When prices rise in the real estate market, the first step is a simple procedure: Sellers list their property for more than they paid for it. It happens all the time. There is no listing in Malibu that is below the sale price of its last transaction.
The second step is the buyer’s response. Typically, the buyers comply. They offer a price that is higher than the house ever sold for previously. Such is a rising market.
How much higher will a house sell than before is the burning question of the marketplace. The wishes of the current crop of Malibu sellers are this: Much higher.
Seventy-two homes listed for sale locally were purchased in the past 10 years; their previous price is known or reasonably estimated. You would never guess it is the same house in most instances, by price alone.
The chart on page A15 lists all the 177 single-family homes on the market in the Malibu/90265 zip code as of May 20. Besides the list price (with no distinction as to location or property characteristics), the column reveals the last transacted price if within the past decade. (The majority of listings, meanwhile, are homes on the market for the first time or homes with owners of 10-plus years).
Take a close look. You will see why real estate agents have a tough job. The task is daunting. Agents are employed to convince buyers that a home is worth dramatically more dollars than were paid last time.
The median price of a Malibu home sale this spring is approximately $1.3 million. The median price, or mid-point, of all the listings sits at $2.2 million. That means that about half of the listed homes in Malibu are for more than $1 million above the center of market activity.
It is a phenomenal time. As many homes are available for $6 million as are available under $1 million. A confident economy and delicious interest rates keep the buyers coming. If they are serious, and Malibu is their only choice, the options are few. One hundred and seventy-seven homes are perhaps the lowest inventory in 25 years.
The inventory and asking prices are polar opposites. Let the market be glutted with listings, the prices will adjust downward. In times like these, with intense depletion of affordable homes (rapidly, we are down to 23 homes for sale under $1 million), the sellers grow more demanding.
The constant tug-of-war between demand to live in Malibu and mind-blowing asking prices defines the marketplace. It determines the flow of sales through the pipeline. When demand changes the flow, one element or the other will adjust accordingly. Fewer sales will increase inventory and/or reduce list prices, for example.
If you think the asking prices described here are too high, you can expect inventory will grow and fewer homes will sell. Prices will drop as sales decrease.
The fact that many homes are listed wildly higher than their recent purchase price does not mean the sellers themselves are unreasonable. Many homes have been dramatically remodeled and altered. Even at $1 million dollars or more above the last deal, they may be well priced. Every listing has its own circumstances. Extra land may be added to the property for the current listing, for example. Nevertheless, the bottom line is that many homes in roughly the same condition are seeking giant leaps in price from last time.
Buyers will determine whether those homes keep the market moving upward or stall it out for a correction.
Rick Wallace of the Coldwell Banker Company has been a Realtor in Malibu for 14 years. He can be reached at RICKMALIBUrealestate.com