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Sacramento Sellers Ask: Where Do Buyers Come From?
There are many myths in the Sacramento real estate business, including an assortment of wrong answers about where do buyers come from. Sellers tend to believe a myth because they don’t really know how real estate works. I’m also not so certain that some agents don’t feed into that myth. I often find myself unwinding twisted tales that sellers believe because some agent made up crap. You wouldn’t believe the stuff they say, or maybe you would. Sellers have told me that other agents swore up and down that they had tons of buyers waiting to purchase their home. That’s crazy. It’s nuts. And it’s not the truth.
If you want to know where do buyers come from, I can tell you. But first, let me explain where they don’t come from. They don’t come from listing with an agent who promises a bunch of buyers, for one thing. Because agents do not have a bunch of buyers in their back pockets. Now occasionally, a buyer will be looking for a certain type of home and will ask to be put on a list in case that type of home comes on the market for sale. Usually, that type of home is unique and rarely for sale. Other than that, agents do not have a bunch of eager and motivated buyers on hand. Why?
Because when a buyer is eager to purchase a home, qualified and motivated, guess what happens? That home buyer is in escrow within weeks if not days. We have plenty of inventory in Sacramento now, about double since the beginning of the year. Many choices. If a buyer wants to purchase a home, there are homes to be bought. That’s what we do as agents. We find homes for buyers to purchase and we close those sales.
But to truly answer the question where do buyers come from, is to understand how the real estate market works. First, the listing agent signs a listing agreement with sellers. The information for that home is uploaded to MLS. When MLS publishes the listing, that information is also downloaded to a bazillion other websites across the internet. Some websites such as Zillow might require tweaking by the listing agent. But for the most part, it’s done automatically.
Buyers then find the home for sale online and either call the listing agent or the smarter buyers will call their own buyer’s agent. Yet either way, the buyers find the home for sale because the listing agent is marketing the home. Buyers come from the listing agent’s marketing efforts and from MLS. They aren’t sleeping in the back of a real estate office waiting for a home to be listed. When I list your home, my goal is to find you a buyer. So that’s what I do and how it works.
Why Sacramento Apartment Buildings Are Springing Up All Over Town
Because I drive all over the city to list homes for sale, I notice Sacramento apartment buildings being built throughout my travels. I can tell you the number of new apartment buildings seems to be increasing. For example, when building stopped in Elk Grove after the 2008 market crash, everybody just assumed that builders eventually would continue someday. What owners did not count on was the type of new construction. Goodbye single family, hello apartment buildings.
How would you like to have bought a home on, say, Donson Court in Elk Grove, that presented you with a lovely view of fields and nature? Then 10 years later, whammo, apartment buildings in your face, overshadowing your yard.
When I sold one home over there on Donson, the Caterpillars were just breaking ground. I quickly sold it before any buildings were constructed. Everybody thought it would be new homes but it wasn’t. They put up apartment buildings. That was a big deterrent when I got another listing on Donson.
Ha, then that buyer canceled when he discovered Sacramento apartment buildings were behind his property. Very close, closer than a house. But he soon realized there was no other home to buy, so he decided to rescind his cancellation and close escrow. And, of course, we made him pay more for that untimely maneuver. It must be horrible to live there for so many years, always thinking new homes would go in behind you and then discover monstrous apartment buildings.
The thing is if they are building new Sacramento apartment buildings instead of new homes, it is probably more cost efficient and profitable to build apartment buildings. According to Colliers International, the average rent in Sacramento is $1,723 for 874 square feet. Conversely, $275,000 would buy a home twice that size for about the same PITI, if a buyer chose to live in lower-income neighborhoods, which is why many rent. Because our median sales price in Sacramento is now $370,000.
However, if you look at a new survey by Forbes, Sacramento ranks #10 as the hottest place in the country to buy an investment property:
10. Sacramento-Arden-Arcade-Roseville, Calif.
Average home price: $327,073
3-year population growth: 3.7%
2-year job growth: 4.8%
1-year home price growth: 10%
3-year price growth forecast: 33% source: Forbes
Midtown is no stranger lately to new Sacramento apartment buildings, either. Look at the 263 units going up over on 21st and Q Street, and the new 68-unit building for 19th & Q. Just hope we don’t turn into a city like Stockton in which rentals outnumber homeowners. According to the US Census, our home ownership rate in Sacramento is 55.2%. On par with California as a whole.
But then you’ve also gotta look at the hedge fund Blackstone, which bought up more than 1,500 single family homes in our residential resale market during the crash and turned those homes into rentals. Blackstone is the largest owner of single family rentals in Sacramento. Demographics of some neighborhoods have changed. Almost 100,000 Sacramento homes are rented, according to a KCRA report, which make up about 25% of single-family homes.
We desperately need to build new single family homes in Sacramento as our demand has outpaced supply. We have slightly more than 1 month of inventory for sale in Sacramento. And I just don’t see a lot of new single family homes being built, do you?
Why Overpricing Does Not Encourage Buyers to Negotiate
Buyers don’t want to make an offer when sellers insist on overpricing.
Overpricing doesn’t matter to some home sellers in Sacramento because sellers who knowingly overprice a home often have a hard time putting themselves into the shoes of a home buyer. No matter how much they try to squeeze size 10 1/2 feet into those size 9 shoes, they are still walking in the shoes of a seller. They make decisions as a seller and hope a buyer will see things the same way, when buyers do not.
When I talk with sellers about overpricing and why they need to reduce the price to a point where a buyer will make an offer, they’ll fallback on an old wive’s tale, which is not true. They will say, but a buyer can just make an offer, right? Any offer, and I will negotiate. They know that right?
No, they don’t know that. And further, they won’t do it. They don’t want to insult the seller or cause hard feelings. They might even believe the seller is stubborn, too stuck on the price, and to try to negotiate would be an embarrassment, not to mention a complete waste of time. Buyers don’t want to feel uncomfortable when negotiating. They just want to buy a home.
I realize sellers have a hard time believing that. But it’s absolutely true. I know it’s true because I’ve seen it happen over and over during my 40-plus years in this business. But some sellers still think it’s a good idea to jump on the overpricing strategy and then cross their fingers that buyers will lowball. This type of thing might work well in a classroom but not in real life, not in Sacramento real estate.
The people who are comfortable writing lowballs are the guys who won’t budge much. They’ll write a lowball on as many as 100 properties a day, hoping one of them will stick. It’s the principle of throwing enough crap at the wall until something grabs a hold. Those are not the guys these types of sellers want to sell to.
If you’re considering overpricing, at least have a plan for a price adjustment if things don’t work out. Generally speaking, if you don’t receive an offer in Sacramento within the first 30 days, you are priced too high.
