Days on Market - not always what it seems

A client of mine let me know how excited he was about a TIC (Tenancy-in-Common) he saw at 1551 Filbert Street. Priced at $729,000 the apartment had apparently been on the market for 34 days. This is about the time that San Francisco listings become "stale" and ripe for negotiation. What's more, the person hosting the Open House claimed that he was the owner, and if the Buyer worked without an agent he'd save on both ends of the commission and would drop the price to $685,000.

My client shyly shared this story with me because he didn't want to upset me, nor miss out on the opportunity. But this is just where the story begins, and the reason why I say over and over again "be careful of listing agents who say you don't need your own agent."

The reality of this listing is that it's been on the market for over 10 months. It's been taken off the MLS (Multiple Listing Service) twice, only to be re-listed soon after. The effect of the re-listing is that it appears to be a NEW listing, and the Days on Market (DOM) starts all over again. The first time it went on was January 26th 2006 priced at $749,000. 5 months later they dropped the price to $729,000, and 5 weeks after that they took it off the market for the first time - this was July 27th, 2006. On July 31st it was re-listed at $729,000 and after 25 days was removed once again. On Sept 11th 2006 it went right back on, priced once again at $729,000. My client visited it for the first time on Sunday October 15th. Per the MLS, they never went into contract, so they either never got an offer in 10 months, or never one they accepted for which the Buyer cancelled. Either way, this is RIPE for negotiation, and my initial reaction in seeing the 10 months of no offers was that it isn't even worth $685,000.

The next step for me - after discovering that with 10 months of marketing, a price change, and 3 listing periods, they STILL can't sell it - is to find out why. The obvious answer is that it must be priced too high, so I'll need to run a "CMA" (Comparable Market Analysis) to find the sales prices of similar properties that have sold recently. To do that I need to know the property's features. One is it's size, and here's another VERY UNUSUAL item in the listing that ALL buyers would miss. The Square Feet is listed as 980, but the "source" is "measured by Agent". That's the first time I noticed that, and since the person hosting the open house also seemed to indicate that he was the agent as well as the owner, it all started to sound a little too fishy... enough so that I'd suggest not trusting his measuring ability.

But here is a rough CMA - a report of all TIC sales in the past 6 months with 1 to 2 bedrooms, and 1 bathroom, within a 1/2 mile radius of 1551 Filbert (reports expire after 30 days - email if you'd like it recreated and emailed back). The "average" sales price is $645,850 which is often the most likely fair market value for the subject home. So his offer of $685,000 doesn't sound like much of an offer. On the other hand, two other apartments in the same building sold for $769,000 and $708,500. Frankly, I think both over-paid since the $769,000 took 94 days to sell, and the $708,5000 104 days to sell. I'd never advise my buyers to pay "asking" price on anything that's been on the market more than 60 days, but that's negotiation for you. But since the more recent sale was $708,500, this is the MOST the remaining apartment is worth in my mind. But since it's been another 4 months without a sale, I'd definitely go lower than that.

Secondly, in 6 months only 10 other comparable TIC's have sold, or an average of less than 2 per month. Yet 11 are on the market right now, which is 6 months worth of inventory. So it could be 6 more months before 1551 Filbert #4 sells (if it ever sells the way it's going). Thirdly, while the average of those that sold is $645k, the majority sold for $675,000 or less with 4 in the mid to low $500's. Additionally, while this apartment has parking, it is a shared "tandem" spot, which certainly reduced convenience and reduces the property's value.

Finally, I ran a CMA for Condos which are known to be worth more than TIC's for several reasons (see my previous post), usually running 10% to 30% more than TIC's. So this Condo CMA shows the average sales price of similar size and location Condos is $728,000. In other words, at the current 10 month long listing price they have it priced like it was a Condo, and not a less valuable TIC. Knock off 10% (the least I'd suggest) and you've got a $655,000 fair market value which roughly matches the TIC CMA.

My client is debating making an offer because, after hearing all of the above details, he is turned off to the property. But if he still likes the place, I'm encouraging him to make an offer matching the "average" of $645,850, or maybe even less and seeing how the other side responds.

For similar due dilligence on any property you are interested in, feel free to contact me.