Inventory of new homes down to lowest level in 50 years

The U.S. housing market “has entered a sustainable period of improving conditions,” Pro Teck Valuations CEO Tom O’Grady says in the company’s most recent Home Value Forecast.

Pointing to “very low mortgage rates, stable to rising home prices, declining unemployment, declining housing inventories and a strong rental market,” O’Grady says housing is in a good position to continue growth. Those positive trends should lead to growth in the overall economy, he adds.

“As real estate has historically been one of the most important leading indicators of economic activity, this has positive implications for the economy,” he says in the report. “This is particularly true for the new home market. Even though new homes represent only a small percentage of the overall housing market, they have a disproportionate effect on the economy since data shows that on average, three new jobs are created for a year for every new home built.”

Each of the company’s forecasts picks a housing trend and studies its influence on the market. This particular update shines a spotlight on months of remaining inventory (MRI) of new homes listed for sale and examines how that statistic affects median single family home price changes. The report also examines why there has been a divergence between new and existing home prices in the recent down-cycle.

According to recent data, the inventory of new homes for sale has fallen dramatically since 2008 to 4.5 months, closing in on its lowest level in 50 years.

“The primary reason for the low months of remaining inventory for new single family homes is the historically low number of new homes for sale,” O’Grady writes. “In recent years, new housing supply has been running at the lowest levels since the 1960’s due to the slow down in new home construction, the size of homes being built, and the complicated process for selling/buying distressed properties.”

The drop in MRI is expected to be a blessing for new home prices, however. Data going back to 1972 shows an inverse correlation between changes in median price on new single family homes and changes in MRI.In short, whenever MRI starts to drop, the median price starts to spike a year or two later.

With new housing supply at its lowest level in almost 50 years,MRI will continue its steady decline, leading to another likely pickup in prices.

Of course, the drop in new homes for sale brings its own problems. Recent drops in distressed sales indicate homebuyers are more interested in new homes—a market that isn’t ready for a spike in demand.

“Many potential buyers of [distressed] homes become frustrated with the elongated acquisition times in the short sale and foreclosure sale markets and turn to the new home market, if possible, where they know they can transact a home at a well-define closing time and price,” the report says. “The problem is that the number of homes available in this channel is typically far below normal levels, which puts added pressure on what new inventory is for sale.”

Given that data, “it should not be a surprise that nationwide, new home prices have held up much better than existing home prices.”

While new and existing home prices have tracked each other closely since the late 1960s, there has been a more noticeable gap between the two in recent years. The most recent monthly median new single family price of $256,900 is down less than 1 percent from its peak in 2006. Meanwhile, the nationwide median existing single family price of $183,900 is down 20 percent from its peak in the same year.

While the report acknowledges that median prices are being distorted by the geographical distribution of new sales, it asserts “it is a fact that the new and existing home markets have performed quite differently in recent years due to the underlying supply-demand situations.”

Geographically speaking, Texas and Oklahoma were home to five of October’s top 10 metros in terms of market conditions, confirming “the strength of the real estate market in this part of the country,” said Michael Sklarz, principal of Collateral Analytics and contributing author to the Home Value Forecast. Sklarz also noted that all of the top markets experienced significant declines in active listing counts over the past year, leading to smaller MRI and tighter markets.

The bottom-ranked metros were hurt most by “local, not regional, economic issues,” according to Sklarz. Those markets were more spread out across the country, ranging from Oregon (the Portland area) to South Carolina (Greenville and the Richmond County area). Many of those areas are plagued with high MRI—some in the double digits. However, the news for the bottom 10 wasn’t all bad.“We are seeing positive trends in the bottom ranked list—such as the declining number of days for sale on the market in some areas,” Sklarz said.

Foreclosure Activity Falls to Five-Year Low

Foreclosure filings — including default notices, scheduled auctions, and bank repossessions — were reported on 180,427 U.S. properties in September, according to RealtyTrac. The total number of filings last month was down 7 percent from August, down 16 percent from September 2011, and was the lowest monthly total recorded by RealtyTrac since July 2007.

The foreclosure tracking company says the decrease in September helped pull Q3 2012 numbers down to make it the lowest quarterly reading since the fourth quarter of 2007.

Foreclosure filings were reported on 531,576 properties during the third quarter of this year, a decrease of 5 percent from the second quarter and a decrease of 13 percent from the third quarter of 2011. It marks the ninth consecutive quarter of annual declines in foreclosure activity.

According to RealtyTrac’s report, one in every 248 U.S. homes received a foreclosure filing during the July-to-September period. The company says U.S. foreclosure starts in the third quarter decreased both from the previous quarter and a year ago, reversing the rise seen in new foreclosures during the second quarter.

“We’ve been waiting for the other foreclosure shoe to drop since late 2010 … but that other shoe is instead being carefully lowered to the floor and therefore making little noise in the housing market —- at least at a national level,” said RealtyTrac VP Daren Blomquist.

“Make no mistake, however,” Blomquist added, “the other shoe is dropping quite loudly in certain states, primarily those where foreclosure activity was held back the most last year.”

A number of judicial foreclosure states — including Florida, Illinois, Ohio, New Jersey, and New York –- registered substantial year-over-year increases in foreclosure activity, whereas non-judicial foreclosure states such as California, Georgia, Texas, Arizona, and Michigan posted sizable declines.

Blomquist says states where foreclosures were not so dammed up last year could still see a roller-coaster pattern in activity going forward because of regulations and court rulings that have substantively changed the rules for proper foreclosure processing. He contends a backlog of delayed foreclosures will likely build up in those states as lenders adjust to the new rules.

Residential Real Estate Bright Spot in Fed Report

The nation’s economy “generally expanded modestly” from mid-August until the end of September, the Federal Reserve said in its periodic Beige Book report issued Wednesday.

The report, the last Beige Book to be issued prior to Election Day, painted a mixed regional picture, with a “leveling off” of economic activity in New York and a “slowing in the pace of growth” in Kansas City. Meanwhile, the remaining 10 federal reserve districts reported that “growth continued at a modest pace.”

The Beige Book is prepared by the Federal Reserve eight times a year, issued about two weeks before each meeting of the Federal Open Market Committee. The FOMC is scheduled to meet next on October 23. The Beige Book, which is compiled on the basis of anecdotal rather than statistical evidence, is closely watched on its release, though not usually cited in the minutes of the Federal Open Market Committee meeting for which it is prepared.

Consumer spending, which represents about 70 percent of the economy, “was generally reported to be flat to up slightly since the last report,” according to the book.

Residential real estate proved to be a bright spot amid an otherwise pedestrian report. The book noted “all twelve Districts reported that existing home sales strengthened, in some cases substantially,” since the last report.

“Most districts reported strengthening in existing home sales, while prices were described as steady to increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and San Francisco districts,” the report went on to say.

The report said “selling prices were steady or rising” Boston, Atlanta, Minneapolis, Dallas and San Francisco “noted declining or tight inventories” putting upward pressure on prices, tracking both the Federal Housing Finance Agency and Case Shiller Home Price Index reports.

“Modest price increases were reported in the New York, Richmond, Chicago, and Kansas City Districts. New York and Richmond reported relatively strong demand at the high and low ends of the market,” according to the Beige Book, “whereas Philadelphia and Kansas City noted relative strength for mid-range homes.”

“New home construction and sales,” the report said, “were more mixed but still mostly improved” with the report noting “increased construction and/or new home sales” in the Atlanta, Chicago, St. Louis, Kansas City, Dallas and San Francisco Districts. Multi-family construction, in particular, was described as robust in the Boston, New York, Atlanta, Chicago, and Dallas Districts.

Residential rental markets “continued to be characterized as strong, even in the New York and Atlanta Districts where rents increased somewhat less strongly than in recent months,” the report said.

Commercial real estate markets were described as mixed. “Office markets, the Beige Book said, “showed signs of softening in the northeastern Districts-Boston, New York and Philadelphia.” New York, the report noted, has “substantial new supply coming on the market in early 2013.” Atlanta, Minneapolis and San Francisco noted “some improvement,” the Beige Book reported, while “most other Districts reported stable or mixed market conditions.”

Overall loan demand increased slightly since the last report, the Beige Book said. “New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported stronger loan demand on balance, while Kansas City and Dallas reported flat demand and Chicago reported somewhat weaker demand.”

Most Districts, the book said, “reported an increase in mortgage lending, especially for refinancing purposes.”

Demand for consumer credit, particularly for auto loans, was reported as “strong in the Cleveland, Atlanta, St. Louis, Dallas, and San Francisco Districts, while consumer loan demand was more limited in New York, Richmond, Chicago, and Kansas City.”

Credit standards, the report said, “were little changed since the last report. However, New York noted some tightening for consumer loans and residential mortgages, while Richmond and Chicago reported some easing for commercial and industrial loans.”

Loans were described as “difficult to obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts,” though “Philadelphia, Cleveland, Dallas, and San Francisco Districts reported stiff competition among lenders.” Loan quality, the Beige Book said, “improved in Philadelphia, Kansas City, and Dallas,” and “delinquency rates generally held steady or declined in the New York, Cleveland, and Dallas Districts.”

The Beige Book was prepared before the Employment Situation report-which showed an improvement in the national unemployment rate in September-and found employment conditions were “little changed since the last report.”

The New York and Chicago Districts, the report said, “noted weaker labor market conditions, and conditions were described as mixed in Richmond” while companies “in the St. Louis District reported an increase in hiring plans.”

“Several Districts, the report said, “continued to report that employers were having difficulty filling highly skilled positions,” and “in response, a few Districts noted that firms were starting to increase training programs to meet their staffing needs.”

Pro Teck Ranks Top Markets, Says Foreclosure Flood Won't Happen

Investors who are eagerly waiting for bargain prices from the potential foreclosure flood are likely waiting for something that won’t happen, according to the September home value forecast report from Pro Teck Valuation Services.

In the report, the company explained why it believes there will be no such flood.

“With regard to the U.S. foreclosure inventory, there has been a misperception that it is a problem for the entire market. In fact, it is quite concentrated in specific cities and neighborhoods,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “For this reason, potential buyers who have been waiting for bargain prices in desirable neighborhoods may be disappointed.”

Instead, the report focused on the current lack of inventory in San Diego, Orange County, and Los Angeles.

Overall, Pro Teck found that all three areas have less than 5 months of remaining inventory left.

“This is significant because in the Los Angeles market over the past 25 years, whenever this indicator was below five months, the median price increased by close to 19 percent the following year. Of course, it remains to be seen if the same appreciation happens again,” said O’Grady.

The report also analyzed price per square foot and months of remaining inventory in the three areas and found that the lowest priced areas have the lowest levels of inventory.

The report included a list of the 10 best and worst performing metros based on the company’s market condition ranking model.

The list of the top performing markets is based on a several indicators, such as changes in sales, foreclosure sales, prices, and inventory.

The reported noted that one common characteristic of the top markets is they all have experienced significant declines in active listings over the past year.

Top CBSAs

Oxnard-Thousand Oaks-Ventura, California
Seattle-Bellevue-Everett, Washington
San Diego-Carlsbad-San Marcos, California
Los Angeles-Long Beach-Glendale, California
Santa Ana-Anaheim-Irvine, California
Houston-Sugar Land-Baytown, Texas
Baltimore-Towson, Maryland
Fort Worth-Arlington, Texas
Austin-Round Rock-San Marcos, Texas
San Antonio-New Braunfels, Texas

Bottom CBSAs

New Haven-Milford, Connecticut
Bridgeport, Stamford, Norwalk, Connecticut
Augusta-Richmond County, Georgia-South Carolina
Rochester, New York
Spokane, Washington
Portland-Vancouver-Hillsborough, Oregon-Washington
New York-White Plains-Wayne, New York-New Jersey
Edison, New Jersey
Nassau-Suffolk, New York

Newark-Union, New Jersey-Pennsylvania

Top Ten Things You Need to Know About the 3.8% Tax

1)When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.

2)The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you’ll NEVER pay this tax at the time that you purchase a home or other investment property.

3) You’ll NEVER pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.

4)If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.

5) The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

6) The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7)In any particular year, if you have NO income from capital gains, rents, interest or dividends, you’ll NEVER pay this tax, even if you have millions of dollars of other types of income.

8)The formula that determines the amount of 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would NEVER be imposed on more than $1000.

9)It’s true that investment income from rents on an investment property could be subject to the 3.8% tax. BUT: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10) The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.

Home prices up again!

U.S. home prices continued to increase in July, according to Case-Shiller, with its 20-city index up 1.6 percent from June and the 10-city index up 1.5 percent. The 10-city index rose to its highest level since November 2010 and the 20-city index to the highest level since October 2010. Prices rose month-over-month in all of the 20 cities.

Year-over-year, the 10-city index was up 0.6 percent, and the 20-city index rose 1.2 percent. U.S. home prices continued to increase in July, according to Case-Shiller, with its 20-city index up 1.6 percent from June and the 10-city index up 1.5 percent. The 10-city index rose to its highest level since November 2010 and the 20-city index to the highest level since October 2010. Prices rose month-over-month in all of the 20 cities.

Year-over-year, the 10-city index was up 0.6 percent, and the 20-city index rose 1.2 percent. 

New lower interest rates!

The Federal Reserve’s announcement confirming a third round of quantitative easing sent long-term mortgage rates tumbling to all-new record lows this week.

Freddie Mac’s Primary Mortgage Market Survey showed a drop in both the 30-year and 15-year fixed. According to the survey, the 30-year fixed-rate mortgage (FRM) averaged 3.49 percent (0.6 point) for the week ending September 20, down from 3.55 percent the week before.

The 15-year FRM also fell this week, averaging 2.77 percent (0.6 point). The previous survey showed an average of 2.85 percent.

Adjustable-rate mortgages (ARMs) saw so slippage, however. The 1-year ARM saw no change from last week, averaging 2.61 percent (0.4 point). The 5-year ARM actually increased, rising to 2.76 percent (0.6 point) from 2.72 percent before.

The Fed’s announcement adds to the other good news the housing market has been seeing, said Frank Nothaft, VP and chief economist at Freddie Mac.

“Following the Federal Reserve’s announcement of a new bond purchase plan, yields on mortgage-backed securities fell, bringing average fixed-mortgage rates to their all-time record lows, which should aid in the ongoing housing recovery,” Nothaft said. “New construction on one-family homesrebounded in August, rising by 5.5 percent to the fastest pace since April 2010. In addition, existing home sales increased by 7.8 percent in August to its strongest pace since May 2010.”

Bankrate’s weekly survey showed drops in all categories. The 30-year fixed plummeted to 3.70 percent from 3.81 percent last week, while the 15-year fixed fell to 2.95 percent from 3.04 percent. Meanwhile, the 5/1 ARM dropped to 2.69 percent from 2.75 percent.

While the new stimulus may be good for housing, Bankrate wondered if the Fed’s plan will be able to achieve its intended goal.

“Unhappy with the pace of economic recovery or job growth, the Fed felt compelled to take additional measures, even if those measures will be more effective at boosting the stock market and reducing interest rates than the stated intentions of lifting economic output and aiding job growth,” Bankrate said in a release.

5 Surprising Home Buyer turnoffs

The prospect of selling your home effectively makes you a marketer. And effective marketing requires that you understand the mind and priorities, likes and dislikes of your target buyer. In real estate, we all know that buyers like to see homes that are pristine, huge and well-located. Sometimes, though, it’s much harder to recognize when our own homes might actually be triggering buyers’ distaste - or disgust. 

Earlier this year, I gave you some critical insights into what specific things turn buyers off - and now I’m back with a handful more! Whether you’re preparing to sell your home, or you’re in the market to buy a home and want to be aware of what the property’s resale prospects might be, here are five home features and characteristics that are big-time turn-offs for today’s home buyers.

1.  Pools. Twenty years ago, having a pool was seen as a luxurious amenity - almost a status symbol that you had made it, if your home had one. Fast forward a couple of decades, though, and many home buyers are turning down homes specifically because they have a pool.

There are a couple of core buyer subgroups who love pools: people who live in places where summers are super hot and people who really like to swim. But those buyers are vastly outranked in number by these other subgroups: 

• people who know they won’t swim enough to use a pool, and think that maintaining one would just be a waste of their time, energy and money
• people who would rather have a yard, and are looking for homes in areas where they either have a pool or a backyard - but not both, and
• people who have young children and see a pool as a safety hazard.

If you happen to have a pool, your best bet is to market your home as best you can to those buyers who truly want one, and to mitigate the perceived negatives of pool ownership by being both pragmatic and creative:

• ensuring the pool has a well-functioning fence and cover, 
• staging the rest of the backyard in a way that maximizes the non-swimming activities a buyer will see as possible in the outdoor space, and/or 
• offering to pre-pay for a year of the buyer’s pool maintenance as an incentive of the home sale transaction.

2.  Your stuff.  Yes - your taste is immaculate. But it’s your taste. What buyers are really looking for when they come to view a home is a palate on which they can envision easily applying their tastes. Accordingly, a primary goal of smart home preparation is depersonalization or neutralization, simply removing most or all of the personalized touches that make your home reflect you unless they are also neutral enough that any buyer, from any age group or cultural background can step in and put their mind’s eye to work at filling in what the place would look like if they lived there.

That said, it’s also entirely possible that your things might not be as attractive, nice or tidy in the eyes of a buyer as you perceive them to be. In the same vein, the tchotchkes, knickknacks and memorabilia that you see as cozy and warm are highly likely to be seen by buyers as dumpy clutter. I have personally been in homes with a number of buyers where the fact that the sellers still had so much stuff or such bad stuff throughout the home distracted the buyers from appreciating the property’s true potential, and what it might be like if they simply made some cosmetic edits and redecorated.

We’ve talked a lot over the years about the idea of simply pre-packing, staging by boxing up everything but the very most basic daily essentials and get them ready to move - some sellers find that to be a much more effective way to think about the project of decluttering.  Also, you can reset your own perspective on what you need to get rid of or move out to put your home on the market by visiting professionally staged Open Houses, hiring a stager just for an hourlong consult or even asking your agent to walk through your home and stick mini-Post It notes on things that need to be moved out before the listing goes live.

3.  Carpet.  Obviously, old, dirty, pet-impacted and bizarrely colored carpets (red?!) are not a draw for buyers. But this generation of home buyers takes the carpet conundrum even further, exhibiting a distaste for carpet - period. Concerns about the relative difficulty and expense of cleaning carpets, to the cost of replacing them when you want a decor change, to the tendency of carpets to hold pet hair, mites and other allergens that may impact family members with respiratory issues are, collectively causing carpet to fall out of favor with today’s home buyers. 

The majority of home buyers express a desire to have hardwood floors in their next home; other hard floor surfaces, from bamboo to tile to concrete to cork, are rapidly outpacing the popularity of carpets (though some buyers do still prefer the softness and warmth of carpets in their bedrooms). 

If you were thinking about replacing your carpets before you put your home on the market, consider replacing at least the living and dining areas with hard wood or a similar finish.  And if your home has carpet over hardwood, talk with your agent about exploring the idea of ripping it up - it might not be as expensive to repair or refinish as you think, and in many areas, buyers prefer even an imperfect hardwood floor over nice carpets.

4.  Gold bathroom fixtures.  Gold bathroom fixtures are part of a larger category of buyer turn-offs perhaps best described as things that are old, but not old enough to be vintage, retro, classic or historic. As a general rule, this includes household appliances, finishes and decor that dates from the ‘70s and ‘80s, give or take a decade, depending on where you’re at. For instance, the popularity of Mad Men has driven a massive amount of interest in all things mid-century modern, bringing the 50’s and 60’s decor and design aesthetics that just seemed plain and old when I was a child back into vogue - but somewhat more in urban than suburban taste zeitgeists.  

This means that those goldenrod refrigerators and wallpapers with marigold, orange and avocado floral patterns are decidedly passe. Similarly, gold bathroom and lighting fixtures, popular in the 80s and 90s are seen as dated by buyers, who much prefer sleeker, matte-er stainless, brushed chrome and even bronze or white finishes where metal finishes are necessary.  Is this just another trend? Yes.  But replacing gold bathroom finishes and recessed lighting can covers is relatively inexpensive to do; touch base with your stager or agent regarding whether they think these micro-home improvements will make much of a difference with buyers in your area and your home’s price range.

5.  Elaborate gardens and/or vast landscaping.  A huge backyard seems like it’d be a big draw.  So do the flower and botanical gardens that the seller obviously spent hour upon hour designing and tending to. But they also seem like a lot of work to today’s time-strapped and cash-conscious buyers. Not long ago, a buyer I know actually de-prioritized a home they otherwise loved, because it was surrounded by an enormous Japanese garden, bonsais and all, that the buyer admired, but knew they could and would never be able to care for.  Same can go for elaborate, high-maintenance food gardens or even super-large front and backyards: some buyers simply know they don’t or won’t put the time, money and water into their care, so would rather not take them on.

Nothing about this should stop you from creating such an outdoor space if that is part and parcel of the lifestyle you want to live in your home. But it should be a factor you consider if you are concerned about reselling your home in the near future, and it might impact how you market your home if it has any of these sorts of features. If you have a miniature botanical garden at your home, why not find out if the local botanical garden or garden society has a newsletter you can place an ad in? If you have bees and chickens in the middle of Chicago or the heart of L.A., is there an urban farming club or blog that reaches that audience?  

Work with your agent to research where local buyers who would love your home’s unique or high-maintenance features, then market your home to them via publications, websites or organizations in which they already participate.  Once you understand that the average buyer might find these features to be less-than-desirable, it’s time to get creative about finding the buyer who will find them to be just what they’ve always wanted.

3 Most Attractive Buyer Incentives

In real estate when competition increases, listing marketers have to use every tool possible to standout. Every owner wants to attract the best buyers, so agents and owners often go beyond aggressive pricing to “sweeten the pot” for prospects with incentives.

The question is, “which buyer incentives are the most effective?”

Offering an incentive is a good idea, but only if you offer an incentive that can actually attract a buyer.  We want to give you the knowledge you need to offer the incentives

Here are the 3 most attractive buyer incentives that are most likely to be successful, according to the 2011 National Association of REALTORS Survey of Home Buyers and Seller:

1. Home Warranty Policies

The thing that is most attractive to buyers is a home warranty policy.  The good news is that this is also the most cost-effective incentive option for sellers, too.

Sellers can assure buyers that any unexpected repairs that fall under the warranty policy will be covered.  A home warranty typically costs only a few hundred dollars for the seller and can offer the buyer a tremendous amount of peace of mind.  There are a number of home warranty providers out there, so make sure you do your research to find the best provider for the home in question.

2. Assistance With Closing Costs

The economic and lending environments have created a situation in which many prospective buyers don’t have the cash required to cover their closing costs.  Many times, the difference between a buyer being able to buy a home or having to pass it up can lie in the closing costs.

Sellers who are willing to contribute to the closing costs stand a much greater chance of attracting a larger pool of buyers.  Sellers can decide how much they want to offer based on what makes financial sense for them and the prospective buyers.  While this might be a bit more costly option than the home warranty, it can be equally as effective in sealing a deal.

3. Remodeling/Repair Credit

If your listing has a feature or flaw that repels buyers, consider offering a credit towards repairs or remodeling.  If you are receiving feedback that buyers consistently don’t like a particular aspect of the floor plan or condition of a listing, then consider a credit.  This gives you and your client a way to overcome a potential objection right up front.  The more objections you can remove, the closer you get to a sale.

These  were the top 3 most attractive incentives in according to people who actually purchased homes in 2011. For more, download this great handout on attractive buyer incentives.

The next time you are trying to sweeten the pot for a prospective buyer, consider these options with your sellers.  These just might be the incentives you need to land that perfect buyer and close the deal.

Getting the "Just Right" list price

7 Tips for obtaining the "Just Right" list price for your home

1. The Comps. If pricing a home was about putting your heart’s deepest desire on some universal wish list, the world would be a very different place, my friends. But it’s not. And the first step to buying your ticket out of fantasy-land and into the realm of the price that will get your home sold is to narrow down the range of realistic pricing by looking at ‘the comps.’  ‘Comps’ is just industry shorthand for sales data on similar homes near yours which were recently listed and/or sold (“comparable” listings and sales).  

Ask your agent to provide you with your home’s comps; also, check them out by searching your address and general area for homes similar to yours, here on Trulia.  While you should view the actual sales prices (vs. list prices) of comps that have recently closed escrow as very informative and influential for your pricing decision, the list prices of homes that are lagging on the market can also help educate you about what price points buyers in your area see as too high.

2. DOM [Days on Market].  The MLS data your agent will provide with the comps and the listings you find here online should also contain information about how long the various listings in your market have been on the market. You can use this information - or your agent do the math for you - to get a gauge on what the average DOM, or Days on Market, is in your neighborhood.  

This empowers you to look at the comps with more nuance and to use them more strategically to influence your own pricing decision; you will ideally want to price your home in line with properties that went pending and/or sold in a time frame at or shorter than the average time homes in your area stay on the market. The homes that have lingered on much longer than that may be overpriced and may even require a list price reduction to sell; and that’s a club you don’t want to join.

3. List price vs. sale price. Here, LP stands for ‘list price’ and ‘SP’ stands for ‘sale price or ‘sold price.’  This comparison - sometimes expressed in a ratio, other times in terms of how many percentage points the sale price was over or under the asking price - gets at the difference, if any, between what sellers are asking for homes in your area vs. what buyers in your area are willing and able to pay.  When homes are selling for more than the asking price as a pattern or average, this usually suggests that your market is more of a seller’s market or that multiple offers are commonplace.  And the opposite is true - when homes typically sell for less than the list price, it indicates that buyers may have superior negotiating power.  

Work with your agent to do the math and to understand its implications for your own pricing decisions, as they are not always completely obvious. For example, your agent might be able to point out patterns you don’t automatically see, like the increasingly common one in which well-staged, vacant homes that are listed at a slight discount are the ones that typically sell for significantly over asking.

4.  Competition Level.  How many homes are competing with yours for the hearts, minds and wallets of qualified buyers? How has the number of competing homes on the market trended over time, recently? Many areas are reporting a massive decline in competition - less supply is good for sellers, but you need to know what’s going on in your area; don’t try to apply national headlines to your local, personal real estate decisions.

As you work to understand competition levels and their impact on your pricing, here’s what not to do: 

• Don’t just look up and down the street, or in your subdivision - also look at similar homes in nearby neighborhoods or even nearby towns that a buyer who likes what your home might also target.  
• And don’t just look at quantity - look at the quality, or nature of the competing listings. Is the competition mostly comprised of ‘regular’ equity sales, short sales or foreclosures/REOs? If you’re a regular sale in a sea of foreclosures, your price competition might be steep, but there may be other advantages of your listing that can offset that, to a degree.

So, what should you do? Get your agent to help you understand the competition level and the trends in number of listings on the market in recent months. Then, crash some of the competing listings’ Open Houses to scope out their condition and collect the rest of the intel listed here, before factoring it into your pricing decisions.

5.  Timing.  If your neighborhood’s award-winning school district or abundant colleges drive much of the buyer demand, you might be able to ask or get more for your home in June than in October, once the school year is in full swing.  If you live where it snows, listing it while it’s easy for buyers to get around might pay off, literally. There are a number of area-specific timing considerations that you may need to calculate into setting your just-right list price. Chances are good that you know what they are where you live, but your agent may have some novel insight on the matter, as well.

6.  Motivation Levels.  How motivated are you? Are you just testing out the market to see if you can hit a target number, or do you need to have escrow closed by a particular date to make your life and job plans run smoothly? What is your primary motivation?  Price, timing, closure, making sure your home passes into caring hands or just getting rid of a home or a mortgage that no longer serves you?  

And how motivated are buyers in your area?  From insights like:

• Average number of days on market
• Average list price vs. sale price
• Trends in comparable sales - their number and sales prices
• Trends in interest rates
• Trends in competition levels
• And insights like where you are in the seasonal changes that impact buyers in your area,

you can work with your listing agent to gauge whether buyers are so motivated that they will not be deterred by a premium list price, or whether you’ll need to use a discount or value-based price to churn up motivation in a market of fence-sitting buyers.

7.  Agent and Market Feedback.  So, you came up with a list price that you thought was ‘just-right,’ but you’ve had little or no Open House traffic or private showings. Or you got lots of showings, but no offers - or nothing but lowballs, anyway. It’s not too late to get to the ‘just-right’ list price for your home; in fact, time is of the essence if you want to take advantage of the swelling levels of buyer interest and activity that has sprung this Spring.

In many scenarios where a home lags on the market, the list price was set or maintained against the express advice of the listing agent, who urged the seller to list it lower. Or maybe you and your agent agreed on pricing early on, but they’ve been asking you for a price reduction for months now. If you trust your listing agent, and they have a strong background for getting homes in your area sold on today’s market, then it behooves you to at least take their pricing advice seriously, whether or not you follow it to the letter.  

If you need more data before you make the understandably scary move of cutting your list price, ask your agent to ask for feedback from the brokers and agents who have shown the property or attended Open Houses - or even to run the property past their own colleagues at their office or marketing meetings. Once you have this input - listen to it and factor it in, along with the other factors.

By:

Tara-Nicholle Nelson

May 31st, 2012