low inventory in Sacramento

Have you noticed how some listings are receiving multiple offers at list price even though they are priced way too high for the neighborhood? I’m talking about the type of listings where agents and others all think, “There’s no way in heck it’s going to appraise that high.” But buyers are still offering at list price and even above. What does this tell us about the market?

Possibilities for why buyers offer full price even when the list price is REALLY high for the neighborhood:

1. Value: The market has increased in recent months.
2. Strategy: Since inventory is so tight in the Sacramento area, buyers feel the need to offer at list price or above to get into contract.
3. Rejection: Buyers have become burned-out from getting their offers rejected, so they’re offering at higher levels to help compete with other buyers.
4. Cash Competition: There is so much cash in the market, so financed offers need to find a way to be more attractive to sellers (higher offers can help).
5. Money: It’s really cheap to borrow money right now, so taking out a larger loan is not as big of a deal.
6. Financing: When buyers finance nearly all of their purchase (FHA), they’re essentially spending someone else’s money. It’s a whole lot easier to offer more when you’re not spending your own money, right?
7. Good Deals: Many buyers still remember how high prices used to be, so offering more in today’s market still feels like a deal because current values are far lower in the post real estate “bubble” burst.
8. Other: What do you think?

My take as an appraiser: Having multiple offers can be one indicator for how the market sees a property, but it’s not the end-all fool-proof metric for determining value. For example, 10 offers at list price sounds sincerely convincing on paper to establish value, but we also must sift through factors above to try to understand the motivations of buyers – not to mention consider competitive sales and other market metrics. After all, as mentioned above, there are many reasons why a buyer or group of buyers might offer more for a property than it is actually worth.

Listing a property at any price level: I was talking to an investor friend recently about how he could pretty much list his properties at any price level right now (relatively speaking), yet still generate multiple offers due to scarcity of supply. This isn’t true in every case of course, but it’s definitely a realistic dynamic in the Sacramento area real estate market.

All things considered, it’s easy to blame appraisers when appraisals come in “low”, and there are certainly scenarios where appraisers should be blamed. However, in cases like this where offers are unrealistically high for the market, the appraisal probably should come in “low”, right? By the way, check out a previous article if you need help challenging a low appraisal.

Anything you’d add? Any stories to share? Realtors, have you seen listings get into contract far above what you think is realistic? What advice would you give to buyers trying to get an offer accepted these days?

SacBiz Journal Mention: By the way, I was quoted in a Sacramento Business Journal article last week on a related topic of “Homebuyers starting to pay higher prices as investor market dominance wanes.”

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook