Selling an Investment Property in California
Selling an Investment Property in California
I’m seeking both insights and information concerning the sale of a California house.
The details:
— This is a duplex, an investment property, and has been handled by a property management company for over ten years. We have been quite satisfied with their management.
— The property is located in the Monterey Peninsula area.
— There’s no urgency tied to the decision to sell; it’s more of a sense that this would be a good time to do so.
The questions:
— For those of you in the know, are there any timing factors that would either encourage you to put a home on the market this year, or discourage you from doing so?
— The US has changed the rules about real estate commissions. This only came into effect last summer. Have clear implications come about since then? I get the idea that a seller may be paying 3% of his/her own agent, and either requesting or assuming that the other 3% will be covered by the buyer. Does that sound right? And has there been any movement (as in, reduction) on the overall 6% fees for realtors?
— How important is it to get multiple bids from realtors to list this property? The property management company currently involved has a brokerage arm. My guess is that they would expect to get the listing. They certainly would be well informed about the property. What would you consider to be the priorities in this case… seeking the best price for the home, a reduced commission for doing so, or maintaining a good relationship with the current property management group?
— Any other factors I’m not considering that need to be?
As always, thanks in advance for whatever light the forum can shed on this venture.
The details:
— This is a duplex, an investment property, and has been handled by a property management company for over ten years. We have been quite satisfied with their management.
— The property is located in the Monterey Peninsula area.
— There’s no urgency tied to the decision to sell; it’s more of a sense that this would be a good time to do so.
The questions:
— For those of you in the know, are there any timing factors that would either encourage you to put a home on the market this year, or discourage you from doing so?
— The US has changed the rules about real estate commissions. This only came into effect last summer. Have clear implications come about since then? I get the idea that a seller may be paying 3% of his/her own agent, and either requesting or assuming that the other 3% will be covered by the buyer. Does that sound right? And has there been any movement (as in, reduction) on the overall 6% fees for realtors?
— How important is it to get multiple bids from realtors to list this property? The property management company currently involved has a brokerage arm. My guess is that they would expect to get the listing. They certainly would be well informed about the property. What would you consider to be the priorities in this case… seeking the best price for the home, a reduced commission for doing so, or maintaining a good relationship with the current property management group?
— Any other factors I’m not considering that need to be?
As always, thanks in advance for whatever light the forum can shed on this venture.
"We don't see things as they are; we see them as we are." —Anais Nin |
|
"One really cannot ask for more in life than to have mattered to other people.” —Valuethinker
Re: Selling an Investment Property in California
Everything with the new rules is negotiable. Realtors will tell you they always were.
Say the seller paid the 6% (3 +3%) in the past. Now, you talk to the realtor/prop management group and discuss the fee.
You might say "I'll pay 2.5% for the seller portion. I want the buyer to pay their fee." They might accept or negotiate.
You might say "I'll pay 2% for the seller portion and I'll pay 1% of the buyer portion." etc etc. The buyer negotiates their fee on their side.
The realtor may say "the best way still is for the seller to get a higher price and pay the 3+3% for the seller and buyer." Status quo, etc.
The wildfires have caused a house shortage, so I assume anywhere in the region it is probably a good time to sell out there. I have no knowledge of how far displaced CA residents will look. Will people go from South to Central CA or Northern CA? Lots of remote workers these days.
I'd talk to your prop manager/realtor and discuss high level what a sale might look at. You only sign a contract if you agree to terms. Seems easy, but I imagine it is never quite that simple.
The higher the property value, the more meaningful each percentage of fee is, so you may have to determine a baseline selling price. You can always try for sale by owner or other services that set a fixed fee sort of price.
Good luck. Hopefully others add some thoughts.
Say the seller paid the 6% (3 +3%) in the past. Now, you talk to the realtor/prop management group and discuss the fee.
You might say "I'll pay 2.5% for the seller portion. I want the buyer to pay their fee." They might accept or negotiate.
You might say "I'll pay 2% for the seller portion and I'll pay 1% of the buyer portion." etc etc. The buyer negotiates their fee on their side.
The realtor may say "the best way still is for the seller to get a higher price and pay the 3+3% for the seller and buyer." Status quo, etc.
The wildfires have caused a house shortage, so I assume anywhere in the region it is probably a good time to sell out there. I have no knowledge of how far displaced CA residents will look. Will people go from South to Central CA or Northern CA? Lots of remote workers these days.
I'd talk to your prop manager/realtor and discuss high level what a sale might look at. You only sign a contract if you agree to terms. Seems easy, but I imagine it is never quite that simple.
The higher the property value, the more meaningful each percentage of fee is, so you may have to determine a baseline selling price. You can always try for sale by owner or other services that set a fixed fee sort of price.
Good luck. Hopefully others add some thoughts.
Re: Selling an Investment Property in California
Are you looking to get out of real estate and pay cap gains?
Or do you want to 1031 exchange into something more local/easier to manage?
Or do you want to 1031 exchange into something more local/easier to manage?
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Re: Selling an Investment Property in California
Neutral on time to sell, seems like a balanced market in most of the areas of California I pay attention to. But as you know, everything is location dependent. A duplex in Carmel or PG is likely going to generate far more interest than in Marina or Seaside.
You negotiate your agents commission. Up to you if you want to advertise a willingness to cover buyers agent, however even if you don’t you should expect offers contingent on you paying the buyers agent.
A duplex very well could generate interest from the investor community. They very well could be prepared to proceed without a buyers agent in exchange for a lower selling price.
You negotiate your agents commission. Up to you if you want to advertise a willingness to cover buyers agent, however even if you don’t you should expect offers contingent on you paying the buyers agent.
A duplex very well could generate interest from the investor community. They very well could be prepared to proceed without a buyers agent in exchange for a lower selling price.
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Re: Selling an Investment Property in California
There is no ability to advertise buyer’s agent commission on MLs anymore. That was the lawsuit settlement.DoubleComma wrote: Tue Feb 04, 2025 10:16 pm Up to you if you want to advertise a willingness to cover buyers agent
The conversation about buyer’s agent commission really only happens if a buyer (or their agent) calls to start/make their offer.
Re: Selling an Investment Property in California
Your priority should be to get the best price for the property. Why do you care about the relationship with the property manager, do they manage other properties for you? I would interview at least 3 realtors and hear their estimates. Homes in California mostly sell themselves based on location and price, everyone shops online now.cinghiale wrote: Tue Feb 04, 2025 3:47 pm What would you consider to be the priorities in this case… seeking the best price for the home, a reduced commission for doing so, or maintaining a good relationship with the current property management group?
Is the property vacant or do you hope to sell it without displacing the renters? If the property is occupied you will need to navigate the many state and local rules that govern tenant rights.
Re: Selling an Investment Property in California
Investment properties should generally be sold by people who know how to financially evaluate commercial real estate. That’s often not residential agents.
Re: Selling an Investment Property in California
Thanks to all for the sound responses. Per some of the questions posed, this sale would incur capital gains. At present no real interest in a 1031 exchange.
And yes, both units of the building are currently rented. I’m not sure I’ve investigated enough what laws and regulations come into play, and how to properly and fairly consider renter rights and protections. Thank you for highlighting this issue.
neowiser pointed to contacting three realtors for estimates. That would need to be a long-distance task, as we do not live close to this property. And it raises the interesting possibility of needing to involve the current property manager to help coordinate with the current renters the days and times when completing realtors can survey and assess the property. neowiser also wondered why I would “care about the relationship with the property manager.” This could be a variable. They’ve done well by us over the years, and we would want to proceed wisely and diplomatically in case things (meaning the sale of the house) fall through and we still want to have a good working relationship with them in managing the property. Again, this is new territory for me.
And yes, both units of the building are currently rented. I’m not sure I’ve investigated enough what laws and regulations come into play, and how to properly and fairly consider renter rights and protections. Thank you for highlighting this issue.
neowiser pointed to contacting three realtors for estimates. That would need to be a long-distance task, as we do not live close to this property. And it raises the interesting possibility of needing to involve the current property manager to help coordinate with the current renters the days and times when completing realtors can survey and assess the property. neowiser also wondered why I would “care about the relationship with the property manager.” This could be a variable. They’ve done well by us over the years, and we would want to proceed wisely and diplomatically in case things (meaning the sale of the house) fall through and we still want to have a good working relationship with them in managing the property. Again, this is new territory for me.
"We don't see things as they are; we see them as we are." —Anais Nin |
|
"One really cannot ask for more in life than to have mattered to other people.” —Valuethinker
Re: Selling an Investment Property in California
I would simplify this, since you like the management company I would set up a meeting with their mutli-family sales brokers and start talking to them. Issues like tenant occupancy, any short term rental restrictions or rent control (if applicable) are all things you should talk about with the broker/agent. You should not have to investigate the details of state and local laws yourself if the broker knows what they are doing; they should have a quick and prompt answer to questions like that. If they say "I'll have to get back to you on how to deal with tenants in the unit" then you know you need to find someone else. You already have the management company there to coordinate any repairs.
Re: Selling an Investment Property in California
Make sure your property management agreement did not give the management company the right of first refusal to act as listing agent if the property is sold while under their management.
Re: Selling an Investment Property in California
I'd wonder how common this is? Pretty shady.gtd98765 wrote: Thu Feb 06, 2025 8:41 am Make sure your property management agreement did not give the management company the right of first refusal to act as listing agent if the property is sold while under their management.
Re: Selling an Investment Property in California
Agree with Stan1. Under the circumstances, the smoothest path for you will probably be to have your property management company handle the sale. Large management companies sometimes make an offer for profitable rentals, so be prepared to negotiate. You might want to start by getting an independent appraisal of the property. Appraisers are licensed in CA and you can search for one online https://www2.brea.ca.gov/breasearch/fac ... arch.xhtml Once you choose an appraiser you can ask the management company to arrange the site visit. Don’t notify the management company first and use an appraiser they suggest. The best outcome will be a sale that does not require displacing the tenants.
It’s probably a good time to exit the CA rental market if you’re not interested in bequeathing the property to an heir living in CA. Insurance is becoming prohibitively expensive, and hard to find. Regulations increasingly favor tenants while the risks of ownership continue to escalate.
It’s probably a good time to exit the CA rental market if you’re not interested in bequeathing the property to an heir living in CA. Insurance is becoming prohibitively expensive, and hard to find. Regulations increasingly favor tenants while the risks of ownership continue to escalate.
Re: Selling an Investment Property in California
One thing to consider is selling occupied properties is a pain in the butt. I've found that a couple of gift cards, so the tenant can go out for coffee, goes a long way to making them more agreeable to showings.
Re: Selling an Investment Property in California
Exactly, if I were to ask a realtor how to show the property while tenants are in it that's exactly the type of answer I would hope to get back. Not just the boilerplate well that's a problem but the lease says they have to let us in with notice.jfn111 wrote: Thu Feb 06, 2025 9:23 am One thing to consider is selling occupied properties is a pain in the butt. I've found that a couple of gift cards, so the tenant can go out for coffee, goes a long way to making them more agreeable to showings.
(I know you are a realtor, appreciate the great tips you have for us!)
Re: Selling an Investment Property in California
Thanks, all, for the insights and suggestions. These replies supply not only help in identifying priorities, but also help me in developing a sequence of what to do in what order.
Any further thoughts are very welcome.
Any further thoughts are very welcome.
"We don't see things as they are; we see them as we are." —Anais Nin |
|
"One really cannot ask for more in life than to have mattered to other people.” —Valuethinker
Re: Selling an Investment Property in California
Since the property is in a VHCOL area, where owner-occupied properties presumably sell for a significant premium to tenant-occupied investment properties, if you have a tenant who is planning to vacate in the near future, it might be wise to wait until that happens and you have 1 vacancy.
This sounds counterintuitive, but in the 2-4 unit "small multifamily" space, usually the buyer that is going to put the highest value on the property is someone who buys it to live in one unit and rent the rest out. Their "math" calculation ("house hacking" or just comp'ing the cost of an SFR) on value is going to be much different than an RE investor that is presumably going to value it based solely on cash flow yield, and if they are levering it up, the current mortgage market is going to make it hard for them to pay top dollar.
Obviously depends on the exact market the property is in, but worth discussing with your listing agent.
This sounds counterintuitive, but in the 2-4 unit "small multifamily" space, usually the buyer that is going to put the highest value on the property is someone who buys it to live in one unit and rent the rest out. Their "math" calculation ("house hacking" or just comp'ing the cost of an SFR) on value is going to be much different than an RE investor that is presumably going to value it based solely on cash flow yield, and if they are levering it up, the current mortgage market is going to make it hard for them to pay top dollar.
Obviously depends on the exact market the property is in, but worth discussing with your listing agent.