UCLA Anderson School Forecast & Santa Monica Real Estate

The most recent (March 11) UCLA Anderson School economic forecast suggests that the California economy will remain weak but not slide into recession. Full report here: UCLA Anderson School Report

There is a chicken-and-egg relationship between the state of the economy and the real estate market: a weak real estate market is a drag on the economy and concerns about the economy lead to a weak real estate market. I have long been of the belief that consumer confidence is no less than second to interest rates as a gauge of activity in the real estate market and right now that confidence seems shaky.

As a Santa Monica realtor, I’m seeing the number of transactions in the first three months of the year drop roughly 50 percent compared to each of the past four years.

For buyers, at any rate, the situation is not bleak: I just represented Buyers getting an accepted offer on a 2-bedroom condo within walking distance of Main Street for less than $500K…a year ago, that couldn’t have happened.

For more on the Santa Monica real estate market, click on the Santa Monica Homes link on the Blogroll at the right of this screen.

Sellers: looking at contingent offers

Virtually every real estate contract has contingencies that the Buyer must meet or otherwise have an option to withdraw from escrow. The three traditional major contingencies are the ability to get a loan for specified amounts at specified terms, the acceptance of the result of a physical inspection and other due diligence, and a review of documents pertaining to the property, such as a preliminary title report.

But the current market is seeing a new contingency that we haven’t seen much of at all in the past 12 or so years: Buyer’s offer is contingent upon the sale of the Buyer’s property. In the past few years, Sellers would have laughed at such a contingency…why wait for the Buyers to sell their property when you can get another three or four or eight offers without that contingency?

But times have changed. Now, with many properties being on the market for 60, 90, 120 days or more, Sellers may be more willing to consider an offer contingent upon the sale of the Buyer’s property.

There are many factors that a Seller should consider, including length of time the Buyer has to remove this contingency, how attractive the property is and how well priced it is (to gauge the likelihood of reasonably prompt sale), the apparent willingness of the Buyer to do what it takes to get their property sold and assessment of the Buyer’s real estate agent’s ability to successfully market the Buyer’s property.

There isn’t a simple, clean set of answers to these questions. If Sellers have their property listed with me, I will walk them through the questions and answers as I evaluate them, giving them the benefit of my 17 years of experience, including experience gained in the last down market of 1990-1996.

When the market changes as it has over the past few months, Sellers have to change and adapt with it. Carefully considering a contingency of the Buyer’s selling their home may be a prudent thing to do if the offer is otherwise solid and if the prospects of the Buyer doing so look good within a specified period of time.