Whose Homes Are On The Market?

With all the news about housing lately, who is trying to sell a home in this market? After all, the conventional wisdom is that it is a lousy time to sell. Right?

I've taken some time to do an evaluation of home seller motivation, at least in our local market area. Some of these sellers are in multiple categories, so the breakdown by percentage adds up to more than 100%. Here are the results...

Move up sellers

The first of the sub-set of what I call opportunity sellers, the move-up seller sees an opportunity with the larger and more expensive homes in a market niche that has softened first, that have recently come down in price, and finds opportunity in the price differential between his or her existing home that is inadequate for one reason or another, and has worked the numbers and has rationally seen the reason for moving within this market to a better home that meets the individual or family needs. This sub-set of buyer may have changed circumstance, with marriage, a larger family, or better financial circumstances with a substantial raise in wage or job change. Often the move-up seller will want to check out the general price range and style of the target home type, and as long as the pricing of the sale home is in the lowest tier of sale competition, can do well in a move. Most folks who sell and then buy a replacement home are really in this category. When it makes sense, do the move.

Move down sellers

The move down buyer could either be an empty nester whose family composition has down-sized, or one who wants to throttle back mortgage payments with a more modest home. Either way, I regard this as a positive move and when this type of move is planned and executed, is a very good thing for the individual or family. The empty nester typically has had children who have moved out and have established themselves in stable work and relationships, with little or no chance for an emergency return. While some people rattle around in a home with too many bedrooms and a floorplan designed for family living long after the kids have left, many people and couples will take a rational approach and move to a home that better fits their new lifestyle. These sellers are usually older, but still have a lot of action left in them. At this point in their lives, their focus is more on themselves rather than the kids that have left. While very settled into their old home, why live in a home that no longer fits the lifestyle?

The other segment of the move down seller has had some change in financial circumstance or has bitten off more than they can chew in a large home or a high mortgage payment, and rather than abandon homeownership altogether and become a renter, makes the hard decision to scale back to a more affordable home. Some of these sellers will move from a pricey area to a more modestly priced area and will over the long run, do fine. This is a smaller segment of the sellers than the move up seller, but still significant.

Move out sellers

Changes in job location or a new job out of area or even out of state, retirement, or the desire to get out of the rat race and move somewhere far away give these sellers the motivation to take their accumulated equity out of this high-priced California market and go buy a huge home on the golf course or the mid-West or wherever they go, sometimes back to wherever they originally came from. This has been a long-standing course for so many people for so long. Wherever they go, they often find they can buy so much more for their money somewhere else that they often wonder why they waited so long. With many projecting that prices have leveled off, perhaps for years, there are a lot more people with this plan in mind than there has been for the past five or six years. It's a good plan, and as long as they price right on their sale they should do great. The move out seller is one of the opportunity sellers. This group is 30% or maybe more of the market.

Investor sellers

This group is divided into two groups: rational investor sellers and flipper sellers. Overall I would say this is about 40% of the market. With the leveling off of home prices appreciation year-to-year is slowing down, and there are many who think home prices may drop. In fact nationally there are figures out that home prices have dropped modestly already. Long-time readers of this blog know my views, and over the next few days I will have further comments based on the data. In any event, there are many investors who have gotten in the housing market over the past five years who are moving out of the housing market now. They have leveraged their mortgages to some great returns on investment over the past few years, and now many feel it is time to take the money off the table. There are lots of vacant homes on the market, with investor owners who want these homes sold. Of course, some of these investors have come late to the party, some of them were flippers who either made cosmetic upgrades and some with substantial remodeling, and who now want to sell and cash out. Price 'em realistically, and these folks will still come out ahead, albeit perhaps not with as much starry-eyed profit as they had hoped. Investor sellers can be opportunity sellers. Wait or price unrealistically, and you go into the next category. Some of these are realistically priced, some become distressed sellers, and some are deadwood sellers.

Distressed sellers

There are some people who think all sellers on the market today are desperate sellers. It's not reality. But there are some who think this. Those of us in the real estate business call the people who think this 'renters'. I'll probably write a piece about renters sometime soon, but for the moment let's look at the distressed sellers. There are always the traditional causes of distress sales such as death of the wage earner and inability to pay the mortgage, divorce and division of assets including the sale of the home, loss of job and income, or bad financial planning including a lack of awareness of the impact of rising interest rates on adjustable loans. Some of the investors mentioned above got in on a hope and a prayer and counted on rising prices to save them. That's not happening now. Some of these got a renter paying a high rent for a while, but they might have moved on and now the home is empty. Maybe bad timing is the cause, like buying a replacement home before selling and now with two mortgages it is breaking the personal bank. Some of these folks are just oblivious, behind in taxes, alimony, mortgage payments, and are frozen into inaction until the NOD appears and then the Sheriff comes one day and moves them into the street. There are lots of causes and reasons for distressed sellers, but the really dire stories aren't all that common. If sellers are feeling pressure, just price accordingly for the competition (at the lowest of the competition and give incentives to buy) and get out of the distress and get the home sold. I'm guessing about 10% of the market would be this category. Not a lot, but they are out there.

Deadwood sellers

This group are not really sellers. Sellers sell. These folks are 'testing the market' with homes that are priced too high to sell. As the market continues to soften, and reality starts to sink in, this type of 'seller' might bring down the price a little, but again, not enough to sell. The home doesn't get shown often, and sometimes not at all. These deadwood sellers blame everybody but themselves for the home not selling, starting with the Realtor first. They might reduce the price and follow the market down for a while, and then will take their home off the market before the holidays. Maybe they will come back to the market in the spring, maybe not. In the meantime they are just taking up space. If they don't want to price for today's market, and not for last year's market, why are they even bothering? I am reluctant to even call them sellers, because sellers sell. They have priced their homes so far out of bounds hoping for some idiot with a pile of money to burn. It's not going to happen, so what's the point? Take your home off the market and save us all some time. This type of seller makes up about 30% or more of the homes on the market.

Summary

There are lots of motivations for selling a home, and buyers always want to know what the seller motivation is. As a buyer, it makes sense. But buyers buy. If you are just curious but would never buy a particular house, who cares? But if you are actually considering a purchase on a particular home, then sure, persist in finding out what the motivation is. Otherwise it doesn't really matter does it? The reality is that most sellers do not want any potential buyer to know what the real motivation is and there is no index or registry where seller motivation is required to be noted. As Realtors, sometimes the seller's reason is can be found in the remarks, and when I represent the buyer I will let them know if I know. But more often, there are no remarks about motivation of the seller. If the buyer is interested in buying a property, I will find out everything I can, including quizzing the seller's agent, but sometimes the seller just doesn't want buyers to know.

Conversely, sellers sell. In this market, as in actuality all markets, price reflects motivation. Price the home too high and you won't sell. Price it to sell, and it will sell. Other indications of seller motivation include vacant property or a neglected look to the property that indicates financial distress. Incentives to purchase are increasingly a part of the market, including seller willingness to pay buyer's closing costs, carpet or paint allowance, and mortgage buydowns. With so much on the market, incentives to the agent to show and sell are increasing, including 3% (or more) commission to the selling office and bonuses to the selling agent. Yes, the 6% commission is back (split 50/50 between listing and selling brokers).

Can we agree on a truism? All buyers want to pay the lowest price possible. After all, we are talking some pretty big numbers when real estate is involved, and for many, it will be the largest purchase people ever make. And it is of course also true that sellers want the most money possible. In this market, the most money may not be what the sellers initially expect