Oakland market snapshot: January thru September 2010
Originally appeared in Bay Area News Group publications on October 15, 2010
This is the third, seriously down market in my more than 30 years in real estate and I notice buyers and sellers repeating some of the same mistakes. These include buyers paying well over asking on properties that do not appear to justify the high price and sellers listing too high for the market.
To get a clearer picture of the situation in Oakland, I researched a specific subset of properties. The results confirmed my observations.
My search
Given an enormous amount of data to choose from, I looked at single-family, detached houses that sold in the popular zip code 94602, from January through September, selling price $500,000 to $1,000,000. Although different neighborhoods will likely reflect somewhat varying results, the price range represents a healthier part of the market, with fewer distressed sales, than those below this level.
All data came from the Multiple Listing Service (MLS). A total of 89 properties were in this category. For comparison, the same search parameters showed 194 sold in 2004 and 191 in 2005, so, clearly, the market is now in a soft spot.
Listing price and days on market
Pricing is always critically important, but even more so in a buyer’s market. Of the total solds, slightly more than half (45), closed at a price equal to or higher than asking. The average days on MLS (defined as the number of days from entry to an accepted offer) was 15, excellent for today’s market.
Not counting distressed sales (REOs and short sales), 30 properties sold for less than list price. Their average days on MLS was 44. Those unfamiliar with our local market may consider this outstanding, especially in comparison to many other parts of our country. From my experience, however, generally speaking, the longer a home is for sale beyond two weeks, the less favorable a financial outcome for the seller.
The implication here is that this group of houses was overpriced for what they were, where they were and for their condition. Although many sellers have trouble accepting this, sharp pricing results in a faster sale and the highest possible price, sometimes with multiple offers, even in this buyer’s market.
Sellers who lost money
Without including short sales and REOs, there were 11 homes, 12 per cent of the total, where the purchase price was less than what the seller paid (in most cases, purchased 2003 to 2005). The amount of loss ranged from a low of $10,000 to a high of $199,000, not counting the cost of buying and selling. The latter costs usually total two to three per cent of the purchase price for buying, and six to seven per cent for selling. These figures can significantly change an expected positive outcome to a negative.
The risk of buying high
In every type of market, I always warn my buyers about the risk of overpaying, especially in competition. This is most dangerous in a buyer’s market.
During seller’s markets, I have seen how emotion and the fear of being priced out creates a frenzied atmosphere where many buyers focus on “winning” a house regardless of price because there is the expectation that its value will increase. In reality, every market changes at some point, but, too often, agents do not remind their buyers of that.
With a substantial number of sellers walking away with fewer dollars than they have in the property, it is hard to justify paying as much, or more, today than a particular home sold for during the 2003-2005 peak. Despite that, I noticed some of the sales under discussion here that equaled or exceeded the hot market numbers. Although few things still surprise me in the business, this stunned me.
Most of us need to be circumspect about such a large purchase. To me, it is mind-boggling to pay more than necessary when there are many desirable, attractively priced properties now for sale.
Final Thoughts
If you are, or are thinking about being, a seller, this is not an easy time. No one knows how long it might be before the market returns to normal, no less turns to a seller’s advantage again. I see nothing on the horizon to make me think this will be any time soon.
As a seller who can’t wait for a market swing, make sure your agent is totally familiar with your neighborhood and provides you with recent, comparable sales to help you set a realistic price that is appealing to buyers. If you do so, you stand the best chance of selling at the highest price the market will bear.
On the other hand, if you are a buyer, this is a wonderful opportunity. Flexible prices and record low interest rates are to your advantage. Work with an agent who cares more about your best interests than in making a quick sale. You also need to be familiar with comparables in your purchase area. Remember that these reveal little about condition, a major factor in pricing. Professional agents know how to get this information for you.
Whether you are a seller or buyer, understanding the dynamics and reality of our current market can make or save you a lot of money.