For months the talking heads have cited the ultra-low rates, the shortage of new homes being built, stock market, millennials, covid, etc. as reasons why the real estate market has exploded.
Let’s add a few no-so-obvious reasons.
Did we fully recover from the last downturn? We know that because Bernanke and the banks unilaterally changed the rules to rescue the MBS investors, we never hit the true bottom. The short-sales muddied the water further because there were so many that were never exposed to the open market and sold instead at artificially-low prices by unscrupulous realtors. In 2010-2014, we saw it here on the blog where many commenters expected the downturn to last for at least a few more years, and even the Frenzy of 2013 didn’t convince everyone we were out of the woods. Low (but not ultra-low) rates made it interesting, but there wasn’t enough confidence for buyers to flood the streets desperating seeking a home to buy – though in hindsight, they probably wish they did.
The lower-end inventory has been decimated by rental conversions and aging-in-place. Because the rents have exploded, any of those homeowners who didn’t have to sell their existing home had to consider hoarding their prized possession that was probably the best investment they ever made and turn it into a rental instead. The high costs of senior care is causing many if not most to age-in-place, and besides, one of the kids or grandkids can take over and assume the low tax basis. While pricing is flying on the lower-end today, it’s a recent occurrence that the appreciation has been 2% to 3% per month. If there had been more listings in recent years, we would have had prices rising faster, sooner. In the chart above, the rest of the categories look fairly uniform – it’s the lower-end that has changed drastically and having the most impact on the frenzy upstream.
The builders never got the memo about open bidding. Still to this day, it is first-come, first serve. Pardee is down to their last 20-30 houses ever in Carmel Valley, they were taken over by Tri-Pointe, and they have nothing left to lose. You know there has to be 50-100 people waiting on their buyers’ list yet they only release 2-4 homes per phase. Toll Brothers sold two of their models for $4,000,000+, yet Pardee is keeping their production homes attractive priced in the mid-$2,000,000s. If they just opened up the bidding at each release to ALL the buyers on the list, they would pick up an extra $500,000 easily – just because if you are number 50+ on the list, you’re not going to get another chance. But they don’t do it, which is keeping a lid on pricing. Because most everyone is buying their forever home, there won’t be enough turnover in the next few years to generate the momentum needed to find the real top-dollar value.
There are three examples of what has been undercutting the trajectory of home pricing.
When we have BOTH sales and pricing on the rise exponentially like we do now, it demonstrates what is possible when you take off the inhibitors. We are probably running a little hot today – can we be so undervalued that this frenzy could keep going for months or years?
Perhaps – especially if there are new market factors we haven’t considered before!
Part of the challenge of the low-inventory era is to find the hidden gems. Travel into south Vista just two miles from Carlsbad and look how much further your money goes!
1990 Spyglass Circle, Vista
3 br/2.5 ba, 1,835sf
HOA fee: $165/mo
LP = $699,000 – Pending
(We represent the seller)
The former model home ideally located above the 8th green has been beautifully remodeled and is better than new! Hardwood floors, new carpet and paint, newer kitchen and tuned-up baths! Located in a highly-desirable community with low HOA and no Mello-Roos, plus community pool & spa. Check it out!
STUNNING, upgraded home on an immaculately maintained, POOL SIZE LOT in desirable LA COSTA OAKS! This beautiful home is filled with designer upgrades including hardwood & honed travertine flooring, white wood blinds & plantation shutters throughout, custom built-ins, and more! First floor features formal living room, formal dining, open concept kitchen, breakfast area, family room w/ custom built-ins, plus a DOWNSTAIRS BR/BA! REMODELED chefs kitchen is perfect for entertaining and includes large island, SS appliances, high end granite counters, travertine subway tile backsplash, solid wood white cabinets with LED lighting, and new disposal! Three gorgeous stone fireplaces in living room, family room, and kitchen.
They are happy to buy your house for the amount of their zestimate, which in this fast-moving market can only mean that sellers are leaving money on the table – it’s just a matter of how much. But sellers – who have been cocooning more than ever – may not have a feel for the real estate business or the differences between agents and who just want quick cash will likely jump at their offer to purchase.
Zillow has opened up as a brokerage as well.
They are masterful at blurring the distinction too, because they are still very dependent upon realtors spending billions to advertise on Zillow. But check out their latest video that encourages home sellers to call Zillow, and if it weren’t for the broker ID at the 0:33-minute mark (for three seconds), a viewer would think that this sale was handled by a Zillow agent.
Commercials like these are building their brand as the go-to destination for home sales.
It will just be a matter of time before they replace their partner agents with their own licensed employees to process your paperwork.
The NSDCC inventory has been a perfect match for the heightened demand of 2021. With roughly 20% fewer homes for sale, the scarcity has energized buyers to grab anything that’s close to being a good match – while the pickier buyers wait patiently.
This month’s detached-home sales will likely set another new record, and set the stage for the summer market when California should be at 100%. Will that means more sellers will feel safe enough to put their home on the market? If so, it should really juice the frenzy further and cause sales to soar.
The demand appears steady – price-wise, if sellers can stay in their shoes, it should be a crazy summer too!
We had 347 sales last month. Could we hit 400 sales in May? It’s possible!
Two years ago, the National Association of Realtors began the Clear Cooperation Policy, a directive that compels agents to submit their listings to the MLS within one business day after any public marketing.
It was an attempt to quell off-market sales, but Glenn says that it’s done the opposite.
Specifically, because the CCP allows brokerages to have ‘Office Exclusives’, he asserts that more companies are withholding their listings from the MLS and selling them in-house without any attempt to include outside agents or buyers.
Rob and Sam, two industry titans, conducted a livestream discussion to see what else can be done.
Rob has the likely solution – that any agent who wants to exclude their listing from the MLS will need to get a signed waiver from the MLS committee to do so.
Yes, it has come to that – agents can’t be trusted to play by the rules, and will need a permission slip from the principal to officially withhold a listing from the MLS.
But it gets worse – I left a bomb in the comment section here:
Hopefully this will come as a relief to home buyers here – hat tip just some guy:
When a house in Berkeley sold for more than $1 million over its list price in late March 2021, it was covered in media outlets across the Bay Area, including this one.
While the Berkeley sale was particularly sensational — it sold for double its list price and received 29 offers — these individual stories are becoming more common in today’s real estate market, according to recent data and anecdotes from real estate professionals.
And that’s especially true in the East Bay. “People are not surprised when a home goes $1 million over,” said Josh Dickinson, the founder of real estate agency Zip Code East Bay. “When my clients see a house for $1.9 million they’re almost conditioned to think it’ll go over $3 million in Piedmont or North Berkeley.”
While he acknowledges that overbidding has always been common in the Bay Area, this past year has been far more frantic, with additional bids per home and more aggressive offers.
“I think I could pull up the MLS and pull up a dozen [listings] that went more than a million over this year so far,” Dickinson said. “Most of them had the ‘it factor,’ but some of them were just in the right place at the right time.”
He said the “it factor” could include amazing views and a backyard (both in one property is rare) or room for a home office or two. For a recent home he sold in Berkeley, it was only the second time in 93 years the property had ever come to market after it was designed by a notable architect. Dickinson said given the history of the home and its lush and expansive backyard, he knew it would sell quickly, but he was nevertheless surprised when it sold for more than $1.2 million over the list price.
“Even we don’t know as savvy agents. We don’t know when the thing is going to go bonkers,” he said. “We just try to let the market do its thing.”
While an attractive financial offer is key, in true Bay Area fashion there are also plenty of offers that come in with extra pizzazz. Dickinson said one of the bids on the Berkeley home included free one-week stays at an Airbnb in Tuscany for the next 10 years. It’s not the offer the sellers accepted, but it certainly piqued their interest, he said.
Dickinson has also seen plenty of offers over the years that include stock options from major tech companies and a few that have included a glut of airline miles.
When the offers are that high, the accepted bid is often cash. A five-bedroom home in the Elmwood neighborhood of Berkeley closed in April 2021 for $3.15 million, all cash, with a listing price of $1.995 million. According to MLS data, since March there have been at least 20 properties that have sold for more than $800,000 over the listing price in the East Bay and six of those, (three in Berkeley, three in Oakland, one in Piedmont), went for $1 million or more over the asking price.
“The market still heavily favors the sellers, but there’s a lot of optimism for the buyers,” Dickinson said, adding, “There was a house in Berkeley this week that only got four offers. And that gives me hope.”
The trend of paying over the list price continues!
NSDCC Detached-Home Sales, % Closed Over List Price
Most sellers and agents are happy just to get 1% to 5% over list.
The big winners who got 20% or more over list:
Most % Over List Price
Percentage Over List Price
NSDCC Sales, April: 343
(the number of sales was 29% higher than in April, 2019)
Average List Price: $2,396,667
Average Sales Price: $2,403,962 (100%)
Median List Price: $1,799,900 ($100k higher than it was at the mid-April checkpoint)
Median Sales Price: $1,828,000 (102%)
Over List By Price Range:
Under $1.0M: 23 (79% of all sales)
$1.0M – $1.5M: 65 (78%)
$1.5M – $2.0M: 63 (665)
$2.0M – $3.0M: 23 (32%)
Over $3.0M: 15 (22%)
Some people have asked about the biggest winner because I sold the same model up the street for $1,900,000 in March. It had listed for $1,800,000. and there were three comps around $1.8 million then. My buyers offered the customary $100,000 over list and a 17-day escrow to win it, and they did.
It was the same model, with similar upgrades (mostly original), and similar peak ocean view, though the biggest winner had a larger culdesac lot which allowed for a pool and good-sized grass area, and the sellers had smartly added new wide-plank hardwood floors and did staging.
I know an agent who had buyers in the running at $2,200,000 but bowed out at that point. But he thought there were three other buyers going higher.
It sold for $2,450,000, which was36% above the comps from the beginning of the year!
The frustration among buyers on how listing agents handle their multiple offers is continuing to mount. Because there isn’t any guidance from the industry, listing agents just make it up as they go – and in most cases, they just pick their favorite without any thought of other solutions available.
Here are more ways I’ve seen sellers leave money on the table lately:
Listing agents selling homes during their Coming Soon period, denying any other buyers.
Counter buyers for their highest-and-best, but then accept one within minutes before other responses are received.
Only countering some of the offers.
Off-market deals, which are great for the winning buyer, but bad for seller and other buyers.
The worst part is that sellers don’t have a clue – they are just happy to sell for more than expected.
When I’ve suggested my method to agents, they have trouble grasping the concept – that’s how deep the current snatch-and-grab mentality is ingrained in agents to make a quick deal.
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