California’s dynamic real estate market, which includes some of the most expensive areas in the country, may seem like a seller’s dream. In reality, though, these high prices often come with high commissions, which cut into profits, and recent changes in the real estate industry have complicated the picture for sellers.
Across the state, the median selling price for single-family homes inched up 2.1% year over in January 2019, but the number of single-family homes sold fell by 12.6%, based on data from the California Association of Realtors (CAR). In San Diego County, the number of home sales in January 2019 fell even further —17.9% year over year — according to data from the Greater San Diego Association of Realtors (SDAR).
And statewide, housing inventory is on the rise, which shifts negotiating leverage more toward buyers. For example, inventory in January 2019 grew by 42.9% year over year in San Jose, 31.9% in San Diego, 29.1% in Los Angeles, and 25% in San Francisco, according to Zillow.
As the market gets more challenging, it’s more important than ever for home sellers to maximize their real estate earnings by limiting expenses. Moreover, home sellers should take advantage of what we see as a window of opportunity to maximize earnings as we enter the peak selling season that runs through May/June.
Be Prepared No Matter How the Real Estate Industry Changes
The real estate industry, in both California and beyond, is undergoing many significant changes. In addition to increases in housing inventory on the West Coast that shifts the market more in favor of home buyers, other challenges have also emerged that complicate the picture.
For example, housing starts in December 2018 fell 10.9% year over year, according to US Census Bureau data. This may help mitigate the effects of more listings from sellers, but it also means that inventory consists of older properties, which could affect sales prices.
Part of the reason for the decrease in housing starts could be that construction costs have increased due to tariffs, so unless trade tensions settle down, this trend appears likely to continue. Meanwhile, interest rates are still on the rise, which can limit real estate growth by making it more expensive for buyers to finance purchases. It also increases borrowing costs for capital needed to make home improvements and start new construction.
Furthermore, from a personnel perspective, two prominent real estate companies have had CEO changes. At Zillow, co-founder Richard Burton replaced co-founder Spencer Rascoff as CEO in February 2019. Online real estate brokerage Purplebricks also recently announced that the CEOs of its US and UK businesses are also on the way out. As these industry changes occur, it can affect how home buyers and sellers choose to participate in the market, which can ultimately affect their buying and selling and decisions.
These changes have perplexed the real estate industry and in some cases pose contradictory signals as to whether the market is shifting in favor of buyers or sellers. Predicting these swings can be difficult, but what home sellers do have control over is how they list their homes and when.
Take Advantage of Sales Price Growth
Although the picture for sellers is may appear unclear right now, we remain bullish on the overall market primarily due to pricing trends. Nationwide, home prices have been growing steadily, with a CAGR of 3.8% since 2009. Going forward, we remain optimistic that selling prices will accelerate further, considering the forecasted CAGR for 2017-2019 sits at 4.7%, based on data from the US Census Bureau and the National Association of Realtors.
In California, in addition to the statewide year-over-year price growth, certain markets have seen particularly large jumps. For example, the median price of a single-family home sold in the Santa Barbara area jumped 21.2% from January 2018 to January 2019. Other areas also saw strong growth such as Fresno (6.5%) and San Bernadino (4.7%), according to CAR data.
In particular, as we enter the spring season, which tends to be a hot time in the market, Home Bay sees a prime opportunity for sellers to take advantage of these price increases. Yet because of the aforementioned complexity in the market, it’s crucial for sellers to maximize the profit they receive from these higher sales prices.
How Sellers can Maximize Margin
In order to hedge against market changes and maximize sales margin as we enter the prime selling season, sellers can focus on two key areas:
- Save money on commissions: Settling for the standard 3% seller agent commission could put a big dent in your profits. A flat fee model, which Home Bay charges, could help you come out ahead, particularly as sales prices rise.
Also, there’s no mystery behind home sales transactions that warrants the typical 3% seller commission. The process from listing to showings to offers and closing is fairly straight forward, and with Home Bay you’ll have full transparency through the entire journey.
- Sell homes closer to the asking price: Another key to maximizing profits is listing your home at a realistic selling price and closing the deal as close as possible to that number.
With inventory levels high, if you over-inflate your listing price, your house might sit on the market for a long time. The more the listing ages, sellers can miss out on peak seasons, feel pressure to dramatically reduce prices or accept lowball offers.
Thus, home sellers should focus on attaining a high “sale-to-list ratio,” which is the final sale price divided by the original listing price. For example, in the San Diego area, this ratio sits at 96.1%, according to January 2019 SDAR data.
Our real estate experience and realistic market outlooks, however, help us set more attainable listing prices, which helps homes sell faster. For instance, Home Bay has a 99% sale-to-list ratio in the San Diego area. This factor is particularly important at a time when the average number of days for a home on the market in San Diego climbed from 34 in January 2018 to 40 in January 2019, according to SDAR.
A trusted partner like Home Bay helps home sellers come out ahead regardless of market direction or movements in the real estate industry. Our flat-fee model saves on commission costs, along with our listing price and process expertise that helps sellers efficiently sell their properties, without being pressured to drop prices due to long listing periods. If you find yourself on the sidelines wondering what to do next, call us and speak to our team for a risk-free consultation.
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