On Staying Still - Financial Advice Through Close of Escrow
So, I’m going over a couple of new Los Angeles MLS listings, and I’m struck by something; these listings are all, according to the listing agents, “hidden gems”. I don’t know what it is about this term, but it just bugs me. I’ve written before about code words in real estate (i.e. “needs TLC” = bring your bulldozer) and some brokers are just basically not very inspiring when it comes to ad copy. If I see the term “casual elegance” one more time I’m going to scream. What does that even mean? It was shopworn in 1993. Surely someone can come up with better copy here in the 21st century. “Legal Steal”? OK, now you’re working my last nerve. But the ultimate one that ticks me off is.........(drum roll)...“Priced To Sell”!!! Really? How else do you price your listings? “Priced to age on the market? “Priced to never get an offer”? “Priced to scare you away?” While we’re on the topic of pricing let me tell this right now. My apologies in advance to those of you who belong to or list with a company that might use it. I HATE “Value Range Pricing”. It seems so antithetical. It’s gimmicky Sellers market stuff. The last sellers market (2005-2008½) was without a doubt the most obnoxious I have had the displeasure to participate in. List price is supposed to be a median of the market range, not an auction opening bid. Suggestions that the sellers enjoy Puerto Vallarta or that “bids under 20% over list price will not be considered” have no place in the MLS agent notes.
Now I hate to be the bearer of bad tidings folks, but the halcyon days of the buyers market have also made an appearance in the rear view mirror. Good Riddance. I’ve lost count of the number of offers I’ve had to present that were 40% off the list price. This thinking is left over from the dark days of the Resolution Trust Corp, because of the sheer numbers of assets. Then, crazy offers were sometimes accepted just to break up the logjam. During this time, because I had experience with commercial development, my esteemed Broker asked for my guidance on a 750,000 sq. ft. Retail Shopping Mall he was bidding on. 10% occupancy. Note was over 3 million. His winning bid? $285,000.00, because you couldn’t GIVE away retail at that juncture in 1990. I think the sand used to make the concrete in the walls cost more than that. In fact, THAT was a “legal steal” if ever there were one. In case you’re wondering, you might be able to afford $285,000 but the common area maintenance, taxes, insurance, repairs, utilities, advertising, and janitorial on the that building surely came to half again as much per year, so you still needed deep pockets to play. The good news is today that center is fully occupied and worth close to forty million if you use a CAP rate of 8%. Don’t worry about what a CAP Rate is. I can explain it to you briefly by saying it’s an arbitrary figure used to compare different investment sectors and the return on investment. The point of the story is to strike when the iron is hot. In real estate, you can often look around and realize values are at a low ebb. That’s when it’s the best time to buy. Always, without fail. If you were around in the early 70s this was true. Same with the late eighties. Again in the 2009-2011 market. What you learn as an investor is that sentiment gets really bad. Things are never going to recover, and if they do it will take fifteen years to get rid of excess inventory. Things are always going to be this bad like it is today. This happened every time at the low point in the cycle. These lessons are helpful if you’re looking for a home. It’s not just retail centers that end up in the trash bin. Residential values do as well. We are currently at one of these crossroads. In some parts of the country, there well may be another down leg to property values. In my area, the west coast and the Sun Belt, things have begun to turn around. If you’re waiting for home values to go down, just take a look around. They already have!
Back to the buyer’s market. Here in the Southern California real estate market, a lot of formerly smug buyers are suddenly faced with the very real possibility that the fantastic environment they have enjoyed for four years is coming to an abrupt end. If this cycle is like the rest, the pace of sales will suddenly pick up much faster than was thought possible and we’ll all be off to the races again. So take heed, buyers. Have your ducks in a row when your go out to look at property. Be ready to “pull the trigger”. Season your down payment if it’s coming from relatives. This means get it in the bank now, or add your name to their bank account, which eliminates a lot of hassle. Know your credit file; work with your mortgage broker to clean up any issues that may cost you a quarter point in your rate. That’s tens of thousands of dollars over the life of the loan. Be aware of your price range. You don’t want to fall in love with something only to find out you don’t qualify. And PLEASE stay perfectly still! What do I mean by this? Do not put a nickel on your cards for the next 90 days that you don’t pay off the same month. Do not buy a new car, appliance, riding mower, or motorcycle until you close escrow. Not even a fancy Barbecue.
Just don’t move. Stay perfectly still. Or you might not move, if you get my point.
You can thank me later.
Michael Hickerson comes from a long line of real estate practitioners. Following his great grandfather’s lead, the Hickerson family has been in Los Angeles real estate since the 1800’s.