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price reductions

Price reductions don’t mean the market is crashing

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We’re seeing more price reductions lately. Does this mean the market is starting to collapse? Are things beginning to turn? Is this 2008 all over again? I’ve been getting great questions like this lately, so let’s talk shop.

Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.

5 THINGS TO KNOW ABOUT PRICE REDUCTIONS

1) Price reductions are normal: It’s normal to see more price reductions from the summer through the fall season. The danger is it’s easy to observe normal trends through a doom and gloom lens. The issue is demand changes from the spring and there is less attention from buyers as people are focused on school, vacation, and getting into a fall rhythm. It then takes sellers a bit to adjust their expectations and find proper pricing in a cooler market.

2) Anything can be overpriced: Over the past week in Sacramento there were price reductions in every single price range. This tells us it’s possible to overprice at any segment of the market.

3) Technically the market is NOT way overpriced: The local housing market is seeing more price reductions, but I don’t think it’s fair to say we have an overpriced market. Like I said last week, stats are still not normal as the market is more aggressive than it normally is for the time of year. According to Altos Research 28% of recent listings have price reductions in Sacramento County. Anyway, check out Altos and see Placer, Yolo, and El Dorado too. I don’t pull stats like this regularly, but a figure at 28% sounds about right as it fits with other stats I do pull. I can bore you with details in the comments if you wish.

4) Be careful about judging: The danger in real estate is to think whatever we are seeing with a few properties is what the entire market is experiencing. Maybe. Maybe not. It’s like me noticing several people wearing overalls. Is it a trend or did I just happen to see a few friends reliving their glory days from the 90s? Look, personal experience is really valuable, but it’s important to be sure we’re looking at stats on a bigger level beyond what is in front of us.

5) A closing note for sellers: It’s critical to nail the list price right now and I advise being in touch with the current climate of fewer offers, taking longer to sell, and more price reductions. It’s easy to be infatuated with hot headlines or cling to the idea of fetching a massive cash offer from an out-of-town whale. My advice? Price for the market and see what happens. Don’t price for the unicorn. It’s still a competitive market, so you may be able to get a few strong offers, but it’s not what it was four months ago. Oh, one more thing:

Anyway, I hope this was helpful.

Thanks for being here.

Questions: What are you seeing out there with price reductions? What advice would you give for pricing a property right now?

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My health went crazy & so did the market

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Long time no blog. I don’t know if you noticed, but I haven’t been around these past two months. Today I want to talk about why, say thank you, and then share some cool visuals I’ve been making these past couple weeks.

What happened: In late June I began to have an ulcerative colitis flare and it got really bad to the point I had to be hospitalized for six nights. Fourteen years ago I was diagnosed with UC and this is frankly the worst it’s ever been. Thankfully my flare is subsiding and I’ve since been slowly regaining energy.

I’m blown away at your support: This has been a difficult season for my family. It’s hard to not feel well and it was scary being in the hospital. But in the midst of this it’s been incredible having an army of support rise up. The cards, flowers, meals, text messages, advice, gifts in the mail, DoorDash, emails, prayers… It all meant so much.

An army of support: While I was in the hospital a GoFundMe was started by my friends Erin Stumpf and Joe Lynch. I’m honestly a guy who hates accepting help. I would never in a million years have asked for something like this because I always want to be the giver. So it was humbling to see my face online and to have my colon become internet famous (haha). I received a text message basically saying, “We’re going to do this and your peeps are going to take care of you.” And that’s what happened. Everyone, I cannot put into words how grateful I am for you carrying my family during this time. As the hospital bills start rolling in and I haven’t had income for over two months, your generosity has been a tremendous blessing. It’s frankly taken off some pressure and given me space to adequately heal. I still have lots of individual thank yous to say and I will get to those over time, so please be patient. But for now I want to publicly thank everyone for your support. I have no words to express how deeply grateful I am.

NOT ASKING FOR MONEY: I wanted to clarify that I am NOT asking for anything. I did not link to the GoFundMe on purpose. We have received plenty and I think we are good in terms of finances.

I’ll be back: I was hoping to be back to work the day after Labor Day, but these past couple of days I’ve been exhausted, so we’ll see. In the meantime I’m posting some visuals on Facebook, Twitter, and LinkedIn.

Okay, enough about me and my colon….

THE MARKET WENT CRAZY

While I was gone the market went absolutely nuts. In short, competition has been fierce and we’ve begun to see one of the most competitive markets we’ve had.

WAY TOO MANY VISUALS FOR YOU:

Multiple offers: They were up 25% this August compared to last year at the same time. As you can see, the percentage of multiple offers is at its highest point in recent years too since the metric began to be included in MLS. We started to see the market soften during the beginning of the pandemic, but then it sped up to create a V shape as mortgage rates went down.

Here is a new visual. What do you think?

Price reductions: This is another brand new visual. About 9% of the market had a price reduction last week. This isn’t much, but it reminds us the price has to be right – even in the midst of such low inventory.

Sales volume: We’ve seen a recovery in volume lately after a slump during the beginning of the pandemic. Usually volume tops out around July or August each year too and it looks like that may be starting to happen. This topping is normal for the season and we’ll know more in the next few weeks how the market is moving. Stay tuned.

Prices: Prices have been ticking up and preliminary stats for August so far show another increase from July. For a while the market was subdued and we were seeing year over year growth anywhere from 2-4%, but it’s been more like 8% and higher lately from last year.

Listings: It’s as if listings have been cut in half from last year. When I pulled stats at the beginning of September last year there were over 4,700 listings on the market in the region, but yesterday there were just over 2,200. Isn’t that crazy?

Six years of listings: Here’s another way to look at the number of listings. These are listings from 2015 through 2020 pulled on the first day of September each respective year.

Inventory doing the limbo: Inventory has been shrinking as I mentioned above. Here is a look at a few local counties.

Distressed sales have bottomed out: We are not seeing more distressed sales hit the market. There is talk about a new wave of foreclosures coming, but if that ends up happening it would take a while before anything actually shows up on MLS. Moreover, many owners are in distressed situations, but they are sitting on equity and could sell instead of give the house back to the bank. Let’s keep watching.

Unemployment: Let’s keep watching the job market and economy.

Other visuals: I have lots of other graphs. Check out my social media in coming days and weeks. I am posting daily stuff. I may or may not put up a weekly blog for now, but I probably will since I have so much to share.

Thanks for being here.

Questions: What are you seeing out there in the market right now? I’d love to hear your take.

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The danger of overpricing & chasing real estate unicorns

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Overpricing. It happens all the time in real estate – especially in today’s market. I get where sellers are coming from because we’ve had so much glowing real estate news for more than five years. But that doesn’t mean we’re in a market where you can command whatever price you want. 

Chasing the unicorn: Many sellers are pricing their properties too high. It’s as if they expect record-breaking prices and multiple offers every time because of how “hot” the market is. Homeowners get so fixated on the idea of a fiery market that they price for that one unicorn buyer who’s going to mysteriously pay more than anyone else. This “unicorn” will ignore all recent sales and listings and magically offer 10% higher than anything. In Sacramento the idea is a Bay Area “unicorn” will swoop in with fat stacks of cash and totally ignore similar comps that are selling for less. It’s nice when sellers get lucky like that, but in today’s market buyers are actually much more finicky about price. Despite a legitimate housing shortage we don’t have a market where buyers are willing to pay crazy prices that are totally disconnected from reality. In other words, we don’t have a market where pricing for the “unicorn” makes good sense (unless you want to sit on the market instead of sell). Take a look at the image below that shows price reductions over the past 24 hours in the Sacramento region. These 78 properties have been priced too high for the market.

My advice? Price for the real market instead of the unicorn. Give the most weight to similar sales and similar listings that are actually getting into contract.

Aspirational pricing: If you aren’t familiar with the term aspirational pricing, Jonathan Miller coined this phrase. It’s a great way to describe the phenomenon of sellers fixating on prices that are simply disconnected from the real market.

10 reasons why sellers overprice:

1) Hot headlines are imposed on the price instead of looking at comps. 

2) Dissimilar sales are used as “comps” to price the home.

3) Too much emphasis is put on price per sq ft instead of actual comps.

4) A property is priced like it doesn’t have a busy street or adverse location.

5) Sales from a higher-priced area are “cherry-picked” to price the property.

6) The seller is too subjective and feels “my house is better.”

7) The owner believes the cost of any upgrades should be paid for by buyers.

8) A more aggressive trend from a lower price range is assumed to be present at a higher price range.

9) It’s a tricky property and not easy to come up with a price.

10) What else?

My article in Comstock’s: By the way, I wrote an article in Comstock’s Magazine this month on the value of upgrades. Check it out if you want.

I hope this was interesting or helpful.

Questions: Are you seeing sellers price for “unicorns”? What reasons do you think sellers overprice? Did I miss something?

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Six temptations to avoid when the market slows down

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At this time of year the weather begins to change, the kids are finally back in school, AND pumpkin spice lattes come back on the menu at Starbucks. Oh, and it’s normal for the real estate market to slow down.

sacramento real estate market- image purchased from 123rf and used with permission by sacramento appraisal blog

The Truth: Real estate is usually very seasonal, meaning the market heats up in the spring and begins to slow down later in the year. This is normal, and we know this intellectually, yet it’s still easy to freak out when properties start taking longer to sell or demand changes. This is why I hope this post will be relevant.

NOTE: There is a difference between a market being slow and showing signs of a seasonal slowing. 

Six temptations to avoid when the market slows down

  1. Freaking out: Just as we expect the weather to change during the fall, let’s expect real estate to change too. The public likes hearing positive news (“values are increasing”), so reporting a market slowing seems negative or anti-climatic, but it’s actually normal almost every single year (see this post and look at the fall graphs compared to the spring). On the positive side, a slower seasonal market might provide space for a vacation, relaxation, and most significantly an opportunity for the real estate community to communicate seasonal dynamics to clients. Of course when a market slows it’s not always easy to be self-employed since paychecks also slow. Yet when we start realizing the market slows during the end of the year, it helps us adjust our expectations and make plans for life and business. There has to be more to the last quarter of the year than being stressed until the market picks up again in the spring.  🙂
  2. Projecting the aggressive spring on summer: It’s easy to look back in time to a more aggressive market and want to price according to sales from the hot spring. But when the market has changed, be careful to look at values for what they are right now instead of projecting hotter seasonal trends of the recent past onto a fading summer or cool fall. This is just the same as not dressing for summer if it is winter (I do wear flip flops year round though). We have to do what makes sense for the current time.
  3. Putting too much weight on sales: Sales tell us what the market used to be like when the sales went into contract several months ago, but listings and pendings tell us what the current market is like right now. When values begin to soften during the fall, this makes it all the more important to look at listings / pendings instead of only sales. If the listings are priced at a similar level to recent sales, but not selling, this tells us the market has changed, and we might need to adjust our expectations (and prices). The same is true with the stock market. We wouldn’t use stock prices from three months ago as our gauge for today’s prices, but instead look at what stocks are actually selling for right now.
  4. Targeting that one magical buyer: We all want to attract the highest price ever, so it’s easy to hold out for that one cash buyer from outside the market who is going to pay more than anyone has ever paid. Yet we have to consider what the rest of the local market is willing to pay (this is what the appraiser is going to be considering too). If you lined up 100 buyers who are interested in the neighborhood, what is the most probable price most buyers would be willing to pay? That’s a good picture of what market value looks like.
  5. Refusing to reduce the list price: It can sting to reduce the list price, but if the price isn’t right, it’s time to change that, right? If you had something for sale on Craigslist and it wasn’t selling, would you keep the price the same? No, you’d change it if you really wanted to sell. How do you know if the price is wrong? If there aren’t any offers, you’re not “in the market”, but only “on the market” (Jay Papasan). An honest question: If the market is telling you to reduce the price, but you aren’t willing to do so, do you really want to sell?
  6. Not listening to your real estate agent: If you are an owner and your real estate agent keeps encouraging you to do something to the property or change the list price, but you’re not listening, ask yourself why you are not listening.

I hope this was helpful.

Social Media Podcast: By the way, a few weeks back I did a podcast with The Appraiser Coach on using social media. Here it is in case you want to give it a listen in the background. It’s geared toward appraisers, but there are probably relevant nuggets in there for anyone in the real estate community. Listen here or below.

Questions: What’s temptation #7? Did I miss anything? I’d love to hear your take.

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