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The Lengths Some Sacramento Investors Will Go
When I started in real estate in the 1970s, I represented mostly investors looking to buy a rental home. I also cultivated investors by showing regular homeowners how they could tap the equity in their homes to buy investment properties. It was a completely different world of real estate back then. You may find this difficult to believe, but I never asked my investors for their opinion or how they would like to write a purchase offer. I bought all of their properties in my name as assignee using promissory notes. The world of Sacramento investors has changed a bit.
The premise back then was as a real estate broker I could better negotiate and ferret out the good deals for them. After I bought the property, I assigned it to my investors, they put cash into escrow and we closed a week later. I received a commission and they got the property. It was a strange way to do business but it worked for many years.
One of the advantages to this system was I could act very quickly when a new home came on the market. Back then, we didn’t have computers. MLS books were printed once a month with weekly updates. Real estate agents found homes for sale through networking and the daily newspaper. It’s hard for me to even imagine doing business like that now. It seems so dark ages, like etchings on a cave wall, to think about having to stop at my office or a telephone booth if I needed to make a phone call.
Today in Sacramento the market is desperate. Sacramento investors are nearly hysterical. And first-time homebuyers are in tears. The problem is no inventory, and it’s getting worse as we head into the time of year that is generally the slowest — December. Five years ago there were almost 10,000 homes for sale in Sacramento County. I just ran a search in MLS, and we have 1,373 residential homes for sale in Sacramento County. We have 5,162 homes in escrow with accepted purchase offers. But most frightening is over the past 30 days during the month of November we have closed 1,370 homes. That’s only the number of homes that have been reported and many companies lag MLS input by a few days, so that number will increase by the time all is said and done.
We have less than 30 days of inventory. There is nothing to buy and the demand is extremely high. To say it’s a seller’s market is like saying we have a little rain here in Sacramento right now. We have a torrential storm.
Investors have figured out what they need to do is target the top producers. They are calling the biggest listing real estate agents in Sacramento and begging for first chance at writing an offer. I rank up near the top so they are calling this Sacramento real estate agent. One of them, and I won’t tell you who it is, called yesterday. They offered to kick back 66% of the commission to me if I would give them an edge in negotiations and make suggestions as to how they could beat out their competition.
I don’t think they were prepared for my response. That’s because this approach must work with other real estate agents or they wouldn’t be doing it. I said: “You know, it sort of sounds like you guys are asking me to compromise my fiduciary and give you a leg up in exchange for additional compensation. To grant favors. To ensure you win the purchase offer. I know you probably don’t mean it that way, but that’s exactly how it sounds.”
Their response:“I take it you’re not interested.”
Bingo.
If you’re looking for a Sacramento real estate agent to sell your home, give Elizabeth Weintraub a jingle at 916.233.6759. I answer my phone.
Why, No, You Can’t Buy That Sacramento Home
Tell a person she can’t have something, and she wants it even more. Just seems to be human nature. The way things work. If Sacramento home buyers are interested in a home, all you have to say is they might not be able to buy it, and they break out in a sweat. I imagine their hearts begin to beat rather fast. I mean, I know that feeling. I am not immune to not always getting what I want.
There’s a restaurant in Chicago that I feel compelled to visit, and there are no reservations available in November when I will be there. It serves 23 courses for dinner. The only way to get a reservation at this restaurant is to hope a table opening pops up through Facebook. There’s a chance my husband and I won’t be able to go this restaurant. That will be a little bit disappointing, but it’s not the end of the world. You know why? Because there are other restaurants in Chicago and, like my mother used to say, think about the starving children in China!
OK, that didn’t help at all. But you get my drift.
Not having any inventory in the Sacramento real estate market is driving some home buyers nuts. They can’t stand it. I know because as a busy Sacramento real estate agent, I manage a lot of listings — more than some brokerages –and I get calls all day long about homes that are pending. Pending as in ready to close escrow. Solid offers from committed buyers, yet all of these callers want to know if the present buyer might change his or her mind. People might be off their rockers, but they’re not crazy enough to back out of a transaction when there is nothing else to buy.
All of the normal things a Sacramento real estate agent usually worries about are no longer much of a concern in this market. Home inspection? Spittooey. No problem. Long as the home is still standing and supported by four walls and a roof, they’ll take it. No seller concession? Who cares? Not today’s home buyers. You want a contingency release? Where do we sign? This is a fabulous real estate market for a seller and her listing agent! It’s not so hot for home buyers but it’s unusual, to say the least, to be on the other side of the fence for a change.
Sacramento Real Estate Agents: Ramp Up
I love waking up in the wee hours of the morning to find a bunch of purchase offers in my email. Well, it beats stepping into cat puke. I don’t know why cats seem to wait until 4 AM to chew on houseplants as a new fun-filled activity and run around the bedroom horking when they should be sound asleep. Anybody who shares a home with cats knows exactly what I mean. As I sit here wiping my toes and scrolling through my email, I can overlook a bad start to my Sunday because little is as exciting as receiving purchase offers. If I’m thrilled, imagine how my sellers feel!
This is the best market ever for Sacramento area listing agents and sellers. After years and years of begging on my knees for a buyer to write an offer, the tide has changed. Flipped overnight. It used to be I would not dream of putting a home on the market if it wasn’t staged to perfection, shining from top to bottom and ready for foot traffic. I would be on hands and knees licking the floor looking for dirt. Now, when tenants whine at me me that they don’t have time to pick up the empty beer bottles, toss the half-eaten pizza in the trash, much less make the beds, they think I won’t show the house. Ha, I can shrug my shoulders because the home will still sell. It will sell fast. It will sell for top dollar.
The truth is this Sacramento real estate market is so burning hot at the moment a listing agent can sell even the worst property in a heartbeat. Buyers are making offers on homes sight unseen. I have to check my SUPRA stats to find out if agents have shown the property before sending me an offer because I need something to help us determine the strongest buyer. Believe me, if I have 5 identical offers from 5 buyers but only one of those buyers has looked at the home, guess which offer this Sacramento real estate agent is advising her seller to accept?
Agents complain that they can’t submit offers fast enough so they have to submit without showing. No, they don’t. They just need to get their act together. An agent lamented that he could not show a home yesterday during the time period it was convenient for the tenants to show it. He asked if he could send his buyers over to the home without an agent escort. No, he can’t. But I heard that some buyers were wandering around the home by themselves. Just because we’re in the middle of a home buying frenzy in Sacramento does not mean it’s OK to set aside standards of practice. If anything, we, as Sacramento real estate agents, need to ramp up our professionalism to ensure quality service to our clients.
And stay out of the cat puke. You know what they say. When the market gets tough, the tough Sacramento real estate agents get going.
A Twist in the Sacramento Real Estate Market
I’ve noticed a slight difference in the Sacramento real estate market this week. It’s a sign, I believe, that the market is struggling to head north instead of south. I wouldn’t say we are headed for full-blown appreciation by any stretch of the imagination but it is a positive signal that we might be pulling out of this real estate slump in Sacramento. It’s the piece of evidence I’ve been watching to emerge and have not yet witnessed until this week. We’ve monitored small median price change increases in year-over-year monthly stats, but not this.
I prepare offer tracking sheets for each of my listings. That way, if I need to know years from now about the offers I had received for any particular real estate listing, I’ve got that information at my fingertips. Each of these sheets give me an overview of what happened. For the first time since 2005, I’m receiving over-market offers from investors who are paying cash. That’s the sign I’ve been waiting for. I disregard the first-time home buyers. It’s the investors I watch.
For months now, multiple offers in Sacramento have been the norm. That’s due to low inventory, low interest rates and high demand. It’s cheaper to buy in the buy or rent scenario. When it’s cheaper to buy than to rent, it also means investors will get positive cash flow even if they finance a home. So, investors and first-time home buyers have been competing, often for the same home.
Here is something to understand about first-time home buyers. When a first-time home buyer bids over list price for a home, that home buyer is not taking extra money out of her pocket. She is rolling the excess into her mortgage. So, it’s not really costing her a lot of extra money to make a purchase offer over the seller’s asking price. If she offers an extra $5,000, her mortgage payment changes by about $30. That’s peanuts. Using that formula, at 3.5% interest, she can bid $15,000 over list price and still not change her mortgage payment by more than a hundred bucks. Of course, it might not appraise at that amount, and therein lies the major problem with first-time home buyers overbidding.
If there are no comparable sales available at that price, the appraiser won’t submit a value at the purchase contract price. If the buyer gets a low appraisal, her only solution to move forward is to pay the $15,000 difference out of pocket, in cash. Most don’t have that kind of cash and, if they did, they wouldn’t pay over market with it. Not just for the opportunity to buy a home, nope. Unless they would. Unless they were that desperate to buy a home.
Not only am I seeing owner occupants who are willing to play all loosey-goosey with cash, but now investors are, too. Investors are no longer guarding their cash like a precious commodity. They are willing to pay above market value, because that’s the last thing to give in negotiations. It’s no longer enough to pay cash. Now, it’s got to be over market. That’s what it takes to make prices go up. An investor who is willing to pay more than the going rate. Investors who pay over market result in higher comparable sales. Higher comparable sales pave the road for higher appraisals, which opens the flood gates for first-time home buyers.
The kink in all of this is sellers don’t seem to be aware of this new twist. When I tell sellers about the market, they look at me like I just landed here from Mars. Do I have spinach in my teeth?
I predict a very strong 4th quarter for 2012. I believe when we look back at the numbers in the spring, our Sacramento real estate market will blow your socks off. This is a fabulous time to be a seller or a listing agent in Sacramento.
