We can start 2011 with a few assumptions on which most real estate analysts will agree.
First, mortgage interest rates will rise, probably to 5.5% or up to 5.7%. As I wrote last week, that is historically cheap money.
Second, home prices will increase slightly – at least 2%. (Though some have postulated that increased inventory of foreclosed homes will lead to a decline in prices.)
Third, the housing market will not be hot for a long time. A very long time.
With these assumptions, it is clear that it is still a buyer’s market and will be for some time. So looking for a house right now is understandable. But why would anyone want to sell in 2011?
Don Abrams is the owner of Abrams Coastal Properties on Balboa Island. In 2003-08, Abrams sold 50% to 70% of all homes on Balboa Island from 2003-08 and was the top selling Realtor in Newport Beach in both the number of sales transactions and the dollar volume of sales in 2008.
According to Abrams, there are two main reasons why someone would sell their home at this time.
“The one that you hear the most about is the distressed seller, the person who needs to sell and doesn’t have a choice. And that’s a fair amount. In Costa Mesa, for example, it could be as much as 40% of the reason for the sale. In Rancho Santa Margarita, it is as high as 60%. Distressed sales are not as prevalent in Newport Beach, where it accounts for about 10% to 15% of the overall sales.”
The other reason for selling now is to avoid being distressed, that is, sellers are looking at their overall financial future and can see that they need to make a change now to help avoid potential disaster in a few months or a year.
“These people are thinking that this is the time to scale back,” said Abrams.
For the distressed seller, the sales process is particularly distressing.
“Buyers are much more demanding today, not only in terms of price, but in the condition of the home,” said Abrams. “In the past, a lot of buyers would accept things as is, which is always how I’d like to sell, but buyers today want things fixed up.”
Abrams described our home purchase in 2002. In a hot real estate market, we overlooked a number of issues with our prospective home, including the need for flooring, paint and major landscaping needs. If I were shopping today, these would all be on the table as a condition of the sale.
Selling your home in 2011 requires more planning than has been required in more than a decade. According to the latest data from the Southern California MLS, the average days on the market for an Orange County home is about three months, and that does not include the time required to close escrow.
So if you want to sell your home by the summer, the time to market it is now, but be prepared to wait. And wait.
“I give my clients three scenarios for the sales process,” said Abrams. “The first is aggressive and is a plan to sell the home in the first 90 days. That requires appropriate pricing. The next scenario is about six to nine months, which I call ‘moderate,’ and ‘patient’ is a year or more.”
Even in today’s buyers market, selling your home will require more than a good price. Besides ensuring that the home is appealing, sellers may have to come up with creative ways to attract prospects.
The condominium we leveraged in 2002 to buy our current home was on the market for 45 days before it sold, and that was when sellers had the advantage. I was unwilling to drop the price and start a bidding war, so instead I added six months of prepaid homeowners association dues to any potential buyer. The cost to us was less than one half of one percent of the final sale price, but the perceived value was high because condominium buyers are often first-time homeowners and association dues are scary. Prepaying for them eased them into the process.
Sellers in 2011 will see slightly better conditions than last year. But if a home sale is in your future, the future is now.
STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to email@example.com.