When the appraised value of homes in Placer County are less than the prices of homes for sale in your particular neighborhood, you may encounter problems selling that home in Placer County. Prices have not appreciated in all neighborhoods over the past couple of years in Sacramento and Placer, especially in certain high end gated communities when the attraction specifically targets a certain kind of buyer for a luxury home.
In some of those areas, when a listing agent is doing research it helps to look at the market from the eyes of a buyer and not the seller nor the appraiser. After all in the end it is always the buyer who determines the price, regardless of what the seller, the agents or the appraiser may believe. If a buyer wants to pay more than the appraised value, the buyer is rarely prohibited from doing so by financing restrictions.
Standard business practices calls for Placer County listing agents to perform a comparable sales search within a half-mile radius of the property or maybe even within the same subdivision, but there is a benefit to looking at the real estate market outside of those parameters. Why? Because buyers do. Buyers are generally not wedded to our industry boundaries. They search an entire area. If buyers can purchase the same type of home a mile away, only better and bigger for less in the same type of neighborhood, they will do it.
Basing values on the prices of active listings is not typically a high priority when pricing a home because sellers can stick on any old price tag and find some newbie agent willing to stick a for sale sign in the yard. It’s the comparable sales, the homes that have actually sold, that tend to establish value. Unless they don’t establish value. It can happen. Then active listings are very important to compare to your home.
Take a subdivision of homes in Placer County where there have been no sales over the past 3 months. I had one of those briefly listed, and the comparable sales from months earlier – sales that an appraiser will not a lot of weight to because they fall outside of the accepted timeframe – reflected a much higher value. In reality, though, after trying to sell the home for 3 weeks, it became clear that the sellers had paid more for the home a few years back then they can probably sell it for today. Doesn’t a listing agent have a fiduciary duty to disclose those findings to the seller?
You would think so. But listing agents are often reluctant because the messenger tends to get shot. I will tell a seller, though, if I see it is highly unlikely a seller will receive the price he believes the home should sell for based on the comps. For example, if there are homes for sale in a subdivision, and the last 3 homes that sold were single stories and 4 of the 6 homes for sale are single stories, and your listing is a two-story what do you think will happen? Single story homes are also more popular.
Further, if out of those 6 active listings of houses in Placer County, your home is the highest sales price, buyers will lowball that price. The price per-square-foot tends to lose its grip. Luxury home buyers can face too many choices in some areas. They want to pay the same price for a larger home that mirrors the price of smaller homes. Of course they do. They want the most house they can buy for the least amount of money. That might not be the sellers’ goal and in that case, the home should probably be removed from the market.
There are a few neighborhoods in Natomas that comprise such a high percentage of rental homes that the unbalanced situation is negatively affecting property values. Home buyers relocate to Natomas because they want that close-to-downtown urban commute but they also want the suburban lifestyle offered in part by other homeowners who live nearby and who are just like them. If they wanted to live near tenants, they’d live downtown Sacramento or in Midtown. No matter how you cut it, if your street begins to dip toward more tenant-occupied homes than owner-occupied homes, your property values will undoubtedly suffer.
Landlords for a home in Natomas called last fall to ask about listing their rental. It’s a home that had been underwater for years, and they, like many people, did not want to do a short sale. Luckily for them, they were not so far under that they could not rebuild equity, unlike others. Further, the comparable sales in that neighborhood supported higher values, high enough that they could have sold, paid all expenses and probably pocketed $20,000 or so. But, they decided to wait.
Fast forward to this year, with far less inventory and fewer sales, which resulted in fewer comparable sales. This is a disappointing situation for those who try to time the market. I have sold a lot of homes in Natomas and, in particular, in this certain neighborhood. One of those homes, in fact, was an identical model to my client’s home. Same square footage and located a block away. That other home was filmed in 2009 for a House Hunter’s episode because it had been sold as a Sacramento short sale, and I used it as one of the 3 homes my buyers chose when I appeared on that HGTV show.
The sellers struggled with the value I presented. It wasn’t as high as the value from last fall, but the housing markets in Natomas and for that neighborhood had changed. The comparable sales did not support that higher price. The strategy I suggested was to list it under a certain price point and let buyers bid it up by a few thousand over that particular price point, and it worked. Market demand dictates price. We sold the home. Yet, I got the feeling that the sellers had wished for a better turnout, a better return.
They sold the home for slightly more than they paid for it 8 years ago, and they made a few thousand in profit. That’s better than a poke in the eye with a stick, don’t you think?
It’s really difficult to time the real estate market. I monitor the housing markets in Natomas day-in and day-out, and I would not try to time the market, even though my finger is on the pulse. I sense the lesson of this particular situation is when the price is right for you, jump on it and put that home on the market. Don’t always try to push that envelope by waiting to squeeze a bit more because it might backfire.
Raising the sales price when your home doesn’t sell because it’s priced too high for the market is a screwball strategy that some sellers employ for various unknown reasons. Well, if you ask the seller he might say that a home down the street, for example, was just listed at a higher price, which in his mind would justify the price increase, even though it’s the wrong way to look at it. If anything, an overpriced home down the street will make a reasonably priced home sell faster.
Homes that are for sale in Sacramento are not necessarily homes that are for sale. The list prices of those homes are pretty much meaningless and carries little weight if there are no offers. A sales price is an enticement, like bait on a fishing hook, but there is no guarantee a fish will bite it. Not only that, but it might be a plastic lure disguised as a tasty treat. Not every home that has a for sale sign in the yard is a home that is for sale. That’s where home buyers’ and home sellers’ perceptions can slide sideways.
What matters are the pending sales and the sold comparable sales because those are the homes that real home buyers have purchased. Those prices are indicative of the marketplace. They show what another home is worth.
Then, you’ve got condition. A home in poor condition will not be attractive to many first-time home buyers. Investors in today’s Sacramento real estate market want a good deal, and to the investors I talk with and receive offers from a “good deal” means paying less than market value.
Bottom line is in today’s fall Sacramento real estate market, when you’ve hauled in a big fish and it’s flopping about in the boat, the thing to do is knock it over the head. You don’t throw it back in the water when you plan to eat it. You don’t say you need to catch a bigger fish if it meets minimum catch guidelines. And you don’t raise the sales price because you don’t have any offers.
Give home sellers enough time, and they’ll come to that conclusion on their own. The thing is they generally end up paying for those decisions.
Trying to pick a sales price when there are few to none comparable sales is a little bit tricky in our Sacramento real estate market, but this is when an experienced real estate agent can be very helpful. Sometimes it comes down to relying on gut instinct, mixed with a bit of pixie dust sprinkled on top of those dusty old comparable sales, to come up with an accurate and reasonable number.
Further, I might do goofy things that are right on target such as grab a random sales price from 2005, divide it in half, multiple that result by 50%, and then slap another 25% on top to arrive at an estimate of value, which is often much closer than Zillow’s screwy Zestimate and computed about in the same fashion. But that’s just to double-check the ballpark. It’s not to pick a sales price.
When talking with a seller who just closed escrow yesterday on a fixer home I had listed, we had discussed the sales price and reviewed how we arrived at the final number. I confessed that it wasn’t based entirely on the comparable sales. My input was based a lot on how much I thought we could get for the property, resulting in the intrinsic market value of that home. The seller laughed and said he realized I had grabbed it from thin air when I made the recommendation.
Well, I wouldn’t say thin air. But it was an educated guess. It was an educated guess because although I had examined the comp prices for turnkey homes, I had not arrived at a value for the unknown condition of the property, which was basically trashed. I had been expecting to see a home in move-in condition. These types of homes are a bit difficult to price when the home has so much wrong with it that you can’t even figure out which part of the house you’re standing in. Oh, this must be the living room, I muttered to nobody, when it dawned on me where I was as the floor suddenly sloped down under my feet.
After hitting the market, lots of agents called to give me push back and to complain about the price. They thought it was too high. Many offered substantially less. They moaned and groaned. Hey, give the sellers what they want, I suggested; it’s simple, just do it. Don’t yak at me about the comps and your honorable intentions. Put up or shut up. Then, two buyers submitted offers that were very close to our asking price, and those were the two buyers we worked with, closing with the best offer and zero renegotiations during escrow.
Sometimes, you just get lucky trying to pick a sales price, but it helps to have experience on your side when you’re the seller.
Most clients will say that they completely trust and value a professional opinion until the day comes when they disagree with their real estate agent. The agent can see it coming, too, but by then it’s generally too late because the client will have already said something emotionally telling like, well, if you don’t agree with my opinion of value, then you should ask my daughter. The daughter who is not a Sacramento real estate agent and who has no experience in real estate.
The agent can haul out the heavy artillery, the trending charts showing the past year or so of real estate activity in that particular neighborhood, including days on market, sales price to list price ratios, absorption rates, median sales prices, inventory levels, but it won’t matter. It won’t matter because the client will spot a home that is nothing like the client’s home but that home will have sold for much, much more than the true market value of the client’s home. That particularly expensive home might have sold for more because it has a spectacular view, which the client’s home does not. That home might have sold for more because it is 1/3 bigger than the client’s home. That home might have sold for more because it has upgrades and features that the client’s home might not possess.
None of this will make any difference to the client.
This could be a case in which the client might utilize the per-square foot cost of that more impressive home and apply the same value to the client’s home, therefore proclaiming a higher sales price that will not appraise under any circumstances. The Sacramento real estate agent can point out that any reputable appraiser will use 3 to 6 comparable sales to justify the sales price, and explain that an isolated sale is not enough to substantiate a higher price. Because the comps are the comps are the comps; however, the agent may as well be speaking to a Muppet.
The agent can invest hours preparing a comparative market analysis, utilizing several independent sources, but it won’t make any difference to the client because the client wants the price that the client wants. To educate the client or try to justify a different opinion means only one thing. It means that the client will choose a different agent who agrees with the client. Probably an agent the seller’s daughter knows.
And this is why clients will say that agents only tell them what they want to hear. Because these are the very people who set themselves up for failure from the start. They sabotage themselves.
By the time the home closes escrow at a much lower price, the client will remember the agents. He will recall the argumentative agent who refused to agree with his point of view, and he will recall the agent who sold his home for so little that she forced him to “give it away” — and he won’t have anything good to say about either agent. They’ll pretty much all be scum is his book. And that’s too bad.