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Advice for buyers & sellers in today’s housing market

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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.

Weathered wooden background with the title, "Advice for buyers and sellers" in a white block in the middle of the image

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?

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Fastest market ever & price deceleration

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The housing market has been changing these past couple of months. As I’ve been saying, it isn’t cold, but the temperature is surely different. Anyway, let’s talk about two things to watch in months ahead – price deceleration and days on market. Any thoughts?

A photo of a road with two lanes. One lane says "fast" and the other says "slow." There is also the title of today's post, stating, "Two things to watch in today's housing market."

This post feels a bit nerdy or heady, but this stuff is so important. I hope you pick up a few nuggets – even if you aren’t local.

1) PRICE DECELERATION:

When this year began, lots of people predicted and hoped for price deceleration. The idea is price growth would slow, so instead of being 20% higher compared to last year, the percentage would start to be lower over time.

  • It’s possible we’re starting to see deceleration in the stats, but we still need a few months to be sure. See image.
  • We’ve been growing at a freakish pace, and we need to see slower growth for the sake of health.
  • This doesn’t mean prices are declining, though some sellers have priced lower than recent sales to generate interest (or multiple offers).
  • Last year was really aggressive and this year the market crested a month early. In short, let’s be aware of what we are comparing.
  • Not every local county is showing deceleration like the regional image. This is why I’m saying we need a few more months of stats. This is simply a preview of some trends on my desk. Frankly, it could take a bit to see price deceleration in the stats, but let’s be on the lookout.

A lline graph to help show price deceleration starting to happen.

2) DAYS ON MARKET:

I have some brand new visuals to help us watch how long it is taking to sell so we can gauge a change in temperature. Do you like these?

  • We’ve had the fastest market ever over the past two years.
  • It’s starting to take slightly longer to sell.
  • We are still quite far from a normal trend (the red line).
  • Pendings are moving quickly, but let’s not forget to look at what isn’t selling too (properties with price reductions).
  • I expect to see the black line (2022) tick up in coming months.
  • For the sake of market health, we want to get closer to the red line where it’s taking 30 or so days on average to sell.

A line graph to show multiple years of days on market in Sacramento County. This shows the past two years have been the fastest-moving years ever compared to all other previous years

A look at the average and 2022 days on market. A l ine graph to show these two years.

A line graph to show that we've had the most aggressive market ever over the past two years

TOP GUN REAL ESTATE MEMES:

Lately I’ve been making more real estate memes. It’s just how my brain works. Anyway, Top Gun 2 is coming out in a few days, so I give you the following. The second meme alludes to buyer “love letters.”

A meme showing Tom Cruise shake Val Kilmer's hand (Top Gun actors). The title says "Sellers finally negotiating a bit more with buyers."

Another Top Gun meme. Tom Cruise is singing to Kelly McGillis with other people in the background in a bar. The title says, "Buyers trying to impress sellers without violating fair housing laws of course."

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What are you seeing out there in the market? What do you think of the new visuals?

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The invasion of institutional investors in the housing market

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A couple weeks ago a viral story came out about a fund called BlackRock who was reported to be buying everything in sight and paying 20-50% above market value. Let’s talk about this as well as other institutional investors right now.

This is a longer post, so scroll topics (or digest slowly).

Market update on Thursday: On June 24th 10-11am I’m doing a big market update for the Sac Assn of Realtors. I can’t wait. Sign up here.

Some things on my mind:

Big news – Invitation Homes is back: Invitation Homes is back to buying homes in the Sacramento market. Over the past month or so they started buying again and they’ve had seven deals close between $410,000 and $495,000. All properties were purchased on MLS for reference. So far this doesn’t look like it will be 2012 again where Invitation Homes purchased thousands of units in a very short period of time, but we’ll see how it shakes out. I’ll be paying close attention, so stay tuned. What I find striking is that institutional investors are even able to make the numbers work after ten years of price growth in the region. This underscores how much rents have increased to facilitate this type of activity. For reference, KCRA shows Invitation Homes is the second largest landlord in Sacramento County behind the City of Sacramento. 

If you are in a different market, what are you seeing with Invitation Homes?

How much do institutional investors own? Here’s an image from John Burns Real Estate Consulting via Rick Palacios Jr. See this tweet with additional cities. I know the font is tiny, but in Sacramento about 5% of the market is said to be owned by institutional investors. I honestly have questions about what this 5% figure represents, but I figured it was still worth sharing.

Not Blackstone: By the way, Invitation Homes is not Blackstone. Blackstone sold their interest in Invitation Homes years ago, so it’s not accurate to say Blackstone is currently buying homes in our market.

The skinny on BlackRock: When viral news about BlackRock broke I read this Wall Street Journal piece like many others. This may not be a popular take, but I felt the article was lacking data to support some of the sensational narratives being spun. Look, I’m not a BlackRock fanboy and I’m not glossing over the reality of institutional investors targeting residential real estate in the midst of a housing shortage or some of the horror stories we hear from tenants. I’m just saying I’d like to see data to support if they really are looking to buy everything in sight and pay 20-50% above market value like so many threads have been discussing. And yes, I know BlackRock was involved in the acquisition of an entire brand new neighborhood in Texas from D.R. Horton, though Financial Samurai states this neighborhood was already fully leased as it was built to be rented and was not going to be offered to individual owners. Again, I’m not pro-BlackRock and I could care less if people despise the company. I’m only thinking critically about the narrative and I haven’t seen data to back up some of the ideas. For reference, I haven’t been able to confirm any BlackRock activity thus far in the Sacramento market.

Not easy to track: One of the problems with tracking institutional buyers is they don’t always acquire properties under only one name, so it’s not so easy to gauge their activity. For instance, Zillow has four names they are currently using to buy in the Sacramento market and Invitation Homes has had at least a dozen names they’ve used through the years. As an example, here is a post I wrote in 2013 to show my numbers compared to a few other media publications and everyone had slightly different numbers (at the time I was using Blackstone and Invitation Homes interchangeably too).

The iBuyer Model: The most dominant expression of institutional investors in real estate right now is the iBuyer model (in Sacramento at least). Unlike Invitation Homes, these companies are flipping rather than holding and some of them are attempting to make their money by becoming a one-stop shop for consumers. Here are some stats and a few observations:

FOUR THINGS TO KNOW ABOUT THE iBUYER MODEL:

A) Beyond pre-pandemic levels: When the pandemic started the iBuyer model pretty much paused, which brought criticism because the idea was this model could only exist in an up market. Anyway, after a hiatus these companies ramped up their efforts and have now surpassed pre-pandemic buying levels. Well, technically this is more about Opendoor since Zillow and Redfin weren’t much of a factor as iBuyers before the pandemic.

B) iBuyers have a 1.4% share of the market: iBuyers get a ton of attention, but they only have a 1.4% share of all inventory in the Sacramento region (this includes pendings and listings). In other words, 98.6% of all listings and pendings are the traditional real estate model. In specific terms, among over 5,000 pendings and listings throughout the region iBuyers have 1.4% of that total right now. Granted, it looks like 68% of the properties they own are not on the market yet, but for what is on the market it’s only 1.4% of everything. At some point I’d like to track total volume of iBuyer sales, but that’s likely going to be impossible unless local iBuyers give me their numbers. So for now this is the best I can do.

C) Evolving strategy: Some iBuyers have seemed to increase their price threshold to compete in a market with rapid price increases. See visuals below.

D) Playing it safe: These models tend to focus on standard homes that can be easily flipped, though lately there are a few units hovering around the lower end of luxury prices. Most of what these companies buy is built after 1950, has three or more bedrooms, is located on a 0.25 acres or less, and is below 3,800 sq ft.

What iBuyers own in the Sacramento region:

At some point I’ll likely move away from scatter graphs to help visualize iBuyer purchases, but for now this is what I have.

Region = Sac, Placer, Yolo, El Dorado

CLOSING TRUTHS:

1) A growing trend: Institutional investors have been in the real estate space for years, so this isn’t something new. Yet there is no mistaking a growing focus on residential real estate whereas in the past it was all about multi-units. In short, we are still at the beginning of this trend and it’s to be determined how much it grows in the future and what sort of effect it has on the market.

2) Sifting hype: These companies are not playing a massive role in today’s housing market for now. I know that’s not popular to say, but that’s what stats indicate. I’m not downplaying the importance of watching BlackRock and this certainly doesn’t mean consumers shouldn’t be alarmed to see institutional investors flex deep pockets. This is a huge deal. It’s just not a huge chunk of the market for now.

3) Watch investors and iBuyers closely: We have to watch what happens between investors and iBuyers. For instance, this Bloomberg piece reported an investment fund named Cerberus Capital Management bought a few hundred homes directly from Zillow before the public had the chance to see them. This seemed to fly under the radar. I would think the public would be upset, but maybe everyone just loves Zillow too much to say something? Ultimately how will institutional investors and tech companies leverage their relationships with each other and big banks? We’re often so focused on how companies interact with consumers, but how about with each other?

4) Food for thought for real estate pros: For my real estate friends, I know it can feel stressful to be in the midst of change and to wonder what the future looks like. Believe me, I know this well as an appraiser as my profession especially feels like it’s on the chopping block. My advice? Focus on what you can control, have a vision for the future, realize the VAST bulk of the market has nothing to do with the iBuyer model, become your market’s expert, don’t keep doing the same thing, find ways to be more efficient, and serve like no other. Sorry for the unsolicited advice, but that’s what’s on my heart.

UPDATE: Here is a video Mike Delprete put out about iBuyers. This came out the day after my post. I figured others might like to listen.

Okay, this is getting long.

Thanks for being here.

SHARING POLICY: You can share my stats and visuals above, but please attribute the source. Here are 6 ways to share my content (not copy verbatim).

Questions: What stands out to you most above? What do you think about institutional buyers? I’d love to hear your take.

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When selling way above anything else (Q&A)

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There’s no way it will sell for that much…. But then it did. Today I have an interview with a local real estate agent about a property that recently commanded easily about $100,000 more than it looked like it could have on paper. I hope you enjoy this Q&A with Ted DeFazio and my takeaways below. I’d love to hear your take in the comments. Any thoughts?

Ryan: On paper it looked like this property on Clear Circle was going to sell for way less, right? What do you think happened to get the price so much higher?

Ted: I thought the listing price was optimistic from the start. I even fielded emails from other agents asking how I came up with the price and a couple “good luck, you’ll need it” text messages. I think it was the perfect storm of a turn-key property in a low-inventory market. Added to that, it was a mid century modern (which some thought was bastardized by the previous remodel), had a pool (Bay Area and LA people think they will melt without one), and a somewhat walkable location on the southern end of Carmichael. I know a few buyers who mapped out the distance to Whole Foods and the American River Parkway.

Ryan: I get how agents were texting you “good luck” because based on two previous sales it looks like this one easily closed $100-125K+ above where it theoretically would have been able to.

NOTE: The black dots are the subject property sales through the years compared to yellow dots which are properties of similar size. As you can see the most recent sale at $815,000 looks to have gone well above the historic trend. By the way, the subject was remodeled during each of these sales.

Ryan: Are you seeing buyers pay more for unique properties throughout the market? Or is this just in certain price ranges?

Ted: There is another one that comes to mind in Fair Oaks that recently sold in Curragh Downs. Same situation. Mid century vibes and a cul-de-sac lot backing to a greenbelt. I once again thought the listing price was optimistic but every offer was above asking. The seller purchased the home less than a year ago for over $200K less and didn’t really do much as far as remodeling goes. These were both in the $700-800K range. Another I can think of was recently sold on Garfield in Carmichael. I fielded emails and texts from agents asking where the price came from. I have two others in the $500-600K range which are both in contract at nearly 10% above asking.

Ryan: How do you know if something is an outlier able to break away from the price trend?

Ted: The Clear Circle house, Canonero Ct and Garfield Ave properties all shared the unique architectural design theme. I think that is what truly sets these homes apart giving them the potential to be outliers. Check out Bonny Knoll in Roseville. The seller knew it was an outlier and priced it accordingly. I think that’s the constant. As agents and appraisers, we often think we know better. I responded to an email questioning value by saying: I’m going to let it ride and see what happens.

Ryan: What are you seeing happen with modern and mid-century modern home appeal during the pandemic?

Ted: I think these types of properties command a higher price point than that of the traditional Mediterranean or typical ranch home down the street. The Bay Area and LA types tend to appreciate these design styles more than the average Sacramento resident. With the influx of these buyers, we are seeing premiums added to the more modern properties. So I think it has further added to the delta between typical and unique homes.

Ryan: What sort of advice would you give to buyers right now?

Ted: It’s hard out there. The offers stack up and the sellers get overwhelmed. The common theme I am seeing with the winning offer is the high offer price and a removal of the appraisal contingency. This puts buyers who aren’t flush with cash in a tough spot. I am hearing buyers are thinking that the market is overpriced. I often tell them that I stopped commenting on the market. I thought it was overpriced back in 2016. What do I know? Buying in this market is tough but being able to sell helps neutralize the offset.

Ryan: Any advice for sellers?

Ted: You are in the driver’s seat. If you have considered selling or making a move, there is no time like now. What an opportunity.

Ryan: Anything else to add?

Ted: I am seeing a divergent trend of agents either sharing what the other offers are or not. I find this market as difficult as I have ever seen to be in the buyer’s shoes. Add to it the listing agent not sharing what other offers are on the table makes it even harder to do our jobs. I ask my sellers if they are okay with me sharing the current offer terms with the other agents (as long as there isn’t a NDA) and they are usually okay because they understand that it will most likely get them more money in the end. The shot in the dark offer mentality / situation is aggravating and makes me not even want to submit an offer in certain cases. I have seen some seller instructions added to listings of some brokerages and wonder if they are truly acting in the best interest of the seller.

Ryan: Thanks Ted. I appreciate your time and insight. Everyone, please visit Ted’s website and let us know what you are seeing out there.

NOTE: Once in a while I do a Q&A with a local professional. This is never a paid spot and it’s not done to highlight one person either. It’s only when something has piqued my curiosity and contributes to discussion.

——————— some quick thoughts ———————

QUICK TAKEAWAYS from an appraiser’s perspective:

1) Your opinion vs the market: It doesn’t matter what any of us think about a property. As Ted said above, quite a few people looked at Clear Circle and thought the remodel destroyed the character of the home, but the resale market blatantly favored this property despite what purists thought. There were four offers when priced at $749,000. This is a good reminder in the valuation space to divorce ourselves from personal opinions and focus on one question. What does the market think?

2) The previous sale: Sometimes a previous sale can be really useful because it helps us understand how a property has fit into the market. But in other cases we need to completely throw out a previous sale because the market is simply different today (or maybe the prior sale sold too high or low). This is exactly why we have to be careful to give the current market and current comps the most weight while not getting too hung up on a previous sale (even though at times a previous sale can provide really helpful context). This is especially true today where the higher-end market has come alive throughout the country, so what buyers are willing to pay right now could simply be a detour from buyer behavior a few years ago.

3) The pandemic x-factor: Buyers hunting for homes these days are willing to pay extra for something architectural distinct. Additionally, buyers are paying premiums for homes with stellar views and backyard amenities. The idea is people know what it’s like to spend more time at home now, so they seem more sensitive to location as well as what’s actually in the backyard (including the view).

4) Paying way too much: There are situations today where buyers are obviously paying way above normal. Let me be clear. I’m not saying this sale above represented market value at $815,000. I’m also not saying it didn’t. I’ll let you be the judge. I’m just saying buyers in general throughout the market are paying premiums for special properties right now. But backing up there is no mistaking there are quite a few situations where buyers are obviously paying well beyond a reasonable value and the appraisal rightly should be coming in lower.

5) Sellers, don’t price to an outlier: Sellers, this market feels totally lopsided, but buyers can still sniff out an overpriced home. My advice? Be realistic about your house and DO NOT price according to an outlier example like the one in this post. Remember, not everything is getting 20 offers and bid up $100,000. In fact, only 2.8% of all sales last month had twenty offers or more. This is actually a higher than typical number, but it’s important to realize this figure is nowhere near half the market like some real estate narratives might suggest.

Thanks for being here.

Questions: What are you seeing out there relating to modern homes or other “special” properties? Any stories to share? I’d love to hear your take.

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