Harry Kolb of Sotheby's Montecito talks about Market Trends in Santa Barbara County

Harry Kolb of Sotheby’s International Realty® Reviews Recent Trends of Montecito Estates over $5 Million in his Newsletter "The Little Woods."

By now it’s no surprise that estate sales were down last year. In 2008 we sold 57 homes in our area for over $5 million compared to 66 the previous year. Even though this represents a 14% reduction in the number of homes sold, that number was still well over the previous three years when we averaged 45 homes sold.

Looking at the various communities in our area, the sale of significant homes in Montecito didn’t slow dramatically until after September with the failure, merger or conservatorship of several large United States-based financial firms. But the market for homes valued over $5 million was slow all year in Hope Ranch, Santa Barbara and for all oceanfront properties in general.

In Hope Ranch, last year’s sales for homes over $5 million were down to 4 homes sold compared to 13 the previous year. In Santa Barbara the number was 0 for last year compared to 3 in 2007. On the beach, sales were down from 11 to 9. Perhaps the most telling segment of our market was that priced over $16 million where we only sold 5 homes last year compared to 10 the previous year. That may not sound like such a terrible value until you realize there are over 50 homes on the market or quietly available with an asking price above $16 million.

Another important measure of market strength is the average sales price compared to the last asking price for those homes sold. Last year, as you would expect, the average buyer expected a larger discount from the seller’s asking price. The discount between the last asking price and the eventual sales price increased from an average of 5% in 2007 to 8% last year. That’s the largest change in this key measurement since I’ve been keeping records for the past 20 years.

To keep this value in perspective however, you should know that each of the 57 transactions varied widely based on particular buyer and seller motivation, the features of the property and the reasonableness of the particular asking price. Twelve of these 57 homes actually sold for full price and a few sold for even more than full price!

But perhaps an even more alarming trend that was evident during the last few months of last year was the request by the buyers for a last-minute reduction in price just before their escrow was due to close – often well after all their contingencies were released and the seller thought he had completed all negotiations. This can create an uncomfortable situation for a seller who may feel he has already reduced his sales price more than he had ever thought necessary, only to then be faced with the choice of accepting even less for his home or to cancel the transaction and adjust all his alternative plans as well. Most sellers accepted the reduced terms.

This was an alarming issue here in our area because it almost never occurred before. I would warn any seller to work diligently at making their escrow as secure and iron-clad as possible. Attempt to have the buyer release all or a significant portion of his deposit as soon as possible to insure as secure a transaction as possible. Many sellers think that the buyer’s deposit in escrow is theirs if the buyer does not perform in accordance with the terms of the purchase. This is not the case. The deposit is a token of faith submitted to escrow by the buyer as part of a unilateral agreement and requires the consent of both parties, the buyer and the seller, for the escrow company to do anything with it – to return it to the buyer or to release it to the seller. Without the full consent of both parties, escrow can’t take instruction from either party alone. This is why it’s helpful for a seller to have a release of a significant portion of the deposit written into the initial agreement. This release usually occurs after the buyer has released his contingencies so the seller knows there is that added motivation for the buyer to perform as expected, or lose the released deposit. This provision at least encourages a buyer to employ any re-negotiations at the time he is removing his contingencies and not to wait until the very close of escrow.

As an alternative to having a portion of the buyer’s deposit released to the seller prior to the close, a seller may also negotiate to retain possession of the property by renting back from the buyer after the close of escrow. The rental period usually runs for two to four weeks or enough time for the seller to move from the property after the close. This protects the seller from at least the turmoil of physically moving from the home until the transaction has been completed to everyone’s satisfaction. As has been the case for a number of years, Sotheby’s continued to dominate the sale of the more expensive homes in our area. Last year our firm represented 29 sides of the sales over $5 million compared to our next closest competitor who represented 23, and 18 sides over $16 million compared to 7 for our next closest competitor. If I can assist you with the sale or purchase of property, I hope you’ll feel you can rely on my assistance.

(From agent's January 2009 Newsletter)

Harry Kolb

Sotheby’s International Realty® 1106 Coast Village Road, Suite D Montecito, CA 93108 Telephone: 805.452.2500

For more information email Harry Kolb or to sign up to receive PERIODIC MARKET UPDATES visit his website at www.sbestatehomes.com.