I did a triple take when I saw that headline in the San Fran Chronicle.
A MILLION DOLLARS over list price? Seriously?
I knew the market on the left coast was crazy since I lived in Silicon Valley for six years, and part of that time I commuted to downtown San Francisco.
But a million bucks over list? The market was hot when I was there – but not like that. This I had to see.
When I dug into the piece, I couldn’t believe what I was reading.
It wasn’t just ONE house that went that high. If fact, in addition to the one they featured, it turns out that 19 more houses in the San Francisco Bay area went for a million or more over list price in the past 12 months.
The article said that the homes ranged from being tear downs to mansions.
The even crazier thing is that they’re not just going for just a million over list. A home on Sea Cliff Avenue in San Francisco, for example, sold in April for $11 million, which was $4.7 million or 75 percent over the $6,298,000 list price.
Wow.
The article then trotted out “experts” to comment on this.
They quoted Patrick Carlisle, chief market analyst with a real estate Group, and All Star Captain Obvious, who chalked it up to the “general insanity of the overheated market,” which stems mainly from demand outstripping a long period of below-average inventory.
He also blames it on agents adopting a strategy of egregious underpricing.
The article then went on to describe the underpricing issue. Apparently, it’s out of hand, and now everyone is using it. It’s so bad that one real estate agent stated that ‘If you price a home where it should be, it will sit.’
In San Francisco especially, underpricing is so prevalent that most buyers search for homes well below their target price, knowing the sale price will be much higher.
Another agent represented the sellers of a home on Everson Street in San Francisco’s Glen Park neighborhood. The 4-bedroom, 4-bathroom home was somewhat dated but had magnificent views, which were hard to value.
The agent priced it at $1.8 million in October, and expected that it would sell for $2.3 million to $2.4 million. The offers they received were shocking. The two highest offers were $2.65 million and $2.725 million, and he countered to both of them to come up to $2.8 million. One jumped and got it. The other jumped too, but was too late.
Another agent was similarly shocked when a home he had listed at $1,895,000 in San Francisco’s Inner Richmond sold in April for $3 million. This idiot actually stated that he “doesn’t ever deliberately underprice, but he likes to err on the side of conservative.”
Yeah right.
That home had been in the same family for 60-plus years. It was tired and had no garage and only 1 bathroom on the level with the 3 bedrooms. But after painting, staging and landscaping, it showed beautifully. They had great weather, and the stars lined up. He ended up with eight or nine offers.
Emotions run wild
Over in Pacific Heights, a 2,100-square-foot top-floor condo on Washington Street was listed at just under $2 million in April and sold less than two weeks later for $3.21 million, all cash.
“This property was very nice, but at the same time, it was not sold according to logic,” said the listing agent. “It was sold because of the emotions involved.”
This agent said that he tries to list it “a little lower than prices in the area,” but it was hard to find good comparables because there have been so few sales recently.
Bay Area home sales have been below the historical average for nine years, according to CoreLogic. A big reason is low inventory. “There is no supply and tremendous demand,” said an agent with Coldwell Banker Previews International. People who would like to move “have nowhere to go. People selling are selling because of death, divorce or getting transferred out of the city.”
That agent sold two more homes in the past month for more than $1 million over asking. She listed one on Hoffman Avenue in Noe Valley at $5.7 million; it sold for $6.7 million. She priced one on Presidio Terrace at $6.5 million and it went for $8 million.
‘Crazy hot’ fixers
The phenomenon is not limited to luxury homes. “Fixers are crazy hot,” Carlisle said. “Sometimes contractor specials sell for more than houses that are in decent move-in condition.”
Another agent represented the seller of a 1,359-square-foot home on Marion Avenue in Palo Alto. “It was a charming little house, but it hadn’t been updated in many years,” said the agent.
The seller put it on the market after she was approached by a contractor who wanted to buy it, tear it down and rebuild. The seller thought she should price it near the land value, which they determined was $1.75 million.
The property got 17 offers and sold in May for $2.7 million, all cash.
Irrational exuberance
Carlisle considers the market “irrationally exuberant,” but not yet a bubble about to burst. Past housing bubbles, he said, burst as a result of outside events...
In 2008, it was the Lehman Brothers bankruptcy. In 2001, it was the dot-com crash. In 1989, it was the earthquake and a stock market mini-crash in October.
“Right now we still have huge amounts of wealth being created in the Bay Area and pouring into the Bay Area,” Carlisle said. “For a lot of people, it’s funny money. They went from being worth millions to tens of millions or hundreds of millions.”
It might be time to start looking for those elusive “motivated sellers” in the Bay Area.
Ya think?
You Got a Cool Mill?
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