Why homeowners hesitate to sell
After three years of house hunting, Ben and Phyllis Berkley have given up the idea of selling their Fullerton home of 29 years and buying a newer one.
Instead, the couple is staying put, remodeling their kitchen and doing other upgrades.
“We’re not going to sell our home until we find a home we can move to,” said Ben Berkley, a 61-year-old attorney. “We cannot replace our home. What’s out there would be less than we have now for more money.”
The Berkleys are grappling with one of the new challenges of the rebounding Southern California real estate market.
By all accounts, it’s a great time to be a home seller. Competition is minimal. Multiple offers are common. Motivated buyers are clamoring to outbid each other, often offering cash above the asking price.
Yet, many would-be sellers aren’t selling. One reason: Their options for buying a replacement home here are limited.
Orange County had just 4,423 for-sale listings this month, according to Steve Thomas of ReportsOnHousing.com. That’s 21 percent below last year’s inventory levels and 57 percent below the average for the past nine years.
“You can sell, but where are you going to live?” said ERA North Orange County agent Tova Oren.
“The reason there is so little inventory,” added San Clemente broker Bob Hunt, “is that there is so little inventory.”
Homeowners who sell and want to stay in the area often must be flexible. Some rent while they look for replacement homes.
Others have found creative ways to make a deal work for them in a tight market. Rachel Ridnor and Patrick Krabeepetcharat, for example, sold their Irvine condo in February. Then they negotiated an extended lease-back deal with the buyers so they could remain in the condo and take their time finding a new home.
After viewing 30 homes and making offers on 10, the couple abandoned their hope of buying in Irvine and found a deal on a two-story home in Lake Forest instead. They moved this weekend.
But Ridnor said they almost didn’t list their condo in the first place because they worried about buying their next home.
“In this market, you don’t know when you’re going to find a house,” said Ridnor, 31, a sociology professor at Orange Coast and Saddleback colleges. “It’s really rough out there. The house we ended up getting had 11 offers on it. It’s crazy.”
It’s a wild market for agents as well as home shoppers.
Oren said that she has only five or six listings these days, compared to 10 to 12 a year ago. Dana Point broker Michael Caruso, a former Orange County Association of Realtors president, had no listings as of June 21, and only one expected this past week. He normally has 12 to 20.
Other factors contribute to the inventory shortage.
Many homeowners still can’t afford to sell because they would take a loss, local agents say.
As of March, almost 61,000 Orange County homeowners still were “under water” – that is, they owed more than their homes were worth, according to real estate data provider CoreLogic. Nearly 16,000 more had 5 percent or less equity, making it impossible to cover selling costs after a transaction. Together, those two groups make up 14 percent of Orange County’s mortgage borrowers.
Other homeowners are holding out for more money, believing that home prices are going to go higher.
First Team agent Kathe van Hoften met with a Mission Viejo homeowner who bought a new home but refused to sell her old one. The owner decided instead to rent out the property and wait for higher prices next year.
“She just wants to squeeze everything she can get out of the market,” van Hoften said.
For people who want to become renters, or who are moving out of Orange County to less-expensive markets, selling isn’t a problem.
But move-up buyers, down-sizing buyers and people just looking for a better location are having a tough time finding replacement homes.
Oren tells clients the only way to move is to sell and then either move in with relatives, stay in a motel or rent a home temporarily while house shopping.
One client spent $2,000 a month living in an Extended Stay motel while house shopping, finding a new home to buy after two months.
“It’s not comfortable to stay in Extended Stay,” Oren conceded. “They were nervous, and I was nervous. The whole market is a little nerve-wracking.”
Tom Pelton, manager for Prudential California Realty in north Orange County, said his team is developing strategies for making offers to buy contingent on selling the old place
But others say it’s futile to make contingency offers in the current market because sellers can easily find other no-strings buyers.
Oren made six contingency offers on behalf of the client who ended up in an Extended Stay motel. “None of them were accepted.”
Van Hoften instead urges sellers to consider lease-backs or try making their sale contingent upon finding a new home – the flip side of a buyer’s contingency offer.
In a normal market, such requests might turn off potential buyers. But not now.
“Sellers have more negotiating power,” van Hoften said. “They could really ask for the moon. Because inventory is so low, (buyers) have no where else to go.”
But some homeowners have given up trying to sell.
Ben and Phyllis Berkley determined after three years of house shopping that there’s no place like their current home. Newer homes the couple considered cost more, have smaller yards and less square footage, Ben Berkley said.
“There’s very little inventory out there. (And) part of the problem is, even if we see something that we like, we’re competing with all-cash buyers, which makes it very difficult,” he said. “It’s almost like the whole market is upside-down.”
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