We started looking for our first home in August. * All the houses in the areas we like (Santa Monica and Brentwood) are in the $800 to $1,100 per square foot price for a range of quality from total garbage/tear down to very refined.
Yesterday we visited a home that was remodeled recently, was in an amazing location, and that was in *perfect* shape for $742 a square foot. This was 30%+ less than a similar house we had seen right up the block and that was *not* as nice. So, two very similar homes in the same location and one was priced at $1,100 a square foot and one was priced at ~$740 a square foot.
We did some research and it turns out both folks need to sell their house quickly (one couple broke up and ther other one is relocating). In other words, they are both motivated–so no difference there.
It turns out the one at ~$740 a square foot is represented by a broker who is known to “do a good job” from what we’re told, and that they priced the house to sell from what we were told. The other couple has moved their home from $1,100 a square foot to ~$950 and would take an offer at ~$900 a square foot from what we were backchanneled. So, even with the “fake markup” that exists on many of the homes in LA these folks were still 15-20% more than this new home. **
The question that immediately came to mind for me regarding the ~$740 square foot price was: “Is this a the first in a long series of realistic owners coming into the market with drastically lower expectations, or is this a random act of desperation/clarity by someone who just wants to get out of a house quickly?”***
I’ve gotta think that someone coming into the market with an A-class home at a price *lower* than the tear down homes on the market is a sign that the game of chicken between buyers and sellers is coming to an end. Sellers are putting things on the market at a price that would make buyers start thinking about pulling the trigger. If this person (and other folks like them) are rewarded with a quick sale–heck, any sale–that would lead to a *massive* wave or repricing/right pricing in Los Angeles in my mind.
* The three houses we liked are still on the market two months after we went to see them (and they weren’t new to the market when we went to see them).
** The “fake markup” in houses right now is becoming a running joke at this point for us. You walk into a home and you *immediately* take 10-15% off the asking price because the selling agent tells you immediately that there is “room.” Room is ~10% overpriced. If the broker tells you “bring any offer,” “there’s a lot of room,” or “make an offer, who knows” that means the home is overpriced 15-20%.
*** Clearly from the title of this post I think we just had a tipping point caused by the fact that buyers believe that the market is going to correct 5% a year for the next two to three years–something they keep saying in the press over and over again. To get there folks off the sidelines you need to go 10-15% below the 15% “fake markup,” or 25-30% of the asking price right now–which is exactly what the ~$740 a square foot a person did.
- Have you seen the Wikipedia’s US Housing Bubble Page?
- Folks seem to really hate this guy David Lereah who is Chief Economist and Senior VP at the National Association of Realtors because–they claim–he is being deceptive about the reality of the market. There is a blog dedicated to tracking him called David Lereah Watch.
- In related news the President of NAR, Thomas Stevens, has had his home on the market for a year and hasn’t reduced the price. He says he didn’t take his Realtor’s advice–ahhh, the irony. Since folks are upset at NAR for their optimistic views of the market they shouldn’t be shocked that the president is in denial. In fact, this confirms taht the President of NAR has believed his Chief Economist’s upbeat predictions–they might be wrong, but they are at least on the same page!
- OMG I just found the funniest thing. On the ZipRealty page for Thomas Stevens home is a rating from someone claiming to be David Lereah–obviously a joke–pointing out the fact the President of NAR can’t sell his home. Images below (right mouse click and hit “view image” to view the whole image).