Milestones in Science Series
Data don't lie, but sometimes they mumble.
Here's a hot tip for you consumers: always insist that the misinformation you're given be "research-driven".
A few days ago a San Jose Mercury News reporter posted on her blog that "sellers (should) stay put in the house while they are selling, because Redfin's study of 3490 California listings found that vacant homes were 9.5 percent more likely to undergo a price reduction". The reporter implies that you can take this nugget to the bank because it's one of Redfin's "research-driven facts about real estate transactions". As opposed to, I guess, one of those pokey ol' experience-driven "facts about real estate transactions".
Yes, and it's the sort of "research-driven" nugget beloved by spreadsheet fans everywhere. It's also the sort of naive abuse of statistics that books are written about.
Let's leave the lab of Mr. Science and descend to Earth, where real life is often played out. Let's say I have clients who are upsizing or downsizing or leaving the area. These clients ask me whether they should buy a replacement home before they sell their current home, or sell the current home first. Or does it matter?
I'll tell them that timing does matter, that it makes a big difference whether they buy or sell first: usually they'll be money ahead vacating their current home, giving it a cosmetic overhaul and staging it for optimum sales appeal. Often that's their inclination as well.
Why? For at least three reasons. First of all, a home that's cosmetically enhanced and skillfully staged appeals more to buyers than a home with the seller's stuff still in it, and too much stuff at that, and most of it bought before the buyers were born. By the way, this isn't "research-driven" advice, it's experience-driven, but you can still take it to the bank. Sellers do.
The second advantage to selling your home vacant? If you're a homeowner moving up or moving down or moving away, how willing are you to sell your current home before you buy and move into your replacement home? Not very. (By the way, I should disclose that, alas, this nugget is also experience-driven, not research-driven.) Selling your home while you and your stuff are in it puts more pressure on you to find a replacement home, any replacement home, and right away. Or it means that you move twice, once into a rental, then again into the replacement home. Neither of these options have been popular with my clients (full disclosure: this fact is experience-driven, not research-driven).
Admittedly, selling your old home after you move into the replacement puts you in the onerous position of owning two homes and making payments on same. How much of a hardship this is depends partly on the size of your dual payments (if any) and how deep your pockets are. It also depends on how long it's likely to take to sell your old home. At least in Silicon Valley's midrange and top-end neighborhoods, you can expect a sale to close in about forty-five days: maybe fifteen or less to get in contract with a buyer, then another thirty days or so until escrow closes. That's manageable for most sellers. But in other markets—or if your home hasn't been properly priced and presented—achieving a closed sale could take much longer.
The third advantage of moving out before you put your home on the market is that a vacant home is more likely to be "previewed" by agents, who are then more likely to get jazzed about your beautifully-presented home and excitedly show it to their clients. And that's how you sell a home: get as many agents through your door as possible. No, it's not the Internet or newspaper advertising or even open houses that sells homes, it's still agents.
But now Redfin helpfully and authoritatively ("data don't lie") tells my clients to stay in their house while they sell. And for my clients, it's almost certainly the wrong advice. Yet Redfin's numbers are almost certainly accurate—it's probably true that vacant homes sell more slowly these days. But Redfin's numbers aren't relevant to my clients. Because, contrary to what the data imply, vacant homes aren't always—and inherently—harder to sell.
Redfin's "research-driven" factoid is relevant in the right context and irrelevant in the wrong context, something neither Redfin nor a certain Mercury real estate reporter seem to realize. So what's all this talk about "context"? Isn't the real estate market just the real estate market?
Well, let's put our thinking caps on. Who's selling vacant homes these days? The usual suspects, of course, the sellers who've had to move before they could sell, and the heirs of deceased homeowners. And yes, these sellers are some of the most motivated in the marketplace, unless the employer is picking up the relocation costs, or unless the heirs can't sell quickly for logistical reasons or don't feel like selling quickly for sentimental reasons. (Nuggets that are experience-driven, not research-driven.) So sure, I can see these vacant homes generating more than their share of price reductions.
But who else is selling vacant homes in California these days? Uh, uh, it's right on the tip of my tongue...oh yeah! Builders! And busted speculators! And banks! And maybe short sellers, yes, lots and lots of short sellers, homeowners one step ahead of foreclosure! They're motivated sellers, you think? And these motivated sellers have plenty of like company in their marketplaces, especially in places like the Central Valley: other busted speculators and other bank-owned properties and other short sellers and then there's regular old sellers who've moved on and want to sell or have to sell, all competing desperately with desperate homebuilders desperately cutting their loses by desperately banging out yet more homes they can't sell except at lower and lower prices, and all these desperate sellers writhing against an inferno of plummeting prices.
Think there might be a price reduction or two in that group?
And how is this flotsam and jetsam of shipwrecked housing markets the same as those clients of mine who've calmly asked me whether they should sell first or buy first, clients who have the luxury of selling in one of the few seller's markets left in the country, and in one of the few markets where a vacant home actually has the advantage?
So how helpful is this "tip" from Redfin, sold to you as revealed truth by that friend and faithful advisor to the real estate consumer, the Mercury News?
Whenever you're on the wrong end of a hot tip, always consider the source. Why would Redfin release this nugget without the qualifying explanation it needs to make it a real consumer "tip"?
One answer might be that no one at Redfin World Headquarters knows it needs a qualifying explanation. And what the heck, it got them a free plug. Again. And no one can say that Redfin doesn't know how to get a free plug. Here's a brokerage with a handful of fresh-faced agents and a market share that's less than zero, yet it's a TV cause célèbre and lovable cuffable media darling. Why? Because as the media will tell you, news is all about "new". Redfin is new, and a whole lot cuter than the average paunchy fifty-year-old discounter. And how many discounters will swear that a certain renegade poet is his guiding light? (And who's heard of Ezra Pound anyway these days except pipe-smoking English Lit professors and maybe a handful of cultivated old boys in the upper echelons of the media? Has the former-bike-messenger-turned-real-estate-mogul discovered the old-boy network's secret handshake?)
Yes it's as simple and brainless as that. Which is to say that Redfin is more pop media event than discount real estate brokerage. Which if you're Redfin happens to be a two-edged sword. Because in a few years Redfin won't be new anymore, and instead it'll be just another start-up burning through its funding, and there'll be another Redfin with another media-savvy CEO ready to take its place, and he or she is taking notes right now.
Even the Mercury News describes Redfin as "perhaps most famous for annoying the heck out of the National Association of Realtors during a '60 Minutes' piece about eroding real estate commissions". In other words, Redfin is real estate's Gabor Sisters: famous for being famous.
And let's not forget the media who keep Redfin famous for being famous for being famous. Still keeping those real estate reporting standards high, I see.