How To Get Less Money When You Sell Your House

How To Get Less Money When You Sell Your House

July 12, 2017 by · Leave a Comment 

Every day we field calls from sellers checking on what they can do to their home to increase the home’s value prior to sale.  These questions center around improvements such as solar (we don’t recommend) painting (yes!) flooring and so on.  Yet one of the biggest forfeitures of value is “to whom” and “how” we sell.

To whom we sell.  End users always pay the most for any product – whether a home or a car.  It has the highest value to them as they are the ones with the need.  Selling to an investor typically brings a lower value because they are not the end user and there is no emotional connection to the home.  Owner occupants pay more – but even amongst those buyers the value can vary widely depending on how motivated they are and how limited their other options are (i.e. if the home serves a particular need such as dual master bedrooms, handicap accessible, a certain school district, etc.)  In negotiation, the concept “he who needs the deal the most, gives the most” proves true.

How we sell.  When we sell with no competition value typically drops.  The very premise behind capitalism is that an open market sets pricing.  The smaller the pool of buyers exposed to your home, typically the smaller the value.  In other words, you can artificially hold down demand by limiting exposure to your home.  By owner sales and direct to owner investor offers fall in this category.

Even homes that must only sell to an investor (severe property condition issues or tenants on long term leases) will obtain higher values if they pay attention to “how they sell”.  In short, the way to get top dollar is to expose the property to the most available buyers.  If an investor is the only option as a buyer, creating competition amongst those investors will typically better protect value.  What most sellers don’t know is that those investors flooding your mailbox with “we will buy your home” offers – will also make offers to listed homes that meet their criteria.  That is good news for sellers wanting an investor offer as a good listing agent can attract multiple investors and make them compete on price and terms for the home.  Also a listing agent can help the seller understand the real costs behind the “you pay nothing” investor offers.  Anytime venture capitalists are spending millions funding “We buy homes” companies, you can be assured you are NOT receiving a “no cost” offer for your benefit.  Venture capitalists only spend money when they believe there is plenty of money to be made for them.  Who is paying them?  The often unsuspecting home owner is paying them in lost equity.

Don’t believe us?  Let us give you a real life example of an offer we received on one of our seller’s homes:

Opendoor used a team of local real estate professionals and a proprietary valuation model to determine their offer on your listing at 16947 Durango St:

  • Valuation: $230,000
  • Service charge, to cover holding costs and liability while finding a buyer: $17,250
  • Net offer price: $212,750
  • Opendoor cannot purchase this listing if it has the following features: unpermitted additions, leased solar panels, in a gated or age-restricted community

…. The net offer does not include the buyer’s agent commission.

Opendoor will have inspections performed by a licensed, independent home inspector and will submit a Repair Addendum like a traditional buyer 

The service charge is 7.5% for the listing side, which does not include the buyer commission that must be paid (in this case 3%).  Those percentages are well above anything we charge in commissions.  This makes the claim “save on commissions” dubious at best. But you decide if this example looks like a “savings” as we listed and sold this very house for our seller.  Here is what happened when we placed it on the market:

Russell Shaw Sale

Sales price:  $234,900

Commission: 6% (3% + 3%)

Time on market: 20 days; 33 day close

Sales price vs. list price : full price

Repairs required to close:  4 minor repairs

vs.

Open Door

Sales price: $230,000

Commissions and/or holding costs – 7.5% + 3 % = 10.5%

Time to close: 14-60 days

Repair required to close:  unknown; “Open door will itemize the request repairs with their cost to have the repair completed and will provide the Seller a credit in-lieu of repairs option”

That resulted in 15K more in the seller’s pocket before Open Door’s “repair negotiation” which often results in additional reductions.  This is not to pick on Open Door (or any of their ilk such as Offer Pad, Iknock, etc.) but rather to point out that sellers will always net more on the open market – if their home is marketed to the most buyers possible.  If the goal is the most money, shouldn’t this be a last resort and not a first?

Russell & Wendy

(Mostly Wendy)

Mid-Year Market Update

Mid-Year Market Update

June 10, 2017 by · Leave a Comment 

As 2017 reaches the halfway mark – the trends have solidified. Not surprisingly, supply continues to be constrained under 300K. Most severely constrained is supply under 200K – in Maricopa & Pinal counties it is down a whopping 34% from this time last year. Appreciation is remaining strong. Demand has only recently showed a slight weakening – but so mild as to really have no effect at all. For those who prefer a market snapshot, that is about all you need to know. For those of you who prefer more nuanced detail, read on.
 
In analyzing the market, Michael Orr of the Cromford Report uses the Contract Ratio to determine how “hot” a market is. It specifically measures the number of completed sales contracts relative to the supply of active listings. According to the Cromford report, the under 300K price range has the strongest contract ratios since 2011. The 300K-400K range is not as hot as it was in 2013. 400K-600K is not at hot as 2012 & 2013; 600K-1 million is not as hot as 2012 & 2013; 1 million – 2 million the coolest year since 2011; over 2 million is the coolest year since 2012. To further quote him:
 
“The contract ratio stands at 66.5 for the overall market, the highest number for the start of any month since August 2013. This number is convincing evidence of a hot market because in 2013, as in 2011 through 2012, the high contract ratios were amplified by the large number of short sales that hung around under contract for a long time without closing. These have disappeared to just a trickle today.
 
So in summary almost the whole market is humming along with all cylinders firing. However there is little sign that it is going to move up a gear from here… We are at a point where the seller remains in firm control but the seller’s advantage is no longer growing stronger.
 
Whether that brings any significant relief to buyers I very much doubt, because we are entering the period, from early May to early October, when active listing counts tends to fall back, leaving even less supply for them to choose from. In fact if they fall any faster than average that may completely counteract the slight fall in demand we are currently seeing.”
 
Given the strength most sellers have experienced and the appreciation rates of the last few years, we are starting to hear rumors that the “Phoenix market is almost back to 2006 pricing” or “we are experiencing another bubble”. Both statements are false. Read that again, both statements are false. Analyzing exactly “how far” the valley has to go to get back to the peak of housing pricing is far more complex than most realize. Different parts of the valley peaked at different times, price points reacted differently and fell by differing percentages, and different types of housing (i.e. single family, townhouse, mobile homes) also had differing falls and rises. But in analyzing these factors, no one has better numbers than Michael Orr. As he explains:
 
“…prices in Greater Phoenix still have a long way to go before they return to the peaks before the housing crash…
 
It is very noteworthy that before the crash, condos & townhouses used to be cheaper than single-family homes on a $/SF basis, but that at present they are more expensive and are appreciating faster. As a result they have far less to go to get back to their peak level. Mobile homes have always been much more affordable than the other types, but they have recovered closer to their peak. They only have 16.7% to go and are currently appreciating faster than single family homes but not as quickly as condo/townhouse properties.
 
We also note that homes over 3,000 have a huge way to go (almost 50%) before re-attaining their peak. They are also increasing in price the slowest, especially slow for homes between 4,000 and 5,000 sq. ft.
 
In 2017, it appears, from an appreciation point of view, to be an advantage for a home to be closer to the center of the valley, smaller than 2,000 sq. ft., affordable and either attached or mobile. Large, expensive single-family homes on the outskirts are appreciating the slowest of all property types and have the furthest to go to re-attain the heights before the housing crash…
 
Prices are not back to the peak 2006 levels and I am somewhat surprised to see claims elsewhere that this is not too far away for Greater Phoenix. We still have a long way to go for most parts of the valley, especially if we are measuring the monthly average price per square foot. The current average $/SF for all areas & types is $151.29. This would have to increase by 26% to get back to the May 2006 peak of $190.61.
 
Those measuring monthly median sales prices do not have so far to go, but we are currently at $234,900 while the peak was $267,000 (attained on June 16, 2006). We need 14% appreciation to get back to the prior peak median sales price.”
 
So although we are not at peak pricing, we are at appropriate pricing respective to demand/supply. Real estate does very well at a 2-7% appreciation rate per year. The valley is no exception.

How to give up Equity (or what not to do as a Seller)

How to give up Equity (or what not to do as a Seller)

November 24, 2016 by · Leave a Comment 

The market is remarkably stable at this time despite some headlines in the past few months implying otherwise.  The “Most Improved” award goes to the luxury market – with Scottsdale, Paradise Valley and Carefree all posting great improvements thanks to higher demand and lower supply (quite a reversal from the 2nd quarter).  No matter how interesting the luxury market is – 93% of the sales occur at 500K or below.  Therefore a much broadertravis-graphic-for-october-2016-s
look is required.   Michael Orr of the Cromford Report gives a very succinct summary of the market:

“Inventory in the higher sales ranges has fallen sharply over the last 3 months, as it tends to do every year. This means remaining sellers have much less competition. So far this has not resulted in much improvement in sales prices because it takes a very long time for lower inventory to feed through into pricing. In addition it is usual for inventory to rise just as strongly between October and March so we do not think the luxury market has escaped its problems just yet. If we end up with more luxury inventory in April 2017 than we had on April 2016, then luxury home pricing is likely to continue its current weak trend.

We are seeing a little more inventory at the affordable end of the market in certain areas. If it continues this should have a moderating impact on the high appreciation rates we have been seeing below $200,000. Buyers should also see a mild reduction in the number of competing offers for the homes they want. However the effect is currently only weak and could possibly peter out quickly.

The mid-range continues to enjoy healthy supply and healthy demand plus volume increases far in excess of the low or high ends. I see little to concern us in the market between $200,000 and $500,000 at the moment and for the next few months.

… in the short term the vast majority of our local housing market is looking unusually positive and stable.”

In a stable market, it would seem easy to properly sell a home.  Yet, surprisingly, we find the same mistakes being made by sellers no matter the market.  Because we are in the position to hear these horror stories, let us give you a quick “Reader’s Digest” version of a few pitfalls to avoid.

 

Accept a solicitation offer. 

The latest trend in exploiting sellers comes from “direct to seller” investors.  We’ve all received postcards and solicitations from the “We will buy your house” gang.  Whether well-funded by Wall Street (Open Door) or simply a local investor, the basic formula is the same.  The promise is to save you money and time – “no commissions” “sell as-is” and the promises go on and on.  The devil is in the details.  Commissions just get renamed “fees” and “as-is” just means swapping unhandled condition issues for large price deductions.  Often times the initial offer drops precipitously as inspections are done and the close date approaches.  After all, in any negotiation the party who needs the deal loses.  In this case, the losing party is the seller weeks from closing who suddenly finds themselves forced to agree to last minute changing terms.

These investors are using the fact that many sellers are unaware that they can sell a home “as-is” through a traditional brokerage sale. Competition from multiple buyers (even if only multiple investors) will best protect seller’s price.  The fact is investors who solicit benefit by the lack of competition for a home and misleading terms at the expense of the seller.

 

Not list your home on MLS (i.e. believe that both you and buyer can “save the commission”).

The primary reason sellers attempt to sell their home “For Sale by Owner” or use a “Limited Service” real estate company is to “save the commission”.  Although we fully understand the impulse (who doesn’t want to “save” money?) the statistics tell a different story.  The most recent study of this was posted in ARMLS Stat:  “When we test our model against MLS sales only, properties that were sold using a real estate agent via the MLS sell between 8.5% and 9.0% higher than properties not listed on the MLS.”  Is it because agents just “know more”? Hopefully your agent in fact does know more (promise us you will select an experienced agent) but that is not the reason.  Go back to our first point – it is competition for a home that protects value. That is the purpose of MLS – to employ the 35,000 +/- agents and their buyers to compete for the home. Secondarily, imagine for a moment why a buyer would select a “By Owner” home?  Since buyers don’t pay the commission – why would they care if the home is sold by a broker or by owner?  They would only care if they could “save the commission”.  But isn’t that the very reason the seller is selling by owner to “save the commission”?  How do two people save the same commission?  Additionally, if you have only one buyer looking, have you really received “top dollar’ from the market – or just that buyer’s top dollar?

 

Bad Pricing.  Thanks to the internet, sellers and buyers have more instantaneous and, sadly, erroneous information at their fingertips.  This bad information has led to both underpricing and overpricing of homes.   Establishing pricing through an AVM (automated valuation model – for example Zestimates) while fun and interesting, is by no means is an accurate way to determine market value.  Algorithms cannot take in all the factors that make up pricing – site selection, competition, property condition, variances in square footage, supply/demand shifts, etc.  Ask yourself why after all these years lenders still require an appraisal – where an actual person (gasp!) views the home and compares it to other sales.  There is simply no substitute for judgment.  Overpricing a home in the critical first three weeks can be a problem not easily overcome with reductions in the subsequent weeks and months.  Buyers can view “days on market” and make assumptions about whether this is a “good home” since no one else has purchased it, or exploit the seller’s increasing desperation as the marketing time extends.

 

Hire an agent you can’t fire.  This may be the least obvious of the errors, but it is an error.  Why would this matter?  Many sellers may be unaware that once they list with an agent, they cannot cancel the listing agreement –even if they are unhappy.  Being tied up in a 6 month listing agreement with the wrong agent (bad agent, bad marketing, improper preparation of the home, etc.) can not only rack up days on market but can eliminate the opportunity to sell during prime market periods waiting for the listing to expire.  Some agents will “agree to cancel” for a fee.  The best protection for you is obtaining the right to cancel at no charge as part of the listing agreement.

While there certainly are other errors we could elaborate upon, we tried to hit some of the most common.  Want to know more?  As always, we are here to discuss your particular concerns.

 

 

 

 

September Market Update

September Market Update

September 9, 2016 by · Leave a Comment 

As we enter the last quarter of the year, we begin reflecting on how 2016 has compared to 2015.  It has been a remarkably similar year to 2015 – with only some minor variations.travis-graphic-for-sept-2016

The biggest challenge of the 2016 market has been the intensely low inventory in the $175,000 and under market.  The situation began in earnest in 2015 and has only accelerated.  Any buyer shopping in the $100,000-$125,000 price point for single family properties can share their own tale of misery – as the inventory in that range has nearly evaporated.  As we have mentioned in articles past, supply is the harder side of the equation to move – demand being far more mercurial.  Unless we get some institutional owners (hedge firms, investors, etc.) to part with their rental inventory – we see no immediate solution to our entry level, single family home supply issue.  As in years past, buyers in that price range are currently faced with only a few options:  remain a tenant, increase their buying power (i.e. cosigners or increased down payment/income) purchase a condo, purchase a mobile home, or go out of demand areas to lower priced housing.

Demand has also improved over 2015 – but not dramatically (frankly, we are not unhappy about avoiding “dramatic” trends after the rocket ride of the last 10 years). As our guru, Michael Orr of the Cromford Report opines:

“We are now at the point where inventory hits its minimum level in most years. New listings are arriving only 3% faster than last year and we have seen quite a lot of cancellations, especially at the higher price points. We will be looking to see what sort of inventory growth we get between now and the next peak at the end of November.

Demand is currently holding up, some 5% higher than we would consider normal. However the market conditions are probably going to be determined by changes in the supply.“

We have begun to see the occasional headline warning of an impending drop in demand.  Let us offer some thoughts on the matter.  First, supply and demand are a balancing scale – meaning that when demand exceeds supply – prices go up.  Prices going up, cool off demand.  Cooling demand increases supply.  In other words, this is exactly what is supposed to happen – supply and demand move up and down in a balancing act.  Additionally, our market has uniquely segmented behavior specific to price ranges, rather than the more traditional geographic segments.  Demand has already fallen in the high end – attributed perhaps to an aging population who are downsizing, the stock market, and hot temperatures (buyers with funds flee the valley in the summer).    The mid- range market has been mostly flat, and the low end has been appreciating due to the low levels of supply.  Most importantly, real estate markets are local – not national.  So any broad statement about “the real estate market” should be met with some skepticism.  Here is Michael Orr’s brilliant analysis of our market place:

“In the recent couple of years the market trends have been determined far more by price range rather than the traditional location (location, location). This is contrary to normal market behavior. We are not used to our fastest appreciating markets being those with the worst performing schools and the highest rates of crime. However a few numbers will easily prove my point: The figures below are for all property types within Greater Phoenix.

I highlighted in red the price ranges which went backwards in dollars adjusted for inflation (which was 1.01% this year and 0.12% 12 months ago).

I am not sure why the $800,000 to $1M range should be doing better than those either side of it. It is faring as well as the $400,000 to $500,000 range. The rest of the ranges from $500,000 upwards have not performed so well over the past 24 months. The range between $1M and $1.5M shows the weakest trend here. 

In terms of unit sales through ARMLS, the price ranges at or below $500,000 comprise 93% of the total market while those above $500,000 comprise only 7%. So it is fair to say that the market as a whole is keeping housing assets appreciating well ahead of inflation. This becomes even more true as you head down market.

The picture changes when we look at supply rather than demand. Among the active listings on ARMLS within Greater Phoenix today, listings over $500,000 comprise 24%, and those of $500,000 or less only 76%.”

If there ever was a case for avoiding Zillow’s erroneous zestimates, the above would prove the point.  Markets are nuanced, and there is no substitute for looking.  As always, we will do our best to keep you informed on the real trends in our marketplace.

Market at a Glance

Market at a Glance

July 2, 2016 by · Leave a Comment 

The trends that were forming in the first quarter of 2016, now are affirmed. As usual, the two Travis graphic for May 2016 smost important laws of economics – the laws of supply and demand – are the driving force behind the trends.   Demand – the more fluid and fickle of the two- is up. In fact demand has returned to levels not seen since 2013. Supply, the slower moving component, has fractured into distinct market segments. No one captures this market snapshot better than Michael Orr of the Cromford Report when he states:

 

Below $275K we therefore see continued strong appreciation, short times on market and low cancellation and expiry rates.

From $275K to $350K we see very healthy market conditions with new supply and closed sales both up significantly from last year.

From $350K-$400K the growth in supply was strong, but sales growth was much weaker than average, suggesting there may be a few problems developing for sellers. However from $400K to $500K the percentage growth in new listings was matched by the growth in closed sales. I would describe this sector of the market as normal, healthy and growing, with no major shortages of buyers or sellers.

From $500K to $800K new supply outstripped the growth in sales, so even though there was a healthy increase in volume we see more competition building between sellers.

From $800K to $1M the increases were balanced but we do see 3 times as many new listings as we see closed sales. This is likely to mean higher cancellation and expiry rates and long times to sell ahead. It also means minimal upward pressure on pricing.

The issue for sellers with homes priced over a million is that the number of new listings outpaced sales by at least 3.4 to 1. This is not unusual for this segment, where new listings comfortably exceed closed sales at all times. The bad news is that sales were slightly down (-1.4%) from last year, primarily due to surprisingly poor performance by the segment from $1M to $1.5M. Yet new listings were up almost 15% for homes over $1M. This is a good situation for luxury home buyers, but it is not very good news for sellers who would like to see some appreciation. The current market environment over $1 million is consistent with a flat to slight downward trend in prices, long times on market and high rates of cancelled and expired listings. There are some very fashionable locations (close to urban centers) where this does not apply, but the bulk of the luxury market has reasonably good demand but excessive supply. Because of the good demand, agents will be happy with the transaction volume, but sellers are likely to be disappointed with the sales prices that can be achieved, and how long it takes to achieve them. These sellers hear about prices rising both locally and nationally, but unfortunately it does not apply to them.

 

The question of why inventory has jumped so markedly in the 500K+ range has garnered some attention lately. National analysts have begun speculating on this trend, much as they did last year when bemoaning the apparent lack of interest in home ownership by millennials (a theory we do not subscribe to).

A theory put forward by several national analysts, particularly Stephen Kim of Barclays, is that a long term secular change is under way. They believe a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in growing numbers. If a large number of baby boomers want to sell their suburban luxury homes at the same time, we are going to see an imbalance of supply and demand. ..We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.

Although we are no analysts, the jump in supply does not seem particularly shocking to us. To our minds, this is the same “coiled spring” theory that demand operates on – so why not supply? When demand is artificially held down for an extended period of time, the recoil once released is greater than expected. So too, we believe, does supply follow the same “coiled spring”. The homeowners who lost their homes in the greatest volume were those in the lower end of the market. The higher end homeowners faced with negative equity – simply had to wait out the market. Having waited for years for appreciation to make home selling an option again, that coiled spring released numerous sellers back in to the market. At least according to our theory.

 

Whatever the reason, supply and demand continue to be an interesting equation in our housing market. No matter the reasons, we will do our best to keep you informed on housing trends. As always, we appreciate the continuing confidence of the clients we are so lucky to serve.

Supply Shifts

Supply Shifts

April 5, 2016 by · Leave a Comment 

February showed some signs of life for homes going under contract after surprisingly Travis graphic for March 2016 slackluster activity levels in January. But as we warned, trends take time to form, and so a good or bad month does not make a year. 2016 had been heralded by most to be a likely breakout year. Demand was expected to leap due to the continuing rise in rental rates, the boomerang buyers returning to the market (those who lost their homes and return to buy after credit recovery), Millennials beginning to buy, and the valley’s overall positive net migration. Despite the compelling reasons for a demand surge, the indicators so far have been underwhelming. Demand has remained in a pretty neutral range, neither retreating nor advancing significantly. The number of homes under contract is higher in 2016 than in the same time in 2015 by approximately 8%. That would be encouraging if that % was growing rather than eroding.

Interestingly the purchasers are much more dominated by local buyers – up by about 18%. Buyers with out of state addresses are running 8% less as they did in 2015. Anyone tracking the weakened Canadian dollar will understand why very few Canadians are buying these days – down 64% compared to January 2015 (but they are wisely selling – up 26% from a year ago).

The new listings to market are up over 2015 by 6.2%. This is higher than 2014 and 2013 as well – notoriously low years for homes coming to market. The low rate of homes coming to market in the last 3 years was the market’s saving grace (at least for sellers) given that demand was also lower than normal. With demand in neutral, a continuing arrival of new inventory is starting to shift the balance of the market in some areas and price points. Michael Orr of the Cromford Report offers this interesting breakdown by cities:

The active listing count has increased in all the major cities, as is normal for the time of year, but the largest percentage monthly increases are in:

  • Goodyear 17%
  • Scottsdale 17%
  • Tempe 15%
  • Surprise 15%
  • Avondale 12%
  • Chandler 12%

 

These increases give buyers a lot more choice. Scottsdale now has more active listings (including UCB) that at any time since 2011.

Queen Creek stands out by having the smallest increase of less than 2%, unusually low for the time of year.

Among the secondary cities the fastest growing active listing counts are in:

  • Apache Junction 28%
  • Sun City 20%
  • Buckeye 18%
  • Sun Lakes 16%
  • Anthem 16%
  • Cave Creek 15%
  • Sun City West 14%
  • Maricopa 12%
  • Paradise Valley 10%
  • Tolleson 10%

 

The inventory in the 55+ active adult areas is growing significantly faster than usual. Sun Lakes has the highest number of active listings (including UCB) since early 2011. Cave Creek beats this by having the largest number of active listings since 2010.

Conspicuously slow growth in active listings can be seen in:

  • Litchfield Park -1%
  • Laveen 0%
  • Casa Grande 2%

 

Despite these geographically supply shifts, we cannot overemphasize that price point is still a major factor in the supply/demand analysis. Below 200K, we still see very constrained inventory with multiple offers being the norm. Even with demand in neutral, it is outpacing and exceeding supply. We see no relief in sight at the moment.

We will continue to watch 2016 and report the trends that affect our clients. As always, we are here to evaluate your particular neighborhood and provide a supply/demand analysis so you can make informed decisions.

Happy 2016!

Happy 2016!

January 16, 2016 by · Leave a Comment 

We hope your holiday season was wonderful. With the season now behind us, we can see what Santa brought the real estate market.travis graphic for Jan 2016 s
A cooling trend that began in August of 2015 quieted by November and by the end of December stabilized. Neither supply nor demand showed up in any great strength in December, so at the moment, stability seems to be the watchword. Typically, supply begins building in the 4th quarter with a sudden drop in supply at the end of the year as many listings expire. The first week of the year can therefore be misleading – with lower than normal levels of supply. The good news is that sellers return to the market in January (usually by the Super bowl, if not by MLK Day) and typically so do the buyers.
Our market still remains the “tale of two markets” at the moment. Supply for single family homes is constrained below 400K and shows no signs of easing. New inventory can come from traditional sellers, bank owned properties, and new builds. At the moment, traditional sellers below 400K are not making any strong appearance in the marketplace, banks are at below normal levels of delinquency (4%), and builders are primarily providing single family homes above 400K. Consequently, we don’t see any large increase of supply of single family homes under 400K appearing in 2016. This suggests that pricing will at a minimum hold strongly in this price range. Specifically, areas such as El Mirage, Glendale and Avondale are seeing demand strongly outpacing supply.
Probably the biggest impact the market saw was from the new financing government guidelines that were implemented in October – “Truth in Lending Real Estate Procedure Act Integrated Disclosure Rule” – thankfully known by the acronym TRID. This consumer protection act is designed to give greater transparency between lender and borrower. Like most governmental programs – new overlays of disclosure result, at least initially, in delays and confusion. This caused delays in closings which resulted in lower than normal November closed transactions and slightly higher than normal December closings due simply to delays. So any headlines regarding the booming December market should be viewed with some skepticism.
Michael Orr with the Cromford Report summarizes the market with these comments:
“It remains very much a seller’s market in the price ranges under $250,000 while the market from there up to $500,000 is close to balance with a slight edge for sellers in a few areas. Over $500,000 the advantage is slightly in favor of buyers in a number of areas, especially those that are remote from major shopping and employment centers. Some of the outlying areas, such as Casa Grande, are also weak for sellers despite their lower pricing. The strongest markets are those closest to the center of the valley with the most affordable pricing. This includes much of the inner West Valley, less expensive parts of Phoenix such as the South Valley and areas like West Mesa and the older parts of Chandler and Gilbert…
The average price per sq. ft. has moved up a healthy 2% in the last month and 6% since last year, both of which look encouraging for the market as a whole….
In summary we would say that there are no strong positive or negative trends right now. Supply remains far too low at the lower end of the market and demand is unusually weak at the very top end. However this is compensated by stronger demand between $500,000 and $1,500,000….
We would expect the next 31 days to see a drop in supply, an increase in closings and further strength in pricing. However the next real test of demand will be in early February.”
As 2016 enters the spring buying season, trends will form and we will do our best to decipher them and share them with you. In the meanwhile, we are happy to respond to your questions and concerns as always. Here’s to a fabulous 2016!

Market Notes

Market Notes

September 29, 2015 by · Leave a Comment 

As we approach the last quarter, we have a few benchmarks that reveal market trends this year. Rather than trying to sweep Sales per Month sthis in to one cohesive thought – we simply offer you some observations in no particular order of importance.

Much like our weather, the real estate market has “seasonal patterns’. Keep this in mind when the headlines scream “the real estate market is declining” as they often report in the back half of the year. Two things happen once the spring buying season is over, less luxury homes sell (thereby dropping the average price per square foot of sales – as smaller and less expensive homes dominate the mix) and the volume of home sales begin to gradiently taper monthly as we head towards the end of the year. These two factors can look like a “declining market” rather than a yearly seasonal pattern that is both expected and normal. As our local real estate guru Michael Orr of the Cromford Report comments:

“So the apparent drop in pricing in the overall market is an illusion. The real cause is a big shift in the luxury market with strong sales of homes under $1 million compensating for weaker sales over $2 million. This is a normal pattern every year, but this summer the effect is particularly strong because the super-luxury homes had such a successful spring season.”

The Luxury market performed very well the first half of the year.

Although typically posting the smallest number of sales in the market, the luxury market still has the power to fascinate. Fascinate it did this year, posting some remarkable numbers. Here is what Michael Orr shared about July (a month that often is a rather tepid one for luxury sales as those buyers typically flee for cooler climates):

“Luxury single-family home sales in the Northeast Valley remained surprisingly strong during July 2015. There were 354 closed transactions over $500,000 in the Northeast Valley though ARMLS, up 25% from last year. Almost all the strength was concentrated in ranges below $1 million. Over $1 million, sales were up only 2% while between $800,000 and $1 million sales rose an astonishing 69%. The top end went suddenly quiet with only 5 closed sales over $3 million, down from 16 in June. Unit sales over $500,000 were the second highest we have seen for any July since 2000 with July 2005 still holding the record at 479.”

 

The Supply/Demand situation

The supply/demand front remains much as it has this entire year. New listings coming to market are still very weak when compared to historic trends. In fact 2013, 2014, and 2015 all posted anemic amounts of homes for sale. While agents bemoan this trend (after all, who wants a store with nothing on the shelves?) it has actually been beneficial to sellers. This year’s normal demand levels juxtaposed against the below average supply – led to very constricted supply in some price ranges and areas. This helped prices not only stabilize, but in most cases to gently increase.

“Overall demand is nothing special, but it is still much stronger than last year. Supply remains weak overall and although new listings are arriving at about a 5% higher pace than last year, this is well below long term average levels…

Active Listings…: 19,459 versus 23,900 last year – down 18.6% …Under Contract Listings (including Pending & UCB): 9,705 versus 9,066 last year – up 7.0%….Monthly Sales: 7,942 versus 6,858 last year – up 15.8% …

… We may see a little more supply over the next few months for the popular ranges between $150,000 and $400,000. This may in turn bring a little welcome relief for the average buyer and stop the market getting even more favorable for sellers.”       -Michael Orr

 

The “solar lease” trend.

This is a rather controversial subject – as solar leasing companies have done a very good job in selling the 21st century solar which is dramatically different from the 20th century solar some of us (cough) are old enough to recall. While “going green” is a wonderful ecological trend and one we happily support, we are often asked “will a solar lease add value to my home”? Sadly we must report the answer is “no”. In fact, our experience thus far indicates just the opposite. Buyers may happily accept a “no strings attached” solar unit (i.e. one that is owned by the seller) leases however pose a challenge. First, the buyer must qualify for the lease – not only in terms of credit worthiness, but also it must be factored in to their debt/income ratios. Secondly, buyers seem to dislike the idea of a long term commitment (many leases are 30 years) that they cannot be freed from. These factors not only fail to increase value, but in some cases prohibit a sale or even slightly reduce the value of the home. While this is not a popular answer, it is the current reality. Perhaps this will shift with time. Only time will tell.

So there are few tidbits about our current market trends. As always, we will strive to keep you posted on the shifts that continue to “normalize” our market.

How’s The Market?

How’s The Market?

August 12, 2015 by · Leave a Comment 

Real estate affects everyone here in the valley – even those who don’t buy or sell. So being a Realtor, I get to see firsthand the level of interest the subjectTravis graphic for July attracts. The second most common question I get asked is “How’s the market?” (The most common one being “Are you that guy on TV?”)

For whom?

For the 800k seller in north Scottsdale? Or the 250k seller in Avondale? The answers are very different. Buyers in the 800k range have many homes to choose from. Juxtapose that to Avondale which currently has the hottest seller market in the valley. Glendale is just behind Avondale -but still a red hot market for sellers. Hot seller markets are simply markets that have lots of buyers – and too few sellers. It is always supply and demand.

The sticking point is that supply and demand numbers are not universal to an area or price point. So when the news reports “it’s a red hot seller’s market” take a moment and look at the valley as a series of sub-communities – each with their own numbers.

To quote directly from Michael Orr’s Cromford Report:

“Multiple offer situations are increasing. If buyers are wanting to spend more than $500,000 then they are in luck – supply is much more plentiful above that mark, though a few very popular areas like Arcadia have relatively slim pickings. During May even those upper price ranges saw a downward trend in active listing counts, but not enough to cause any real problems for most buyers. If today’s normal demand can cause supply to drop as much as it did in the last month, then buyers are going to have an even harder time if demand were to grow. This is especially true for the entry level market which is desperately short of homes for sale or rent.

The price trend is now very different for the low end, where strong appreciation is likely, and for the high end where a gently drift sideways is more likely, except in those areas where inventory is unusually low…

We note that the monthly median sales price has increased much faster than the monthly average price per sq. ft. The low end of the market is not pulling its usual weight due to the painfully low levels of supply in so many areas. This generates insufficient sales to keep the median down at its natural level. Prices are not really improving as much as the median suggests, except in a few very affordable areas, which may not remain so affordable for much longer…

The growing sense of justifiable optimism in the housing market tends to bring out ever more ridiculous articles in the media, usually forecasting doom and gloom ahead. Some even pretend to use mathematics to justify their case.

As John Kenneth Galbraith said (or was it Ezra Solomon; we don’t even know the past for certain), “The only function of economic forecasting is to make astrology look respectable”.

We will continue to stick to reporting the present and very short term forecasts. Right now the Greater Phoenix housing market is experiencing more than usual upward price pressure due to a chronic shortage of affordable housing to buy or rent. The majority of new development is focused on the mid-range or luxury markets, not the affordable market, for understandable business reasons, so there is no imminent solution to this shortage of affordable homes.”

Wondering if it a good time to sell for your price and neighborhood? Most likely the answer is yes. As always, the best answer is a researched answer. We simply need an address to give you a real answer to that question – anytime.

Interview I did on KTAR

Interview I did on KTAR

July 17, 2015 by · Leave a Comment 

ktar interview pic

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