An open letter to buyers in an aggressive market

Dear Buyers,

Yesterday I talked with a few buyers who are in the trenches of the market. One is feeling frustrated at not getting offers accepted, and the other is starting to feel like affordability is beginning to vanish. I was actually taken aback with the sense of hopelessness felt by the latter individual, so I wanted to share some perspective as an appraiser when it comes to making offers in an aggressive-feeling market. Whether you are in Sacramento or elsewhere, I hope this helps. Any thoughts?

40519811 - empty notebook and pen on table

Advice for buyers in an aggressive market:

1. Shop below your price range: We are in a market where multiple offers are commonplace in many price ranges and neighborhoods. This means if you are qualified up to $300,000 and money is tight, you might want to consider homes that are priced $270,000 to $300,000 instead of just $299,000. This allows you some space in case there is a bidding war.

2. Expect to get beat: Sorry to be a downer, but you probably aren’t going to get into contract on the first home you offer on. Remember, real estate is a bit like dating. You often don’t marry the first person you go out with. So take heart and expect you’ll submit many offers until something sticks.

3. Know when listings usually hit the market: There is a season in real estate, just like there is a season for baseball, weather, or elections. It’s true inventory is sparse, but it’s also true listings don’t start to hit their stride until March through August. Sometimes February will be a stronger than usual month, but we still don’t see the bulk of what’s going to hit the market until May through July / August. If you don’t believe me, look at the light green listings below over the past few years. In short, don’t freak out in February if there isn’t much on the market. 

listings in sacramento - sacramento appraisal blog

4. Don’t let sensational headlines stress you out: Headlines these days often talk about how hot the market is, but my advice would be to read stories carefully and ask a few real estate professionals what they think too. For instance, one headline says “Sacramento will be one of the hottest markets in the nation” as values are projected to increase by 7% in 2017. This one story has seriously saturated the market and I’m hearing this sentence about everywhere I go. The irony though is a 7% price increase is about what happened in 2016, which means the headline could have just as easily said, “The market looks like it’ll do about the same thing this year.” I don’t say this to gloss over how competitive the market is, but only to highlight we need to read articles carefully and think critically rather than immediately stress out.

5. Don’t mistake low-ball pricing for the market: Some properties are attracting 15-20 offers, but my sense is when that happens it’s usually more about low pricing than the actual market. This week I saw a property listed at $290,000 that probably should have been listed at $350,000. We can look at the 15 offers and bemoan how intense it is out there or we can realize this one was priced ridiculously low.

6. Be careful of bidding up to “no man’s land”: While it’s plausible to think the contract price might get pushed up a bit with multiple offers, don’t forget to be realistic about what the home is actually worth. If you know you don’t have cash to pay for the difference between a realistic appraised value and the contract price, you might not want to offer that high then. Somehow you’re going to need to stand out as a buyer to the seller, but an unrealistic offer well beyond a reasonable value probably isn’t going to help you in the long run.

7. Realize cash doesn’t always win: There is a false idea that cash investors from the Bay Area are beating out financed buyers all the time – especially those bringing very little money to the table. The truth is 1 in 4 sales last year in Sacramento County were FHA buyers who put down 3.5% (or less if they used down-payment assistance). Keep in mind only 14% of all sales were cash during this same time. Moreover, 27.4% of all sales under $500,000 had FHA loans in 2016 in Sacramento County.

8. Find a way to stand out: There could be multiple offers, so you need to figure out a way to stand out and make a positive impression on the seller. Of course the strength of your offer is the first place to start, but beyond that find a way to make an emotional connection with the seller too if possible. I might recommend brainstorming ideas with your agent. When my wife and I bought a house a couple of years ago there was actually a higher offer on the property, but the seller accepted our offer instead. When touring the home we were fortunate to meet the seller and we hit it off a bit. During the conversation the seller mentioned her son was going to start at a new private school. Anyway, when we submitted the offer we wrote a personal letter complimenting the house and reminding the seller who we were. We also looked up the school and found it was $1400 per month. We then wrote in our offer we were going to give the seller an extra $1400 at the close of escrow to help pay for her son’s school (The underwriter actually freaked out because she’d never seen a buyer do that). I’m not saying you need to do something like this, but in our case it definitely made a huge impression. It showed that we listened, we truly cared, and we were very serious about the home. 

9. Listen to your agent: You probably know the market pretty well by now because you’re scouring listings in an obsessive compulsive way on Redfin, Zillow, and MLS. This also means you are most likely going to find your eventual home before your agent does. That’s how it works these days. Just remember finding the home is the easy part, but the most important thing your agent can do for you is negotiate on your behalf and offer professional guidance and advice along the way. Will you listen?

I hope this was helpful.

Sincerely,

Ryan

Questions: What piece of advice resonates with you? What is #10? Did I miss something? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Selfies, market hotness, & waiting to sell (and a Sacramento update)

Have you ever taken a selfie from a particular angle to make sure you look as good as possible? Be honest. Of course you have, and so have I. Well, housing stats can be just like selfies. It’s easy to pick the best angles (stats) to share while missing the real picture. Let’s keep this in mind as it’s tempting in real estate to gravitate toward “hot” headlines while missing the full story. Let’s kick around some ideas below and then take a deep look at the Sacramento market. Any thoughts?

56299814 - young pretty woman taking selfie outdoors - female winter fashion portrait - teenager student holding mobile phone for selfi photo next to brick wall background - soft and hazy vintage filtered look

1) Market hotness: It’s been blasted all over the news that Sacramento is going to be one of the hottest markets in the nation next year. The SacBee wrote about this a couple of weeks ago and I was actually quoted in the piece. In short, Realtor.com predicts we will see a 7% increase in value. The irony is price stats showed a 7% increase in 2015 and we’re on track to see something similar for 2016 in Sacramento. Thus I suppose Realtor.com could have just said “Sacramento will do what it’s done for two years in a row.” Zing. Remember, just because the median price went up 7% doesn’t mean actual values increased by that much. This is a huge point and we can talk about it in the comments if you wish.

2) Deciding to wait to sell: When sellers hear the market is “hot” or sense values are increasing, they sometimes wait to list their homes. Last week an agent told me an owner who was ready to get her property on the market called and said, “We’re going to wait because we just saw a story on TV that said the market is going to be the hottest in the nation next year.” On a related note I spoke with a client who is now concerned about his home increasing in value too much since he is going through a divorce. This reminds me of a video John Wake shared on Twitter. He was talking about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. Really good stuff from John.

3) VA appraisal fees just increased: If you haven’t heard, VA increased their appraisal fees from $450 to $600 in the Sacramento area. Unlike other loan programs, VA pays a standard fee for every appraisal. Just a heads-up.

4) Fannie Mae waiving appraisals: A few days ago Fannie Mae officially began a program to waive appraisals for certain refinances. In the background Fannie has been mining data from appraisal reports for the past two years for their Collateral Underwriter program, and with a database of millions of appraisals they can now eliminate the use of appraisals in some transactions. It’s like Fannie Mae in a small way is helping appraisers dig their own grave. I understand efficiency and how this makes reasonable sense for some transactions, but let’s not forget the very important role appraisers are supposed to play in a transaction.

Any thoughts?

skateboard-from-ryan-lundquist-sacramento-appraisal-blogSKATEBOARD GIVEAWAY: If you didn’t know, I love woodworking. Anyway, I made a skateboard and I’m giving it away in two days to someone local (or not local if you know we’re going to see each other soon). Keep it or re-gift it for Christmas. Leave a comment on Facebook if you want to enter the contest and I’ll pick a random name in two days (we don’t have to know each other).

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I’ll keep it around if it seems relevant (not sure yet). Is this a step in the right direction? Download here.

Quick Market Summary:

The market normally softens each year in the fall and we are definitely seeing that right now, but this fall isn’t as dull as some of the seasons we’ve seen in the past. Yes, it took 4 days longer to sell a home compared to the previous month and prices are down from the summer, but sales volume was up a whopping 18% in the region last month. If you didn’t know, sales volume has actually been higher for four months in a row in the Sacramento region. On the other hand, one of the big issues that just won’t go away is housing inventory is anemic as it’s about 20% lower than it was the same time last year. Of equal importance is interest rates have been ticking up, so buyers are anxious to get their rates locked and their appraisals in on time. As rates presumably rise more next year it will naturally soften values because higher rates take away purchasing power from buyers. Yet the big question is whether lenders will get more creative with financing to help buyers artificially afford higher prices. This reminds us how much power lenders have right now to direct the market.

Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

  1. The median price is the same as it was in August 2007.
  2. Housing inventory is 22% lower than the same time last year (there is only a 1.36 month housing supply).
  3. Sales volume was 17% higher this November compared to November 2015 (up 2.5% for the year).
  4. There were only 36 short sales and 34 REOs in the county last month.
  5. It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 3 days longer to sell).
  6. FHA sales volume is down 6% this year compared to 2015 (24.4% of all sales were FHA last month).
  7. Cash sales are down 11% this year (they were 11% of all sales last month).
  8. The median price is $325,000 and is down 2% from the height of summer, up 1.5% from last month, and 12% higher than last year.
  9. The average price per sq ft was $202 last month (down 1% from a few months ago, but 7% higher than last year).
  10. The average sales price at $349,659 is down about 2% from the height of summer (but is 8% higher than last year).

Some of my Favorite Graphs this Month:

median-price-since-2013-in-sacramento-county

sales-volume-in-sacramento-county-since-2012 inventory-in-sacramento-county-since-2013-part-2-by-sacramento-appraisal-blog

inventory-november-2016-by-home-appraiser-blog cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

price-metrics-since-2015-in-sacramento-county-look-at-all

layers-of-the-market-in-sacramento-county-2-by-sacramento-appraisal-blog

median-price-and-inventory-since-2001-by-sacramento-appraisal-blog

SACRAMENTO REGIONAL MARKET:

  1. Housing inventory is 26% lower than the same time last year.
  2. It took 4 days longer to sell compared to the previous month (but 4 less days compared to November 2015).
  3. Sales volume was 18% higher this November compared to November 2015.
  4. FHA sales volume is down 6% this year compared to last year.
  5. Cash sales are down 8% this year compared to last year.
  6. REOs were 2% and short sales were 2.1% of all sales last month.
  7. The median price was $355,000 in November. It went down slightly from October but is down 3.5% from the height of summer (up 8% from last year).
  8. The average price per sq ft was $208.6 last month. That’s down about 1% from the height of summer and 8% higher than last year.
  9. Cash sales were 13.3% of all sales last month (FHA sales were 22%).
  10. The average sales price was $392,500 in November. It’s down about 3.5% from the height of summer but 8% higher than last year.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

regional-inventory-by-sacramento-regional-appraisal-blog

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

inventory-in-sacramento-regional-market

days-on-market-in-placer-sac-el-dorado-yolo-county-by-sacramento-appraisal-blog

regional-market-median-price-by-home-appraiser-blog

interest-rates-inventory-median-price-in-sacramento-regional-market-by-sacramento-appraisal-blog-market

PLACER COUNTY:

  1. The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
  2. The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
  3. It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
  4. Sales volume was about 3% lower this October compared to October 2015.
  5. FHA sales volume is down 16% this year compared to last year.
  6. Cash sales were 17% of all sales last month (FHA sales were 13%).
  7. Cash sales are down 3.6% this year compared to last year.
  8. Housing inventory is 13% lower than the same time last year.
  9. Both REOs and short sales were each 1% of sales last month.
  10. The average sales price was $481,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

placer-county-housing-inventory-by-home-appraiser-blog

days-on-market-in-placer-county-by-sacramento-appraisal-blog

months-of-housing-inventory-in-placer-county-by-sacramento-appraisal-blog

placer-county-sales-volume-by-sacramento-appraisal-blog

number-of-listings-in-placer-county-2016

interest-rates-inventory-median-price-in-placer-county-by-sacramento-appraisal-blog

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.