Multiple Offers: How to Win, When to Lose

It’s a jungle out there. In California last month, 74% of the offers submitted by Redfin agents on a property met with competition. In Washington DC, 51% of offers faced a bidding war.

The problem is inventory, with the number of homes for sale down 43% in California and 27% nationwide compared to last year, even as the number of new customers contacting Redfin in March is up 108%. The supply of houses for sale is now below six months – the threshold between a buyer’s and a seller’s market — in 13 of the 17 markets we could measure.

And the numbers for the overall market don’t even begin to capture how fierce the competition is for the most sought-after properties: houses between $300,000 – $500,000, and bank-owned homes that the listing agent has intentionally under-priced to create a bidding war. Small in-town constructions projects are also in high demand, even six months before anyone can move in.

This has created a new problem for Redfin and our home-buying clients, many of whom began the year assuming the market was on their side. The number of offers being signed by our customers in March was up 50% from this time last year, but our closings were up only 17%. The space between those two numbers is filled with a lot of heartbreak and frustration.

Since Redfin’s customer-satisfaction and profit targets depend on our being top-dogs in competitive deals, we’ve had to hustle together a 35-point agent training program for winning bidding wars. Now of course to have an advantage, you have to keep that advantage to yourself, so we won’t share everything we’ve got.

But since we also need to educate our customers as partners in the fight, and we hope to learn new tactics from this community’s comments, we are sharing our agents’ top-six tactics with everyone in Redfindia:

1. Data: arm yourself with information, about sale-to-list ratios for area homes and how many parties have bid on recent transactions. Be prepared for setbacks; in competitive situations, almost nobody wins his first offer – it’ll feel like the end of the world – but if you did win the first time, you’d just wonder if you overpaid. Just make the best offer you can without pushing yourself into an uncomfortable place. Sometimes that first offer will surprise you. But mostly, losing on the first or second offer is just an experience you have to go through for yourself.
2. Relationships: Research the listing agent by asking your agent to query Redfin’s Scouting Report or the local Multiple Listing Service for her deal history, just to understand how the listing agent prices homes – some use a low price to create an auction and others ask for top-dollar. Consider touring the home when the seller’s around, so you can charm her in person. If your agent doesn’t know the listing agent, try to get the two to meet at a broker’s open house. Your agent definitely needs to find out how the listing agent prefers to communicate, by telephone, in person or by email, so you and your agent can be Johnny-on-the-spot without being a pest.
3. Communication: Don’t guess which terms matter to the seller. Your agent can just ask the listing agent what it will take to win the deal. Sometimes sellers will take a lower price if the buyer can be flexible about the closing date, or promises an immediate inspection with no follow-on repair requests. And even if you can’t afford a high overall price, let your money talk, offering up as much earnest money as you can afford, to underscore that you’ll follow through on the terms you offered.
4. Offer presentation: Your agent should deliver the offer in person when time allows, although sometimes bidding wars happen so fast it’s more important to get the offer on top of the pile (sometimes this means going first, sometimes it means going last). It helps to have your agent summarize key terms as bullets in a term sheet, then present the purchase & sale agreement in a package with the term sheet as the first page. The terms that favor the seller should jump out. Include a cover letter about your personal history, with a family photo; if you plan to live in the home, say so. Conclude with your agent’s deal history, to demonstrate that the escrow process will come off without a hitch.
5. Financing: For the pre-approval letter, use a local lender who understands neighborhood price trends, preferably one recommended by the listing agent. You can even ask your lender to call the listing agent, to testify personally that your money is good. Address appraisal concerns up-front: many bidding wars result in a price higher than the appraisal value of the property, leading the seller to worry that the buyer’s bank will balk at the price. Get a pre-approval letter for the highest-possible amount you can borrow and, if you have the money for a larger down-payment, make it clear that you are willing in a pinch to borrow less and pay more to offset a low appraisal.
6. Planning ahead: Arrange an inspection in advance if that is customary in your market, just so you can reduce the number of contingencies in the offer. Think through how you’ll feel if you win or lose an offer, calculating what different prices mean for your monthly payment. On one hand, don’t pick a price so high you’ll wish you hadn’t won the deal. On the other hand, don’t pick a price so low you’ll wish you’d bid more. Ideally, you want to have no regrets if you get out-bid, secure in the knowledge that the other buyer paid a price that doesn’t make sense for you. And you want to be ready for any outcome, able to respond to a counter-offer confidently and quickly, guided by discipline rather than emotion.

That’s our list. What tactics have worked for other buyers and other agents? We’d love to hear your thoughts on what you’ve learned from wins and losses. And if you’d like to learn more about the competitive dynamics in your local market, especially for first-time home-buyers and investors, sign up for our new class, “Winning Against Multiple Offers.” If you don’t see a class offered for your area and you’d like to check one out, leave a comment below and we’ll hook you up as soon as we can get something scheduled.

Inventory Shortage: Move Along; Nothing to See Here

We’ve written about feisty buyers, shown data on multiple offers and told the story of Mid-Peninsula Madness. That opened up the floodgates, and now we’re hearing from our agents across the country: Buyers are frustrated with the lack of homes on the market, and the few sellers out there are using scarcity to their advantage.

Sellers Have Swagger

Home sellers are in the driver’s seat, and they know it.

• Triple backup offers: In Washington DC, Redfin agent Nick Chaconas saw the desperation from the side of the listing agent. “The house I was selling went on the market at 1 p.m. on Friday, Feb. 10 and I had an offer in hand by 8:30 a.m. the next day,” he said. “I didn’t even have time to send the offer to the seller before another agent told me her client was writing an offer too. The home was under contract by Monday, the 13th when a third agent called, wanting to write a back-up offer. Even when the first offer fell through, the second offer was more than happy to step in, and the third offer still wanted to hang around as the backup.”
• Family photos and personal letters: In the Seattle area, January saw 7.7% fewer homes for sale than December, and 35.1% fewer since the previous January. Seattle Redfin agent Lori Bakken had a client who was ready to put an offer down on a home, but then came a type of request she hadn’t seen for a long time. “The listing agent said the sellers were asking for letters or photos of any of the families making an offer, to help them make a decision. We submitted the letter and photo, and offered $10,000 over list price, but lost to a higher bidder. You won’t see that in a buyer’s market.”
• Appraisals ignored: In San Diego, Redfin Area Manager Anna Nevares says sellers are even asking buyers to commit to a purchase before the appraisal, regardless of the outcome of the appraisal. “Sellers know that buyers are desperate enough to waive the typical appraisal contingency. If it appraises low, the buyers will cover the difference by bumping up the down payment. They won’t let an appraisal get between them and the home they want.”
• Unlisted sales: Redfin agent Collin Horn was contacted by a seller who knew it was a seller’s market and wanted to represent himself, hoping to save on commissions. “He saw the Agent Insights I’d left on homes similar to his, in the same neighborhood, and rightly assumed that I’d been touring with an eager buyer recently,” Horn said. “My client ended up buying his place. The seller knew buyers were getting frustrated with what little was on the market and he used it to his advantage this time.”

Desperate Times Mean Desperate Measures for Buyers

There are some old tactics that are getting dusted off and some new ones that agents are adding.

• Mass emailing for homes: In Denver, agents are blasting emails to agent listservs asking if anyone has any pocket listings (homes that are for sale, but not listed on the MLS). “I haven’t seen this type of request in five years,” said Michelle Ackerman, Redfin Market Manager for Denver.  “I just started seeing them this year, and I’ve received four so far. It’s strange, but it’s hard to blame them. You have a qualified client with funds, and you want to get them into the right house.”
• Going door to door: Leslie White, a Redfin agent in Washington DC is getting letters from other agents asking if she wants to sell her own home in Mount Pleasant, a neighborhood that has seen a 32% drop in supply since last January. “At the low end of the price scale in established neighborhoods, investors looking to flip houses are swooping in, buying everything, renovating and listing for a huge profit. Sometimes they don’t even wait for properties to go on the market, and instead go door to door, leaving door hangers, looking for potential sellers. First-time homebuyers can’t really compete with them.”
• New construction as an alternative: In Portland, where supply is down 37% year over year, Redfin market manager Jeff Bale sees buyers shifting their focus from resales and signing contracts on new construction homes, many of which aren’t even built yet. “They don’t have faith that the inventory will recover in the 4-6 months it takes to build the home they want.”

• Cash talks…sometimes: And of course, you have the all-cash, no-contingency buyers that every seller hopes to find. But as we wrote about in a post on “Mid-Peninsula Madness” in the Bay Area, even that’s not a sure thing anymore when we see all-cash, no-contingency buyers in bidding wars with other all-cash, no-contingency buyers.

The Numbers

The data highlight the scope and scale of what our agents are seeing every day. The number of homes for sale has dropped by double digits in most counties, cities and neighborhoods, and they’re still declining. Just take a look at the Bay Area in January 2012. The column on the right says it all.

Nationally, in the markets where Redfin has offices, it was more of the same. Each had varying degrees of year-over-year declines in the number of homes for sale in January:

• Denver (Denver County): -47%
• San Francisco (San Francisco County): -42%
• Phoenix (Maricopa County): -40%
• San Diego (San Diego County): -38%
• Portland (Multnomah County): -37%
• Seattle (King County): -32%
• Orange County: -32%
• Washington DC: -28%
• Los Angeles (Los Angeles County): -27%
• Dallas (Dallas County): -27%
• Las Vegas (Clark County): -16%
• Atlanta (Fulton County): -13%
• New York (Queens County): -8%
• Chicago (Cook County): -7%
• Boston (Suffolk County): -1%

Where Have All The Sellers Gone?

In a recent survey of home buyers, 56% said now is a good time to buy, whereas only 13% said now is a good time to sell. Why the difference? The buyers said they think stagnant prices are keeping people from listing their homes. “Unrealistic home sellers who expect 2007 prices,” one buyer called them. Regardless, home owners know what they paid, they know what they can get in the current market and decide instead to make their mortgage payments and bide their time while they wait for prices to recover. The good news for those folks is that we think the bleeding will stop this year and we’ll start down the slow path to recovery.

Context for the Shortage

Not all inventory crises are created equal, and like everything else in real estate, location is the key to how hard the inventory crisis is being felt. The number of listings in any given market is just a number, without context. A thousand homes on the market in Multnomah County, Ore. goes a lot further than 1,000 homes on the market in Los Angeles County.

The map and data below show the areas with the lowest inventory per household, so you can see which areas feel the shortage the most. For example, in San Francisco, there’s only one home on the market for every 470 households. While that can partially be explained by its strength as a rental market, the level of demand also puts it at the center of the supply shortage. California in general is particularly hard hit, with the Washington DC area not far behind.

Float over any county on the map or its colored bar on the table for more details about inventory in that city.

Are you one of the frustrated buyers, sitting on the sidelines with stellar credit, not seeing the right house come on the market? Share your stories in the comments!

The Mood Among 2012 Home-Buyers: Feisty

On Saturday morning, Redfin surveyed 6,062 people who had toured a home with a Redfin agent since January 1, 2012. As of Wednesday at 5 p.m., 1,457 customers had responded. The survey screened out 126 people  who had no plans to buy this year, leaving 1,331 respondents.

The resulting data give us a uniquely broad, real-time portrait of this year’s home-buyers across 19 major metropolitan markets.

Their mood is, in a word, feisty. Of the people planning to buy within the next 12 months, more than half are either already under contract on a purchase or planning to be under contract within three months:

The reason these customers are buying with new vigor is that Redfin’s 2012 customers expect prices to be flat this year compared to 2011:

These customers are more optimistic about 2013, with 54% expecting prices to rise from 2012 levels, while only 10% expect a decline:

Affordability is the primary driver for today’s buyers, with 73% of buyers citing low interest rates as the reason for buying this year, and 40% citing low home prices:

And the major problem, they say, is that there aren’t enough homes to buy, with many customers either frustrated at the poor condition of bank-owned and short-sale listings, or put off by the Kafkaesque process of negotiating with a bank:

The answer choices for REO properties actually described the properties as “foreclosures and short sales,” which for the purposes of charting we shortened to “REO,” the bank term for real estate owned by the bank after a foreclosure.

The concern about inventory isn’t just a by-product of survey wording. When we asked a free-form question about what surprised our customers the most this year, more than 30% commented on low inventory. Many customers focused on how suddenly the laws of supply and demand tilted away from buyers:

• Multiple offers started appearing from the beginning of this year, January in fact, compared to November and December last year.
• Sudden demand. I think increased buyer confidence is driving prices up and even starting bidding wars.
• There’s a palpable new climate now, with seemingly many motivated buyers ready to buy. Nearly everything I see go up–good or just ok–is moving very quickly.

What our own agents have noticed is that competition has come not just to picture-perfect cottages in desirable neighborhoods but also run-of-the-mill listings. Many homes that failed to sell last fall are just now being re-listed, often only at a nominally different price — $5,000 less for example — and then going under contract the week of their debut.

Other surprises surfaced in the survey. After reading so much about the fragmentation of the American family, I was interested to see that a third of our customers were pursuing the American Dream alone:

And I was also surprised to see that only 8% of Redfin’s 2012 customers planned to sell the home in which they were currently living, which is half the number who planned to rent out a home they currently owned. When we asked where people have lived during their home search, most said they were now renting someone else’s house or apartment:

The high proportion of renters among our customers may just reflect the tendency of Redfin’s buyers to be young. But I think it also shows that in a market in which prices may be near a bottom, the people who want to buy the most are the ones who don’t also have to sell.  My guess is that there is probably a broader youth movement among American home-buyers.

Everyone else has too much baggage. For example, less than 1% of Redfin’s 2012 home-buyers had any history of a foreclosure or a short sale, even though the percentage of Americans who owe the bank more than their home is worth is closer to 25%. It will take many years for these would-be home-buyers to come back.

When they do come back, we’ll let you know. This survey will run semi-annually so we can compare the results from one period to the next; please leave a comment below if there are new questions you’d like to see us ask. We also want to survey the people who are looking at real estate from afar on our website, to compare their attitudes about the market to those of our customers.

Members of the press who would like to see the raw survey data, or view the results for one market only, can contact us at press (at) redfin (dot) com.

In 2012, Competition On More than 50% of California Offers

Redfin real estate analyst Tim Ellis just collected information from offers that Redfin agents have prepared since January 1, 2012, to gauge just how often our customers are bidding on listings that have competing offers. In major California markets, more than half of our offers faced competition. Here are the Redfin markets where competition is most common in 2012:

• Bay Area: 73.0% of Redfin offers faced competition
• Southern California: 62.3% of Redfin offers faced competition
• Seattle: 48.9% of Redfin offers faced competition
• DC Area: 42.4% of Redfin offers faced competition
• Long Island: 41.7% of Redfin offers faced competition
• Boston: 40.9% of Redfin offers faced competition

In other markets, our offers face competition less often, between 22% and 39% of the time, but still most customers are shocked that there is any competition whatsoever.

And this is one reason why Redfin, after describing the market in years past as a “fat man who can’t get up” and predicting declines of 5% – 10%, is now forecasting the end of major declines when others have called for another year of falling prices.

As real estate agents who buy and sell homes, we have access to real-time data about what is happening now in the market. Because we use technology to generate offers and schedule tours via a central database, we can track this at scale. And what we see happening, at least for now, is that demand is outpacing the supply of homes for sale.

This doesn’t always mean that listings are selling for more than the asking price. Just last week, we hosted an open house for a Redfin listing in Chicago’s Wicker Park that attracted 30 different individual buyers or couples, and immediately generated three offers, all under the asking price. It is now pending, but still for slightly less than the asking price. Even when everyone wants a house, not everyone is willing to pay for it, at least not for now.

When The Laws of Supply and Demand Go Haywire

The first month of every year for Redfin is like the first five minutes of a blind date: it doesn’t take long to figure out how the whole thing will go. We track every customer activity in a big database so it’s easy for us to see whether demand is strong right out of the gate.

And it is. While January and February closings will likely be weak, recent charts of early-stage Redfin demand suggest that in a few months sales volume will be just fine. From January to December, visits to our website increased 35%. Customers touring homes increased 26%. Customers writing offers increased 35%.

We aren’t in a tizzy about such growth, because most of it is seasonal. We get big jumps like this every year.

But we are seeing one trend this season that isn’t normal. And it could really crimp sales volume and, by extension, the whole economy. Inventory, which normally starts climbing steeply in January, has just kept dropping. In our wildly popular home-buying classes, which are mostly sold out, the most common complaint is that there’s nothing good to buy.

In some of the biggest counties, there were 30% – 40% fewer homes for sale this January compared to last January, and most counties saw the problem only get worse in the past month:

And the same is true of smaller counties, too; only Chicago has seen an uptick:

We see why this is happening in listing consultations across the country. We sit in people’s living rooms, explaining what they can likely sell their home for, and they just decide to wait a year instead, either because they want more money for their home, or they flat-out need more money just to pay off the mortgage.

The banks have an enormous number of mortgages in default, but, after the robo-signing scandal, foreclosures have been at or near three-year lows because it takes nearly a year to foreclose a property. In Atlanta last year, there was a 13-month supply of bank-owned homes; now there’s a two-month supply.

As a result, the limit on sales volume, which has long been demand, is increasingly now supply. American real estate is, in some places, like a giant store, the shelves half-full, often with damaged goods. Fixing this problem will be hard because it requires a fundamental re-structuring of debt, whereas stimulating demand is often a simple matter of lowering interest rates.

What this means for the individual home-seller is that Tim Ellis was right. Tim, Redfin’s real estate analyst, prepared a comprehensive analysis showing that homes listed in winter sell for more money, faster, with less risk, than homes listed in summer. The findings were so surprising that I delayed their publication for nearly a month, insisting that Tim look at possible confounding factors. After I ran out of reasons to block the report, we published it, but I still didn’t believe it.

But anyone who listened to Tim, and hung a sign in their yard this winter, is probably glad she did. Good listings have very little competition just now in most markets, and plenty of demand. Just this weekend, we sold a Portland home in 48 hours, with four offers coming in all over asking price.

This may change, as many sellers who took their homes off the market before Thanksgiving will be back on the market in February or March, after waiting the requisite 90 days for brokers to market the property as new again. But in many places now, we see a lot of demand, and not much to buy. It would be interesting to hear from real estate consumers and agents alike if your experience has been different or the same.

If U.S. real estate inventory is so “overwhelming,” where is it all hiding?

While some housing pundits are talking about demand being “overwhelmed by supply” and others are throwing out estimates of an “excess supply” of over 3 million homes, buyers that we are serving across the country keep telling us the same thing over and over this spring: “Selection stinks!”

Worse yet, when they do finally find a home that they want, they often submit an offer only to find that theirs is one of multiple offers that the seller has received—increasingly our agents are reporting bidding wars and multiple offers in numerous markets.

So what’s going on? How can inventory be high but buyers are hitting slim pickings and multiple offers? Well, for starters, although listings may be up from January—which is true every year due to the annual winter hibernation of the housing market—on-market inventory and new listings aren’t actually all that high for this time of year. In fact, in every Redfin market except Las Vegas, new listings are down from last year:

Not only that, but new listings of non-distressed homes, which are more frequently well-kept and owner-occupied (i.e. the kind of home that most non-investor buyers are interested in), are falling over twice as fast as bank-owned (REO) listings:

This result isn’t suprising at all if you’ve spent any time talking with home owners lately. Anyone who doesn’t absolutely need to sell seems to have decided to wait out the market, either hoping for a better opportunity to list their home next year or just renting it out to take advantage of a supposedly increasingly hot rental market.

Of course, if we’re trying to figure out what’s going on in the market today, and where we’re headed, we can’t just pretend that the distressed listings don’t exist.

When it comes to pricing, REOs are selling for 20% to 50% less than similarly-sized non-distressed listings, but the price trends of the two have been moving in the same general direction over the last year (click any of these charts to enlarge):

The overall price trend (both for REOs and non-distressed homes) has been down in most markets over the last year (Boston and Washington DC’s flat prices are two notable exceptions). Meanwhile, sales are slowly clawing their way out of the post-tax-credit gutter, but a decent recovery in sales is currently being held back by a serious lack of quality inventory.

Allow me to illustrate today’s market dynamics by way of a Venn diagram (because who doesn’t love Venn diagrams?):

If we don’t start to see more listings from owners who have the equity to put their homes on the market, prices of increasingly rare non-distressed listings seem likely to stop falling soon, just due to basic supply and demand. Of course, that claim leads to the big question: how soon?

Ultimately, supply and demand are the primary drivers of the real estate market, but prices seem to react to these inputs about as fast as a three-toed sloth. While the bubble was inflating, it took over a year of declining sales and increasing inventory before prices peaked and began to fall. Although on-market inventory has been declining since mid-2008, the slow recovery of sales along with a shift in psychology away from home ownership has delayed the turnaround of prices (oh yeah, there was also that delightful government meddling in the form of a giant handout that paused a true price correction for over a year as well).

As Calculated Risk recently pointed out, home prices are not far above their historic lows, although it’s a pretty safe bet that we’ll have a bit of an overshoot on the downside, followed by at least a few years of flat prices (which is down when inflation is factored in).

Foreclosures are still quite high and will likely take three to five years to work through, but growth in both the beginning and the end of the foreclosure pipeline seem to be backing off their 2010 peaks. The worst seems to be behind us on that front.

Every region has different dynamics, but with generally lousy selection, slowly recovering sales, and years worth of foreclosures to work through, where does that put us today, and through the end of this year? Barring some unforseen economic black swan, most of us here at Redfin think prices in most regions will probably stop falling by this time next year, while the more optimistic among us expect prices to end the year higher than where they are today. Sales will continue their sloth-like increases, foreclosures will be slowly but surely absorbed (many by all-cash investors), and hopefully, non-distressed sellers will begin to return to the market.

Is this a bottom call? Not really. Nobody is able to perfectly time the market, including us. No matter where we think the bottom is, we’re probably wrong (just like certain other recent high-profile predictions). Is buying a home today less risky than it was five years ago? Absolutely. Will buying a home ever be a risk-free proposition? Sorry, nope.

When Wall Street and Main Street Disagree

It was the best of times, it was the worst of times, these last nine months. Since July, the stock market has increased 29%. Over almost the same period, housing prices have declined more than 5%.

At the end of last week, just before sales of new homes fell again, to more than 80% from their 2005 peak, and on the same day that a new poll showed the man-on-the-street’s economic pessimism hitting a two-year low, the Dow rallied for a 52-point gain.

Wall Street and Main Street have never been so far apart. What’s going on?

David Stockman, the Reagan Administration’s budget director, blames Wall Street speculation. He wrote yesterday that “casino capitalism on Wall Street” is almost unrelated to the “disemboweled, off-shored economy on Main Street.”

But speculation isn’t the only problem. The basis for the stock-market rally is improved corporate earnings, not an influx of speculative capital. Technology, financial services and oil & gas businesses are reporting huge profits.

But all of these sectors are noteworthy for their ability to grow without much hiring. And that’s what these businesses have done, profiting by selling more products yes, but profiting even more by doing that mostly without adding people, handing out raises or otherwise spending more money.

I don’t blame anyone for it, but the latest rally has in effect been a squeeze play. The result is a windfall for stockholders like me, but most of that money hasn’t reached home-buyers on Main Street.

This becomes obvious if you just listen to this Wall Street Journal story of a typical family on the Olympic Peninsula struggling to keep its home: a 14-year-old child dies, the father slips into mental illness, the mother gets cancer and loses her job.

These hardships happened years ago but didn’t take an immediate financial toll on this middle-class family; in 2006 the family augmented its meager income with a second mortgage on their home, which is only now about to foreclose.

It’s a perfect example of how Wall Street has recovered from its excess of borrowing, but Main Street hasn’t. Most people’s credit ratings will be thrashed for years after Goldman and Citi have returned to triple-A status; these folks won’t be buying houses any time soon.

So one reason that housing has declined for everyone except investors — whose activity in the housing market is at an all-time high — is that the would-be buyers of those houses are distressed, too. In most markets, including Atlanta, Seattle, Chicago, San Francisco and New York, price drops have been concentrated in the low- and middle-end.

There are other factors, including the limited liquidity of the housing market and the slow pace of price discovery, the absence of quality inventory as sellers wait for better days and buyers hold out for better deals, but the simplest explanation is that the housing market is down because the middle class is down.

The stock market is up because the upper class is up. Eventually, as we’ve argued before, the money will trickle down and the whole economy will buck up. Already housing is at its most affordable level since 1975. But even so, Main Street can’t always afford it.

The Bad News is That the Bad News Should Have Been Worse

Redfin published its latest analyses of Bay Area and Seattle real estate markets last night, based on proprietary data from our websites and war stories from our agents. To no one’s surprise, prices were down in Seattle, and mixed to down in the Bay Area.

In both markets, three trends jumped out at us from the August numbers:

1. Sales volume declined, by 7.7% in King County and by as much as 24% in the Bay Area counties. After a disastrous July, we expected sales volume to bounce back, especially in Seattle, which wasn’t affected by the California credit expiring in July. Since prices follow sales volume, this tells us that prices may fall further than most analysts originally expected — and since our revenues have been fairly steady, that Redfin market-share is increasing.
2. The number of homes for sale declined. When sales dip, inventory usually piles up, but most sellers are pulling their properties off the market ’til spring. This means sales volume will continue to be low throughout the winter, as buyers and sellers wait one another out to make the first move. Since we see an enormous numbers of buyers out in the market, conditions could change fast, but probably won’t: most economists expect interest rates to remain low, and employment to be stagnant. When the economy improves, we do think there is significant pent-up demand, just based on the number of tours we’re hosting.
3. Prices were fairly sticky. King County’s drop in dollars per square foot was significant but not drastic at 3.5%, and some counties in the Bay Area actually saw price increases. This tells us that the market can’t correct prices quickly because so many sellers don’t want to sell short, which forestalls a recovery.

For more inside-baseball, read the actual Seattle and Bay Area reports, as well as the lively commentary from Redfin Nation. And tune in next month, as we hope to train our analytical sights on other markets, probably DC.

Bryon Ziegler Said Something Really Smart

Last night and this morning, Redfin published its analyses of Seattle and San Francisco activity in July, drawing on proprietary data and agent war stories to give consumers  an up-to-the-minute portrait of the real estate market. With plenty of buyers but no real urgency, both markets are weakening, the Bay Area for the first time in a year. This month’s reports were especially insightful, just because both feature countervailing trends that our agents helped to sort out:

• In Seattle, Capitol Hill agent Bryon Ziegler talked about three listings where buyers tried to pounce on a deal only once it came off-market. In an uncertain market, he said, nobody wants to make the first move.
• Meanwhile Ballard agent Robin McCue explained why most sellers are balking at bids 10% below the asking price, because listing agents would prefer to offer the reduction to the entire market, not just one buyer, in the hopes of generating multiple offers.
• In San Jose, South Bay agent Brad Le observed that sellers are now more willing to consider buyers using FHA loans, with the listing agent calling the lender to make sure it will fund. This is one of the first signs we’ve seen in a year that Bay Area demand is declining, and also that FHA loans are gaining wider acceptance.

We started these reports assuming that the database underpinning our website would allow us to identify local trends before anyone else: we match data from the Multiple Listing Services used by brokers with property records used by the government, adding in for-sale-by-owner transactions that nobody else has. Then we slice up the data using neighborhood boundaries that we’ve assembled from different sources.

While the numbers are important, you’ve probably already realized that it’s the agent anecdotes that really make sense of it all. Many of the Redfin agents who contribute to the report are the top producers for the entire region, so they know their stuff. And they’re in the thick of deals every day, so their information is more timely than anything recorded in a big database.

Once we publish the reports, we get plenty of firsthand reactions from consumers too. Excellent neighborhood analyses have appeared on local blogs in Maple Leaf and Wallingford here in Seattle, as well as the big sites like Seattle Bubble and SocketSite. As always there’s plenty of discussion on Redfin Forums, some of it more useful than the original report: for example, it was a Forums user who was the first to correct my assumption that interest rates would rise at the end of 2010.

As we get better at assembling data and incorporating agent insights, we’ll expand these reports to Southern California, Boston, Washington DC and beyond. Let us know where you’d like to see The Authoritative Broker strike next, and what we should add to the reports.

Apocalypse Now (Guest Post)

Here at Redfin, we don’t have much patience with bubble bloggers. We do not have a fixed position that all markets are over-inflated all the time. For example: since last year, we have stated repeatedly that foreclosures are likely to peak this summer, a position now corroborated by statistical data and our own experience: in Southern California, our agents and our customers have complained that screaming deals on distressed properties have been scarce since the spring.

But on Tuesday we published our monthly newsletter, arguing that the problem in the current market is weak demand. Then yesterday, we published a contrary point of view from DeeJayOh of Seattle Bubble, arguing that limited inventory was the reason there was limited demand: there has been very little good stuff to buy. And now last night I got another response to the newsletter, from a Seattle real estate agent at John L. Scott, who has lots of experience working with builders on huge new developments.

He argues that a huge wave of foreclosures is coming to the Seattle market, and that local banks — we blotted out their names — will be forced to cough up the foreclosures when they are taken over by the government. He also thinks that the drop in prices has so far been driven by fear and greed rather than distressed properties per se. It’s an opinionated piece, loaded with inside baseball and on-the-ground facts. I don’t agree with all of it — the failure of a local bank won’t cause foreclosures when really it is foreclosures from 2008 and 2009 that are now causing that bank to fail — and I think that fear-driven pricing is more prevalent in the exurbs where the writer lives.

But for all that, it’s a really good read.  The writer agreed to have his email published, but never answered the question about attribution. Guest poster, if you want attribution, please step forward!

Rates need to bump up a to create a fear of loss in the market place.  The focus will then shift from home prices to interest rates.

Fear and Greed Drive Down Prices
Every buyer seems to view each and every listing as distressed, when nationwide about 30% of homes are distressed. And foreclosures are crippling middle-income home-buyers that have had their equity removed.  This was in part due to the economy although from 2005 to 2008 there were also some risk takers in the $400K -$600K price-range.  But the point is these home owners now are tight.  Others like me, I’m upside down and we put $250,000 down in 2004.

I still made great money last year and can weather the storm.  I love our neighborhood and won’t move.  But we have had three homes listed and sold in the last six months that sold for  $125K under market value.

The first seller spoke to the original listing agent of the subdivision; that agent told him he needed to price his home to sell at $409,950 if he wanted to sell in this market.  There was a two-month-old sale 125 feet away that had just closed 60 days before for $539,000. The seller went ahead anyway, and got 5 offers in less than a week.  This was not a distressed sale. The listing agent just had a dismal view on the market or needed a quick buck.

That low sales price forced the hand of a second seller in our adjoining neighborhood, who felt his value was closer to $499,950. He was being relocated, and he used the relocation agent recommended by his company.  He listed the house for $425,000 and was pending in two weeks. Obviously a quick sale and under market value.

Our neighbor lost his job and had a friend who did short sales. The neighbor made a plea to the bank, and his friend bought the house somewhere in the $280,000 range. He put $10,000 into it and then listed and sold the home for $389,950.  His house is identical to the other homes listed; it is 400 sq ft smaller than ours which we paid $520K  for 5 years ago with $250k down.

The point being within a 7 to 9 month period and only until the last sale I mentioned, none were distressed homes.  We had comps at over $500,000.  But agents who were more focused on getting a rapid sale to stay afloat did a disservice to their clients and the entire neighborhood.  We now have 3 sales in 6 months the highest being $415,000, $409,000, and $389,000 or less.  From an appraisal standpoint everyone in both of the two subdivisions is completely screwed.

Two were move-down buyers and both sales had multiple offers and went pending in a week.

The other issue and maybe you have mentioned it previously, is that the local banks are completely and utterly screwed up.  They don’t have asset managers, they have out-of-work loan officers trying to be asset managers.  These guys can’t balance their own check books, let alone assess market value, or figure out how to position property.

The scary thing for Seattle is that [Bank A], a $3-billion bank, had $900 million in defaulted new construction loans. Excuse me?  When the heck did that balance sheet ever make sense? [Bank B, which has been taken over by the FDIC] was as bad.  [Bank C] and [Bank D] are going down in six months or less; they’re well over [Bank A's] load of non-performing new-construction loans. That doesn’t even include [Bank E], [Bank F], and the list of 20 others on the FDIC watch list.

To put it bluntly, there is not a shadow inventory of undisclosed real estate held by the banks and the FDIC, there is a frickin AVALANCHE.  [Big Bank A] and [Big Bank B] have not settled with the FDIC.  The amount of debt, distressed loans, and non-performing properties are enough to flood the market and crash Seattle.  You would see bank-owned properties topping 50% of all product on the market in our area if they brought them on.

For as many tech-savvy, business-savvy people who are in this state, as a whole we still react like we think we are some unique part of the world.  Read “Seattle magazine” March 2008. YIKES.