Wednesday, July 20, 2016

Pension or No Pension? On-Market Sale or Off-Market Sale?

Pension or No Pension?

I had a nice cup of iced tea with a local lender this morning--he's one of my "Five Great Lenders to Meet your Needs"--let me know if you need the contact list. We were talking about how "stuck" the market is today: Higher-end sellers aren't moving as frequently as in the past, so mid-range buyers don't have anything to buy, and so on down the line to entry-level buyers. Moreover the lack of upper-end sales is leading to the supply shortage that is driving up prices, adding to affordability problems. (Full disclosure--agents and others associated with the business are suffering as well, as we tour available homes, read all those detailed disclosure packages, attend pre-inspections, and make offers--yet our clients don't get the house--until they finally do. Remember, we only get paid when the transaction closes!)

Anyway, he saw a split in financial picture between older Baby Boomers who more frequently have pensions (and who can typically afford to stay in the Big House) and those without pensions (who too frequently really can't afford to stay in the Big House, but often want to). Sometimes there's ego associated with staying in the Big House. We wondered whether "moving down" is a pivotal move that makes the aging process real--once one "moves down," do we acknowledge in some ways--or not--that we're on the back side of a career?

 Maybe two-income households--or two-IRA households--can better afford to stay in the Big House than their earlier cohort could, so of course the pipeline would naturally slow. 

Moving can be intimidating, time-consuming and emotion-laden of course. "Change sucks" I used to say when heading a federal agency through some radical change back in the Reinventing Government '90s. I get it. 

 And for many, it's so much easier to just stay in place, paying the same mortgage you've had for years, even if it might be more logical to switch to a cheaper mortgage and invest the difference. Inertia is so hard to resist, say the physicists.

Some might think the funds are best "invested" in the house, but remember that the average $/sf in Piedmont over the past 10 years has gone from $600/sf, to $750/sf during the end of last year/beginning of this year and to $685/sf looking only at YTD 2016. That's only about 15-25% appreciation
over ten years-about what finance folks say to expect from real estate over time.

If moving on is what you want to do, but moving seems like more than you can handle, remember that your agent can handle lots of the details. Especially if you buy the move-to house before selling (typically getting a home equity line on the current house to help fund your purchase), it's easy to prep an empty house for sale.
We do it all the time.  While there was no renovation involved in my recent sale of 217 Bonita, Teresa Baum and I arranged to move 60 years of household goods, paint, replace some fixtures, and prep the yard; we were on the market in 27 days. 

If you haven't yet bought the move-to home, so sorting, donating, and gifting items and renovating a bath or two is part of your process, we can arrange for a professional organizer and contractor to help you do it efficiently, and on your schedule. And your lender can walk you through how to get from here to there in a way that reduces risk and perhaps decreases your overall interest payments [still paying on your student's college loans?]. Let me know how I can help!

A "Bonita" Sale


Speaking of 217 Bonita Avenue, it sold way over asking with eleven offers in 12 days, and will close in about three weeks from first hitting the market. Admittedly, this 1907 house is perfectly located for today's drop-off-the-kids/walk-to-latte/catch-casual-carpool buyers. It's perfectly sited on a big deep lot with nice Bay views, and offers fabulous architectural details. But then there's the thoughtful and creative advice that my client is paying just the going-rate for:   We carefully timed the offering to coincide with the annual CSL Heart of the Home tour (about 100 of our 350 visitors came during those tour hours), and offered the insights of an architect and contractor during the Saturday afternoon Renovator's Open House. We also strategically advised the seller regarding which prep items would lead to more offers and a higher net price, and which prep items would just chew up valuable time and not add to the bottom line. 

"Bonita" Avenue speaks to the new owners--they are from Chile!  

(And they have no idea I'm a member of the National Association of Hispanic Real Estate Professionals [NAHREP] and have NAR At-Home-with-Diversity training.  Based on open house chats and names alone, eight of our 11 fabulous potential buyers do not look like my own white-dad-mom-and-three-boys family (actually, my mother was born and raised in Argentina, but how could you tell, and, anyway, why?))

So Who's Selling Piedmont, Anyway?

As you know, I've been in DC a good amount of the past year or so, but I'm back full-time now.  Pacific Union colleague Teresa Baum and I have been working together to cover my clients. Looking at the sales so far this year (as reported by the MLS), and understanding that the 23 sales have 46 "sides," we find that:

--32 different agents or brokers (yes, there is a difference....) were involved in the 23 sales.
--13 different brokerages were involved in the 23 sales.
--In just two cases, one agent represented both the buyer and seller; one of these in an off-market situation (later reported in the MLS).
--Firms were evenly spread across the price spectrum--no firm "owns" the upper or lower end.
--In about half of the transactions, buyer and seller agents were from different firms (meaning that it's not particularly common that buyer and seller are both represented by the same firm).
--Only once in 23 sales was the brokerage fee 6%.

Bottom line: Buyers and sellers entrust their assets to lots of brokerages and lots of agents in Piedmont. As always, you should interview three agents and decide whose style and approach best matches your needs.

The Christie's Magazine--

Is available here.  Be prepared to wait a bit while it uploads.

On- or Off-Market?

As noted, these sales are only those that hit the MLS. Others have sold off-market and were never reported to the MLS. What's up with that? 

 With so much competition, too many buyers are missing out on a purchase over and over again. They are anxious to hear about off-market listings, because they hope to avoid competition and higher prices. (Now, really, how is that good for a seller?)

Some sellers think that selling off-market is the new new thing, which it might be, but it's typically not the way to get the highest and best price for a home. (Let's say right now that some sellers aren't interested in highest and best price--they'd rather protect their privacy, or sell super-quickly, and they are prepared to leave money on the table to do so. I respect that, and always ask about my clients' goal first.  They are the principal; I am just the agent.)

For those who want highest and best price (say, those of us who don't have a pension), why is an off-market sale not a great idea? I'd say there are four basic arguments:

--In a rising market, as we have now, an off-market price is based not on what today's buyers are willing to pay, but what a few buyers a couple of months ago were willing to pay.

--In today's market, we often see those way-over-asking-prices when a half dozen or so buyers are bidding, and one party digs deep and offers substantially more than the competition (who are all focused on what some buyers a couple of months ago were willing to pay). If you want a chance of a way-over-asking price, you need to go on the MLS, priced for multiple offers.

--Off-market buyers think they are doing the seller a favor, and off-market sellers think they are doing the buyer a favor. Once in escrow, they both get cranky and feel used, and try to adjust their side of the bargain downward or upward. And,

--Off-market buyers have no "Buyer B" nipping at their heels, ready to step in if "Buyer A" wants to reduce the price, or get all the furniture for free, or have you replace the roof. On the MLS, buyers who are in contract are generally well-behaved, and follow the terms of the contract, because they fear that the seller might ditch them and go to Buyer B.

And there's basically one benefit to an off-market sale:

The agent who orchestrates an off-market sale typically spends a lot less time on the effort. They might even broker both ends of the deal (and what happens when one party wants to cancel--I do not want to even go there on fiduciary duty....). Two clients in one transaction is much better financially than a one-purchase-in-three-or-four-attempts, and just might be attractive enough to lead an agent to throw your interests overboard.

Which gets us back to the beginning--if you're thinking through the next 15 years and trying to optimize your retirement prospects, now might be a fabulous time to get the highest and best price for your current home, and then a new home here or elsewhere (I can track down a great agent there) for all-cash, or at super-low interest rates. Give me a call to discuss your situation--

After all, I help buyers and sellers make great real estate decisions.

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