The Competition...

In any market, it is important (vital) to understand who your competition is; nothing new, right?

There are 4 key groups in competition to sell homes in any market.

1. Builders - generally the first to respond to upswings or downturns in the market. If a builder pays close attention to the traffic through model homes and the number of new contracts, they will undoubtably have a jump on the competition. Builders are generally very motivated sellers because they have to make huge payments on their construction loans everymonth and unsold inventory is lost $$ every month. They can get crazy with promotions (cars, TV's, free upgrades, interior design consultations, free pool, etc...)
2. Foreclosures- In this market, FC's make up a smaller part of the pool of actual sales. With so many homes under water, a head's up seller headed to FC will most likely sell via Short-Sale which is technically a Bank-Owned property since it is the bank that negotiates with the new buyer. In past markets, FC's with equity were motivated to sell quickly so they could get cash, save their credit and get on with life. Now, a FC is just a Bank Owned property(REO) waiting to happen.
3. REO's - King Krusher of the real estate market right now. In CA, 48% of all real estate sales are REO's. Depending on where in CA we're talking about, banks are taking up to 90% discounts on houses right now. !90%! (check this blog out.) Banks tend to play hardball initially, but it is well known that when push comes to shove, meaning when regulators show up and tell them to sell underperforming assets, the bank will cave and take big discounts to get the inventory off the books.
   
4. Owners- Owner to owner sales are at an all-time low in CA right now. Less than 30% of all sales are owner to owner. Homeowners are looking back 2-3 years and calculating the current price as a loss, and anyone making offers is likely to be looking 2-3 years into the future when prices have a chance to level off. This creates a big gap in the List/asking price to Offer price that most homeowners won't/can't accept. "I'll just wait it out." is one of the most common phrases I hear right now.
5. Investors -Technically there is a 5th category of seller, the investor. Many investors look like homeowners when it comes to selling a property. Buy low and try like hell to sell high. A perfect example of the 'Greater Fool Theory.' Find a fool greater than yourself to buy it from you and you're all set. I've had much better success at buying low and selling medium. Leaving a little meat on the bone for the next guy is the best way for me to make money over the long haul.
   

Use this in your discussion with sellers. Competition is critical to any transaction and I don't think sellers are getting any of the 'straight dope' anywhere in the media.

Here's an article for you to use to illustrate the competition between FC's and Builders. Wall Street Journal, March 11, 2009.

Go get em!
-Taylor