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What is Wrong with the Elk Grove Housing Market?
It’s not just sellers of homes in Elk Grove who are asking what the hell is going on in the Elk Grove housing market. Sacramento real estate professionals are also baffled because they tell me so. But whenever I am perplexed, I search for answers, and I think I’ve figured out what part of the problem is with our Elk Grove home buyers this fall, and also part of what’s wrong with the Elk Grove housing market.
Let me also mention that this phenomenon seems to be isolated to Elk Grove / Laguna. I sell homes from Galt to Lincoln, and cover a wide sales territory over many counties in the Sacramento Valley, and the only place where this situation seems to exist is in Elk Grove and Laguna.
This spring, buyers were snatching up homes like crazy. I call these guys our Tier 1 buyers. They were motivated, had the bucks, were pre-approved and wanted to close escrow on a nice home in Elk Grove. Didn’t matter if the ZIP was 95624, 95758 or 95757, all three of those ZIPs experienced similar market movement across the board. Elk Grove or Laguna, homes were moving.
Now, we have what I call our Tier 2 buyers and our Tier 3 buyers, the ones who aren’t necessarily all that motivated, and might, maybe, perhaps, purchase a home if it fits all of their criteria and is priced right in the right location with the right amount of amenities and upgrades. If a home is missing one of those things, a Tier 2 or Tier 3 buyer is likely to pass it over in favor of another. They also don’t have a lot of financial security and many are unable to pay closing costs. They typically buy with leveraged financing above 80%. Not only that, but these buyers are obviously writing multiple offers, which is wrong on so many levels.
I don’t know if they’re doing it through one agent or multiple agents leaving the others clueless, but they write the offer they want on the house that they want the most, knowing that they might not get it because others probably want it, too. So, then they write an offer on their second-choice home. Because that home is second choice, they feel it doesn’t deserve the same consideration as their number one choice, so they sign lowball offers, ask for all sorts of concessions and then wait to see which way the wind blows.
On the other hand, our absorption rate in those 3 ZIPcodes in Elk Grove is 41%. A year ago in July it was 75%. You calculate an absorption rate by dividing the number of closed sales by the number of homes for sale. Our inventory is almost double over the past 15 months and by any stretch would be considered low at roughly 2.4 months. MLS reports we have 454 homes for sale in Elk Grove, with an average square foot price of $175 and 52 days on the market.
I guess I will now need to advise sellers to put into a counter offer that the buyer promises there are no outstanding offers floating about on other homes before we enter into an acceptance. Because when I ask agents if their buyers are serious, the answer I received this morning from a buyer’s agent was, I kid you not: “I don’t know, let me ask.”
Homes are closing in Elk Grove, and I’m living proof that it’s happening, but what a trip. One can’t be an emotional tree-hugging softie in this kind of real estate market, and sellers really need an assertive agent. A new client mentioned a few days ago when I was out at her home that the reason she wants to hire me to represent her is because I’m tough and firm but nice about it. I prefer to think that I am focused with thick skin. I work hard to get the job done.
Home Staging is Back in Sacramento and Elk Grove
Another sign of our slowly recovering real estate market is home staging is making a big comeback in Sacramento, especially among Elk Grove homes. For years, we had so many short sales in the midst of a down real estate market that many sellers did not stage their homes because they didn’t have to, wasn’t needed. How do you know if a home needs to be staged? Because some homes don’t.
First and foremost is how hard will it be to sell that home? Are there other factors about the home that could discourage a buyer from making an offer such as bad condition, horrible location, unreasonable price? It is a home that most buyers don’t want to buy? I also look at the competition. What else will a buyer see when they tour other homes nearby in this same price range. If other homes are staged, yours better be, too.
It’s not really the buyer’s fault that a buyer can’t visualize potential or, more important, feel the emotional tug of a home. Door opens, they walk inside, they immediately know whether they like the home in 3 seconds. The rest of the tour reinforces that original perception. It gets better or it gets worse depending on their first emotion.
Buyers try to “rule out” buying homes just as much as they “rule in” buying homes. Some believe in fate, whether or not you may agree with that premise, a perception of fate might be the buyer’s reality and you go with the flow. Curb appeal hits them first and the interiors second. Third they tend to look for the amenities they have told their agent they want, but they’re not nearly as analytical as sellers might expect. Staging a home helps to overcome barriers.
This is why it’s generally a good idea to make that home as attractive as possible and set the stage to encourage an offer. Just sold today another home in Elk Grove that was on the market for almost 3 weeks without staging at an attractive price point. After home staging, whammo. Two offers. It works like this all of the time. This is not an isolated situation. You’ve gotta remove all of the objections, and one way to do that is to stage the home.
The Hill On Which an Elk Grove Home Buyer Dies
On which hill is a buyer in Elk Grove willing to die upon? We all pick our battles, but the hill on which we choose to die is special. That’s a question I ask myself when I see an offer arrive for one of my sellers. Most home buyers and their agents are fairly agreeable upfront, but down the road once we’re in escrow things can change. If agents and buyers start out on the wrong foot, though, odds are that they will continue on that same path. This is what I warn sellers about. I tend to share pertinent stuff that happens.
I just closed an escrow yesterday in which we had previously lost a few buyers on the short sale due to no fault of the seller or my advice. Our short sale market in Sacramento has pretty much fallen flat, thank goodness, and it’s odd for me now to close a short sale versus the hundreds I used to list and sell. The first buyer was in contract for about 48 hours before that buyer freaked out and canceled. The next buyer canceled when Fannie Mae asked for another $5,000 in sales price. Finally, we secured a third buyer who was willing to pay the extra $5,000 and wait for approval. This was a smart buyer because by the time we received the approval letter, the property was worth more than that $5,000 increase.
That second buyer had decided to die over $5,000. Now, there is nothing available in that complex anywhere near the price that buyer could have paid to own a property. The sales prices are higher.
In another escrow, we received a full price offer from an Elk Grove buyer who wanted to use her own title and escrow company, even though she wasn’t paying for those services. We pointed that out and sent her a counter. This buyer demanded her own title and escrow, regardless, most likely at the suggestion of her agent and argued ad nauseam over the issue. That was the hill on which that buyer chose to die.
It’s good the sellers passed on that buyer because the thing is a few days later another set of buyers much more willing to work with the sellers came along and wrote a spectacular offer that the sellers could not refuse. This is exactly what I shared with my sellers would happen. Nobody says you have to take an offer that makes you uncomfortable, and a REALTOR needs to look out for the best interests of the seller. Sometimes, that means saying no to an offer and letting the Elk Grove buyer die on that hill.
Starter Homes and Move-up Homes for Sale in Elk Grove
The homes in my listing inventory for Sacramento that seem to generate the highest number of phone calls from buyers and buyer’s agents are homes in Elk Grove. It doesn’t seem to matter if they are starter homes for sale in Elk Grove or move-up homes. As a top listing agent in Elk Grove, I sell an unusually high number of homes in Elk Grove in the ZIP Codes 95624, 95757 and 95758. These homes are similar to the types of homes one might find the other direction from downtown in our Natomas communities or homes in West Sacramento in that they are newer construction, mostly stucco with tile roofs, and many young families gravitate toward these neighborhoods.
But then many of the homes for sale in Elk Grove are a hot commodity this spring. At the moment, we have 288 homes for sale in our 3 ZIPs in Elk Grove. MLS also shows 241 homes pending, with 191 sold within the last 30 days. You can do the math. There are not enough homes for sale in Elk Grove to meet demand.
If you are looking for homes for sale in Elk Grove, two exceptional homes recently became available, which you should take a look at if you’re in that market. Each fits a specific need. One is a starter home for a first-time home buyer or an investor and the second home is a luxury move-up home. Our first brand new listing is located at 7029 Verdure Way, Elk Grove, CA 95758. This is near Bruceville and Seasons. I keep wanting to call that street Four Seasons after the luxury resort. Or, as some people say it’s a reason to live in Sacramento because we have seasons here.
This is a 3-bedroom home with 3 baths and an open floor plan. The ceilings soar above the second floor, which makes it seem much bigger than its 1,410 square feet. Your entertainment area is the entire first floor, with open spaces between the living room and dining room and kitchen. Sliding doors lead to the back yard, with planting options available around the perimeter to make the yard your own. It’s affordable and competitively priced at $259,000. Ready for occupancy. Newer roof and HVAC, too.
The second home is located east of Highway 99, off Elk Grove Boulevard and Black Swan. If you’re looking for more bells and whistles and twice the square footage, this second home at $395,000 might be perfect for you. Boasting more than 2,800 square feet, it offers 5 bedrooms (two on the first floor, including a gigantic master suite) and three more bedrooms on the second floor. More interior square footage could be added by closing off the open space on the second floor, but most buyers will think it’s large enough just the way it was built. It’s beautiful, and it could be yours.
Come see 9468 Mainline Drive, Elk Grove, CA 95624 on Sunday when it is open from 2 PM to 4 PM. Both homes are offered for sale exclusively by Lyon Real Estate; for a private showing or more information, please call your Elk Grove agent, Elizabeth Weintraub, at 916.233.6759.
Finding a Replacement Property for a 1031 Exchange
Lots of investors from the Bay area call top-producing Sacramento real estate agents when they decide to sell — which is how I end up working with many of them — and the shift I spy on the horizon now is to 1031 exchanges. You might not know this, but I got my start in real estate in the 1970s by working solely with investors, many of them first-time investors. I sold investment properties exclusively for about 9 years, and I moved into real estate from my certified escrow officer position, during which I processed and closed a large number of 1031 tax deferred exchanges.
It’s funny how some things can come full circle. Now that the market in Sacramento is picking up, more investors have equity and some of them want to put that equity to work elsewhere. They don’t want to pay taxes on the sale of their investment property if they don’t have to, and most of them don’t as long as they find and identify a replacement property within the 45-day period and effect a 1031 exchange. (There are minor sub-rules that don’t apply to very many, so I won’t go into those.) The more important rule is an investor has 180 days to close escrow.
My new clients have a rental home in Elk Grove they want to exchange. They don’t live in the area and have discovered how difficult it is to manage an investment property without family nearby. A drive into Sacramento from the Bay area can take 2 to 3 hours each way. Some investors might prefer to move their equity to another town.
A 1031 Exchange wouldn’t be such a nagging problem if we had more inventory in Sacramento. I try to explain that investors actually have about 75 days, if you look at this systematically. Once an offer is received to buy the investor’s rental property, that escrow period is about 30 days, give or take. That means 30 days + 45 days = 75 days. But people, being people, sometimes look to the worst case scenario. Like, what happens if they can’t find a replacement property?
Being in real estate, I know they will find a replacement property for a 1031 Exchange, even if they’re looking out-of-area, because I know real estate agents and how the business works. But that doesn’t help the investor if they’re not standing in my Jimmy Choos, and looking at this from my viewpoint.
This is yet one more reason why we need more inventory in Sacramento. To give investors an assurance that they can find that replacement property, and two more properties along with it as a backup. If you’re thinking about deferring taxes on the sale of your investment property, talk to your accountant and then call this Sacramento real estate agent, Elizabeth Weintraub. I’d love to help you to locate a qualified intermediary and sell your investment home, 916.233.6759.
