The housing market has shifted, and today I have some practical advice for buyers and sellers. This is coming from hundreds of conversations every month as well as stats I’m pulling. Some new memes too. Enjoy if you wish.
UPCOMING (PUBLIC) SPEAKING GIGS:
8/11/22 Realtist Lunch & Learn (sign up here (open to anyone))
8/15/22 YouTube Live with Matt Gouge at 3pm PST (watch here)
8/25/22 State of Housing Brunch & Learn (sign up (for real estate community))
9/08/22 SAFE Credit Union Market Update (details TBD)
ADVICE FOR BUYERS:
Don’t lowball like it’s 2008: It’s not a name-your-price market, so you still have to make reasonable offers instead of way below market value. I find some buyers think it’s 2008, and that’s not the vibe right now. For instance, a property was priced well at $450,000 and a buyer offered $320,000 (final closed price was $455,000). If you get lucky at a low level, great. I’m just saying, being reasonable rather than lowballing is likely a better strategy.
Be patient: Instead of selling in hours or days, properties are spending weeks or longer on the market. This is a real advantage for buyers, so you can take more time to shop. Yet, if you find something perfect, be swift since properties that check all the boxes are going quickly with multiple bids.
Ask for credits (if you can): We’re tending to see more buyers asking for credits to help with closing costs or repairs, so talk with your agent about whether asking for credits is something the market will allow (big point). Remember, this isn’t going to work in every price range or situation.
Buy down the rate if possible: Talk to your loan officer about what it would take to buy down the mortgage rate. This means you can pay more to get a lower rate. Or better yet, if you’re in a situation where the seller is going to offer a credit, consider using that credit to buy down the rate. Getting your monthly payment lower can be a massive financial win.
Target overpriced listings: Overpriced homes represent opportunities for buyers, so go after them. Of course, some sellers are stubborn about accepting offers below their unrealistic list price.
Don’t overpay: On one hand it’s unwise to lowball as a strategy, but still try to get the price lower if possible. Local stats show even when properties get multiple offers today, they aren’t tending to get bid up to the crazy levels we saw last year. Generally speaking, you probably don’t need to offer as aggressively high as you might have two quarters ago. In Sacramento last month we saw buyers on average pay about 2% below the original list price (which is about $12,000 below). This is the average though, so it would be a colossal mistake to automatically offer $12,000 below whatever the asking price is (seriously). Remember, there are many examples of offers still going above the list price, so don’t impose an average on every escrow. All that said, try to get in below the list price if you can because that’s becoming more common. But recognize this is a case-by-case situation that depends heavily on what the property is actually worth and how close pricing was to market value.
Realize there is still competition: About 37% of homes last month in the Sacramento region sold above the original list price, so not everything is selling below like some are talking about. Remember, selling above or below the list price isn’t just about the market. It’s about how the property was priced.
Don’t string sellers along: An agent friend told me about a situation where the buyer was in contract for 40 days and then backed out. Look, it happens, and buyers should back out as needed, so I’m not saying to stay. Do what you need to do. All I’m saying is if you’re on the fence, find a way to be decisive so you can give the seller more space to find another buyer. In a market with quick change, idling buyers can cost the seller money.
ADVICE FOR SELLERS:
Don’t expect to call the shots: Sellers are no longer getting to dictate all the terms, so be careful about expecting buyers to bend to your will.
Be ready to negotiate: You’ve lost power and you need to be prepared to offer credits to buyers and negotiate as needed. Look, your net profit will be lower if you reduce the price or offer a credit, but focus on the bigger issue of how much money you’re making with historically high prices.
Plan for fewer offers: Don’t expect multiple bids, but if it happens, great. The truth is you might only get one offer. I’ve heard a number of sellers holding out for more offers, which is bold move today.
Realize demand has truly shifted: In the Sacramento region there were 30%+ fewer buyers last month compared to one year ago. This has caused supply to shoot up very quickly, which means buyers have more options. The good news is about 70% of the market is still active, but it’s no joke to see a sizeable chunk of buyers sitting on the sidelines.
Forget about hot headlines from the past: The market has changed. We’re not blazing like we were six months ago. My advice? Scrap hot headlines and get familiar with the housing temperature today. It doesn’t matter what cryptocurrency sold for in March. The only thing that matters is what it’s selling for today. It’s the same in real estate. What is competitive to your house and getting into contract right now? That’s the key for pricing.
Don’t get offended over requests for credits: Buyers are forking over big bucks to purchase a home right now due to higher prices and a spike in rates. This means some buyers are going to want help with closing costs or repairs. A seller recently got bent out of shape with a buyer asking for a credit, and to me that showed the seller was simply out of touch with today’s trends.
Prepare your house like it was a first date: If you can, take care of basic cosmetic repairs prior to listing. It’s like going on a date. You want to impress and put your best foot forward. Buyers today have more space to scrutinize details, so tightening up details gives buyers fewer reasons to say NO.
Help the escrow be fast: Buyers are pickier about staying in contract, so do all you can to help the escrow be smooth and quick. An escrow with fewer surprises and hurdles is a good thing right now. The last thing you want is for buyers to be stuck waiting while uncertainty is growing. On that note, it might not be a bad idea to take care of Section 1 damage prior to listing (or get a pest report so the buyer is informed prior to making an offer).
Don’t get stuck on the original list price: There is nothing holy about the list price, so don’t get stuck there. If the market isn’t biting, it’s time to reduce the price. In the Sacramento region we historically only see about 14% of properties sell at the original list price, so 86% of the time the price is literally going either higher or lower. And in today’s market, there is a better chance of going lower rather than higher.
Stop believing in unicorns: Look, everyone hopes for a mythical buyer to swoop in and pay more. In Sacramento, it’s a Bay Area buyer, and I suspect in many other states it’s a cash buyer from California. Keep in mind only about 15% of the local market has been cash, so it seems wise to price for 85% of transactions that are financed. Don’t price for the unicorn!!!
Be in tune with picky buyers: Buyers are pickier about condition, location, and price. Buyers can be this way for two reasons: 1) It’s more difficult to afford a house with today’s prices and higher rates; and 2) There is more supply, so there are more options.
Buying down the rate is NOT your silver bullet: I’m hearing lots of people talk about keeping the price high and giving a credit to the buyer to buy down the rate. I get the sentiment because a lower rate helps the buyer, but this is ultimately a seller-oriented narrative. It’s especially common to hear this from builders with new construction. The truth is some buyers are going to want a price reduction as well as a credit. As a seller, you’re going to have to see what the market allows you to do rather than dictating the terms.
I hope this was helpful.
MARKET STATS: I’ll have lots of stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.
Thanks for being here. I truly appreciate it.
Questions: What resonated with you the most? What did I miss?
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Ryan
I feel that feel activity has increased since rates have gone down two weeks ago. Wanted to know if it was just me but things seem to have gotten better. however question I still have; what’s going to happen when we go into winter? I feel like as a seller I should be a tiny bit more aggressive but also don’t want to miss summer buyers and then be stuck during the winter time with inventory. Would love to get your opinion looking forward 30 to 90 days??
?
I would expect for some activity to increase, but it hasn’t likely been anywhere near enough to shift the trend entirely. Rates are sort of doing ping pong also where they get close to 5% one day and then they’re back up to 5.5%. We need a little time to see how it plays out. I’ve been polling agents though and some are saying they’ve seen an increase in activity, but still quite a few say it’s just about the same (or even less demand). The proof will be in the number of mortgage applications, pending contracts, days on market, multiple offers, and lots of metrics.
There is a lag in the data here to a certain extent. Even with mortgage rates, we are about 10 days behind the trend right now. The MBA announced an increase in mortgage applications by 1.2% for the last week of July, but what happened the first week of August? We don’t know yet (unless someone has a source to share). https://www.mba.org/news-and-research/newsroom/news/2022/08/03/mortgage-applications-increase-in-latest-mba-weekly-survey
The truth is the housing market temperature doesn’t stay the same every week, so we need to be open to change. My crystal ball is broken, but I think the market for the rest of the year hinges in large part on the level of economic uncertainty and confidence in the housing market – and the big daddy of them all – mortgage rates. It seems uncertainty salad has been on the menu lately, and that’s not something the housing market likes.
It can definitely bring some energy back to the market if rates persist to go down. It just doesn’t seem to be a game-changer to still be at 5%. If rates went to 4%, that would likely start to feel much different. For now we’ve been losing demand by the weak, and we seem poised to continue on that trajectory unless something happens to interrupt the trend. And what happens with mortgage rates is probably one of the bigger factors (if not the biggest factor) to introduce change.
Sellers should be aware that we are cresting for the season already. We’ve already begun seeing fewer listings hitting the market by the week (over the past month). I suspect we will see more seasonality in play too with other metrics. In short, there are going to be less eyeballs on the market ahead because that’s what normally happens for the second half of the year. But in the midst of this what happens with rates can still change the feel of the market. To be determined.
Exactly. Psychology is obviously one of the 3 most important words in real estate. And this latest swing in psychology, triggered by the Fed and lenders, took a month. That’s incredible. Sellers don’t want change and buyers demand it.
Thank you Jay. I appreciate your take and your stats. We really are in this tug of war where sellers were winning for so long. And now buyers have some serious strength.
What are some examples of “credits”? Do these come in the firm of covering realtor fees and other closing costs? Contributing $$ to this “buying down the rate”? I could personally by a house $50k more if the seller helped buy down the rate.
Hi Kayla. Thanks for pitching in. The most common example of a credit today is money for closing costs. But it can also be a money for repairs or of course a credit for buying down the rate. In a market with rates having shot up in recent months, lots of conversation has shifted around buying down the rate. I think some people look at this as the ultimate tool, but it’s just one tool. It’s going to work in some situations and not work in others. And you are right, it can work very well in some situations to help increase affordability for the buyer.
Seller’s agents are going to be earning the commission now.
For sure. It takes more work and time today.
As always, great information Ryan. Thanks for all you do. I am in total agreement with you.
Thanks so much Rick. I really appreciate it.
Ryan, are lenders okay with credits for repairs, or does that give them the willies, as there is no guarantee the repair will get done after close. I think we will start seeing some of these asks from buyers.
Hi Cheryl. That’s a great question. Honestly, it depends on the issue. For instance, an allowance for new carpet or updating some feature that is currently in average condition is okay. But if a kitchen is down to the studs, that won’t fly because it doesn’t meet conventional lending standards. Ultimately, a credit for repairs doesn’t trump minimum requirements for loan standards. Does that make sense? I hope so. And yes, I suspect we are poised to see more of these requests unless the market temperature changes.
But treat a request for pest repairs as a potential show-stopper!
What Jay said. Yes!!!
Hi Cheryl. Typically there is a request for repair amount worked out between buyer and seller. Then an addendum is done with the amount being credited to buyers closing costs. Lender only gets sent the addendum.
Thanks Brandon. Appreciate you.
Excellent advice for all Mr. Lundquist!
Thank you Mr. Shea. I appreciate it.
Excellent as always Ryan! The main point I think you are making is – listen up Buyers and Sellers, it’s STILL not a “typical” market. Corrections or adjustments are still happening. Keep current with what Buyers and Sellers are saying. There are still good deals to be made.
Bingo. I think you could have written this post. 🙂 Thanks. We are living in the midst of change. That’s the truth. While many stats are technically at normal levels (basically because of sharp change), the market is not normal. We are still feeling things out and buyers and sellers are doing a tug of war to figure out who has the power.
Great information Ryan. I definitely agree with “don’t negotiate like it is 2008” and I also very much agree with “present your house like it is a first date”. Price and presentation are the key in today’s market for sellers. The market is changing, but homes are still selling. Thanks Ryan
Thank you so much Brian. I appreciate it. Let’s stay in touch. Keep me posted with what you are seeing in the trenches.
Some tough love for seller’s and I hope they’re listening. As an agent, I rely on blogs like yours, as well as my own experience, to stay on top of market trends. Time to pivot if we want to do well in this market! Thanks Ryan.
Agreed. Thank you, Karen.