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pricing too high

Price reductions don’t mean the market is crashing

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We’re seeing more price reductions lately. Does this mean the market is starting to collapse? Are things beginning to turn? Is this 2008 all over again? I’ve been getting great questions like this lately, so let’s talk shop.

Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.

5 THINGS TO KNOW ABOUT PRICE REDUCTIONS

1) Price reductions are normal: It’s normal to see more price reductions from the summer through the fall season. The danger is it’s easy to observe normal trends through a doom and gloom lens. The issue is demand changes from the spring and there is less attention from buyers as people are focused on school, vacation, and getting into a fall rhythm. It then takes sellers a bit to adjust their expectations and find proper pricing in a cooler market.

2) Anything can be overpriced: Over the past week in Sacramento there were price reductions in every single price range. This tells us it’s possible to overprice at any segment of the market.

3) Technically the market is NOT way overpriced: The local housing market is seeing more price reductions, but I don’t think it’s fair to say we have an overpriced market. Like I said last week, stats are still not normal as the market is more aggressive than it normally is for the time of year. According to Altos Research 28% of recent listings have price reductions in Sacramento County. Anyway, check out Altos and see Placer, Yolo, and El Dorado too. I don’t pull stats like this regularly, but a figure at 28% sounds about right as it fits with other stats I do pull. I can bore you with details in the comments if you wish.

4) Be careful about judging: The danger in real estate is to think whatever we are seeing with a few properties is what the entire market is experiencing. Maybe. Maybe not. It’s like me noticing several people wearing overalls. Is it a trend or did I just happen to see a few friends reliving their glory days from the 90s? Look, personal experience is really valuable, but it’s important to be sure we’re looking at stats on a bigger level beyond what is in front of us.

5) A closing note for sellers: It’s critical to nail the list price right now and I advise being in touch with the current climate of fewer offers, taking longer to sell, and more price reductions. It’s easy to be infatuated with hot headlines or cling to the idea of fetching a massive cash offer from an out-of-town whale. My advice? Price for the market and see what happens. Don’t price for the unicorn. It’s still a competitive market, so you may be able to get a few strong offers, but it’s not what it was four months ago. Oh, one more thing:

Anyway, I hope this was helpful.

Thanks for being here.

Questions: What are you seeing out there with price reductions? What advice would you give for pricing a property right now?

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Photoshopping & price per sq ft in real estate

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I have a new way to explain how price per sq ft works in real estate. It’s helpful but maybe a little creepy too. No matter what, we need word pictures in real estate to explain concepts, so let’s chat.

The big idea: Using a price per sq ft figure from a different house is sort of like photoshopping someone else’s body on your own. It just might not fit.

Instagram model vs dad bod: Think about it this way. When we use a price per sq ft figure to price a home it can be like taking an Instagram model’s body and putting it on a dad bod. It just doesn’t belong or fit. The problem is we’ve imposed something entirely different on another thing, and it looks awkward. The same holds true in residential real estate when we hijack a price per sq ft figure from a dissimilar house down the street and use it to price a property. Thus if we’re not careful we can end up pricing a “dad bod” home like it was an Instagram model simply because we priced according to model metrics instead of other dad bod sales… Okay, let’s not take this analogy any further. Do you catch my drift though?

Pick your poison: This example isn’t intended to tackle all aspects of price per sq ft, but only help stir conversation. I actually use Starbucks cups and Lamborghinis too, but that’s just me. My advice? Use what works for you.

One more thing. I’m writing as a guy who is currently on a diet, so I’m definitely not poking fun at the reality of dad bods.  🙂

I hope this was helpful (and not too creepy).

Is Blackstone selling? I see Invitation Homes (Blackstone) has a handful of properties listed on the market right now. These could be non-performing assets of course, but we have to ask if they are starting to sell off some inventory too. Stay tuned.

Sign giveaway: Last week I wrote about people who are leaving the market, and I’m giving away the shabby chic signs I made on this Facebook post.

Video: Here’s a video I made to talk through the danger of abusing price per sq ft. Enjoy if you wish. It’s about six minutes.

Question: Does this example work? How do you explain how price per sq ft works in real estate? I’d love to hear your take.

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5 things to remember about lofty list prices

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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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