Live Lake Forest

In the current market, when a buyer makes an offer on a property, it is in the seller’s best interest to respond quickly.  The buyers today are not impulsive, frenzied, or in a panic to “buy now or be priced out forever.”  If any urgency is felt by a buyer, it is more likely based on interest rates rising.

The standard contract in California provides an expiration date of 3 days after an offer is signed.  That doesn’t mean that the seller should take their sweet time to make a decision.  I have seen buyers go through a careful thought process to first decide to make an offer at all, and then to come up with the terms and price that would make them happy with the results.  At the time an offer is signed, most buyers are looking forward to coming to a conclusion of their home search, and moving forward with their plans to move in, arrange furniture, get settled in, and basically get on with their life.

During the wait time, between offer and response, the buyer’s emotions may swing substantially while imagining the offer being accepted, rejected or countered.  Since nobody likes rejection, a defensive “I don’t really care that much” attitude often develops.  At the same time, the buyer may also be mentally justifying their original offer and while it originally may have been a strategy to negotiate to a “middle ground,”  it can evolve into a “they can take it or leave it” decision.

While dragging out a decision by the seller, there is also the chance that another home will become available that will be more attractive to that buyer.

Sometimes, it is difficult to respond immediately because one or more of the sellers may be unavailable to review and consider the offer, but with email and fax machines available from almost any corner of the globe, availability should not be an excuse for long.  Unless the home is brand new on the market, the listing agent should keep the seller well-informed and prepared by having regular discussions about what to expect and how to respond.   Providing information to the seller about agent feedback, recent sales (the ones that buyers bought, instead of yours), new listings, local foreclosures, buyer activity level and interest rates should be an important part of a listing agent’s job. 

Several years ago, I worked with some buyers who submitted an offer on a newly-listed , but substantially over-priced property.  (We justified the offer price with recent comps, many of which my buyers had visited.)  The listing agent was in no hurry to help the sellers make a timely decision, but they eventually countered 3 days later.  By then, my buyers were mad that their offer was treated so casually.  They decided to keep looking, ended up buying a different house, and 6 months later the original house sold for $15,000 less than my buyer had offered! 

Sellers – You have had your home on the market because you said you want to move.  When an offer comes in, it should not be a surprise – that’s why you’ve let all these strangers come through your house.  When you get an offer, thank the buyer (no matter what, it’s still better than not getting an offer) and tell them whether or not you want to sell at the price they offered.  Dragging it out will only hurt you in the end! 

The market for homes in Orange County, California, finally seems to be waking up from a long slumber.  While the closings for May didn’t set any records, the new pending escrows have improved substantially in the last month. 

When evaluating the overall market in Orange County, I look at all cities, and residential (not multi-unit complexes or mobile homes) properties priced from a low of $75,000 to a high of $1.5 million.  The $75K lower limit eliminates the erroneous leases, time shares and mobile homes.  The $1.5million upper limit is to keep the mansions and estates from effecting the average $ per square foot values. 

Here’s the snapshot of that market today (in units):

Active : 13,182
In Escrow : 3,908
Closed during May : 1,886

Assuming an average escrow time of 6 weeks, if that same pace continues, the absorption rate is now a little less than 4 months.

Of course, the activity level is not spread evenly over the entire market.  I like to carve it up and take a look at the troubled homes separately from the ones that just need a seller to agree to a price and close date.

The foreclosed market (“REOs” or “Bank Owned”) is moving especially quickly now.  Many banks are now pricing aggressively right from the start,  so we are seeing multiple offers again! 

Active : 966
In Escrow : 886
Closed in May : 357
The absorption rate for REOs is currently less than 2 months!

Short sales continue to be a drag on the market.  The MLS rules require that listing agents put the house in the “back-up” category when offers are submitted to the bank, but there is no way of knowing when a decision will be made to either go forward or cancel the sale.  Many buyers find a different property and just buy it before getting an answer from the lender so the true “in escrow” number for short sales is highly suspicious!

Active : 4387
In escrow : 935
Sold in May : 240
The absorption rate for Short sales is impossible to estimate!

For many buyers who don’t have the money or time to invest in repairs & upgrades, REOs are too much trouble.  For buyers who need an answer about where they are going to live, short sales are close to impossible.  If you remove both REOs and short sales from the market, we now have the following statistics:

Active :  7812
In escrow : 2091
Sold in May : 1287
The overall non-troubled market inventory is just about 5 months today, but many price ranges are very limited and the inventory level is substantially lower. 

There are a lot of qualified buyers that are actively seeking a home, but they are very conservative.  These buyers are the ones who sat in the corner, paying their bills, and did not get caught up in the buying frenzy of 2004 -2006.  They are not going to pay those inflated prices today. 

Note to sellers – if you put your home on the market today, it shouldn’t take long to determine if it is priced properly or not.  If you don’t get showings quickly in this market, you are priced too high.  If you get showings but no offers, talk to your agent about how it shows – it may need to be decluttered or staged, or you may have to take another look at the price! 

Based on the levels of inventory, it looks like we are shifting back toward a seller’s market in Lake Forest! When the ratio of active listings to sales, or new escrows gets down below 6 months, it has generally been considered a market that favors sellers.  This doesn’t mean that prices are likely to rise soon, but that it is more likely that a buyer will take action sooner when a well-priced property comes on the market.

While there are still many bank-owned homes coming on the market, many seem to be getting more agressive with the pricing right from the start.  There are now 38 active REO listings, 53 REOs in escrow, and 25 that have closed in the last 30 days.  Assuming an average escrow time of 6 weeks, the 53 properties in escrow, indicate a pace of about 8.5 sales per week.  At that rate, the 38 actives would be gone in less than 5 weeks, if no new ones came on the market!

The short sales are the hardest to evaluate due to the fact that each seller, lender, and listing agent is unique. Many of the currently listed short sales will not qualify due to some circumstance of the seller, and will eventually become foreclosures.  Many of the listing agents who take the short sale listings are unqualified, and don’t really understand the process.  Most of the lenders are understaffed and overwhelmed, and not capable of responding to the best offers in a timely manner, so many of the buyers who made offers on these homes will drop out or buy something else by the time the lender makes a decision.  At this time, there are 148 properties listed as active short sales in the MLS, with 30 currently under contract, and only 7 that have closed in the last 30 days.

For homes that are neither bank-owned or short sale status there are a total of 135 on the active market, with 42 in escrow, and 20 that have closed in the last 30 days.  The active inventory ranges from $179,400 up to $1.8 million, and the average is $635,000. For those that have closed or are currently in escrow, the time on the market is an average of 60 days.  (Hint: if your home has been on the market for over 60 days without an offer, take a hard look at your price!)  For “non-troubled” homes, the inventory is very thin in many size and price ranges.  I just witnessed a home that became available on Friday afternoon, with instructions that it could be shown beginning Saturday morning, and by Sunday morning, the status had changed to “Pending.”  In my opinion, this was priced right at the level that the market now dictates – not the “testing” end, or the “give-away” end, but right where it attracted attention from the buyers who were ready to act.