By Steven Thomas
Even though the Orange County housing market has been hot all year, plenty of sellers are struggling to ﬁnd success.
Excitement is in the air. Homeowners sit across from a REALTOR® and sign the contracts. Their home is oﬃcially on the market. In eager anticipation, they clean their home from top to bottom and turn on all the lights. The ﬁrst potential buyer comes to look. After the buyer tours the home, the sellers return and wonder whether the buyer liked it enough to bring an oﬀer. After all, the market is incredibly hot, right? Yet, there is no oﬀer. Showing after showing, day after day, week after week, there are no oﬀers. Moreover, the number of showings has trickled down to only a couple per week after three months of market exposure. What is going on?
Everybody has been talking about how Orange County housing has been red-hot; however, many sellers are not ﬁnding success. An incredible 44 percent of all homes that are on the active listing inventory have been exposed to the market for more than two months (see Figure 1). Of course, this is standard for luxury real estate, but plenty of homes in the lower ranges are having trouble as well. Nearly one-third of all homes priced below $750,000 have been for sale for more than two months and are still waiting for the right buyer to bring a mutually acceptable oﬀer to purchase (see Figure 2). For homes priced between $750,000 and $1 million, the number increases from 32 to 38 percent. The higher the price of the home, the harder it is to sell.
What gives? If housing is so unbelievably hot, why are many sellers struggling to hit pay dirt? Of course, almost everyone immediately thinks the problem is the price. In most instances, price is only part of the issue.
Buyers are human. They like to purchase new. They prefer a home that is truly “turnkey,” where all they need to do is move in. The reality is that there are not enough brand-new homes in Orange County. Yet, even brand new is not turnkey. Buyers of brand new must decide on upgrades through the builder; and after the closing, they must purchase and install window coverings and design and complete the landscaping. A lot of eﬀort goes into a new home purchase.
HGTV programs from Flip or Flop to Property Brothers have created an expectation and desire for buyers to purchase homes that look like models. If the price is right, the closer a home looks to model perfect with all of the bells and whistles, the faster the home will sell. Unfortunately, not every home shows like a model.
Many homes are dated. If a home has a kitchen that is more than ten years old, it is starting to look worn and dated. If the grass has brown patches and the planters are sprouting weeds, the yard is looking worn and dated. Vinyl ﬂooring, popcorn ceilings, stained carpet, single-paned windows, scuﬀed walls, aluminum blinds, ceramic tile in the kitchen, original bathroom hardware, and water-stained cabinets make a home feel used and worn. Throw in a pet with the associated odors, hair, and damage, and it is no wonder that some would-be sellers are having a hard time.
Many investors have ﬂipped homes for a proﬁt. How do they do it? They do it by paying a low price for a home that needs quite a bit of work and then ﬁxing it up and selling it for a much higher price. They paint, scrape popcorn ceilings, and install new granite counters, ﬂooring, light ﬁxtures, and cabinets. They install new sod, plants, ﬂowers, and mulch. Basically, they make a residential resale look and feel like a model. With a little professional staging, the investor can make a healthy proﬁt.
To compete and fetch top dollar, good old-fashioned homeowners who have lived in their home for many years must approach selling like a ﬂipper. They too can make their home look like a model. Taking care of deferred maintenance will enable buyers to visualize moving in right away. They will not have to address cosmetic issues after closing. Buyers are willing to pay a premium for homes that look like models.
Sellers will net more money by addressing any deferred maintenance. If they do not do so, then the price must be adjusted accordingly. Buyers subtract a lot more than it costs to take care of deferred maintenance, which ultimately nets sellers less money from the sale of their home.
Warning to Sellers: Price is the most important factor in successfully selling. Overprice in a hot seller’s market, and you still won’t sell. Instead, you will waste valuable market time. Success takes into consideration price, condition, and location. Sellers can control both the price and the condition to achieve their goal in selling.
Steven Thomas has a degree in quantitative economics and decision sciences from the University of California, San Diego, and more than twenty years of experience in real estate. His bimonthly Orange County Housing Report is available by subscription and provides housing market analysis that is easy to understand and useful in setting the expectations of both buyers and sellers. His website is www.ReportsOnHousing.com.