Is an open house a waste of time?

Agents admit that few sales traditionally come from open houses. And now the Internet is making them even less valuable.
By Melinda Fulmer

Los Angeles real estate agent Liz Johnson loves open houses, but not because they move her properties. The real reason Johnson holds them is because they bring her more business.

Prospective home buyers walk through and ask what other listings she has. "They've always been better for agents than sellers," she says.

The proliferation of Internet listings and other online real estate information is quickly making open houses more of an option, rather than a requirement for selling a home. In 1995, just 2% of home buyers used the Internet to look for a home, according to the National Association of Realtors. Last year, 77% of home buyers shopped online.

Indeed, only 2% to 4% of Johnson's listings sell from open houses. "It's not a necessity," she says.

Agents, sellers question effectiveness
For the most part, Johnson, an agent with Dilbeck Realtors and a 25-year veteran of the real estate business, doesn't hold open houses for her listings unless sellers press the issue. Most of her sales come from her contacts with other agents and from the multiple listing service, she says.

Many agents now refuse to hold open houses, considering them a waste of time, and a security threat. And many sellers now prefer to open their doors to serious buyers only.

"They're not effective," says Daniel Fellars, a 29-year-old software engineer from the San Diego suburb of San Marcos, Calif., who recently put his four-bedroom, two-and-a-half-bath home on the market. A series of open houses did little to move Fellars' former house, which sold about a year ago. "We had an open house five weeks in a row and never got a single person to come to our house," he says.

This time around, Fellars has decided to forego scheduled open houses and simply give potential buyers private tours of his house as needed. He has posted 30 pictures on his home blog, linking it to Google, Craigslist and other popular Web sites. In the next week, he will add a video tour, showing every nook and cranny of the house, much as an agent would.

So far, the blog has brought in about 20 interested buyers, but he has received no offers. Fellars says he knows he faces an uphill battle, given the slowing housing market and the other four houses for sale on his street. But a few of Fellars' neighbors recently had open houses and he says, "I haven't seen any cars in their driveways."

Open and shut
Consumer sentiment about open houses has waxed and waned over the years, along with the ups and downs of the real estate market. In 1995, 41% of buyers surveyed relied on open houses to sell their home, according to data from the NAR. By 2000, it had dropped to 28%. Beginning in 2003, however, as the market started to heat up again, that number began rising. By 2005, the last year for which data is available, 51% of all sellers were using open houses, though not all agreed they were effective. Some 45% of sellers found open houses only "somewhat useful" and another 12% didn't consider them useful at all, according to the NAR.

"Many sellers are just a little bit leery of having an open house," says Pat Vredevoogd, agent and broker-owner of AJS Realty in Grand Rapids, Mich., and incoming NAR president.

Some, she says, are worried about letting complete strangers roam freely through their house, with access to electronics, jewelry, prescription drugs and personal information.

Others just don't want their neighbors and a host of other so-called "looky-loos" wasting their time just for a look at their décor.

And many agents won't do them for security reasons, as a number of their fellow Realtors have been attacked and some even killed, as they sat in an empty house alone and vulnerable.

Vredevoogd, herself, isn't keen on them. While they have proved helpful over the years on some of her more expensive listings, most didn't produce a sale. "Over the past year, maybe two or three of the 50 houses I sold were from an open house," she says. "Personally, I think it's a waste of time. It's one of those things that has gone by the wayside."

Before jumping into an open house, Vredevoogd counsels her clients to put the house up on the local MLS and other Web sites, with a lot of pictures and perhaps a virtual tour if the home has a lot of nice features. She sends out a barrage of e-mails to other agents and makes some calls. If the house isn't getting a lot of interest, only then will she go through with an open house.

Online house hunting
"There's no doubt about it, the Web is changing real estate," says Colby Sambrotto, chief operating officer of ForSaleByOwner.com. While his site, which lists about 100,000 homes a year, gives people the tools to hold and advertise an open house, he thinks more of the browsing is now done online.

Home buyers, he says, don't want to spend a day in the car with a Realtor like they did in years past. Many people want to spend an hour or less, and zip out on their lunch break to see a house.

While this may inconvenience sellers, who have to show their house more often, Sambrotto says it's worthwhile because these parties are more serious. "They're not looky-loos," he says. "They've done their research."

When open houses still make sense
There are times, says broker Greg Meer, Sr. of Keller Williams Realty in Las Vegas, when an open house is not practical at all, such as if a house is off the beaten path, or in a gated community. Likewise, it might be best to avoid an open house on a shabby listing or one that requires a lot of work. It probably won't get much traffic, he says, and agents will be reluctant to have their name advertised heavily in association with it.

But an open house can be a valuable opportunity to get feedback about what is and isn’t attractive about a house, Meer says. He cautions buyers against holding them too often, however. "It can send a signal that (a house) is a little bit market worn and a tough property to move."

In Meer's opinion, an open house is only worth having if it's done properly. That involves sprucing up the house and its landscaping and advertising it well in advance. "Over the past couple of years, people got spoiled by being able to throw up a sign and get lots of traffic," he says.

Desperate measures
Nationwide, home sales are expected to drop 6% this year, and sellers in many markets are already dropping their prices. That may prompt more agents to turn to open houses as a last-ditch effort, Vredevoogd says, after years of avoiding them. "In a buyer's market, if you are a seller you want to try everything."

In many markets, that includes hiring a professional stager to make your home look brand new, or at the very least, tastefully appointed. Gail Mayhugh, a professional home stager and owner of GMJ Interiors in Las Vegas, said she has seen an uptick in her business as the once-hot housing market has cooled.

"All of a sudden the agents are calling me for open houses," she says, and many are willing to spend part of their commission to make their property stand out. "There were 19 of the same floor plans for sale in one neighborhood," she recalls.

And while open houses may be declining in many parts of the country, some neighborhoods are finding them effective ways to raise the profile of an entire community, if they are all done at the same time. Recently, four neighborhoods in the Grandmont Rosedale area of Detroit teamed up for a joint open house with 35 of the area's homes open for viewing on a single day. And developers in Long Beach, Calif., showed 2,300 housing units in that city's downtown on May 20, in an attempt to stimulate sales.

See-it-to-believe-it homes
To be sure, in some cases, a house is just too unique to market without an open house. Art professor Mercedes Teixido and her husband have had three open houses in the six weeks their two-bedroom Pasadena, Calif.-home has been on the market -- the most recent was held after they had already accepted an offer.

Their house, they say, is the kind you have to see to believe. "It has a unique sensibility," Teixido says, with spacious rooms and a large amount of built-in furniture that was done by hand, including the master bed and nightstands.

The photos on the MLS didn't do these features justice. And getting people in from her surrounding neighborhood did help. She has now accepted an offer and has a back-up offer just in case.

"Part of the reason for having an open house," she says, "is you do just want to find someone who falls in love with it."

Housing's Soft Landing Won't Be

By RICH TOSCANO
Thursday, May 11, 2006

It's time to wrap up the series on real estate market misconceptions with a two-parter on the granddaddy of them all: the frequent claim that the San Diego housing market, its multi-year moonshot now drawing to a close, is straight on course for a soft landing.

"Soft landing." The phrase is routinely invoked by just about every housing pundit in Southern California. But what does it mean?

Some analysts have used the term to describe a few years of stagnant -- but not falling -- home prices. Their more optimistic brethren have forecast an environment in which prices rise only at the rate of inflation, or, more optimistic still, at a "modest rate" of 5 percent annually.

Variations on the theme notwithstanding, the forecasters have one thing in common: They all assume that a soft landing is the most likely outcome for the San Diego housing market.

Predicting the future is, as I've discussed before, a dangerous business. Exogenous factors are certain to have an influence that simply cannot be predicted, making it a bad idea to insist that one outcome or another will necessarily come to pass.

But if one can't predict anything with outright certainty, one can evaluate degrees of likelihood. And the facts in this case indicate that a soft landing is very far from the sure thing that it's often promised to be.

The soft-landing thesis is primarily based on two historical realities. One is that home prices have rarely declined outright. When homes have gotten too expensive in the past, price appreciation has usually just flattened out for a while until incomes could catch up and even things out.

The second historical fact is that those few instances where prices actually did drop have taken place when large numbers of people were forced to sell their homes due to recession-induced loss of income. Given San Diego's low rate of unemployment, housing commentators cite this precedent as proof that home prices will remain firm.

The analysis offered by soft-landing proponents seems reasonable on the surface, but in truth it fails to take something two crucial factors into account. The first, to be discussed in part two of this article, is the almost inevitable upturn in forced selling that is waiting in the wings. But the second, more important factor, is the enormous extent to which the current home-price runup has dwarfed the prior booms to which it is being likened, rendering such comparisons fairly useless.

For an idea of just how big a housing boom we've been through, have a look at the graph comparing home price growth during the 10 years leading up to the housing market peak in 1990 versus the 10 years leading up to 2005. In the first decade -- a period during which San Diego experienced a housing bubble that eventually led to home price declines -- prices rose by 85 percent.

For all of that late-1980s bubble's notoriety, however, the decade leading up to 2005 saw prices rise at two-and-a-half times the clip, increasing by 239 percent.

What's more impressive is that inflation was higher during the 1980s than during the 1990s, meaning that the difference in "real" home prices is even more extreme than the above graph indicates. This graph shows the growth in the ratio of home prices to median incomes during both periods. The home-price-to-income ratio increased by 10 percent in the decade leading up to 1990, versus an incredible 119 percent in the ten years leading up to 2005.

This graph shows that we are now at a point where homes are substantially more expensive than they have ever been in the past 30 years. Measured by the ratio of home prices to median incomes, homes are 73 percent more expensive than their three-decade average and 55 percent more expensive than at any prior bubble peak.

Even by housing bulls' beloved comparison of monthly payments instead of overall prices -- a tactic that, among other flaws, requires one to depend on endlessly low interest rates in order for prices to stay aloft -- people are paying significantly more each month than they have since the bad old days of high-teen mortgage rates in the early 1980s.

The current expense of local housing, and the enormity of the bull market leading up to it, defies comparison to past situations. It simply does not make sense to assume that the aftermath of this history-making price explosion will be anything like that of those prior, comparatively pint-sized housing booms.

Next week we will look at just how long it would take for home prices to normalize under the various soft landing scenarios offered up above -- along with some of the challenges that will face the market during that time.