably been alive three times as long and have a longer view, which of course adds perspective). Every time Silicon Valley had a tech boom, real estate values went up, people cashed out and moved out of the area… to Sacramento, Portland, Seattle, and finally Reno. Then there’d be a tech retreat, values would come down some and stay down for three years or so, then the cycle would start all over again, only bigger and better than before. Now funding for startups is flowing again, office vacancies are down, so in a few years I’m guessing that more tech innovation will cause their home prices to rise again, people will cash out, and maybe some of them will end up here. Since I’ve been watching, it’s been a steady pattern that has repeated twice, and I believe, historically, several times before.
Also, local builders do seem to be cutting back on build projects, which will help us work through current inventory. With a further drop in prices that will probably be driven by increases in the number of distress sales, I am guessing that we could work through it all in the next 2-3 years.
That said, these are just my personal theories based on what I see happening around me. I have no crystal ball, and the fallout from the lending bubble will probably be more serious than anything we’ve ever seen, and for all I know it will send us plummeting into a 16-year Japanese style recession. I’m leaning more toward the recovery in 2010 theory due to what’s happening in the Bay Area, but honestly, I really don’t know, and I always disclose that to my clients during any pricing discussion.
And, come on, I’m not angry… what would be the point of that? The market is the market, it’s going to do whatever it’s going to do, and I’m just trying to help my clients make the best of it.
Diane Cohn
Smarten, thank you so much for your post. I like the idea of a more rigorous seller questionnaire up front and your suggestion of the time and materials alternative. I think your Plan A, Plan B approach is the way to go at this point. No point wasting time, energy and money on the self-delusional…
BanteringBear
Diane:
A few months ago, you were calling bottom. Now, you’re buying into a “turnaround” in 2009, or 2010. Can you please qualify turnaround?
It’s my personal opinion that Reno homes will never again see their 2005 home values. Sure inflation will, at some point, allow them to reach those levels again in nominal dollars, but never will they be so out of line with incomes.
The idea that a seller can just pull their home off the market and wait for some magical turnaround in order to get their price is hysterical. They’re completely delusional. What they CAN expect is to lose another 20 to 30 percent should they decide to wait it out a few years. Make no mistake about it, if one wants to get the most out of their home, they need to sell at market value RIGHT NOW. Prices are dropping better than 1% a month, regardless of the median price reported. I’d love to make this a lengthy post, but I’m blogging from the front seat of my truck, so more later.
Lastly, I had to laugh when I read about your prospective clients with $2m plus homes in Reno. These are $750k homes disguised in price as $2m homes. $2m to live in Tahoe? Sure. $2m home in Reno? Bwahahahahahahahaha! Let’s remember 3 Newlands Circle. It sold in the late 90’s for less than $600k which included a guest house. A quick look into our past reveals the future. Commence the housing price destruction.
MikeZ
Diane: “I’ve seen numerous charts from various sources forecasting a turnaround in 2009 or 2010. ”
I think you’ve misunderstood the articles.
Yes, a turnaround seems likely in ’09 or ’10 but that also suggests 2 to 3 more years of further degeneration.
In ’09 or ’10, homes may once again be appreciating, but they will not be worth what they are today.
Realistically, we’ve got 2-3 more years of depreciation, then it’ll take at least 2-3 more years to return to today’s prices.
Any seller than wants to wait will have to wait 4 – 6 years, maybe longer, just to get today’s prices.
Sue
Fascinating. I’m not a realtor, and I’ve never thought about the cost of carrying non-performing listings. Very interesting.
GreenNV
As a seller, I find a business model where I pay the upfront marketing costs and are either 1. rebated at closing or 2. receive a reduced commission schedule, perfectly acceptable. I don’t know how it would play with the increasing horde of “must sells”, but personally, I would relish the increased influence on how my property is marketed. And a $1000 fine for each typo on the MSL listing would be manditory. Custom paint/tile/anything, sunny, gourmet, turn-key, must see, will each cost you another $500.
With all the smart, moral, or poor agents rejecting listings, it seems like there is a lot of room for new meat in the real estate agent ranks!
So I’m an agent and bought a house on a street in Somersett, and convince 2 of my relatives to do the same. Same floorplan, same SF. The builder has one left at $912,975 with snow in the foreground of the listing picture. Relative #1 is HELOC’ed out and listing at $929,000. Relative #2 dropped their listing price $300,000 to $649,999 over a month ago and it is floating like a turd in the Toto bidet, while their other properties go NOD while they hold out for a profit on this one. So what does big dog daddy do to take one for the team? List the same house (less upgrades, based on original purchase price) at $1,189,999, but no showings until Otober 15. What? I’m listing at 20% over the ‘hood but you can’t see it for 45 days? This is such a shill listing that the RSAR sould take a look at it. Let’s boost the ‘hood and save the family.
This is why I appreciate honest folks like Diane and Guy.
longerwalk
Okay, so what about the rest of us? You know, the ones who bought (because we really needed to) in 2006, and will likely sell in 3-4 years (or so). Ignore the market and do what we like (e.g., replace the aluminum windows that alternately frost and cook the rooms they are attached to, replace the bath carpet w/tile)? Hunker down and do nothing? Watch to see what new businesses Reno manages to attract? (ya gotta admit the tax situation ain’t bad) I have to admit that I feel like deleting this blog from my favorites since it’s not helping me understand the market . . . except Somerset (which my house isn’t in). I feel for the people who will be hurt by their ARMs adjusting, but many people tend to be greedy, and this is just another way they will both find out the downside to that approach (both mortgage co. & buyer), and the market will adjust. Glad the president decided to do something, but not much, really, to bail folks out who shouldn’t be bailed out. Sometimes pain is necessary to prevent future bad risk taking.
smarten
Longerwalk wrote: “Okay, so what about the rest of us? You know, the ones who bought (because we really needed to) in 2006, and will likely sell in 3-4 years (or so)?…I feel like deleting this blog from my favorites since it’s not helping me understand the market.”
First of all, if your intent in reading this blog is to help you understand the Reno residential real estate market, it seems to me you want to continue reading. Having bought in at the likely high point of the market, you may not like what you read. But that doesn’t mean you won’t receive insight insofar as snapshot looks are concerned.
Second of all, no one on this blog really knows what the market will do. If we did, we’d all be Derricks. So as Dennis Miller likes to say, “these are just my opinions and I could be wrong.”
Thirdly, for the existing landowner here for the long haul, what’s going on today or tomorrow really has little relevance other than entertainment. Although you might feel better if you saw the market [and your investment] were continuing to appreciate at double digit rates, would you be selling? Because you “need” to be here, likely not. So what difference do short term swings make to you?
I’ve said this before on this blog and I’ll repeat it for you: “time heals all wounds” and if your ride out this market, your wounds will be healed. Even if you bought at the very top of the market; values drop 30% or more; and only 5% or less of properties listed for sale are actually selling each month; in the long run, these facts shouldn’t matter to you.
I don’t think many who contribute to this blog think that in the long run, prices aren’t going to rebound. Although there may be disagreement as to when this will take place [2, 4-6, 9 or more years, etc.], globally, I don’t think any of us think they won’t rebound.
Furthermore, prices don’t have to rebound much for you to have made a savvy investment. The reason [which I think is unique to real estate] is compounding. Let’s say you purchased your home for $400K. And let’s say you were one of the few who actually put 20% down. If your home appreciates but 1%/year FOR THE NEXT 5 YEARS, because of compounding, your return on your out-of-pocket investment will be a respectable 25%. Let’s say you put 5% down? Your return will be 100%! Few investments I know allow you to secure such easy and cheap purchase money financing [especially without the prospect of margin calls] which then allows you to reap these kinds of returns.
And remember; these returns on your investment do not take into consideration the facts: you bought because you “needed” a place to live; you’re able to realize federal tax benefits as a homeowner in the interim [how about the $500K tax exemption from gain]; and, you should “feel good” because your real estate taxes support local governmental services which benefit everyone [including non-homeowners].
So I say ignore the doom and gloom you [hopefully continue to] read on this blog because in the long run, it really doesn’t matter to you!
Allen Murray
Smarten, good post, I think you are right on………finally.
Phil Hoover
Geez, Diane ~ you are SOOOO negative!
Haven’t you heard from NAR that now is “a really great time to buy AND sell a home!”.
Seriously, when I go on a listing appointment now, one of the first questions I ask is “So, what happens if your home doesn’t sell?”.
Then, I shut up until they reply.
If the response is “we don’t have to sell”, or “we’re not going to GIVE it away”, I thank them for their time and leave.
I am enjoying a steady stream of buyers who are buying a home to LIVE in; not to use as their personal ATM or get-rich quick scheme.
Those people are the sweet spot in the market at this time.
MikeZ
RE: “And a $1,000 fine for each typo on the MSL listing would be manditory.”
[cough] It’s spelled “mandAtory.”
(Did I miss a joke?)
MikeZ
RE: “If your home appreciates but 1%/year FOR THE NEXT 5 YEARS, because of compounding, your return on your out-of-pocket investment will be a respectable 25%.”
Run that math again with realistic numbers: let’s say the house depreciates 20% over the next 5 years.
Think that’s impossible? That’s precisely what happened in the 1990s and that bubble was much smaller.
Lindie
This thread started off with something of a lament about hard it is to sell houses today. About the ever increasing clarity that realtors are acquiring that taking overpriced listings does not make sense. How insightful.
However.
In 2004, these same realtors were selling, in terms of real value, just as overpriced listings. Back then, however, buyer mentality was different. Back then, it was I better buy TODAY or get priced out forever. Now, it is why buy into a falling market?
So now we hear how tough it is. Why didn’t we ever hear how easy it was? You know, in 2004, when all you had to do was spend 14 minutes “marketing” a listing before you got 4 offers. What money did realtors spend in 2004 “marketing” their properties? How much did it cost to stick a sign in the front yard? Or to send out a “pre-listing” in-house email before it ever even hit the MLS? Maybe if the average realtor went back to the beginning of 2003, and calculated on a “cost per listing sold” basis how much he/she spent on marketing over the past 5 years, we might have a more accurate picture.
Perhaps some sense of perspective would be helpful here.
Rory
Bantering Bear hates Reno. We get it. So leave, you’re pissy attitude and naysayer mentality is precisely why things in Reno take for ever to get done. Constant bitching, complaining and naysaying by the C.A.V.E dwellers!
“I had to laugh when I read about your prospective clients with $2m plus homes in Reno. These are $750k homes disguised in price as $2m homes. $2m to live in Tahoe? Sure. $2m home in Reno?”
Diane Cohn
Mike Z, you’re right about the lag time, good point. I was talking in terms of when things might start to go up again, not when we’d be back where we are today. My current guess on when the downturn will bottom out is between 2008/2009, so maybe by 2011 we’ll be back to now or slightly on the uptrend. That’s just my current theory… who knows what will happen that may change it going forward. We have to adapt.
BB, yes, I did suggest that maybe we were nearing bottom after four solid months of improving numbers earlier this summer, but the Alt-A fallout changed all that for me. As the landscape changes, so must my assessments. BTW, 3 Newlands Circle closed on 7/20/07 for $1,900,000… quite the nice return for those lucky owners!
Phil, thanks for the magic question. I’ll be using that one first from now on.
Phil Hoover
Hi Diane ~
Here’s a coupla more good questions for prospective sellers:
Have you had any offers on your home?
If so, why didn’t your home sell?
BanteringBear
Yes Diane, 3 Newlands did just close, which is why I bring it up. While the seller made many fine improvements, the buyer still overpaid in grotesque fashion. But, it’s a wonderful example of the value that could be had in the city pre-bubble. One day in the future, such values will be found again. The question is: how long? We shall see.
Rory,
I do not live in Reno, but did grow up there. I don’t hate it, by any means. Those bitter, angry, undersexed, manhating riverdwellers, however, are a different story. Lighten up sweetheart, or you’ll never get a date.
DERRICK
Thanks for the respect Smarten, Atleast someone realizes I made fundamentally sound predictions as to the home building sector. The proof is in the pudding, all 1 needs to do is go back and correlate my posts with the companies I mentioned.. Bwaawaawaa
Laurie Manny
I have turned down a large quantity of listings this year, each one causes me pain. Not one of those listings has sold. Had I taken them on I would be in bankruptcy. Just a good business decision to pass on them…
Lindsay
taking on too many listings can hurt your business, sell the ones you have first!
Lane Mabray
Well, I just have to add my 2 cents worth. I too have been in the business for eons and went through 3 down turns. What I have noticed that when the rest of the country is down, Houston is up. I believe it is called “oil”. But of course, we NEVER have the 20% a year increases either. We are just steady. However, having said that now, I do believe we are feeling the pinch and I tell my sellers “we have to be ahead of the slide”. My listings are “staged to sell” and they do on avg of 14 days and for the highest price in the area. I really found this blog of great help. Thanks!!
inclinejj
Heck this is my 4th downturn in the market..The part of this all is no one learns from the past mistakes the home builders where still building like crazy, the home buyers where still buying like crazy, the News Media was saying buy now or get priced out for ever..
The Pedal was too the metal….
Then it all turned around..now its all doom and gloom in the media..so much for the turn around in 2009 or 2010 that some people where hoping for in the above posts..I am saying 2011 or 2012
A. Buyer
Diane,
Thanks for your thoughtful article. I completely agree with your assessment of the market, and agree with those who said many properties have prices higher than justified by this market.
We have been on the hunt for a home for a while and found that many sellers are basing their prices on what they paid as opposed to what the market will bear.
Keep up the good work, and I appreciate your honesty.
Arlo
Diane put up this thread almost exactly 2 years ago. Interesting to read the comments from back then.
I guess this was when Diane still cared.