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Sacramento Home Buyers Ask: Why Wasn’t My Offer Accepted?
It pains me when I see a purchase offer to buy a home arrive in my email and I instinctively realize the buyer will be asking her agent: why wasn’t my offer accepted? In the mind of many Sacramento home buyers, they did everything right. This particular home buyer found the home she wanted online all by herself — it fit her parameters exactly. She fell in love with the photographs and knew before she ever stepped foot inside that house that she wanted to buy that home.
Visiting the home in person solidified those feelings and thoughts. Yes, she should definitely buy that home. She is qualified and has her pre-approval letter that confirms it. The buyer may have provided proof of funds from her checking account. She has delivered an earnest money deposit with her offer. Everything is as it should be. All the stars are aligned, and this is her home. She even offered list price. She did exactly what was asked. All that’s left to do is to figure out where to put the sofa.
Ack. The seller accepted a different offer. Why didn’t she get this house? Why did the seller reject her offer? What is wrong with her Sacramento real estate agent? These are the thoughts running through the buyers’ mind. Do you want to know what the problem is?
First, it’s probably not the real estate agent. I imagine the real estate agent told the buyer that Sacramento is experiencing a limited inventory market, there is not much for sale, and there is intense competition, especially for entry-level homes in good condition. This means many Sacramento home buyers must write a better-than-normal offer. It could entail a higher price, paying more of the closing costs or giving the seller extra benefits, among other home buying offer tips.
I know that buyer’s agents explain this to their Sacramento home buyers. But somehow, that advice seems to fall on deaf ears or for some other reason the buyer does not agree nor understand. An agent can tell a buyer they need to offer more than $300,000 for that listing at $295,000, and some buyers will still ask, can I offer $250,000? These are not true buyers who say those sorts of things; these are people who are mentally deranged, which means yes, they are buyers from another universe and don’t operate in our world.
Working with a veteran real estate agent can also help improve a buyer’s chances of getting an offer accepted. Listing agents know the agents who perform and agents gain a reputation in this industry — good reason not to rely on your cousin’s aunt who happens to have a real estate license.
It’s generally one of three reasons why a buyer’s offer is not accepted: the buyer or the agent or both. Which is your reason? Because it’s not the Sacramento real estate market. We all must adjust to the market. If a buyer conforms to the market, the buyer will get her offer accepted.
Appreciation vs. Market Recovery for Sacramento Real Estate
If a reporter at the Financial Times does not understand the mathematical calculations of our Sacramento real estate market, it stands to reason, I suppose, that the average consumer is confused as well. Or, maybe some of us just didn’t pay enough attention in math class, hard to say. Not everybody likes math or realizes in school how useful math is when we’re all grown up. If you’re struggling to understand what has happened in the Sacramento real estate market, I’ll lay it out for you in terms that are easy to understand.
From January of 2012 through January of 2014, our Sacramento real estate market median price has increased 50%. When I mentioned this over the weekend to a Financial Times reporter, she said, “But your market has fallen at least 50%, so that means you’re at breakeven now, right?” I might have rather stuck hot pokers in my eyes than be forced to learn that an isosceles triangle has 2 equal sides, but I do comprehend that one can’t solely pluck the median price range and decide our market is back to normal.
- For starters, that 50% price increase applies only to the median price. Our median price moved from $160,000 in January 2012 to $240,000 in January 2014.
- Second, averaged over those 2 years, that’s only 25%, and the market is fairly flat today.
- Third, homes priced above that price point and below that price point have not necessarily appreciated by 50%.
- Fourth, if you take a home that was originally valued at $500,000, apply a 50% fall in market value, that would drop the value of that home to $250,000. A 50% increase would make it worth $375,000, not $500,000.
All real estate is local to neighborhoods. Some areas of Sacramento fared better than others. Some areas of Sacramento were hit harder than others during the downturn, most notably the newer home subdivisions in Elk Grove, Natomas, Roseville and Lincoln. It’s amazing, our Sacramento real estate market, varies so much from one neighborhood to another!
I freely admit that I didn’t really fare so well in high school math. I think I took the class because I needed one more class to graduate. I took off so much time during my senior year by hitchhiking around the country, I probably earned a B- or a dreaded C. English was my strong suit, though, straight A’s. Yet, even I, a lowly Sacramento real estate agent, know how to run the numbers. My high school math teacher would be so proud. If you want to know more about the Sacramento real estate market, please call Elizabeth Weintraub at 916.233.6759. I’m never too busy to talk.
Why Some Sacramento Home Buyers are Not Buying a Home
Sacramento real estate runs in cycles but no year lately has been the same as the last, much less the approaches used by Sacramento home buyers. We had a big run for 8 long years of short sales and foreclosures, but that reign is pretty much over. Sacramento has been on the rebound for the past 2 years and rising prices has shown us that. The really big push in price increases was in 2012, which continued into the summer of 2013 — what some would call a market correction. That’s why the investors have left the market because they were there at the bottom and don’t want to ride the wave up, leaving us in a real estate market filled with confused home buyers.
Yet, don’t get the idea that the market is overpriced or over inflated because it’s still appreciating, it’s simply doing so at a quiet and very slow pace. In some neighborhoods, prices might be a little flat, but they’re not falling. Full-price offers and multiple offers are still happening on the entry-level homes, especially those that are highly desirable, ready to move into. My February is filling up the calendar with March closing inventory nicely. I predict we’ll see a huge push in closed sales for March across the board in Sacramento.
I also see some Sacramento home buyers making big mistakes. I highly doubt they’re not getting good advice from their buyer’s agents because most agents have a pretty good idea of what’s going on. I suspect that buyers are talking to Uncle Joe who’s moving kinda slow, the guy who mows their lawn, the clerk at Safeway, and getting bad advice because they’re looking for advice in the wrong places. The buyer’s agents I know are working extremely hard and feeling like they’re banging their heads back and forth in a door jamb — because it feels so good when they stop. But they’re not going into escrow with their buyers.
Some Sacramento home buyers think a seller would grab an offer without financing, known as all-cash, over an offer with financing. But sellers don’t really care if you hand them a brown paper sack filled with $100 bills or a check drawn on Bank of America, it will all end up in their bank account anyway. Sellers care about the sales price and terms. Buyers don’t get a break due to financing. They might move up the scale in a multiple-offer situation with better financing or cash, but price is still king. Price rules. Get with the program. It’s a new dawn.
I’ve also seen Sacramento buyers submit under-market price offers, sometimes known as lowball offers, when they know the seller has received multiple offers, as in 3 or 5 offers or more. I wonder why they do that to their agents? It sounds sadistic to me. They have no chance in negotiations yet they insist on submitting an offer. Maybe that’s not sadistic, perhaps that’s the definition of insane, doing the same thing over and over with no chance in hell of accomplishing anything.
The State of Sacramento Real Estate Right Now
If you listen very carefully to the wind in Sacramento this morning, you can hear Ollie’s voice over the freeway hum: “This is another fine kettle of fish you’ve gotten us into, Stanley.” Because that’s precisely the sentiment I feel when I look at the condition of the 4th quarter of our Sacramento real estate market.
It’s not that any one person makes the real estate market in Sacramento what it is, but we do need to work within it when you’re a Sacramento real estate agent. I just don’t know whom exactly to blame for it, so I’ll pick the Feds because that’s an easy target and I didn’t get enough sleep last night. I’m still on Florida time, haven’t quite recovered from the Dry Tortugas.
Now, in case you’re thinking that I’m going to tell you some terrible news or say it is not a good time to buy or sell, that is not about to happen. I just report what I see and then figure out how to work within that framework to best position my clients.
First, let me say the market is typically seasonal in Sacramento. Just because we have more days with sunshine than without doesn’t mean real estate sells like gangbusters all year long. We experience ebbs and flows. In the graph above, though, inventory has been steadily falling, along with the pending and closed sales. But it doesn’t mean prices are following suit.
Second, the market has been relatively flat with regard to home prices. You can see in this next graph that our square-foot home prices have remained very stable since last summer. This could very well indicate that our big push for rising prices has leveled. As my 2014 real estate forecast predicted last year, I suspect we won’t see a lot of appreciation this year. But prices won’t fall.
I could show you the same graph for average home sales prices and median sales prices, and that graph would reflect the same behavior. Our median sales price in Sacramento County has jumped from $186,000 in October 2012 to $250,000 in December 2013. However, that $250,000 median price has remained stable since July.
Buyers don’t seem to know which end is up. I have seen offers range from ridiculous to borderline nuts. On top of this, many home buyers appear marginal, and then we’ve got the new federal regulations kicking in this month that say a buyer must be able to prove she can afford to buy a home. Who woulda thought this was a necessity? But they had to make a law, so you know it wasn’t.
In the last graph, you can see our absorption rate for Sacramento County. This is the number of homes that closed escrow as compared to the number of homes for sale. We had a slight uptick in December, but when compared to high points from last year, we are pretty low at the moment at 52.7%. This means about half of the homes that are for sale right now closed escrow last month. Compare this to December 2012 / January 2013 when that absorption rate was almost 125%.
Our inventory (number of homes for sale) is less than two months. This means it would take two months to sell every home we have for sale. It’s still a very strong seller’s market in Sacramento. The problem is we have fewer buyers and the buyers we do have are often marginal, with little in reserves. If home buyers have no reserves, it means sellers might need to start kicking in closing costs to help a buyer in Sacramento to purchase a home. If the buyer can find a home to buy because we have so little for sale.
Images: Trendgraphix
The Fall Sacramento Real Estate Market Update
Say what you will about the down Sacramento real estate market years of 2005 through 2012, but the best thing to hit Sacramento real estate is the fact that period is over. This spring marked the turnaround in real estate. We have a little bit more inventory this fall than we did last spring; however, by all practical standards, it’s still a seller’s market, yet buyers are really the deciding factor. So, is that a seller’s market? Based on inventory alone? I don’t believe so. I believe it’s a buyer’s market disguised as a seller’s market.
You know what I see when I look at this chart? I see twice as many homes for sale and half as many selling. The sold numbers have dropped below the pending sales. But the market is still relatively stable because the pending sales are about the same over the past 15 months. This means buyers have choices.
You can look at what the giant investment firm Blackstone accomplished in Sacramento, buying up some 1,500 homes and turning them into rentals, and you can say that was a bad thing for communities. Now, Blackstone has turned those rentals into securities and leveraged their investments by selling off 75% of its value in the form of bonds to pension funds, or so they say. Hard to know how they are establishing market value. They might have decided that their investments have grown by 25% and are leveraging 100%.
It’s similar to what other investors in Sacramento have done by buying homes supposedly for cash and then converting those offers into hard-money financing. I’ve had to counsel investors that writing an offer for cash when the intent was hard money is not a cash offer. It’s a hard-money financed offer. Cash is cash. I would suggest they include the option in the offer to convert to financing, and many did just that.
Of course now, the investors are pretty much gone. I have a fixer in South Sacramento that has not yet sold and, last spring, this home would have had multiple offers with buyers fighting over it.
Most homebuyers in Sacramento who intend to occupy a home, well, they want that home in turn-key condition. They don’t want to have to make any improvements. Many want their homes to be new or remodeled, with all the bells and whistles.
In closing, I spotted a survey by NAR the other day about the types of things that buyers wanted in a home. Top of the list was energy-efficient improvements. Never have I heard a buyer say that energy efficiency was a #1 concern. I wonder if the utility companies or manufacturers of energy efficient appliances sponsored this survey? Or, maybe they interviewed only buyers from Davis. Nope, Sacramento buyers want those granite counters and stainless appliances. Energy efficiency is welcome, but I doubt it’s a #1 motivating factor.
