Pricing low on purpose can be a triggering issue. I know both buyers and agents can get extremely frustrated to have to enter a bidding war. And let’s not even talk about auction platforms. But pricing low is pretty much the norm in the Bay Area. People have always told me that, and I finally looked into it since I gave a presentation last week in San Francisco. Anyway, I have some cool stuff to share today, and I hope you get something out of this (whether you’re local or not).
What pricing strategy do you like? Really low to create a bidding war? Just below market value? At market value? Above market value?
UPCOMING (PUBLIC) SPEAKING GIGS:
11/16/23 Mega Agent Panel (register here)
11/30/23 Safe CU “Preparing for a Successful New Year”
01/30/24 Joel Wright & Mike Gobbi Event 9am (on Zoom here)
MY HALLOWEEN COSTUME
I had a real estate costume for Halloween called “Low-Rate Larry.” Here it is in case you wanted to see it. Hope you had a safe day yesterday.
STRATEGIC UNDERPRICING TO GET BID UP?
Here’s a really straightforward way to compare Sacramento and the Bay Area, and then I’ll show you some chaotic graphs below that drive home the point even more. Keep in mind some individual Bay Area counties like Alameda had over 70% of sales go above the original list price last month, but other counties such as Solano, Napa, and Sonoma are actually lower than Sacramento. Ultimately, when we put all Bay Area counties together, this is what the stats look like.
MASSIVE DIFFERENCE BETWEEN SAC & BAY AREA
I know these visuals are crazy, but I want to show how different the pricing trend is in the Bay Area. The dots represent how properties sold compared to the original list price. Anything above 0% went above, and below 0% went below. Obviously, prices are way different in the Bay Area, but it’s clear there are many more properties going above the original list price.
And here’s a way to look at the same data, but with days on market. It also looks like the bulk of bidding up in Sacramento is during the first week, but at least portions of the Bay Area have about an extra week (see individual counties below). I’d have to study more than just one month to call this a trend, but I welcome any Bay Area locals to speak into this. How long is the window before a property typically goes pending?
10% ABOVE THE LIST PRICE
In Sacramento this month we saw 2.3% of all sales go 10% or more above the original asking price, but in the Bay Area that was 19.8%. It’s a stunning stat to think one in five sales went at least 10% above in the midst of a fall season with higher mortgage rates. Yet, it’s not just the market because pricing lower yields stats like this. When looking at 20% above, 0.3% of sales in Sacramento went 20% above in October, but that was 7.1% in the Bay Area.
BAY AREA DOMINATING CALIFORNIA
Here is a visual from CAR to show homes selling above the asking price in California. Check out the first five counties to see the Bay Area dominating the list. Like I said, Napa, Sonoma, and Solano aren’t as extreme, so when we put these counties into the mix, it waters down some of the data so to speak.
CLOSING THOUGHTS
There is clearly a different pricing strategy in the Bay Area compared to Sacramento, and buyers pretty much expect to have to enter a bidding war. I’ve heard this consistently from the real estate community, Bay Area buyers, and the stats support the idea too. Someone the other day on Twitter (X) told me this dynamic began in the 1990s, but I’d love to hear from any insiders who have the skinny. My price visuals below show a massive increase in prices in the later 90s in the Bay Area, so I wouldn’t be surprised to hear a different pricing strategy took off then, but I’d defer to local experts on that. For locals, do you think pricing low is a thing? When did it begin? Why is it this way?
NOT EVERYTHING GOES ABOVE
When talking to real estate professionals online, one would think literally every property in the Bay Area goes above the asking price, but that’s not what the stats show (my stats or CAR stats). Granted, in my experience, when we get around 60-70% of the market going above the asking price, it’s honestly hard to see stuff that’s selling below without pulling exhaustive stats, so I truly get the sentiment. I’ve definitely had conversations like this in Sacramento when are stats were 60-70% above.
APPRAISERS
We have to be really intentional about staying objective. The original list price might not reflect value at all, so going above could simply be the byproduct of a pricing strategy more than anything. I suspect Bay Area appraisers are particularly in tune with this since the dynamic of pricing low is a thing. Granted, going too far above actual value was something we saw on a massive scale in 2021, so there is absolutely such a thing as going too high. For any onlookers, it’s more challenging today to value properties since we have so many missing sales. If volume in Sacramento is down by 40%, that means we have 40% fewer comps.
DEAR REAL ESTATE AGENTS IN BOTH PLACES
If you relocate to Sacramento from the Bay Area, it’s important to recognize the pricing trend is not the same here. Properties in Sacramento tend to be priced closer to market value in many cases (not always). I’m just saying only 2.3% of sales went above 10% last month compared to a whopping 19.8% in the Bay Area. In other words, it’s a different vibe in Sacramento (but still competitive). Also, if you’re an agent from the Bay Area taking listings in Sacramento, you don’t have to price 10-20% low to get into contract. I’m not trying to tell anyone what to do. I’m just saying the pricing culture is different. Likewise, if you’re a Sacramento agent taking a Bay Area listing, my recommendation is to fit into the pricing culture there. Look to the comps to understand the market, and pay close attention to the way recent sales and pendings have been priced, and act accordingly. Ultimately, it can be a real mistake to project the trend from another location on a local market (even if that other place is only two hours away).
MORE VISUALS FROM MY PRESENTATION:
PRICE VISUALS
Here’s some stuff from my presentation this week. One thing to note about Bay Area prices is how much they departed from California in the later 90s. What do you make of that? Tech boom?
OTHER VISUALS
And here are more visuals I made this past week. In some of the Bay Area images I included condos too. Let me know if you have any insight or questions.
Thanks for being here.
Questions: What do you think of pricing low on purpose? What stood out to you most about the visuals or stats? Am I missing something? I’d love to hear.
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Ryan
My recent sale on Marshall Way in Curtis Park did go 10% above listing. And guess where the buyer’s agent is from? The Bay Area. They removed appraisal and loan contingencies in the offer.
Thanks for sharing Martin. 10% is a good chunk for Sacramento. Congrats.
It makes me wonder what portion of the 2.3% of buyers that buy at higher than 10% above asking are buyers from the Bay Area….
Thanks Rich. I wish there was a way to know. If only we had access to data like that. I will say some of these incredible outliers in Sacramento are simply a reflection of being priced way too low. I know of a property that is going more than 20% above by the time it closes this month, but it was priced probably $100,000 too low (will close around $500,000).
it was 100% of the buyers on 2600 Marshall Way
Wow!!!!
i should say 100% of the buyers who went into contract lol
New stuff on the blog! Great job Ryan. Nice to see the Bay Area analysis to compare and contrast to our region. I like the visual comparison for showing the differences between pricing between the two regions. Also good to see SoCal and all of California in the mix.
Thank you so much Joe. I appreciate it. It’s been fun to add in some surrounding areas lately. It was fun to speak at AI last week too. I had to do some Bay Area research for that.
For the listing agents, it is a delicate balance because you never know when another agent has been interviewed and suggested higher price. I just had one where I told the seller that my suggested price was just slightly under retail by 2-3%. An out-of-area agent recommended them a price that was 14% above mine. Guess who they listed with?
Thanks Jim. That has to be brutal, and I imagine it’s very difficult for owners to say NO to a higher price too (even if it’s unrealistic). I always appreciate your perspective as I know you’ve been around a long time. Everyone, if you don’t know Jim, he had a blog during the foreclosure crisis that I seemed to run into here and there back in those days.
My experience also! Lost out to another agent who pushed the price (and I believe had a buyer already). I just couldn’t show stats for the price they were wanting as it was about 9-10% more than my highest suggestion. Lesson learned! Strategies for pricing should be as flexible as the market trends.
Thanks for sharing Melissa. And totally agree with your last sentence.
Very useful !
Thank you Tarah. I’m excited for this data. I hope it resonates.
Great work being able to put this together. I’m from Portland. If we go too far in any direction, we are into different multiple listings and would not have access to the data to make comparisons like this.
Thanks Gary. Interesting to hear. This is actually a different MLS technically, but it’s now integrated into our MLS. I think there are four different systems that have an agreement. The cool part is the map search now works for every single area, so I don’t have to log into a different system to search for anything. I’m a fan. I really like this.
Thanks Gary. Interesting to hear. This is actually a different MLS technically, but it’s now integrated into our MLS. I think there are four different systems that have an agreement. The cool part is the map search now works for every single area, so I don’t have to log into a different system to search for anything. I’m a fan. I really like this.
Do you expect prices to go down in 2024 because of it being an election year? I live in Temecula (So-Cal). We have started seeing prices going down over the last 30 days, and told Nov/Dec is the best time to buy.
Hi Robin. I find the price trend is really hit and miss during an election year. I actually have an upcoming post to talk about that, and I’ll show prices since the 70s, and it’s not just one thing during an election year. In short, the election year ahead isn’t poised to trump the trend in the market that is already here. The truth is we have uncertainty right now, and it’s a strange market with low volume and low supply. Sellers have pulled back from the market, and that’s the reason why prices have remained elevated this year. If we didn’t have so many sellers stuck in place, the price trend would likely be quite different right now with a normal number of listings. In short, it’s difficult to predict prices for next year. I honestly thought we would have seen declines this year because the market was clearly declining for the second half of 2022, but then 40% of local sellers stepped back, and that changed the trend. I mention that because it shows we never quite know what is around the corner. I will say it’s a lopsided dynamic right now to have high prices and low volume. It’s an atypical combination and unhealthy when so many people cannot afford.
November and December is the best time to buy technically because demand is the lowest. The only problem is listings often feel like leftovers, there are overpriced sellers on the market, and the best stuff from the spring is long gone from the market. In an ideal world, if something good lists though, it really is a good time to buy because there is less competition. But one more thing. When somebody lists in November and December, that likely means that person is motivated to sell, so there is something to be said about watching these listings closely. In contrast, some sellers will simply wait until January and beyond when the spring market heats up.
Hi Ryan,
I’m in the Bay Area, Alameda County in my 21st year of real estate. Confirming that we have always listed low to spur multiple offers. The buyers and agents are conditioned, so when we price anywhere near where we think it will sell, the house will sit and open houses will be dead. There was an agent as a joke, or social commentary listed a property at $1 to make a point. Of course, everyone was talking about it. We see 50-100% over asking on a more frequent basis than you would imagine.
The listing price is always the seller’s choice and I always make that clear, but as you pointed out, if you are trying to buck the custom of the area, make sure you charge enough commission to deal with the lingering listing and anxious seller.
In our area it’s not about getting the house into contract, it’s about providing the seller with choices as to which buyer and/or loan they prefer to work with. If you only have one offer, there’s not much choice is there?
I also wanted to point out that S.F. eventually started pricing low and grudgingly so did Contra Costa County.
Of course, times are changing and the houses with objections are making price adjustments. Raising prices to “Transparent”, gives agents another marketing opportunity.
Real Estate Physiology is fascinating!
I love it. Thank you sincerely Amy. I’m a dude pulling stats, and I don’t pretend to be as a historian or even expert for your area. I really appreciate you chiming in. I’m fascinated about pricing and dynamics in different areas, and I may post some Bay Area stuff here and there ahead as long as people read. It’s so interesting to hear that other counties caught on too. I’ve actually wondered if Sacramento would see more auction pricing over time, but it doesn’t seem like that’s the vibe. I’d be okay if that didn’t happen, but that’s just my personal preference. Thank you again. I really appreciate it.
Hi Amy
Nice summary of what happens in Alameda Cty. It is confusing for those who don’t understand what is going on. As an appraiser we often have to explain to lenders why listing prices are not useful indicators of value. All part of the job!!
Alison Teeman
Hi Ryan:
Do you have more details about this speaking gig?
11/30/23 Safe CU “Preparing for a Successful New Year”
Thank you.
– Joe Eschleman
Hi Joe. Thanks for asking. I don’t have a link yet. I should soon. Anything with SAFE Credit Union tends to fill up very fast unfortunately. I’ll push it out as soon as I get something.