I often get asked what I think the market value is of a home for sale in Carmel, Pebble Beach or elsewhere on the Monterey Peninsula.  If the person asking the question is a buyer, the next question is often if I think it can be purchased for less. Sometimes the answer is “yes,” sometimes “no,” and sometimes “let me see what I can find out.”  If it does sell for less, was I wrong about my estimate of the property’s market value.

Sometimes, yes. But, often there are other factors at play.

What is Market Value

Market Value is the price that a property could bring in an open market with both a willing buyer and seller. With neither the buyer or the seller facing undue pressure from outside factors. And, with the buyer and seller having perfect market information (only an economist could envision such a thing) and no barriers to entry or exit from the market. As you will remember from econ class, real estate is a beautiful example of an imperfect market.

Given its imperfections a property’s market price (the price at which the property actually sold) may be markedly different from its market value.

For example, a home may appraise for $950,000 but the seller is in the midst of a divorce or may have lost his or her job. When presented with an offer of $875,000 with a relatively quick close the seller may accept, regardless of the market value. Or more likely these days, a seller may be faced with growing monthly payments and declining income and a sense that the clock is running out on their ability to escape unscathed.

It can, although not often lately, work the other direction as well. There could be a buyer who is undertaking a 1031 exchange and has a limited period in which to purchase a property. She may opt to may a higher market price because the property she desires meets her needs, can be closed within the time limits, and the tax benefits of completing the exchange are sufficiently large to justify paying over market value to close the deal.

How Does Market Price impact Future Market Values?

Each time a property sells it becomes a comparable for the future sale of a similar property. This is where market price has its impact (beyond the impact it had on the seller and buyer of the specific property.)

For example, I know of a bank owned property that was listed at about $1,125,000 even though all indications were that its market value was under $1,000,000. The seller received highest and best offers from three different agents, all at $950,000. The seller declined those offers and remained on the market for two months before contemplating a price change. By the time the seller reached a list price of $950,000 those original buyers were long gone and no new buyers considered the property to be worth $950,000 given the several months it had been on the market.

Remember, to the market of buyers who originally thought the property was exciting at $950,000 it appeared that the bank had received no offers. Perfect information? Not at all. Those prospective buyers were shying away from the property figuring there must be something wrong with it. After all, it was bank owned and the banks wanted to get rid of inventory fast…so the fact that it was still on the market after so many weeks could only mean it was worth less than they thought it was worth.

Time passed and the property ultimately sold in the mid $800,000 range.

The buyer apparently got a great deal. By the time he came along he was able to buy a property for a $100,000 less than the market said it was worth a few months earlier. Buyers ultimately determine a properties value, and this property had 3 buyers all at the same purchase price.

Unfortunately the ultimate market price had a negative impact on all the neighboring properties market values. Over the coming months a future seller, buyer, appraiser or other Realtor would have no way of knowing what happened during the marketing of the property and would ultimately consider the $850,000 sale price as a good indication of market value.

Trading a Home for a Home, or a Boat, or a Plane, or ?

Every Realtor has heard a variation on the story of a buyer coming to them with an offer that goes beyond a creative financing proposal. Occasionally it is a straight trade for property elsewhere but on occasion the buyer might propose a trade for an airplane, a time share plus cash, and in at least one case I know of a race horse. While these deals can certainly be complex, they are becoming more common and may often be the only way a deal that is beneficial to both the buyer and seller can come together. With the increased difficulty in securing financing, well qualified buyers are looking at how they can convert existing assets into cash to make a purchase. With a trade, the buyer forgoes the step of liquidating the asset to create cash for the purchase, and offers the asset instead.

A proposed trade can be advantageous to both parties. In the best case scenario, the seller has a use for the asset. Even without a direct use, there are cases where a seller will prefer the offered asset over the real property they have for sale. For example, an income producing duplex in an urban center might be more attractive to a seller then the remote vacation home they are trying to sell, and rarely use. Even if the seller doesn’t intend to hold the duplex he may opt to accept it in trade based on an analysis that it will sell more quickly given its local market when compared to the market in which the vacation home is located.

Of course there are challenges with a trade deal. Some are obvious; what is the value of the proposed asset? And, some others less so; tax consequences? Is there enough cash in the deal to clear any outstanding loans against the property? If the buyer is offering an asset that is more valuable than the property offered by the seller, can the seller come up with the cash to cover the difference? And, if so, what about the loans if any on the subject property….might they be assumable?

And, A Real World Example of a Seller Willing to Entertain a Trade

My sellers of the property at 13 Long Ridge Trail are a prime example of a seller who would entertain a trade for their property. The sellers purchased the property a number of years ago while based on the east coast. They invested hundreds of thousands of dollars and worked closely with architect Eric Miller on plans and permits for a 5,000 square foot home with an attached 3 car garage and 1,700 square foot barn. The property is located within the Santa Lucia Preserve. An unmatched development where the homes are integrated within the 20,000 acre Preserve in which 95% of the native habitat is protected. It is also the home to an award winning Tom Fazio golf course.

The permits have been pulled to begin construction and Eric is excited to work with the new owners on modifying the plans for their personal tastes.

What Would They Consider in Trade?

This is a nearly ideal situation for a potential buyer hoping to build an estate home and looking to trade into the property. The sellers will entertain offers including real property (residential or income producing) as well as more exotic assets such as collectible cars or an airplane. The seller will entertain offers that include “assets plus cash” to arrive at a purchase price. The seller is a sophisticated and experienced finance officer who would also consider assets of greater value than the subject property with the seller contributing limited cash to close escrow.

If a trade is something you are considering, give me a call to continue the conversation.

A Poorly Priced Carmel by the Sea or Pebble Beach Home Can Cost You Money and Time

The table below shows all of the homes that have closed escrow between May 6th and July 3rd 2010 in Carmel, California. I have deleted the addresses from the table so we can focus on pricing as it relates to Days on Market and percentage of Original Price and List Price. I want to avoid a debate about a specific home and whether it was or wasn’t priced right based on location, square footage, etc.  The market spoke on the pricing of each of these homes.

Most Days On Market

If you look at the table and highlight the five homes with the greatest time on market (Days on Market, DOM) they are as follows: 681 days, 518 days, 454 days, 328 days, 228 days. If you then look at the five homes that sold for the greatest percentage below their original list price they match up with one exception.

Days On Market               Sold Price as Percentage of Original List Price

681                                                                  57%

518                                                                  58%

454                                                                 71%

328                                                                 68%

228                                                                 78%

The anomaly:

77                                                                   77%

Regarding the anomaly: this was a bank owned property that was initially incorrectly priced. The bank began adjusting their list price down within 20 days of going on the market and were continuing to drop it when they received an acceptable offer. [I will discuss how banks price their homes in a future post.]

If you exclude the anomaly, these properties sold for an average of 66% of purchase price in 442 days.

Least Days on Market

Now we will identify the properties with the shortest time on the market and see how they fared in terms of percent of original list price.

Days On Market               Sold Price as Percentage of Original List Price

2                                                                    88%

6                                                                  100%

10                                                                100%

11                                                                  93%

14                                                                  98%

These homes sold for an average of 96% of their original list price. And, they sold in an average of 9 days.

The Danger of Across the Market Averages

The ten homes we just discussed (excluding the anomaly) sold for an average of 81% of their list price after 225 days on the market. This statistic is valuable in tracking the trends in a market but is useless in trying to understand how to price a home and establish a strategy for selling it. It doesn’t have much value for buyers either.

As a seller, would you rather sell your home in 9 days and be in a position to negotiate towards 96 of your asking price, or struggle to find a buyer after a year and two months on the market and secure 66% of your original list price?

]]> http://blog.malonehodges.com/uncategorized/the-importance-of-pricing-recent-home-sales-in-carmel-by-the-sea-california/feed/ 1 http://blog.malonehodges.com/pricing/the-importance-of-properly-pricing-a-home-to-sell/ http://blog.malonehodges.com/pricing/the-importance-of-properly-pricing-a-home-to-sell/#comments Tue, 06 Jul 2010 04:26:48 +0000 malone http://hodges.realty-buzz.com/?p=541

Selling a home in Carmel or Pebble Beach California can be challenging for a number of reasons, not least of which, this is a discretionary market:No one is ever forced to move here. There aren’t companies sending employees here or demanding that people live here to work for them. Many of the homes in our area are second homes.

How Most Home Buyers Approach Carmel and Pebble Beach

Proper pricing of a Carmel or Pebble Beach home is even more important because of the way most buyers enter the market. While it is dangerous to describe anyone as “typical” there are a few commonalities amongst the majority of buyers in our area.

• They have been here in the past on vacation, to visit a friend, attend a wedding etc.
• During their visit they started thinking about how great it would be to live here full time or own a second home.
• Maybe during that visit, or follow on visits, they picked up magazines, attended a few open houses and started to explore the different neighborhoods and communities.
• Eventually that process (which can take years) lead them to get more serious about looking for a home.
• And then on their next trip, they dedicated a day or two to work with a Realtor and tour homes with the intent of finding a home and making an offer.

This is where the seller’s pricing decision impacts the buyer.

• Very few buyers have the luxury to spend endless days looking at homes. They quickly (hopefully working with a Realtor…such as myself) reduce the list  to between five and ten homes to tour and consider.
• If a home is not correctly priced it won’t make the initial cut!
  • I cannot stress the importance of this fact. If a Realtor has a client in town for a day they will select properties where they expect there is a reasonable chance for a meeting of the minds between their buyer….and you.
  • If you are listed at well above market value and they have no way of knowing what offer you might entertain, what are the odds that they will spend their limited time showing your home to a prospective buyer?
  • Furthermore, even if a Realtor suggests an overpriced home many buyers will strike it from the list with the same logic as above. Why invest the energy in looking at a property that is priced well above what I am willing to pay for it?

There are lots of different ways to depict this reality graphically.

Half way up the pyramid is the “Market Value” line. As your price moves above this market value, you attract much smaller percentages of prospective buyers, greatly reducing the chance of a sale. Conversely, as you move below market value, you attract a larger percentage of potential buyers.

I realize this may sound theoretical but it is confirmed time and again in national pricing surveys and experience in our local market. My next post will look at a snapshot of sold homes in the last 60 days…..and you will see that there is a real world consequence of pricing in terms of days on market and ultimate sale price.

While the Santa Lucia Preserve, known locally as The Preserve, is a place apart from the rest of the
world, it has not escaped the recent downturn in the economy. Unlike many developments across the
country, and the world, The Preserve was well beyond its infancy when global financial uncertainty would have affected its operations and growth. There is over $200,000,000 worth of infrastructure paid for and in place within the 20,000 acres of The Preserve including a nationally ranked golf course, equestrian facilities, trails, and club buildings. The 73 completed homes have a conservative value of $400,000,000 with 20 additional homes under construction and 17 properties moving through the design review process.

Looking Forward

Since January of this year one property in the Preserve has entered escrow, lot 175 (11 Vasquez Trail).

In the same period last year, five parcels and one home sold in the Preserve. My colleagues and I  continue to field inquires from new clients about the Preserve as well as questions from our clients that have been considering the Preserve for some time. We believe that, as with other high end golf and amenities properties, buyers recognize there are value priced properties but are holding off in hopes of selecting the perfect property for their needs, at the near perfect price. In all of these communities, the purchase decision is elective. None of us are lucky enough to have an employer who transfers you to a place as beautiful as the Preserve.

As we move into March there are 240 homesfor sale in the greater Carmel area (Carmel-by-the-Sea and the surrounding area), with properties taking about 180 days to sell…. These days, the number of sellers that “give up” is well above past years. This is reflected in the higher number of expired and canceled listings.

As the Carmel real estate market has softened I have seen buyers shift their attention from areas such as Carmel Woods or south east neighborhoods of Carmel-by-the-Sea to closer to town and into the “golden rectangle.” Properties are still selling in all neighborhoods but buyers are looking for the perfect home or the near perfect deal.

This Week’s SnapShot

 

Market Profile

Carmel remains firmly at the “buyer’s market” end of the spectrum. Since January first I have seen an uptick in buyer activity. The median list price has fallen $100,000 since the first of the year.  Successful sellers are those that adjust to the changing market by pricing their homes to differentiate themselves from the competition. If a home meets a buyer’s needs, they should submit a well prepared offer with supporting comparables.

The Market Action Index

The Market Action Index (MAI) measures available supply relative to the current level of demand. Index values above 30 indicate conditions favor sellers, below 30 favors buyers.

Median Price Per Square Foot

Homes in Carmel are not typically priced by “square foot” as there can be a 1,600 square foot home worth $900,000 a block from a home exactly the same size that might be worth $1,800,000. Nevertheless, median and average price per square foot are useful for tracking trends.

Looking at the market by Quartiles

To more accurately describe the sub-markets within Carmel, I report the median price in quartiles. The most expensive 25% of homes make up the first quartile, the next 25% the third quartile, the next 25% the third, and the least expensive 25% are the fourth quartile.

While the upper quartile is well off of what we saw in 2005, at the end of 2008 it was these higher priced properties that lifted the overall market.

Recent Sales

There were 25 closed escrows in Carmel in the last 3 months. They ranged in price from a low of $575,000 for the house on the corner of Highway 1 and Ocean Avenue to a high of $5,433,863 for a 3,100 square foot home on San Antonio Blvd and 8th Avenue. (Carmel Home Sales in the last 3 months) There are 20 Carmel properties currently in escrow. (Carmel Pending Home Sales)

Tracking Sales and Comparables

The easiest way to track comparables and properties of interest, is to use the Private Client MLS System to identify favorite properties. Once identified, the system will track and report on price changes, status changes, and the ultimate sale price when the property sells. You can also take a quick look at MLS listings for Carmel.

Market Profile

There are currently 5 Pebble Beach properties in escrow ranging in list price from $1,745,000 to a vacant lot listed for $300,000. (Current Pebble Beach Pending Sales) There have been 13 closed sales in Pebble Beach since October 1, 2008, ranging in sale price from $3,150,000 to $675,000 (Pebble Beach Sales since 10/1/2008).

As with other Peninsula markets, Pebble Beach remains firmly at the “buyer’s” end of the spectrum with 207 average days on market.

While Pebble Beach is certainly healthier than many other high end markets, a telling statistic is the percent of listed properties that have seen a price decrease, discussed below.

Pebble Beach Market Action Index

The market remains firmly at the “Buyer’s end” of the Market Action Index (MAI). An MAI above 30 typically indicates a Seller’s market with prices tending to rise. An MAI below 30 implies a buyer’s market with a great deal of inventory, increased days on the market and weakening prices. 

Pebble Beach Median Price

Pebble Beach has a range of housing stock (the lowest priced listing at the moment is a lot at $470,000  while the highest is a front line estate at $35,000,000). This fact makes Median price of limited value. One high end listing coming on, or going off, the market skews the numbers. 

By breaking the market into quartiles the data is a little more enlightening.

Most of the large fluctuations in list price occur in the upper quartile. However, if you look only at the bottom half (quartile three and four) you see that the lowest priced homes have trended downward since 2007.

As properties come and go the characteristics of these four quartiles changes. Each quartile represents 25% of the market, so Quartile 1 and 2 combined is the upper half, while Quartile 3 and 4 is the lower half.

Tracking Pebble Beach Properties

The easiest way to track properties of interest is to use the Private Client MLS tool which lets you select properties of interest and track them through the sales cycle, including their final sales price.  You can take a Quick Look at Pebble Beach listings on the MLS.

Insights

Buyers remain mostly on the sidelines. While many are concerned that the market may continue to settle, others are willing buyers  but unable to secure credit. There has been a decided uptick in showings and interest since the first of January.

There is a sense in our markets that we will settle into the bottom of the value curve over the next few months and then remain relatively flat for some time.

Buyers who find the home that fits their needs should act, and present a well supported clean offer. 
Sellers must do everything they can to make their home the “exceptional deal” for an “exceptional home.” Proper pricing, home staging, quality photography, and a strong internet presence are all imperative.

 The Pebble Beach housing market has softened somewhat, more so at the highest price point.  The Carmel housing market is holding its own with a bit of strengthening at the upper end. First, a look at our markets, then some national numbers. 

 To more accurately describe the real estate sub-markets, I report the median price in Carmel and Pebble Beach in quartiles. The most expensive 25% of homes make up the first quartile, the next 25% the third quartile, the next 25% the third, and the least expensive 25% are the fourth quartile. 

The data supports my feeling that home buyers are opting to move towards the “golden rectangle” and higher value locations as the market has softened.

Buyers with money, and liquidity, remain active in the upper end. Having said that, buyers are in “deal mode” recognizing that they have the upper hand in this market.

     Pebble Beach remains relatively flat. It is important to remember that there are not that many homes at the high end so the sale of a single home, or the addition of one especially high priced listing can skew the numbers.

In the case of both Carmel and Pebble Beach, traditionally many sellers “don’t have to sell.” These sellers will often try the market for 6 months to a year and then withdraw to wait for a better opportunity.

As the economy remains weak, some of these sellers are going to find that their ability/desire to continue to hold weakening. 

That fact is reflected in the numbers. Half of the homes currently listed have undergone a price reduction.

Nationwide Luxury Home Market Trends

Luxury home asking prices have fallen just over 5% so far in 2008. Average days on market, in high end markets, has stretched from 125 to 148 days. The “high end” is defined as the top 10 wealthiest zipcodes in 30 large metro areas across the country.

Nationwide agents are seeing the same growing concern amongst high end clients about the length and depth of the current financial crisis.

The collapse of Lehman Brothers and the credit freeze on September 15th signaled a change in attitude across the top end.  

Short sales and even foreclosures are occuring at these higher prices, a  rare occurance only a 18 months ago.

Insights

Price is becoming ever more important. Buyers are deal hunting and negotiating hard. Succesful sellers are pricing with that in mind.

The houses that are selling, are selling for prices set for today’s market-not the market of last year, last summer or even last month. That being said, there is still a market out there-people are still buying and selling homes. And there are a lot of investers looking for good investor opportuntities.

If you would like to discuss a specific neighborhood, or house, give me a call on my cell phone at 831-601-4740 or send an email to malone@malonehodges.com

There are 150 properties for sale in Carmel, with properties taking over 180 days to sell….when they sell. These days, the number of sellers that “give up” is well above past years. This is reflected in the higher number of expired and canceled listings.

As the market has softened I have seen buyers shift their attention from areas such as Carmel Woods or south east neighborhoods of Carmel-by-the-Sea to closer to town and into the “golden rectangle.” Properties are still selling in all neighborhoods but buyers are looking for the perfect home or the near perfect deal. There is no particular sense of urgency on the part of buyers.

Market Profile

Carmel remains firmly at the “buyer’s market” end of the spectrum. We had an uptick in activity in late August and early September, unfortunately that has cooled with the ongoing economic crisis. There has been some indication as we move into mid November that buyers are returning to the market. (See the Market Action Index below)

The Market Action Index

The Market Action Index (MAI) measures available supply relative to the current level of demand. Index values above 30 indicate conditions favor sellers, below 30 favors buyers.

I predict we will see an improvement in the Market Action Index, and a reduction in inventory as we move towards the holidays. While I hope to see an increase in sales, much of the improvement will be a result of sellers pulling their homes off the market before the holidays.

Median Price Per Square Foot

Homes in Carmel are not generally priced by square foot, but it can be informative to track the square foot price as an indicator of the market’s trend.

Median Price by Quartile

To more accurately describe the sub-markets within Carmel, I report the median price in quartiles. The most expensive 25% of homes make up the first quartile, the next 25% the third quartile, the next 25% the third, and the least expensive 25% are the fourth quartile.

While the upper quartile is well off of what we saw in 2005, in the last few months it was these higher priced properties that have been lifting the overall market.

Recent Sales

There were seven properties that closed escrow in Carmel since the 10th of October ranging in sale price from a low of $815,000 on Upper Trail to a high of $2,700,000 on Camino Real. A PDf of Carmel Solds is here:

Carmel Solds.

Carmel Solds from July through October.

Tracking Sales and Comparables

The easiest way to track comparables and properties of interest, is to use the Private Client MLS System to identify favorite properties. Once identified, the system will track and report on price changes, status changes, and the ultimate sale price when the property sells.

]]> http://blog.malonehodges.com/recent-sales/carmel-real-estate-market-update-18-nov-2008/feed/ 0 http://blog.malonehodges.com/market-update/median-price-slide-in-seaside-california/ http://blog.malonehodges.com/market-update/median-price-slide-in-seaside-california/#comments Tue, 04 Nov 2008 22:19:55 +0000 malone http://hodges.realty-buzz.com/?p=146

The median price in Seaside is down 50% since late 2006.  Prices have dropped to levels that investors see an opportunity to cover much of the annual cost of the home through rents while betting that the properties will appreciate substantially in the coming years. Some of my clients have bought multiple properties and hired property management firms to manage their holdings.

I have helped first time home buyers purchase homes when 24 months ago they thought they would be renters forever.

Most of the sales are bank owned properties. To successfully close escrow on a bank owned property, you have to be well prepared before making the offer and understand what the bank wants and expects. Without an experienced agent, these transactions can be frustrating.

The number of REO (bank owned) properties in Seaside is well above Monterey, Pebble Beach, Carmel, Carmel Valley, or Pacific Grove. Along with Salinas and Marina, Seaside has been hard hit by the subprime mortgage meltdown.

Inventory in Seaside climbed dramatically as banks took back properties beginning in early 2007. Inventory has been declining in recent weeks. Seaside is still very much a buyer’s market but the decrease in inventory may help support a gradual leveling off of median price.