San Francisco Real Estate
At current market trends, over the next month:*
1400 active house & condo listings will be joined by 600 new listings.
1 in 7 or 8 of those listings will accept an offer to purchase.
1 in 8 will expire or be withdrawn from the market (didn’t sell).
1 in 4 will reduce its asking price.
75 active bank-owned (REO) homes will be joined by 45 new REO listings: 1 in 3 will accept offers.
Of the listings that do accept offers, 1 in 3 or 4 will come back on market because the purchase fell through — typically due to financing difficulties, property condition issues or buyer remorse.
*All numbers are approximate; neither TIC sales nor non-MLS new-development sales are included.
List Price, Offer Price, Sales Price
Of the house and condo listings that SOLD in the first 2.5 months of 2009:*
1 in 4 accepted offers within about 15 days of going on market, i.e. almost immediately. Of these, the houses averaged a sales price of about 1% over asking price, while condos averaged about 4% below asking. The supply and demand equation is currently weaker for condos than for houses; the equation for TICs and multi-unit buildings is much weaker still — financing is now very difficult for these properties.
Those accepting offers after 45 to 75 days on market sold at an average of 3% to 4% below last asking price and 7% to 10% below original list price.
Those accepting offers after 105 days on market sold, on average, 4% to 5% below last asking price and 14% to 18% below original price.
No matter how long a home was for sale, it still sold, on average, within 3% to 5% of the last price, even as — with price reductions — the discount off the original price grew much larger as time passed.
* For SF house and condo sales reported to MLS by 3/17/09. City districts with high foreclosure rates, as well as confidential sales and ultra high-end sales were excluded to avoid distorting general market statistics.
What it Means
The vast majority of buyers and buyers’ agents will NOT make an offer until they perceive the property’s asking price to be within 5% of “market value” (i.e. what they’re willing to pay).
1) They don’t want to waste time and emotional energy on a listing they consider significantly overpriced, since they believe coming to an agreement with the seller is unlikely. Or
2) They’re uncomfortable with the possibility of provoking a negative reaction from seller or listing agent.
Generally speaking, ours is not a society comfortable with aggressive negotiating, even though it can reap large rewards. Remember that a negotiation is a conversation between buyer and seller that doesn’t really begin until an offer is made. And until it’s made and the negotiation concludes, no one knows what price and terms might result — so don’t make ironclad assumptions based upon either asking price or initial offer price.
Lessons for Buyers
If you see a home you like, ask yourself: at what price would you be a buyer? Review recent comparable sales and market trends with your agent, and then make an offer — at or under whatever price you’re willing to pay. The first rule of negotiation is, “You never know until you ask.” A few buyers are negotiating discounts of 10% to 25% off list price, because they’re unafraid to make low offers.
Don’t waste time asking the seller or listing agent if they would entertain a low offer — they almost always say no (out of pride and/or a misunderstanding of how negotiations proceed). No one knows how anyone will actually react to an offer until the offer is made.
Ultimately, the home you buy will be a good or great value based upon the price you pay, not the price the seller asks. So focus on the first, instead of the second.
That said, those properties perceived as excellent values are still generating offers — and sometimes, multiple offers — quickly, and a home purchased 20% below asking price is not necessarily a better value than another purchased at full price: it all depends on the property and how it was priced to begin with.
Lessons for Sellers
Never discourage buyers from making offers. Counter-offer unacceptable offers instead of rejecting them outright.
Those 25% of sold homes which accept offers within 2 to 3 weeks of going on market achieve the highest percentage of sales price to list price. To do so in today’s market, your property must stand out as an excellent value: priced, prepared and marketed perfectly.
A listing will never get as much attention as in its first few weeks on market and pricing properly to begin with almost always results in more money than starting out high and reducing later. Most buyers will NOT make offers on homes they consider over-priced — and the longer a home stays on the market, the less value it holds in buyers’ calculations.
If you do need to make a price reduction — and in a changing market, the right listing price can change — do it as soon as possible and make it dramatic enough to recapture attention.
The only definition of fair market value that counts is: “That price a qualified and reasonably knowledgeable buyer will pay to a willing seller after the property has been properly exposed to the market.” To make it more complicated, that price is changing all the time.
Paragon in a Changing Market*
For SF home sales (house, condo, TIC) from October 15th, 2008 — when the 9/15/08 financial meltdown began to show up in sales data — through March 16, 2009, Paragon had the highest average sales-per-agent of any brokerage in the top 10 with at least 20 agents: higher than Sotheby’s, McGuire, Hill & Company, Pacific Union, Coldwell Banker, Zephyr, Vanguard and Alain Pinel. Paragon also had the lowest days-on-market figure of any of those companies. And year-over-year for this period, our market share increased by 38%.
As the market becomes more challenging, we’re working harder for our clients.
*Per Broker Metrics, for SF home sales reported to MLS as of 3/16/09
The purchase or sale of one’s home is typically one of the largest, most complicated financial transactions of one’s life. The quality of agent working on your behalf — his or her competence, integrity, work ethic and commitment to your interests — can make an enormous difference in the outcome.
All data from sources deemed reliable but subject to error or omission, and not warranted. 3/25/09