For years I have started the New Year with suggestions about what we might see in Real Estate in the New Year. This year, because of what we have been through in the last 7 years and the uncertainty that still remains, I am cautiously optimistic for what may occur with property values. Specifically, there are 3 very recent changes that point to more than what many experts are suggesting will be only “modest” appreciation this year. In fact, if these 3 changes continue, coupled with the low inventory we have experienced for the last 9 months, who knows what may happen! All 3 of these changes have the potential to really affect upward pressure on pricing in all price ranges and in all parts of town. Read on to understand why.
I made the comment in my last post that appreciation will clearly occur when the ammount of distress sales gets below 25% in our valley. In 2012 it was about 40% of the closed transactions. However, the difference between the first quarter of 2012 (when we had about 850 homes for sale) and the last quarter (when we had about 350 homes for sale) was significant. We went from about 65% distress sales, to about 35% distress sales, and in some popular areas there were literally NO short sales or foreclosures available at the end of the year. Now part of that is that they sold right away when they were listed, sometimes before they even hit the market. However, this has led some agents, myself included, to take new listings in January at MUCH higher prices than similar homes that sold just a few months ago.
So, trend number one will be new listings, in areas of LITTLE OR NO INVENTORY, being priced a lot higher and being sold with no appraisal contingency. The best example of this occured yesterday in Tesoro. Now, Tesoro Valencia is arguably the area most affected price wise by short sales and foreclosures. For several years there were literally NO regular sales. In 2012 it was still mostly those kinds of sales, but today there is not one home in Tesoro over 2500 square feet. Not one. Recent short sales and bank owned properties have sold between $480000 and 580,000 for over 3000 square feet. Yesterday I listed a model perfect, 3700 square foot view home for $ 735,000. In the private remarks to the agents, it says ‘seller requests no appraisal contingency’, because appraisal for a loan is likely not possible. Yet, I am not wasting my time with this gorgeous home, I started doing this in 2012 and more and more agents are doing it today. Simply stated, we may not get that price right now. It is a stretch to be sure. Buyers are willing to pay more than 6 months ago, but maybe not that much more. We don’t know.But if we get close and the inventory stays this low, and the short sale numbers continue to drop, the next sale likely will hit that price point. Of course, I am betting that I can do it, with patience and good marketing. Critically, buyers are aware of this and are more and more willing to make offers with no appraisal contingency. Buyers feel that they understand the value of their purchase better than the lender’s appraiser. As this continues, prices will clearly rise.
Trend number 2 is even bigger-banks are not approving low short sale offers the way they were. To refresh, remember a short sale is a sale in which the seller often does not care what it sells at. That trend too has been changing, but often enough, they leave it up to the agent who underprices the home, sometimes TOO MUCH. In the past, banks would often approve prices far below market value, keeping prices in a downward trend. That started to change in 2012, partly becuse the inventory was low, and partly I think because bank pricing evaluations have changed. We have been told by 2 banks recently that they will no longer use broker price opinion (meaning agents valuing the property), but a different model. They never tell us this and in the last month my listing coordinator Chad and I have noticed banks responding to offers on our short sale listings with a counter offer price much higher than the buyer submitted. Importantly, the offer in WAS NOT VERY LOW TO BEGIN WITH. In fact, in the 3 times this has happened, we were told in no uncertain terms that the investors valuation was firm and I could not dispute it. Ironically, in 2 of the 3 cases, there is no way the price they are asking for will the buyer get an appraisal-the comps dont support it. So it isnt just at market, their requested price is actually OVER MARKET! If this is a trend, it will hopefully clean up the few remaining really lowball short sale transactions happening and lead to a mrket where the spread between standard sales and regular sales for the same model home isn’t 25% or more. As low priced short sales go away, again, prices will rise.
Trend 3 concerns appraisal. More and more appraisers are willing to speak to the agents involved in the transactions to better understand the often huge gap between model perfect regular sales and low- ball, dead lawn, beat up distress sales. When the appraisal rules changed a few years ago, I couldnt get most of them to talk to me even a little to let me explain. Today, it feels more reasonable. That doesn’t mean it has changed however. Because many homes simply have to be sold with an appraisal contingency (the buyer cannot buy it otherwise), appraisal is still the number one reason prices have not yet clearly risen in many areas. I believe that will change this year, at least a bit. In fact, last month I sold a house in Northpark listed at 435,000. I had 4 offers in 10 days. The best was at 445,000, but none of the buyers had the financial means to remove the appraisal contingency. The appraisal came in at $425,000 and the buyer walked. Back on the market, I received 4 more offers, the highest again at $445000. This time the appraisal came in! Only 9 days later! The deal closed and now my next seller has that strong comp to use to justify their price. Slowly but surely, these are the 3 trends that will make 2013, not a transition year like 2012, but a clearly appreciating one.