As a top producer, I try to share information of value with my fellow agents. The other day in our weekly sales meeting I said that the word of the week is Bifurcation. This is essentially a word meaning fork in the road. And this is where I see our current market.
When you reach a fork in the road, there are two different paths before you. However, for today’s real estate market, the choice of path is not of the seller’s choosing, rather the buyer’s. This in and of itself is a divergence from the past two years of a seller’s market. I’m not suggesting it’s not still a seller’s market, rather that it’s not a seller’s market for all properties. How so you ask?
If a property is in turn-key condition, super upgraded, has an amazing view or property size or is perhaps in a super hot and popular neighborhood, it’s still firmly a seller’s market and a buyer should expect to compete and pay over asking. In this way the market is unchanged despite what you’ve been reading and higher interest rates. However, if the home is not tricked out or perhaps has a location issue be it backing a road etc., buyers are not bidding these homes up [See what your home is worth here]. Here you find a change in the market vs. the past 18 months. It’s interesting really, I tell my clients that you can buy a “challenged” property (people do this all the time), provided you “Buy it right.” By this I mean, an appropriate discount from market price because when you go to sell, you have to discount it in the same way. What made our recent market unique was that the shortage of properties compelled some buyers to pay market for a challenged property and not buy with the appropriate discount. In a market like the one we were just in, everything sells. But in a normal market, that’s not how it works. And in a down market, that’s definitely not what happens. In a down market, there’s always a nicer home or better location that must sell at the same time and the discount you have to make often times ends up disproportionate. A home is only worth what a buyer will pay and if they can buy a better property than yours for “X” then you have to offer a discount to incentivize the buyer to buy yours.
I just listed two properties. Both excellent locations, one totally remodeled and the other with a new kitchen and pool, and both sold within a day for at or above asking. Conversely, I wrote an offer for a buyer on a home that had been for sale for all of 16 days. We wrote nearly 10% below and settled 5%
below. Pretty good for a home that had only been for sale two weeks. But the seller to their credit, recognized that with the interest rate environment changing, they were better to make the deal today rather than go the reduce and reduce route until they got low enough that someone would buy [Find us on social media here]. In the city of Los Angeles, where I sometimes venture for clients, listing agents are listing as much as 40% below market value. Think about that! Can you picture yourself asking $950,000 for a home destined to sell at $1.4M? I had heard this has been happening in the San Francisco Bay Area for years: list a home at $1.22M and sell for $2M, but I hadn’t seen it first-hand. Things tend to happen in the city before the burbs and this is an example of this. When I asked several agents why, they said they were “in the market” but that because buyers expect to be in a bidding war and to pay over, the home has to be priced to ensure this is what happens. I can see this because recently I had a listing where day one an amazing offer came in, over ask giving up contingencies etc. and I told the agent for the buyer that my sellers were going to accept it without a counter. The agent to my surprise said, “Hold on,” and then the buyer proceeded to withdraw since they weren’t getting a multiple counter. An example of “Herd Mentality” if ever there was one [Contact Tim here]. If you take a look, I think you’ll agree that bifurcation is the first sign of a market in flux.
I wish I had an extra home to sell in this market ! 😀