Base the Commission on the Net, not the Agreed Price

I had a ridiculous argument with a buyer's agent today. The accepted offer on the home was over the asking price, but the buyer needs help with closing costs, and so he had partially stacked. The buyer's agent felt that she was entitled to a commission on the accepted amount even though the seller isn't going to get all of it. This was the first time that I had a buyer's agent tell me this, but then there's a first time for everything.

What this means is that while the list price is, let's say, $600,000, and the buyer offers $605,000, he needs $10,000 to help pay for the cost of the loan. So the seller is actually going to net $595,000. When I presented the offer to my seller, I pointed out where they asked for the help with closing costs halfway down p. 6 and so was able to explain that it was really an offer for 595k from the start even though it showed 605k on 2 lines on p. 1.

Now, if you ask me, 3% of 0 is ... 0. How can you give a percentage of something you don't even receive? At any rate, 3% of 605k is $18,150 while 3% of 595k is $17,850. That's a whopping $300, and depending on the agent's split with her company and particular office, she might get anywhere from $150 to $270. She told me that it was a lot of money to her and not very much to the seller, and I responded that there was a principle involved, and it wasn't worth it. After all, if your clients can't trust you over such a small amount, how can they trust you with their life savings? And it shouldn't be a question of deciding which clients need a little extra money and which ones don't. I can't be Robin Hood and keep my license.

Ultimately, the sellers sign the commission instructions during escrow and can quickly figure out if they're paying a percentage of what they're not getting. In that case, they should speak up. Best of all, they should ask ahead of time if the buyer needs any help and tell their agent that they won't pay more than commission on the net. Of course, if the sellers have tax issues and need higher broker fees for the write-off, they might choose to spend more, but they should be able to make that decision.

I finally told the agent that it wasn't worth arguing over because we saw things differently, and she could choose either to sign or not to sign the Cooperating Broker Compensation form showing that she agreed to take 3% of 595k. I had to go to a meeting and turned off my cell phone for the next hour, during which she left a series of phone calls ranging from threats to cancel escrow to urgent requests for me to call her back and not take offense. Finally, she left a message saying that she was signing the form. I think that this was a good idea because it would have been hard for her to explain to the buyer that he couldn't have the house because she wanted to get paid on the money that's going to his lender.

And yes, I learned a lesson, too. I'm going to send a fax to the buyer's agent when I first receive the offer and put in writing that if it's accepted, the commission will be based on the net. No more arguing math.

Moreno Valley Statistics from the past 60 days

As of this evening there are a total of 975 residential properties with an average price of $433,340 available in Moreno Valley according the IMRMLS. This average is about $100k less than the average in Riverside, which is roughly the usual gap between the two cities over the past couple of years.

As in other cities in the area, the average price of expired listings from the past 60 days is below the average of the available ones. Since 1/21/06, 277 listings have expired with an average value of $423,393. In other words, sellers (and their agents) are not learning from the expired listings but are instead continuing to price listings as if the market were still experiencing the sharp rise of the past 2 springs.

The sluggish market is most easily understood when comparing the high price tags of available properties with the much lower cost of those pending and sold. The overall count for pending sales of houses and condos since 1/21/06 is 355 with an average price of $385,509. (In addition, there are 72 taking back-up offers with an average of $394,560, but I can't limit the time parameter). The sold count from the same time period is 373 at $384,905 after an average of 46 days on market. The average value of the closed sales is very close to that of the pending sales, but the breakdown by bedroom count, shown below, reveals to what extent the market is still being forced upward.

When broken down by bedroom count, the figures for available listings are as follows:
Houses:
2 or fewer bedrooms: 57 available with an average price of $359,833 and an average of 45 days on market. (This average price was pushed up by several that have large lots where the value is in the land.)
3 bedrooms: 383, $389,241, 49 days on market
4 or more bedrooms: 532, $473,866, 54 days on market
Condos:
2 or fewer bedrooms: 3, $273,300, 16 days on market
(The high average price of the condos has to do with 2 of them being in a new complex that is priced about 90k over the typical Mo Val condo built in the early 1980s.)

The sold properties since 1/21/06 tell in very clear terms what buyers have chosen to pay for housing. Broken down by bedroom count, the figures are:
Houses:
2 or fewer bedrooms: 35, $278,825, 33 days on market. (The average price of these homes is a much better reflection of the starter home market than that of the available 2-bedroom homes above.)
3 bedroom: 147, $364,305, 45 days on market
4 or more bedrooms: 186, $425,966, 51 days on market. (The increase in time on the market noticeably mirrors the higher price of each successive category.)
Condos:
2 or fewer bedrooms: 5, $205,600, 18 days on market. (Unlike the available condos, these sold properties are more what buyers expect to find in Mo Val.)

Similar to the sold properties, the homes that are pending since 1/21/06 have much lower prices and demonstrate that buyers are going after the listings that cost less. The breakdown by bedroom is as follows:
Houses:
2 or fewer bedrooms: 31, $290,600, 32 days on market.
3 bedrooms: 170, $367,128, 44 days on market. (Of all the pending categories, this is the one that comes closest to the average of current available properties and has to do with the ratio of pending to available properties. Basically, more of these properties are getting bought up, so buyers are being forced upward in this size range more than in the others.)
4 or more bedrooms: 151, $429,141, 45 days on market
Condos:
2 or fewer bedrooms: 1, $210,000, 19 days on market
3 bedrooms: 2, $212,500, 43 days on market.
As always, we’ll have to wait for these pending sales to close before we know for sure how much higher the accepted offers were than the current closed sales, assuming that these properties appraise.

The data appears better with this search than my recent San Bernardino search, but then I generally find that I get better data for Riverside and Moreno Valley. The numbers can be thrown off by agents who put in the wrong code although this happens less for Moreno Valley, possibly because agents would rather make their desert listings appear like bargains by putting them in more expensive cities, such as Riverside. (Agents tend to put high desert listings under the S.B. code just because many of those towns don’t have their own specific code in the IMRMLS.) I only went back to 1/21/06 for pending sales to rule out any sales that actually have closed but haven’t been marked as such. The breakdown for properties in escrow that are taking back-up offers was left out because the IMRMLS won’t let me combine them with those pending and also because there’s no way to limit the date. The search was limited to the IMRMLS and excludes for sale by owners and properties that were only listed in other boards.

San Bernardino housing statistics from the last 60 days

The IMRMLS data for today reflect a slowing market in the city of San Bernardino with available properties priced high and taking over 1.5 months to sell. This is especially interesting because buyers who go to S.B. tend to be the ones who are looking for the lowest prices, have little if any savings, and often do not have strong credit. Many of these buyers are 100% financed, so the slightest increase in interest rates immediately decreases their spending power.

As of today, 3/20/06, there are currently 926 residential properties available in the MLS for the city of San Bernardino. The average price is $357,805.
Looking at the breakdown, the houses, by bedroom count are as follows:
2 or fewer bedrooms: 190 available, average price of $295,762, with an average of 49 active days on the market.
3 bedrooms: 445, $350,170, 54 days on market
4 or more bedrooms: 209, $460,928, 57 days on market
Condo figures are as follows:
2 or fewer bedrooms: 33, $204,560, 46 days on market
3 bedrooms: 9, $240,777, 33 days on market.
(You may have noticed that if you total the breakdown, it doesn't come out the same as the total in the first sentence of this section. I haven't been able to figure out why this happens, and as it is, between the time that I start taking down the numbers and when I finish, the status of properties can change, making it is very difficult to doublecheck my figures for accuracy. That's 40 missing properties, and they could really change the average prices.)

As always, the expired numbers are of interest as they show what price the market wouldn’t bear. Since 1/19/06, 297 properties have expired with an average value of $347,118. For some reason unknown to me, I wasn’t able to get a breakdown for houses and condos by bedroom, nor was I able to get days on market. (There are times when I have temporary difficulties with search parameters, ghost houses that come and go, etc.. There’s no understanding it.) While limited, this bit of information is interesting because it’s below the current average price of 3-bedroom houses.

The sold figures going back 60 days to 1/19/06 are quite strong but not nearly as high as the homes currently on the market. The breakdown is as follows for houses:
2 or fewer bedrooms: 34, $264,602, 42 days on market
3 bedrooms: 154, $331,034, 42 days on market
4 or more bedrooms: 73, $386,008, 46 days on market
Condos figures are as follows:
2 or fewer bedrooms: 18, $217,327, 39 days on market
3 bedrooms: 8, $247,362, 18 days on market
It is certainly interesting that the sold condos have higher sold prices that those available, but with so few sales, it’s hard to draw conclusions as buyers may have chosen the higher priced units because they were in better condition, easier to get into, etc.

The pending data shows a marked drop in price with the exception of the 4+ bedroom house, revealing that buyers are unwilling and perhaps unable to buy as high as they could before. Since 1/19/06, the pending sales breakdown for houses is as follows:
2 or fewer bedrooms: 87, $262,309, 38 days on market
3 bedrooms: 165, $320,903, 48 days on market
4 or more bedrooms 57, $390,265, 52 days on market
Condos:
2 or fewer bedrooms: 18, $200,705, 32 days on market
3 bedrooms: 4, $205,975, 19 days on market
The huge change in condos is, again, hard to generalize about since so few units sold. (I actually tried to look up the individual sales, but then got 0 results--again, one of the many mysteries of the IMRMLS.) There’s a very noticeable increase in the number of 2-bedroom houses being sold, and I would assume that this has to do with their lower price rather than with more people wanting the smallest house possible. Older, 2-bedroom homes in San Bernardino are often around 750 square feet and built from the 1920s through the 1940s, so they aren’t selling because they’re physically the most desirable homes but rather because they are what people can afford.

This data is from listings in the IMRMLS and excludes For Sale By Owners and properties that out-of-area agents only listed in other boards. The data may be skewed by agents who input the wrong code and figures. Also, listings that are in escrow but are taking back-up offers were excluded because the MLS report won’t combine them. Lastly, I’ve found that S.B. data is always thrown off by agents who forget to change “pendings” to “solds.” For this reason, I don’t look at “pendings” more than 60 days old.

Living with oranges and critters

Someone told me a little while ago that he'd heard Riverside (the home of the parent Navel Washington) is the next Orange County. To me, that says 2 things, that we're experiencing tremendous growth and that our orange trees are disappearing.
A few years back, I discovered that the orange groves were moving out to the desert. At that point, I was told it was because it was cheaper to grow them out there. But I understand now that the truth was that the land here was already becoming too valuable for housing.
The signs have been here for a while. First, they stop watering a grove and let the trees die. It's a sad sight. Then they bulldoze and the markers go up. If it's an expensive subdivision, they leave an outer swathe of trees to give the homes privacy. There are some gorgeous and very expensive tracts where the hoa fees are extremely high, in part to pay to maintain their groves. The homeowners have the right to pick the fruit, but they mostly don't, so it falls, and the gardeners clean it up.
There's a grove we've been going to for years on Victoria just north of Jefferson to supplement our own trees. Their big bags of navels in the winter are $6 apiece, and their bags of valencias are $5 in the summer. They also sell other fruits and vegetables as well as potted plants.
I also visit some friends of ours who live in a tract with orange trees and pick some of their fruit. One of them can't take the acidity--what a pity!
The trick is to squeeze about 20 at a time and drink it quickly with a group of people. Forget about soda and alcohol for parties, I'd rather serve orange juice. It's completely the opposite of when I was growing up in Hawaii and oranges were a rare treat and to be savored. My little girl guzzles hers, and I refill her cup immediately. Our compost pile got as big as a starter house, so I've been putting the rinds out with the weekly green pick-up. I found out the hard way that you can't squeeze and then chill navel orange juice--it gets bitter tasting. Hmm, so that's why all that orange juice in the cartons is from valencias.
But for homeowners who are surrounding themselves with fruit trees, I must warn them that the critters that populated the groves are still with us. I was showing property to someone from out-of-state, and she commented on barriers that looked like they were intended to keep critters out. Under my breath, I told her that I would explain after the seller was out of hearing range.
You see, I'm not going to not tell people some of the facts of life of the Inland Empire. I'd rather tell them upfront how to maintain the property that they're going to pay a lot of money for.
For truth be told, we have ... critters. There are the obvious ones, such as coyotes, possums, skunks, owls, rabbits, and so on and so forth, and then there are the rats and the ants.
In addition to the typical Norway rat, we have tree rats, which are smaller. Rat abatement is a daily fact of life along with gopher abatement. You can't get rid of them, so you have to keep their population under control to make up for how well fed they are. We had our house sealed up and trapped the ones who were indoors, and now we pay for monthly refilling of outdoor bait stations that our dogs can't get into. This means that occasionally, I run into a rat carcass, and I carefully use a rake to push it into a bag. I'm not as squeamish as I used to be, but it's still a painful process. Luckily, we don't have a kangaroo rat habitat near us as they're protected.
Another maintenance issue is ants. We get the perimeter of our house sprayed several times a year to keep them at bay with occasional emergency calls when they start trailing indoors.
The oranges may be nearly gone, but there are home maintenance issues that will be with us for a while.
Here's a Press Enterprise article about the parent navel tree:
http://www.pe.com/localnews/riverside/stories/PE_News_Local_B_navel19.58c.html

Riverside housing statistics from the last 60 days

The numbers demonstrate the slowing market in Riverside as sellers are still pricing their properties based on last year's upward trend.
As of today, there are 1542 available residential properties with an overall average price of $532,764.
Since 1/17/06, 392 properties have expired with an average price of $541,420.
What is very telling are the pending and sold numbers.
Since 1/17/06, 479 properties have gone pending with an average price of $461,402 while 525 properties have sold with an average price of $453,528. The solds averaged 49 days on the market. The higher average price of the pendings implies an upward trend, but of course, we won't know the final price of the pendings or their days on market until they close. If they were on the market long enough, the sellers may have accepted a lower price, which we'll find out in another 60 days.
Here are the numbers sold and average prices by bedroom count since 1/17/06:
2 or less: 46 sold, average price $333,832
3: 219 sold, average price $414,077
4 or more: 220 sold, average price $544,083
Overall, there were 28 condo sales with an average price of $287,892. 8 were in the $200k-249,999 range, 14 in the $250k-299,999 range, 3 in the $300k-399,999 range, and 2 in the $400k-499,999 range.
This data comes from the IMRMLS, using the code for the city of Riverside and surrounding unincorporated areas. On occasion, the numbers may be skewed by agents who input the wrong code. For sale by owners and Riverside properties listed by out-of-area agents only in another MLS are not included.

still possible to get multiple offers

These last few days I've been handling a multiple offer situation on a house, which just goes to show that the seller's market isn't necessarily over. The most important factor was that the sellers of this particular house priced it well. After looking at the data, they priced it according to the pending and closed sales around them, and so they ended up being the lowest priced available in the neighborhood. There are some pending and closed sales that are higher, so they had me tell buyers who needed closing costs to stack them because the house will still appraise. Consequently, they got 5 offers very quickly and were able to choose the strongest buyer while dictating all the terms of the agreement. The house itself is a modest starter home that needs some work beyond the repairs that the sellers were able to handle. However, its reasonable pricing made buyers look beyond its imperfect condition.

In the end, a seller's market isn't just about sellers, it's about figuring out what buyers are willing to do and not outpacing them. The buyer's willingness (and capacity) to pay decides selling prices.