Margot Ray, a radio-ad saleswoman in Stockton, Calif., put her five-bedroom, three-bath house on the market in February for $480,000. There it sat, along with about 3,000 other homes for sale. She dropped the price to $465,000 in April. Nada. "We'd have an open house and maybe one or two people would come by. I had an open house where nobody came," Ray says.
In July, she had a brainstorm: Why not advertise on the radio? The ad put the house on the map. Now agents remember the address. The price is down to $427,000 and, at a recent open house where Ray raffled football tickets and a spa day, 15 groups of potential buyers showed up on a 107-degree day.
But it still hasn't sold.
Ray has two kids in college and a new house with its own mortgage. "Am I to the point of desperation? Not yet," she says, "but I want this house sold."
Was it only last summer that houses sold in a day, buyers were bidding up prices and sellers in some markets haggled down real-estate agents' commissions? Nationally, 39% more "existing" homes -- not new ones -- are on the market than last year this time. Real-estate agents are giving stunned sellers crash courses in marketing. Agents now command the full traditional 6% commissions -- sometimes more -- if only to use most of it as bait so they can offer up to 4% or 5% to a buyer's agent for a successful sale.
What a difference a year makesIn the toughest markets -- including the Florida cities, Detroit, Stockton, Sacramento and San Diego -- incentive is the name of the game. One Florida agent offered a Mercedes-Benz with a house sale. Others dangle vacations or gift cards with thousands of dollars in gasoline.
In its report released Aug. 15, the National Association of Realtors reported that 26 of 151 metro areas experienced outright price declines in the March-June quarter. The biggest price drops in percentage terms were in Danville, Ill., where home prices fell by 11.2% in the spring compared with the spring of 2005, and the Detroit area, where home prices were down 8%. For condominiums, 1 in 4 metro areas reported a decline in prices.
June** 2006 vs. May 2006
June** 2006 vs. June 2005
Note: *Does not include new homes. **Seasonally adjusted. Source: National Association of Realtors.
"We have sellers not only competing with an onslaught of resale houses on the market, but we also have home sellers competing with new developments, where they are offering tens of thousands of dollars in incentives, or even making mortgage payments, buying down loans, putting in swimming pools or paying points," says Raylene Miller, Margo Ray's agent.
New home sales -- about 15% of the market -- have declined 12% this year. Pessimism among builders is growing, says Paul Lopez, National Association of Home Builders spokesman. In July, the National Association of Home Builders' monthly survey of builders got 369 responses: 75% said they're offering upgrades like hardwood floors, granite countertops, high-end appliances, pools, garages or other freebies to new-home buyers. That's 25% more than last year. In January, the NAHB survey revealed that 31% of builders were paying buyers' closing fees; 15% were somehow helping with financing.
Detroit: as bad as it getsIn the Detroit suburb of Commerce Township, seller Courtney Tursi is offering a two-year lease on a BMW X3 SUV to the agent who finds a buyer for her contemporary, two-level, four-bedroom, 3.5-bath lakeside home at the end of a private street. It has a separate in-law suite, a boat dock and water views. She wants to move her young family to a neighborhood full of kids and bikes "where everybody runs in a pack all summer long."
Michigan, where automakers have laid off large numbers of middle-class workers, is one of the most difficult places to sell a home. The Detroit News reports a 43% increase in homes on the market since last year.
Tursi put the house on the market in May for $749,000, then dropped the price to $699,000. But the wobbly Detroit job market has slowed real estate to a virtual halt. "Among upper level executives and middle level executives and suppliers and engineers, there is really a lot of uncertainty about their jobs," says Tursi, a sales representative with a technology company.
Her real estate agent, Furhad Waquad of Real Estate One in Bloomfield Hills, Mich., got the idea of offering a car as an incentive when he saw a similar promotion by an agent in Florida.
"I said, 'You know what, Courtney, this will get more people to look at the house,'" Waquad says. The BMW lease has indeed provoked more inquiries, but not many more buyer visits. Tursi vows she'll rent out the house rather than lower the price once more. "I don't see a reason to drop it again," she says. "It's a beautiful house. If I could pick it up and take it with me, I would."
Some of Waquad's clients are taking their properties off the market, renting them instead. Some offer a lease with an option to buy, an alternative rarely seen in decades.
Others are trying to sell "short," for less than they owe. One client asked $120,000 for her house, but the best offer she received was $97,000 -- less than she owed. She presented the offer to her lender, but the bankers demanded she make up more of the difference from her own pocket. She could not, so it was foreclosed upon, Waquad says.
"I recently sold a house in Rochester Hills," Waquad says. "It was purchased a year ago by the seller for $615,000 -- a newer house. He changed all the appliances, the carpets and painted. He never lived in it. He must have spent at least $20,000 to $30,000 fixing it. We got it for a buyer for $440,000."People who bought recently and have little equity are in the most difficult situation, says Vince Rizzo, managing partner and broker for HungryAgents.com, a St. Louis-based referral service through which sellers negotiate with local agents for lower commissions. "There are so many people now that borrowed 95% or 100%, and with the market slipping back a little, and you have to pay 6% commission, you are going to have to bring money to the table," Rizzo says.
The world of the short saleShort sales have become increasingly common. Sue Hunt, of Consumer Credit Counseling Service of Greater Atlanta, says that her nonprofit is currently advising "50 or so" clients to short-sell their homes to try to avoid foreclosure. (Read "Facing Foreclosure? 9 options.")
Margot Murphy, a Portland, Ore., real estate agent, trains brokers in short sales through her company, Real Estate Pro Guides. It's not easy to negotiate a short sale in which the bank must swallow a loss. Mortgage bankers are often slow to recognize how slow their markets have become, Murphy says.
"Some lenders are great with it and others, you just beat your head against the wall and say, 'What's wrong with this guy?'" Agents must make the case that a foreclosure could cost the bank even more. Since foreclosures yield no commissions, agents are motivated to achieve a short sale, in which the mortgage lender pays the commission.
Nationally, perhaps a half million loans yearly are eligible for short sale, Murphy guesses. Terms like "loss mitigation" and "customer retention" are new mortgage banking buzz words. She describes "a kinder, gentler mentality" in loan-servicing nowadays "because mortgage lenders want to have a good reputation with their borrower-consumer, to assist them with other options instead of slamming down the hammer."
Sellers let go dreams of fat profitsAnother factor in the stalled market is home sellers' difficulty in letting go of last year's prices. "If you tell someone in San Diego that they will only get 12% (profit) for their property, they look at you like it's a disaster," says San Diego agent Steve Faulkner, of Exit Realty. "They are so conditioned to a 25% increase that they just think that's what they should get."
Faulkner says speculators are being blamed for running up San Diego prices. Now, with home sales down by 24%, many investors want out. "If you own 10 properties and your interest rate is going up, it's better to just sell the home and get out of it," Faulkner says.
A recent search of Craigslist.org's San Diego's real-estate listings for "motivated seller" yielded 77 listings. "Must sell" turned up 68. Another 21 listings appeared in a search for "short sale." Some sellers disclose personal details -- "partner died," or "I just want to break even and get out of the loan because of a divorce" -- in ads.
But some of those desperate-sounding sellers are probably agents like him, Faulkner says. An e-mail marketing specialist, he writes ads to capture buyers for his clients and other realtors, too.
He smells opportunity in this market. "The bargain hunters are starting to appear," he says. "They weren't there three weeks ago." Faulkner targets them and lower-income people who think they're ineligible for loans with pitches like this: "Call Toll FREE **Distress Property** Hotline for Special Recorded Message About Where to find Motivated Sellers."
"We used to have to call clients all the time," he says, "now they're calling us." (For more, read "The safest ways to buy foreclosures.")
To some sellers, it can't hurt to enlist a little heavenly intercession. Myth has it that a statue of St. Joseph can be buried upside down in a property to enhance its chances for sale. The Charlotte, N.C.-based CatholicCompany.com sells a St. Joseph home sale kit, including statue, instructions and a prayer. It's a popular seller, says Les Teahl, customer service manager, but no more now than before.
Teahl and his wife recently got the kit to help sell their home in Charlotte. He recommends against burying it. Instead, he advises, put it in a place of honor, a spot like the corner of his home with an American flag, a big crucifix and photos from his son's wedding.
"We've had people do that and next day the house sold," Teahl says. "It's got a high success rate."
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