Market Update

Pricing, Buying, Selling & Negotiating San Francisco Real Estate

The below is a detailed analysis of current market conditions in San Francisco.  The quick and dirty jist of things is:  lots of properties are sitting on the market at much higher prices than they will eventually sell for.  If you are a buyer, and you see something you like – go for it!  If you are a seller, beware the temptation to “leave room to negotiate.”  It will cost you in time and ultimately in sale price.  Finally, if you are thinking of buying or selling in this complex market, be sure to ask for the help you need.  Please always remember, I am here with a great team of financial, staging and marketing professionals to help you and yours get it done with the best possible outcome.

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• 1 in 8 will expire or be withdrawn from the market (didn’t sell).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 and obtaining superior results.
*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.  In this market where so many companies are shrinking, Paragon continues to grow because of our strategy of hiring only the best agents with the ability to generate business through referrals that are earned based on long-term competetent service to our community.  I am committed to being your real estate advisor for life and sincerely appreciate the continuous support you all provide to my business.

All data from sources deemed reliable but subject to error or omission, and not warranted. 3/25/09

How Much Have San Francisco Home Values Declined Since their Peak?

A burning question for most of us, to be sure.  The below analysis should help to shed some light.  However, a friend of mine says that statistics are like bikinis (they can cover up the crucial bits while exposing only what they intend to expose) and I couldn’t agree more.  If you want a detailed analysis of the value of your home, don’t be shy about asking.  Your situation is likely a bit different than the “big picture.”

This analysis of San Francisco neighborhoods compares dollar per square foot ($/sq.ft.) at what is estimated to be the time when peak value was reached, to what the $/sq.ft. was for sales occurring 10/15/08 – 1/30/09. (Sales occurring after 10/15/08 reflect the impact of the 9/15/08 financial meltdown on the SF market.)

The neighborhoods below were chosen because enough sales occurred in the comparison periods to generate what appeared to be reliable statistical results. (Many areas of the city did not have sufficient sales.) We have chosen $/sq.ft. because it is more trustworthy than median prices when trying to assess changes in value for specific properties.  Indeed, median prices have dropped significantly more than $/sq.ft. because less expensive homes now make up a much larger proportion of sales than they did previously (for a variety of reasons, especially financing conditions).

Different areas reached peak values at different times – in 2006, 2007 or 2008 – and the asterisked notes denote the estimated peak value period that pertains. The price ranges of the sales included were chosen because we felt them to be in a standard range of value for the area and property type specified – thus attempting to eliminate both the ultra high end and the ultra low end, which often distort averages.

Important note: the changes delineated probably understate the actual decline in values for 3 reasons:

1. In a declining market, sales data – which typically shows up 30 to 45 days after acceptance of offers – will always be a step behind current activity, i.e. offers being accepted right now.
2. The market has definitely shifted to smaller, less expensive homes (less expensive as to total sales price). All things being equal, a smaller home will have a higher dollar per square foot value than a larger one, therefore skewing current values higher than they ought to be in an apples-to-apples comparison.
3. In a sellers’ market, virtually everything sells, but in a buyers’ market, typically just the best homes sell – best appearing, best condition and/or best value. So the $/sq.ft. for the recent period applies to the “best homes” while the $/sq.ft. for the peak period applies to homes of a much wider range of quality.

Key to Estimated Peak-Value Period for the Chart Below:

*             Peak values estimated to have been reached 1/1/06 – 6/30/06
**           Peak values estimated to have been reached 1/1/07 – 6/30/07
***        Peak values estimated to have been reached 1/1/08 – 6/30/08

Only homes with parking were included in the below analysis. SFD = single family dwelling (house)

Averages are generalities and cannot account for the varieties in location, condition and amenities found in SF homes. Averages may be affected by unusual events or anomalous short-term trends, and do not necessarily reflect values for specific properties.  

SF Real Estate Market Makes Major Shift to Low End

The median price is a measure that many use to keep a handle on how the market is doing. However, in San Francisco, our housing market is so diverse that this single way of looking at housing prices is not very accurate unless you are comparing very carefully selected comparable homes. We have had a big shift this year in sales toward the lower end of the market, making the “median” price decrease much more than the value of individual properties.

The below is a comparison of SF House, Condo and TIC sales form 10/15/08 to 1/30/09 with the same period a year earlier by price range

Total # of Sales:  down 27% – 30%*
Total Dollar Volume:  down 43% – 46%*

Percentage of sales under $750,000:

10/15/07 – 1/30/08: 43%

10/15/08 – 1/30/09: 59%

Percentage of sales over $1,000,000:

10/15/07 – 1/30/08: 31%

10/15/08 – 1/30/09: 18%

Ø  The only price range which saw an increase in number of sales was the under $500k market.

Ø  Sales of homes under $750,000 increased from 43% to 59% of total sales.

Ø  Sales of homes $1m+ declined from 31% to 18% of total sales.

* Changes are approximate because not all sales for the 08/09 period have been reported to MLS by the date of the calculation.

San Francisco Shifts to a “Buyer’s Market”

SF is one of the world’s most desirable places to live and still has the “strongest economy in the state”* but with September’s deterioration of financial markets, the real estate market underwent a seismic shift. Sales and median prices declined dramatically. Price reductions, time on market, and the months-supply of homes for sale soared. Where the market was strongest-generally the high end-activity dropped precipitately. Areas with the highest foreclosure rates-in the less affluent southeast quadrant of the city-saw large increases in sales. Some offers are being accepted well below asking price. It is too early to say exactly what this means for 2009: between macro-economic conditions and the holiday season, many neighborhoods had too few sales for meaningful statistics. And medians and averages are always generalities. Still, after years of being mostly a seller’s market-high demand, low supply, multiple offers over asking price-SF has made the transition to a buyer’s market-more choice, more negotiation, lower prices and low interest rates. This trend may well spark an upswing in sales in 09.

Comparing November 2008 with November 2007, SF house sales declined by 26%, condos by 55%, TICs by 74%, and 2-4 unit buildings by 65%.  This reflects a market in shock from national economic conditions.

Comparing November 2008 with November 2007, the average sales price as a percentage of list price for houses accepting offers within 30 days of going on market declined from 104.1% to 99.8%. Though still high by national standards, this is the first time in years that the average sales price has been below average list price for houses selling quickly in SF.

2008 San Francisco Home Market by Price Range
(As of 12/12/08)

Months-Supply-of-Inventory (MSI) is a measure of how long it would take to sell the existing inventory of homes at current sales rates. Generally speaking, an MSI below 4 is considered a seller’s market and an MSI over 5 or 6 is considered a buyer’s market.

Comparing 11/08 to 11/07, the MSI for houses increased from 3.8 to 4.8 months; for condos from 3.2 to 7.8 months; and for TICs from 4.2 to 8.9 months. Year over year, the MSI for many SF neighborhoods doubled, tripled or quadrupled, and are deep in “buyer’s market” territory.

Median sales prices decline for 2 reasons: decreases in value and changes in buying patterns towards lower priced homes. The first reason applies, to some degree, to all 3 property types above, but the huge drop in median price for houses also reflects a large decrease in higher-end home sales and a large increase in sales of less expensive homes. For example, comparing 11/08 to 11/07, house sales in the affluent Realtor Districts 5 (Noe, Castro, Haight) and 7 (Pacific Hghts, Marina) decreased 65%, while house sales in District 10 (Bayview, Excelsior) -with the highest foreclosure rate in SF-increased 41%.

Median Price & Dollar per Square Foot by Neighborhood

The chart below compares median sales prices and average dollars per square foot for the 1^st half of 2007-typically considered the peak of the market-with sales occurring since September 15, 2008, and then with homes pending sale as reported to MLS by 12/12/08. For pending sales, the calculations are based upon list price, since final sales prices were unknown. We see a general decline in both median price and dollar per square foot. These neighborhoods were chosen because there were sufficient sales for statistical analysis.

All data from sources deemed reliable, but subject to error, omission or revision and not warranted. Medians and averages are generalities which can fluctuate dramatically and do not necessarily reflect values or changes in value for specific properties.

Foreclosure Sales Rates in the Bay Area

San Francisco continues to have the lowest foreclosure sales rate of any county in the Bay Area-less than half the rate of the second lowest county. According to DataQuick, in November 08, foreclosure sales in SF constituted 10% of property resale activity. The rates for the other 8 counties were as follows: San Mateo at 21.8%; Marin at 22.6%; Santa Clara at 38.9%;  Napa at 40.8%; Alameda at 44.4%; Sonoma at 51.6%; Contra Costa at 63% and Solano County at 63.6%.

60% of all SF foreclosure sales are occurring in just 3 of its 24 zip codes — 94134, 94124 & 94112 — all in the city’s SE quadrant (Bayview-Excelsior-Ingleside). Conversely, 94114, Noe & Eureka Valleys, had less than 1% of the city’s foreclosure sales.

Market Update

This weeks shows the trend of condos selling under asking price at a greater rate than single family homes continuing. The volume of sales also remains fairly similar to our last report. This is probably the last batch of closings for properties that accepted offers during the summer. From now on we’ll start to see what the fall market is doing. Other statistics from our sales meeting show that 47.5% of homes that sold accepted an offer in less than 30 days and sold for an average of 103% of asking price.

My own experience with the market recently has shown that things that sit are going for less, but that well-priced properties are moving. It seems it’s never wise to wait after you decide you like something unless losing it is OK with you. One client bought a two-unit way under asking price that had been on the market for 60+ days; another snagged a TIC 10k under ask just after its offer date passed unnoticed; and two others were beaten to the punch by other buyers within days of the property being listed.

Over Ask Under Ask At Ask

SFD 36 20 6

Condo 14 39 12

2-4 Units 9 3 1

Market Update – and I appear in print!

Since I’ve skipped a few weeks, I wanted to present a contrast in market activity in San Francisco between the two week period ended July 9 and the two week period ended July 23. Closed sales for the two week period ended July 9:

                               Over      Under   At

SFD                        31           36           13

Condo                   37           38           31

2-4 Units              6              7              1

Closed sales for the two week period ended July 23:

Over      Under   At

SFD                        50           26           13

Condo                   30           39           17

2-4 U                     5             7             1

Suffice to say that the news would have us believe that the trend is for things to look like the two week period ended July 9,  but then look at all those homes that sold OVER ask.  It can be a bewildering market for in which to buy and sell.  I wrote an article for this month’s Castro Courier where I discuss the best ways to get what you want in the current market.  You can read the article here.

Market Update Part II

So negotiation seems to be the name of the game right now. Among these sales there were some very big sales closed in the last couple weeks: District 7 saw 5 SFD sales between $5.5m and $18m.

Home Sales/Prices Decline

I was reading the Chronicle today and there is an article that says home sales are down this May over 23% and prices are down 21% from May 2007. Even knowing what I know about the San Francicso market, I was alarmed! I read further and found that Marin (which is a more similar market to the northern 1/2 of San Francisco) actually increased in median sale price 5.8%. San Francisco as a whole is reported to be down about 3.7% in volume and 5.4% in price.

Those of you who are currently searching for a home may say, “Hey, it sure seems like I’m getting less and less for my money as the months go by. How can these statistics be right?” The answer is that these statistics are too broad to tell the real story. San Francisco is a very large, desnse market with disparate home types. Unlike most of the Bay Area, we have lots and lots of condos in addition to TICs. We also have neighborhoods that are really really wealthy as well as some that are more moderate. Compared with Marin, which is full of middle to upper middle single family homes, we really run the gamut. Chances are that if you live North of the 280 and don’t own a loft in SoMa, your home’s value has even gone up in the last 12 months. If you are concerned or just interested in checking in on your home’s value, please send me an email or give me a call and I will do a quick market analysis for you.

Market Update – San Franciscans Continue to Overbid

In the last 2 week period, a total of 176 residential properties closed in San Francisco. The breakdown:

Single Family: 44 over ask, 23 under ask and 13 at asking price
Condos/TICs: 21 over ask, 35 under ask and 19 at asking price
2 to 4 units: 8 over ask; 13 under ask and zero at asking price.

A word about pricing: The two most important factors in the ultimate sale price of the home are 1) the quality of the property versus the competition; and 2) the pricing strategy. As you can see, above, the the San Francisco market continues to show that our buyers just love to compete especially for their own residential purchases. I have some psycho babble guesses (see below) about why this is the case, but whatever is causing it, it remains a major factor in our market. Sellers who are pricing conservatively (e.g., as low as they can stomach) are ultimately outperforming sellers who price for what they “really want.” Thinking of selling your home now or in the next 12 months? Please let me know so I can work up the numbers for you!

Guess #1: Highly competitive people are drawn to our market and they are more willing to compete in general than people where it doesn’t take as much drive to live.

Guess #2: The feeling that everyone wants what you want and are trying to get provides emotional support that you are really paying the right price.

Guess #3: Everyone loves a bargain. Underpriced homes feel like you are getting more for your money, so they attract more than their share of admirers.

How should I deal with this as a buyer?  Go ahead and make low offers on things that seem over-priced with confidence. Don’t be afraid to make a (reasonable) low offer on something that is sitting around. And when you have a good deal on the table, don’t doubt yourself just because no one else is stepping up and trying to take it away from you.