Buyers who overpaid are confronting new reality
Yesterday, I showed an Oakland house in a very popular area. This neighborhood has long commanded a premium because of its proximity to one of the best shopping districts. At the height of our past seller’s market, however, there were numerous red flags regarding pricing that buyers, and their agents, ignored.
One danger signal I have always pointed out to my buyers is price per square foot (ppsf). Although this metric is most appropriate to subdivisions of similar homes in outlying cities, it also works well as an important point of reference in older, East Bay communities with few, if any, subdivisions.
In 2002, I published an article, Pricing by the Square Foot, with a follow-up in 2004, Pricing by the Square Foot Revisited. Both advised buyers to pay attention to how much they paid per square foot, especially for smaller properties. The 2004 article warned how some houses exceeded $600 per square foot, a very high number in Oakland at the time. I saw this as a warning light.
As for the home I showed today, it was purchased at over $700 per square foot and is now listed for less. In my opinion, the seller will be fortunate if it sells at $600 per square foot. Even at that, unlikely, figure, the owner is in for a six figure loss, and this does not include the substantial cost of buying and selling.
I share this information to help those who might be in the market now. Understanding both nearby comparable sales and ppsf is critical in deciding on a reasonable bid. Taking ppsf into consideration will also assist sellers in pricing their property at a number that is likely to attract offers.
Unless you are a buyer or seller who is a local real estate expert, which is uncommon for those not in the business, make sure to work with an agent who you not only trust, but who knows and cares enough to communicate vital information so you can make the right decisions.