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Overpricing, multiple offers, & hot ranges

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The market is hot. But it’s not so hot that you can command any price you want. Today I have a quick post to show a few trends. These are brand new visuals with some great takeaways (I think). Enjoy if you wish.

1) MULTIPLE OFFERS

Huge change this year: There were 39.3% more multiple offers this October compared to last year at the same time. This speaks to how much more competitive the market has been lately. While we are experiencing a slight seasonal slowing right now, the market is far more competitive than it should be for the time of year.

Not everything: Last month 32% of listings had price reductions. In short, even though the market is super aggressive it doesn’t mean everything is selling above the list price.

10-20 Offers: This year we’ve seen substantially more properties with 10-20 offers compared to last year. The highest number of offers last month was 37 too (just in case you want to sound super smart).

Here’s a look at 5-10 offers too. What a difference!!

NOTE: Our MLS has two fields called “multiple offers” and “number of offers.” This is how I’m extracting the data.

2) THE MOST AGGRESSIVE PRICE RANGES:

This is geeky stuff, but it’s so important for understanding the market isn’t the same in every price range or neighborhood.

The most aggressive: The most aggressive price range in the Sacramento region is between $300,000 to $400,000 (not a shocker). The sales price to original list price ratio is 101.65%, which basically means properties in this range sold on average 1.65% above the original price. In short, the lower the price, the more aggressive the market is. Keep in mind there are few sales below $300,000, so don’t write home over that lower stat. 

The most overpriced range: This year we’ve had explosive growth with the number of million dollar sales as there have literally been twice as many over the past four months compared to last year. But this price range is also the most overpriced. On average sales above one million dollars last month closed about six percent lower than their original list price. At times million dollar listings are literally priced hundreds of thousands of dollars too high (or even millions). 

And one more visual to show last year vs this year…

Market update: In this market update video I talk quickly through eleven trends. I hope you walk away with some insight. Enjoy if you wish.

Free webinar next week: I’m doing a big market update next week for SAFE Credit Union on November 19th from 9-10am PST. It’s free to anyone and it’ll hopefully be some good background noise while working. Register here.

QUICK CLOSING ADVICE:

1) Price reasonably and you should be able to get at least a few offers.

2) Price too high and you’ll likely get zero offers (seriously).

3) Sellers, you don’t need to aim to get twenty offers. I suggest aiming for a few solid offers. My stats even show you don’t need 20 offers to get the highest price.

4) Sellers, aim for the market instead of that mythical unicorn Bay Area buyer who will mysteriously overpay for some reason.

5) Buyers, study your competition in your price range and offer accordingly. There is a good chance you may need to offer above list and have cash to pay any difference between the contract price and a lower appraisal. This is not easy on buyers, but it’s the dynamic out there right now.

6) Buyers, start looking at properties that have been on the market for 30 days or more. These ones are likely overpriced and it may be easier to get into contract on something like that.

7) Other. What else?

I hope this was interesting or helpful.

Questions: What are you seeing in various price ranges? I’d love to hear your take from your vantage point in the trenches.

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Sellers, you don’t need 20 offers

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Sellers, getting twenty offers is the dream, right? That way you can be choosy about accepting the buyer with the strongest terms and probably a higher price too. But do you really need that many? In other words, can you get the same price with just a few offers? Let’s kick around this idea today.

THE SHORT VERSION:

1) No surprise. Getting more offers tends to lead to a higher sales price.
2) Sometimes just one offer can go way above the list price.
3) Homes with one offer also more regularly close way below the list price.
4) You don’t need 20 offers (but it sure does help).

THE LONGER VERSION:

Let’s look at some visuals and then consider some takeaways.

County Visuals: First off, I’m concerned these visuals are going to be confusing, so sorry if you’re thinking, “Dude, I only see dots and I have no idea what’s going on.” The goal is to show how much higher the sales price is compared to the original list price while considering the number of offers. Basically, when a dot is at 100%, it means a home sold at exactly the original list price. Or if a dot is at 110%, it sold 10% above the list price. Or 95% means it sold 5% lower than the original list price.

Question: What happens to prices when there are more offers?

The big plain truth: The truth is properties with more offers tend to close higher above the original list price than properties with fewer offers. Duh, I know we could have said that without the research, but it’s good to see what stats actually show rather than going with what we feel might be true. With that said, sometimes a home with just one offer can actually close at the same high percentage above the list price as a home with ten offers. So technically you don’t need ten to twenty offers to command a huge price (but it sure does help).

Neighborhood Visuals: Let’s check out some neighborhoods too instead of just the county. What do you see?

Conclusion: There are fewer data points to consider in the neighborhood visuals, but the takeaway is the same as the county (see above).

QUICK THOUGHTS:

1) 20 offers: If you’re getting 20 offers, it’s probably because you’re priced too low unless that’s what every listing is getting.

2) Aim for a few: Price it reasonably and you’re more likely to command a few solid offers and statistically be in the zone to compete above the list price. The reality is you don’t need 20 offers to get a huge price (but it helps).

3) Hang in there buyers: It’s not easy out there right now, but it’s worth noting not every sale is getting ten offers. It may feel true, but the stats don’t show it is.

4) Not everything is getting bid up: While many properties go 10% to 15% above the original list price, many homes sell below the list price. The narrative is Bay Area buyers are swooping in, paying cash, and everything is getting bid up, but that’s not true when looking at how many homes recently sold below the original list price (basically any dots below the 100% line).

5) Clear advantage: Having lots of offers gives sellers a huge advantage to be selective and accept contracts with the best terms (and probably higher prices).

6) Layers of the market: Not every price range is experiencing the same dynamic when it comes to multiple offers and getting bid up. This is why it’s so dangerous to take an experience with just one property and call it a trend for the market. Maybe. Maybe not.

I hope that was helpful. Thanks for being here.

Questions: How many offers do you think is ideal for a seller to get? Why are some listings able to command a huge price even though they only get one or two offers? What is it about those ones? Any other insight? I’d love to hear your take.

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Dude, my house is worth more now, right? Because of that one thing.

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My house is worth more now, right? Or maybe it’s worth less because of that one thing? I get questions like this all the time, so here’s some thoughts swirling through my mind. Skim the headings or dig in. Anything to add?

Questions I’ve heard recently:

  • Will prices rise because a nearby restaurant got a Michelin Star?
  • Did my value go up because of the new arena in Downtown Sacramento?
  • My house is worth more because Lady Bird was filmed here, right?
  • Is my house worth more because of that $5M record sale?
  • Would values decline if a new hotel is constructed 1.5 miles away?
  • A new Starbucks down the street makes value go up, right?
  • Will it damage neighborhood values if there’s a cannabis facility nearby?
  • Will a new gas station impact neighborhood prices?
  • Will the Golden State Killer’s house affect my value?
  • Are values going to decline if the school district is taken over by the state?
  • How will adding a casino nearby affect value?
  • Will prices go down if that new teaching hospital happens?

Not a dissertation: Many of these questions are truly complex and they could be research papers. At the same time we read some of these and think, “C’mon man, there’s no way that impacts value.”

Quick truth: We can get so trigger-happy about thinking everything makes a difference for value, but that’s just not the case. It’s like when a home owner says, “Yo, I got a new faucet in the bathroom. How much does this add to value?” Probably nothing. The market just isn’t that sensitive.

My Michelin Star poll: I ran a poll on Twitter after getting a fantastic question about whether Sacramento’s first Michelin Star would be a positive for the surrounding residential neighborhood.

This wasn’t a scientific survey, but it’s interesting to hear what people think. I tend to agree with the majority too. My sense is the Michelin Star will give bragging rights to neighbors, but I’m not sure buyers would truly pay more in an entry-level area to be closer to a top-tier restaurant. Keep in mind if this restaurant did begin to help the commercial market thrive, then maybe that could spill over into the residential market. Otherwise let’s not overthink this.

Generally speaking: If something has little impact on an area, it’s probably not going to affect value much. Let’s remember that when making value claims and thinking through issues. But if something persuades or dissuades buyers, then it could be a big deal for the market. In other words, will people buy or rent for more or less because of the thing? This is the type of market-based thinking we need to consider.

The arena: As an example, the new arena in Downtown Sacramento has been a game-changer because it’s drawn people and other businesses into the city. It’s been a catalyst for development in the immediate market. But that doesn’t mean a buyer ten miles away would pay more for a house because of the new arena. I say fat chance.

Lady Bird: Would someone pay more for a house because the movie Lady Bird was filmed in the neighborhood? I’m not saying the answer is NO, but I just haven’t met a buyer yet who said, “I totally paid more because of Greta Gerwig’s cinematic masterpiece.” Objectively speaking, I can only find four listings that mention the movie too, and that may be telling.

Two takeaways:

1) One thing: Let’s be cautious about looking for value under every rock. What I mean is it would be wise to remember not everything we encounter is going to sway buyers to pay more or less.

2) Support: Let’s think critically and be sure to look to data to support our value conclusions. At the end of the day we can make claims about how a certain something impacts the market, but what do stats and data actually show? That’s what matters most.

“Beyond the Bubble” article: I wrote a piece for Comstock’s Magazine this month called Beyond the Bubble. These are things on my mind lately with so much talk about whether we’re in a bubble or not.

Questions: What questions have you been asked lately? Have you seen one type of business or something else impact an entire area? What do you think of any of the questions above? Let’s chat.

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