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Pricing low on purpose: Bay Area vs Sacramento

November 1, 2023 By Ryan Lundquist 25 Comments

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.

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

Making a modern home from a tract home

October 26, 2023 By Ryan Lundquist 22 Comments

You will either love it or hate it. This owner transformed a tract home built in 2002 into something with serious Midtown modern vibes. When I saw this house, I knew I wanted to write about it, and I think there are some great conversation nuggets. How do we value something when it has really different upgrades? Is there such a thing as going too far? Today I have a Q&A with Ted DeFazio, and I hope you enjoy. I’d love to hear your take in the comments.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/27/23 AI Fall Conference (San Francisco) (register here)
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 TBD

A FEW PICTURES TO BEGIN

Okay, I want to show you what we’re talking about, and I’ll sprinkle photos throughout the Q&A. This is a tract neighborhood built about twenty years ago in the Stoneridge area of Roseville. Here’s a listing if you want to taste the flavor of this builder (a different model though).

Ryan: What was your first impression when you saw the house?

Ted: I remember seeing this home for sale in the past and always thought it was an awesome remodel. Someone had the vision and went for it. Most remodels include a kitchen or bathroom update. Maybe add on a primary suite, if you’re getting adventurous. This guy blew out the entire back wall of the home and added a commercial style window system, completely gutted the kitchen and bathrooms and made the interior virtually unrecognizable from when Elliott Homes originally built it. The level of finishes in this home are more suited for a high-end Midtown Sacramento loft, much less suburban Roseville.

Ryan: How did you price this one?

Ted: I looked at similar square footage homes in the area with something special, like a view or a greenbelt location. I figured someone would appreciate the transformation as much as one of the aforementioned attributes and pay the premium. It worked.

Ryan: What sort of feedback did you get, both good and bad?

Ted: I received all kinds of feedback, especially on the price. Some examples: You will never get that. Where did the price come from? It’s not worth it. Why would someone do this in this neighborhood? Who lives here? What does this person do for a living? Others came from far and wide loving the design and layout. I met multiple families trying to figure out a way to make it work.

Ryan: What type of buyer is looking for something like this?

Ted: I predicted a buyer coming from one of the Roseville hospitals or some other professional who liked the urban style and didn’t mind living in the deep suburbs. I always mention the Venn diagram when listing certain types of homes. This one has a lot going for it. Modern style, quiet interior location and great schools. Problem is, the typical Roseville bionic family buyer doesn’t really value the style. Their list usually includes four bedrooms, a grassy area for the dog and some space to get away from the kids.

Ryan: Is there such a thing as going too far with modern upgrades?

Ted: This one went a little far, especially for a standard production home subdivision. SubZero and Gaggenau aren’t typical in these parts. This is more of a Samsung or Whirlpool neighborhood. The modern flat cabinetry was top of the line and the appliances were fully integrated. All these items made this home a fish out of water.

Ryan: What is happening right now with buyers looking for modern stuff? Are you seeing anything interesting or different in today’s market, whether high-end prices or lower price points? Does Bay Area migration starting to lessen affect the trend?

Ted: The lack of inventory is making it difficult to land a winning offer. Most of the recent modern sales have seen multiple offers. I am seeing some pull back from the payment perspective. Rates aren’t helping affordability, even for “rich” SF Bay Area types. The return to work reality is also present now as I am hearing a lot of people rethinking their moves.

Ryan: What advice would you give to homeowners when it comes to improving their homes?

Ted: Don’t go crazy. Build to your neighborhood. I would never want the most expensive or extensively remodeled home on the block. Think about liquidity and salability. Each neighborhood has a format that works, replicate it.

Ryan: Any tips for valuing properties that have way different upgrades than anything else in the neighborhood?

Ted: I try to find a trade-off component on a comparable sale. As long as it is justifiable, it will be fine. In the example in Roseville, we used properties with views. If that doesn’t work, hope to find a buyer who appreciates the updates and can pay cash or have enough down for a waiver.

Ryan: Thank you for doing this. Very insightful stuff. Everyone, please visit Ted’s website.

CLOSING THOUGHTS

I like this property even though I don’t have the right furniture for it. But it really doesn’t matter what I think about the home. And frankly, it doesn’t matter what you think either. The only thing that matters when it comes to value is what the market will pay. This example is a good reminder of how important it is to set aside personal bias, study the market, and know the buyer profile. I do think a case study could be written about this home since it definitely colors outside the lines, but that’s not what this post is about. If you have some ideas for how to value something like this, please comment. Also, I loved the mention of a Venn diagram when considering the buyer profile.

FUTURE Q&A ON MY BLOG

I’m open to doing other interviews, so hit me up if you have an idea. Just know I’m not looking to market someone or a property (hit up the SacBee for special properties that are active). It has to be something that I think is interesting and useful for readers. I approached Ted about this property because I thought it would be a cool post. Anyway, my inbox is always open. Thanks.

MY ANALYSIS OF THIS SALE

In short, this property sold at the very top of the price market for model match units, and it sold near the top of units with competitive square footage. The subject property sold for $835,000, and the only other house above at $900,000 backed a greenbelt and was built in 2017 (instead of 2002 like the subject). For context, a model match closed at $735,000 without a pool, but it had extensive upgrades and quite a backyard. Another model match sold at $800,000 with a pool and backing open space.

Now let’s look at price per sq ft. Basically, this property sold toward the top of the price per sq ft range for the size. To be clear, I don’t use price per sq ft to value properties, but I do look at the price per sq ft range – particularly when dealing with something unique. Here are some thoughts on price per sq ft and Starbucks cups. I know some people abuse price per sq ft, and I’m not advocating for that, but as a metric it has some usefulness. Moreover, if my value isn’t within the price per sq ft range for the size, then it’s a clue for me to understand and explain why.

NOTE: If you like the two visuals above, I have a free template for making these graphs. Click here and scroll to neighborhood template.

And one more visual. I honestly think the first two graphs are more useful, but here’s another one. The subject property sold twice in recent years. To me it looks like the subject did a little better in today’s market compared to 2020 in terms of its price position.

Thanks for being here.

Questions: What do you think of this house? What stood out to you most about what Ted said? How would you go about valuing something like this? I’d love to hear.

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

A Gut Punch to Housing Demand (8% Rates)

October 18, 2023 By Ryan Lundquist 17 Comments

It feels like a gut punch to housing demand to have 8% rates. So many predictions said we’d be at 6% or below by now, yet here we are. I think it’s really important to stay grounded and realistic, so let’s talk about this. I also have some market recap visuals (and a few insane graphs). I hope this helps.

room interior vintage with white brick wall and wood floor. A black rectangle has white font stating, "A gut punch to housing demand."

UPCOMING (PUBLIC) SPEAKING GIGS:
10/27/23 AI Fall Conference (San Francisco) (register here)
11/16/23 Big Event TBA
11/30/23 Safe CU “Preparing for a Successful New Year”
1/30/24 Joel Wright & Mike Gobbi Event 9am TBD

JUST DATE THE 8% RATE

First off, I want to say that “date the rate, marry the house” is a terrible slogan in my opinion. I’m not a fan of promising the future. Look, it might work out really well for some people. But then again, maybe not. Amy Tremayne told me that dating the rate is like marriage advice she got from her mom. “You need to marry the person for who they are, not who they might become.” Such a solid word picture for buyers being comfortable with the mortgage payment today instead of banking on what it might be in the future.

JUST PLUG IN NEW NUMBERS

“Dating the rate” is a comical narrative though because new numbers just plug into the slogan. “Date the 6% rate.” “No, date the 7% rate.” “Bro, D8 the 8.”

8 THINGS ABOUT 8% RATES

1) Higher rates will take more demand out of the market.

2) We’ve seen an increase in active listings lately due to fewer pendings. This could start to increase more. Time will tell. It’s so important to watch this trend closely.

3) We’ll have to see if 8% is a psychological barrier for buyers causing more pause.

4) There will always be some buyers and sellers in any market. Someone told me there would be 0% demand at 8% rates, but that’s fiction.

5) It seems like mostly everyone got their rate predictions wrong this year, so maybe it’s best to not predict. Even the Mortgage Bankers Association had a 6.3% rate projection for this quarter (they’ve since changed the projection).

6) Sellers, do what the market requires. Reduce the price, give credits to buyers, buy down the rate, negotiate… There is a smaller pool of buyers right now. It is NOT 2021 where you had total control, and buyers are going to need more help to make things work if rates keep ticking up.

7) If you work in real estate, you have to be intentional about increasing the size of your network. This is a housing market where you will hear NO more than YES because supply and demand are so limited. Who are the gatekeepers to the types of work you want to do? Who do you need to get to know? What is your action plan for getting in front of people this week? Who needs your expertise? What types of transactions are happening today, and how can you connect with that target audience? How do you need to diversify your practice?

8) Last but not least, be full of hope in life, but be realistic about the housing market. Expect low volume and low new supply ahead as we are still in a market where many buyers and sellers feel stuck and unable to move.

QUICK MARKET RECAP STATS

Some local stats for those interested.

YEAR-OVER-YEAR:

MONTH TO MONTH:

AND SOME CHAOTIC GRAPHS

I’m starting to add some different counties into the mix. I’m getting requests and speaking gigs in other places, so it’s spurring me to add some new stuff. I know these visuals are a hot mess and likely too chaotic to be meaningful. But I’m intrigued by the juxtaposition of different areas.

Thanks for being here.

APPRAISER PRIVATE WORK FOCUS:

I haven’t forgotten about the free Zoom class I mentioned for appraisers. I’ll get a date together soon. I’m thinking November at some point or very early December. Thanks to Joe Lynch for helping me with this.

Questions: What are you seeing happen with active listings? Are they taking longer to sell? What is open house traffic like? I’d love to hear.

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

Are we finally starting to see more listings?

October 9, 2023 By Ryan Lundquist 9 Comments

Are we finally starting to see more listings? Yes and no. Today I want to talk about a change we’re seeing with listings both nationally and locally. This is a really important topic, and some of it feels a bit technical because it’s about understanding new listings vs active listings. Anyway, let’s be on the cutting edge of the market by talking about stuff like this. Any thoughts?

UPCOMING (PUBLIC) SPEAKING GIGS:
10/27/23 AI Fall Conference (San Francisco) (register here)
11/30/23 Safe CU “Preparing for a Successful New Year”

NEW MEME:

It’s been a wild ride to watch mortgage rates basically do the opposite of what so many predicted this year.

TOO LONG DIDN’T READ:

1) No big change with new listings. Sellers are still sitting.
2) There’s been an increase in active listings due to fewer sales happening.
3) 8% rates can create more actives.

1) NEW LISTINGS HAVEN’T BEEN RISING:

Sometimes the narrative is we’re seeing an increase in active listings because there are more sellers, but that’s not what stats are showing.

NATIONAL NEW LISTINGS SHOW SEASONAL DECLINE:

Lance Lambert of Fortune Magazine put out this image a few days ago based on Realtor.com data, and new listings look like they’re following a pretty typical seasonal pattern across the country (see black line).

LOCAL NEW LISTINGS HAVE A SIMILAR VIBE:

Here’s a similar graph for Sacramento to show new listings in 2023 (orange) are showing a downtrend for the fall. In other words, there hasn’t been any notable change with more sellers coming to the market.

FEWER IN SEPTEMBER IS NORMAL:

Here’s a new visual to show what tends to happen with new listings between August and September. There’s only been one year since 2007 when new listings increased, so being down 11% this year is pretty normal.

2) ACTIVE LISTINGS ARE RISING:

Okay, let’s talk about where we are seeing change. There has been an uptick in the number of active listings both nationally and locally. The x-factor looks to be higher rates causing fewer buyers getting into contract.

NATIONAL ACTIVES SHOW A SLIGHT INCREASE:

Stats from Realtor.com show a slight uptick between August and September. This isn’t a massive change, but it’s something to watch. Altos Research has also been reporting an uptick lately, so we have two credible national sources reporting an increase. We need time to see the trend, so let’s keep watching over the next few months.

LOCAL ACTIVES HAVE ALSO INCREASED:

In Sacramento there’s also been a slight uptick in active listings over the past month (orange line). It’s nothing major, but it is noticeable when pulling comps and running stats. When I log into MLS, I’m tending to see 100+ more actives on any given day. This hasn’t been a dramatic change, but if rates persist to rise, we’ll likely see a bigger increase.

5.8% MORE ACTIVES IN SEPTEMBER:

It’s actually not common to see an uptick of active listings between August and September. At least, it hasn’t happened for a decade. When looking at the past sixteen years, there was an increase in active listings only 25% of the time between August and September. With that said, whenever we see a small change, we want to watch closely to see where it goes. No matter what, let’s keep our market antennas up.

BRO, DON’T HYPE THIS SMALL CHANGE:

It’s easy to blow this up and say, “Actives increased by 6% last month. The crash is happening. We’re all going to die.” But this is only 141 extra actives. Let’s remember when we’re dealing with a small number, it’s easy for a modest change to sound huge when talking about a percentage. And remember, it’s quick to spin a narrative, but it takes time to see a trend.

A NOTHING BURGER OR A TREND?

Look, this change has been slight, so we need to be really careful about giving it too much hype. But if rates keep increasing, I wouldn’t be surprised at all to see more actives. What happens with mortgage rates for the rest of the year will be the x-factor in propelling or cooling this trend. Bottom line.

BLAME BUYERS INSTEAD OF SELLERS:

Some people are going to see more listings and conclude sellers are rushing the market, but it’s actually buyers causing the issue (a lack of buyers, that is). Remember, we could have a low number of new listings, but if we see fewer pendings, it means the pile of actives can grow without sellers actually listing more homes. It’s basically an increase in supply due to waning demand. In other words, when pendings don’t happen, that helps the pile of active listings grow higher. And that’s exactly what we’ve seen lately. It’s not a huge change, but it is a change.

LIFE-CHANGING NEW VISUALS:

Okay, maybe these aren’t life-altering, but it’s fascinating to see how the gap between sales and new listings has changed. In 2008, between January and September there were just over 40,000 new listings to date, and today it’s been closer to 17,000. Is it 2007 again? Well, volume feels very similar, but we haven’t seen an explosion of listings today.

Remember, not everything that lists ends up selling. Do you see how this year doesn’t have as much space between the number of sales and new listings? Having fewer new listings has made the market more competitive.

ADVICE FOR SELLERS:

Sellers, my biggest message right now is to respect the pendings. Rates are flirting with 8%, and this makes it more difficult for buyers to afford a home today. Demand is still here, but higher rates will reduce the buyer pool even more. It’s easy to get stuck on sales from the past, but what are buyers willing to pay right now? We see that in current pending contracts. We also see what buyers aren’t willing to pay with overpriced listings (don’t price to those).

LET’S KEEP WATCHING:

Let’s watching by the week and comparing notes. Please keep sharing what you’re seeing in the trenches too.

Thanks for being here. I hope this was helpful.

Questions: What are you seeing happen with active listings? Are they taking longer to sell? What is open house traffic like? I’d love to hear.

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

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