There’s huge buzz this week about a $4.1 million dollar condo that just hit the market. I know that’s chump change in other places, but it’s a conversation piece in Sacramento since we don’t see listings anywhere near that level in Downtown (or almost anywhere in the county). Anyway, there’s some good conversation to be had from this, so I hoped we could consider a few ideas and then unpack local market trends (for those interested). Any thoughts?
5 things to remember about lofty list prices:
1) Attention & buzz: A high list price for a luxury property is designed to get attention, create buzz, and help market a property. In this case the $4.1 million dollar condo listing is located in a development called The Residences at The Sawyer. This penthouse unit is 3323 sq ft and is located directly across from the new arena at 500 J St (killer location).
2) Records & price context: When hearing of high listings it’s tempting to treat the list price like a record has been broken. But if we’re honest this list price doesn’t matter unless the property actually sells at that level. Last year in Sacramento we had a $5M listing, the year before it was a $7M one, and a few years back there was a $10M listing. None of them sold = No records. There have actually only been three sales on MLS in the past that have sold at $4,000,000 or above in Sacramento County. They include: 1) The Governor’s Mansion built in Carmichael when Ronald Reagan was Governor (sold in 2004 at $4.1M); 2) A property in Sierra Oaks in 2013 that sold at $4.7M; and 3) An estate in Elk Grove that sold at $4.6M in 2005, and then re-sold for $1.3M in 2011 after a foreclosure.
3) Marketing to non-locals: Most locals aren’t anywhere close to affording a $4,100,000 listing – not to mention the whopping $4,021 monthly HOA fee (that’s not a typo). But the thing is this property is probably being marketed to someone from the Bay Area, maybe one of the owners of The Kings, or one of the Kings players. The Beverly Hills firm who is running the sales office is likely focused on non-locals more than anything because this is the type of property that would appeal to a wider group outside of the region. In that sense the property is an anomaly of sorts. Of course there is no guarantee they can fetch a price that high. For reference, the highest condo price I’m aware of in Midtown is the L-Street Lofts penthouse which former NBA player Kevin Martin bought for $1.34M in 2008 (and it re-sold in 2014 for $1.3M). The location on J St is bound to fetch higher prices, but how much higher? We’ll see.
Here’s a Twitter pricing poll I ran yesterday. 🙂
4) Reductions and good deals: It’s tempting for sellers to list something at an absurdly high price level, reduce the list price, and still feel tied to the original list price. So the seller says, “Hey, we came down 30% in price already. The buyer is getting a great deal.” But the problem is the listing was priced 30% too high to begin with. We see this with outrageously priced high listings, but we also see it in just about every neighborhood too. Thanks Jonathan Miller for influencing my thoughts on this.
5) Freaking out: When hearing about a “4 million dollar” property, it’s easy to freak out and start saying, “Holy Batman, prices in Sacramento are now at LA and SF levels,” or “I cannot believe how high values have risen.” Take a breath though because this is just a listing right now. If it makes you feel better, remember that $250,000,000 listing in Bel-Air that garnered world-wide attention in January? Well, that one’s still listed for sale at the same price… In short, let’s give this one some space and see if this price pans out or not.
I hope that was helpful or interesting. Any thoughts?
———–——-——- big monthly market update below ——-———–——-
A LOCAL MARKET SUMMARY:
Values have continued to increase in the spring, though at the same time the market isn’t aggressive in every price range. When looking at Sac county and the region as a whole, both the average sales price and average price per sq ft saw increases last month. On the other hand the median price softened slightly (don’t make too much of that since the median can go up and down depending on what has sold). Housing inventory feels like it is doing the Limbo as it keeps going down and down. Seriously, inventory was already low last year, but it’s 20% lower this year. This is definitely putting pressure of values to increase in some price ranges. My sense is lower prices in just about every neighborhood are experiencing upward pressure because that’s what represents affordability to buyers for those areas. So buyers in La Riviera are feeling the pressure under $300,000, buyers in Whitney Ranch are feeling it under $400,000, and buyers in East Sacramento are feeling similar pressure under $450,000. Yet buyers at middle-to-upper ranges are not experiencing this same dynamic because the market is flat or soft in many areas at upper price levels (yet we still might see multiple offers though). As expected, last month it took about 5 less days to sell than the previous month. I could go on and on with words, but let me share some graphs to show the market visually.
DOWNLOAD 53 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Sacramento County graphs this month (more here):
Sacramento regional graphs (more here):
DOWNLOAD 53 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Questions: What do you think of the $4.1M condo listing? Did I miss anything? What are you seeing out there in the market? I’d love to hear your take.
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Ryan, I spent several years working for an investor who only bought loans over $1m. They had agents in 32 states in the form of banks, thrifts, mortgage bankers.
I would have to review or appraise homes all over and often, the largest home in town. Or, highest priced home.
I developed a theory that served me well. I would find the highest priced sales that related to the subject.
We could all agree that a home bigger and better than the biggest that had ever sold, could be worth 10% more, maybe 20% more, but beyond 30% there is simply no structural support.
I call this my 10-20-30 Rule. Using it in your example with highest recent condo sale at $1.3m, the supportable demand level stops at about $1.7m.
Perhaps you can watch what happens to this Listing. And, see if my Rule works.
In my markets that I serve, I have seen $10m listings sell for $4m after five years of marketing. I have seen $125m listings sell for $80m, one that started out at $75m, and sold for $42m, etc.
Thanks Steve. I really appreciate your take and I have so much respect for you. I appreciate your two cents. I’ll be watching this one very closely as I think it’s an excellent case-study. Our Downtown has really been emerging (gentrifying) for over a decade. Thus luxury condos haven’t always been there. This location is a bit different than anything on the market, so it’s interesting to see. I’m actually surprised to see the HOA fee so high that. The L-Street Lofts penthouses were probably previously the most luxurious in town, but their monthly HOA dues were sub-$600. So $4021 seems like an enormous upward push. Let’s see what the market does (and let’s see if your rule plays out). I will say the 1.3M sale was a few years ago though and values have increased since then.
In your market area I’ll be curious to watch that $250M listing. 🙂
Thank you for all the Sacramento real estate market stats. There is nothing lofty about that.
Points for being clever. 🙂 Thanks Gary.
That’s the thing about these overpriced listings… they garner lots of attention because they’re so expensive, but that conversation always ends with how overpriced it is too.
Overpriced = Not a Good Buy
And when people don’t think the home is a good buy, when they don’t see the value, the property is just going to sit and sit and sit and sit on the market forever.
People value good deals. And the owners should’ve determined what they really wanted to get out of it and then priced the property accordingly to make it appear as a good deal to potential buyers.
The thing is, the home has a certainly value that it is worth and people will pay for it… but the longer the property sits on the market, the lower people will pay.
That’s one of the first few questions people ask… “How big is it? What’s the price? And how long has it been for sale?”
And high days on market is like acid to the price of the home. This thing will sit for 6 months and then all the buyers will use that against them. When if they had priced it right the first time around they wouldn’t have that problem. The newness and freshness of the listing would’ve been working in their favor.
And while Sacramento is a hot real estate market, it’s not exactly a destination location. People ought to remember that the Kings only won 39% of their games last year (it would be a different story if they had the Warriors record of 82%) and while the Golden 1 Center has some great shows, I think many folks would rather just Uber to the show than pay a whopping $4 million to have a condo nearby.
When it comes down to it, I just simply think there isn’t enough demand for this property to justify this high of a price. If it were San Francisco, different story, but Sacramento. No way jose.
Thanks Wes. I appreciate your take and your specific points. I think you’re so right about the longer a property being on the market, the less it tends to sell compared to its list price. Of course properties above 1M tend to stay on the market much longer than properties under $300,000, but there is never anything wrong with being reasonably priced. If a seller knows what it is worth and knows what they want to sell it for too, sometimes it’s best just to price at that level instead of chasing that one unicorn buyer.
High priced listings are funny because they cause such a stir. Most people don’t keep track of these types of properties to the very end and when they sell for way below list price most people don’t know about it. I think you’re right that the sellers try to use it as a marketing tool when the lower the price by making the statement you mentioned in #4. I hope you keep us up to date and let us know what the actual final sold price is.
Thanks Tom. I’ll keep everyone updated. This is an interesting time for Downtown Sacramento too. The whole dynamic is changing there (and has been for over a decade). The installation of the arena in the past couple years has been a real catalyst to further growth too. I’m curious to see if we see more of a luxury market emerge or not. I know many locals get frustrated with how high rents and prices are in Downtown / Midtown, but it’s just not an entry-level market any longer.
Hi Ryan, I just listened to your 2013 podcast on BiggerPockets and browsed your site. I wonder if you might have any follow-up on the massive Blackstone “shopping spree” and what that entails for the Sac region now.
Thanks!
Hi Wendy. Thanks so much for listening to the podcast. I was lucky to get in at the beginning. The podcast really blew up. It’s hard to believe how big it is now. Anyway, here’s a few thoughts:
* The market used to be dominated by investors. In early 2013 it was the climax of investor activity in Sacramento. Cash purchases were about 36% of all sales in Sacramento County, whereas now they are 15%. Granted, now some investors are using conventional financing though too. But overall investors are not the main driving force in the market any longer.
* Blackstone was buying as Invitations Homes / THR California. So in 2012 they bought as IH2 Property West, then IH3, IH4, IH5, and IH6 for each respective year. So far I haven’t seen an IH7 for 2017, so it’s not clear if they are buying or not in 2017. They could be using a different DBA, but they are definitely 100% not driving the market any longer. I do know they scaled back their mass buying just about mid-2013 and then they bought a modest amount in subsequent years (and hardly any last year in 2016). In short, they were an incredible force in 2012 and 2013 and I’d say they helped drive the market (along with other investors).
* We really felt it in the market when investors left. Inventory went up and the rate of appreciation slowed down too. You can even see it in the graphs in this post (and the ones that can be downloaded). We had rapid appreciation in 2012 and 2013, but more modest afterward. Inventory spiked from 2013 to 2014 as a response to investors leaving (and now its anemic again for other reasons).
* Lastly, they haven’t really sold much that I’ve observed. I’ve heard of a few properties selling, but I’ve yet to see anything listed on MLS in mass. Unless I hear or see otherwise it seems they are sitting on their rentals for now and maybe selling off some non-performing stuff here and there (as they said they would in published articles). If anyone has additional information, please speak up.
Any other pointed questions? Glad to talk shop.
(possibly a duplicate post, ignore if so)
Huh, that’s an interesting dynamic. I can’t help but wonder if their influence in the market (taking inventory away and causing a subsequent upswing in “values” (or rather, prices) had anything to do with helping Sac recover from the bubble’s pop. I mean, obviously there had to be actual demand to begin with, but perhaps perceived scarcity also brought a sense of urgency with it – “Look at how hip and awesome Sac is! Let’s do stuff before we’re priced out!”
Or something. 🙂
Also, re: the podcast, I really appreciated your tips for preparing for an appraisal (doing a little of your own legwork and gathering data). I went in to our first home purchase totally ignorant, so it’s nice to learn about different aspects of real estate for future use
Oh and I can’t believe the blatant attempts people make to swing an appraisal in one direction or another!
I have another question – not sure if it’s a very good one, but then, maybe you’ll forgive me because I’m new to real-estate stuff 🙂
We bought a SFH in 2014 and I recently got a letter from my insurance company suggesting that the rebuild cost is lower than what the property was appraised at (to the tune of at least $100,000, possibly more, I’ve misplaced the letter and can’t quote it right now).
Maybe you can shed some light on what’s at play here? Did we get bitten at purchase and at the moment of appraisal for tax purposes? We’re certainly paying the property taxes for a higher amount! How would one go about figuring out the rebuild costs of a building on one’s own (any online or other resources?) before engaging an appraiser, to at least have a ballpark figure for negotiating with sellers?
Investors definitely played a role in helping the market “recover”. Distressed properties were purchased in mass and many of them were flipped too. At one point in 2009 up to 70% of all sales in Sac County were REOs, so we had a big problem (now that number is hovering around 2.5%). In all of this properties that could not have obtained financing because of condition were bought by investors, updated, and then sold at higher price levels. Not only did this help solve the problem of too much inventory, but it helps prices increase too by having more sales at the top. Frankly, without investors we would have not been able to deal with the flood of foreclosures that hit the market. When I say investors, I am meaning many individuals as well as institutional funds (though I’m not crazy about the idea of Wall Street having entered the real estate space in such a massive way).
Yet this also has presented some problems because investors are holding many properties right now that would otherwise be hitting the market, and that’s one of the reasons why inventory is lower. In a market with increasing rents too, there is even less incentive to sell. A lack of new construction and historically low interest rates are maybe a bigger deal for causes leading to lower inventory, but we cannot forget investors have certainly played a part in this too.
It’s hard to say what that insurance letter is about, but find it and see if they are now asking for more money. The thing is that it makes sense for the rebuild cost to be lower than the total value because there is value in the land and site improvements (landscaping, sewer, water….). So we couldn’t equate the total cost to rebuild with market value anyway. Again though, I’m not really sure what the gist is in the letter. The irony is if anything the cost to build has probably gotten more expensive over the past couple of years as the cost of labor and lumber is likely higher. You can maybe poke around on a website like this to see what sort of costs come up if you want. Not sure it is totally reliable, but see what it says: http://building-cost.net/Valuation/Start
(Sigh. WordPress is giving me conniptions. It says I’ve already posted this but it also refuses to post it. Apologies again if your inbox is being flooded with my attempts to get the darned thing to take. I know my first comment required moderation, but it seems that I’m okayed for subsequent comments. If only the technology will work…)
Well, I didn’t find the exact letter (it’s somewhere around here!) but I went online and dug around. They’re using Xactware to re-evaluate their clients’ properties and came up with my revised estimate of rebuild cost that way. I was able to revise their new estimate based on some upgrades done by the previous owner (taking a few characteristics up from average to above average) and still ended up with a rebuild cost that was lower than what the original estimation was.
Perhaps the original estimation was not reliant on an appraiser’s take on the matter (making it not exactly a relevant question for you, then!) but on a guesstimate based on the sales price – it was a few years ago and we purchased while based overseas, so… kind of a whirlwind of chaos.
Anyway, even though my few “upgrades” brought the total up a bit from their new estimate, I still am saving money on my new and improved rebuild estimate.
And of course you’re right (duh!) that the tax assessment takes into account lot size and other infrastructural improvements.
Anyway, it’s fascinating to read your take on the Sacramento situation. Over here in Yolo County, I guess there’s projected growth, plus there’s the heavily skewed Davis market. I wouldn’t really want to be buying in Davis/Woodland starting about now. We have inventory but the prices seem to be trending upward… it’ll be interesting to see where this goes.
Hi Wendy. I don’t know what’s going on. That is so weird. I never have issues like this, but today’s three people have told me they’ve had trouble getting a comment in (sorry everyone). I do have the first comment moderated because I get so many spam comments. But once the first one is approved anyone should be able to post readily.
Thanks for the kind words. Please pitch in your insight or two cents any time. I’m always open to answer questions too. I appreciate when others share their expertise too also. Anyone can jump in.
I don’t make Yolo graphs because they would be all over the place because Davis is such a different market compared to everything else. I do pad Yolo County into my regional graphs though so we get a good picture of regional trends.
Speaking of Yolo County, there is definitely a good vibe happening in West Sac with a progressive mayor, ease of getting development improvement, The Bridge District, and of course the hashtag #westsacbestsac on Twitter. 🙂 Let’s keep watching the market.