Do Open Houses Help Homes Sell?

With the National Association of Realtors’ big Nationwide Open House Weekend just around the corner, we thought it would be interesting to dig into Redfin’s stash of real estate data to answer the question: Does holding an open house make a home more likely to sell?

To answer this question, we analyzed over a quarter million listings across eleven different cities around the United States. To see what we found, watch this video, or keep reading below:

In San Francisco, an astonishing 83% of listings held at least one open house. In Phoenix and Las Vegas, less than 5% of listings had an open house. In the remaining cities, 20% – 65% of listings had an open house.

Apparently every weekend is open-house weekend in San Francisco. In fact, holding an open house is so expected there that homes that don’t hold an open house are a full seven percentage points less likely to sell than those that do.

In Las Vegas and Phoenix, where open houses are rare, the exact opposite is true. Homes that don’t hold an open house are 17 percentage points more likely to sell than those that do.

Everywhere else, the picture gets a little more fuzzy. In the other eight markets we examined, there was virtually no difference in the percentage of homes that sold, whether they had an open house or not.

But what happens if we break that data down a little further and take a separate look at homes that held an open house specifically within the first week of listing versus those that held an open house at some later date?

Interestingly, when an open house is held within the first week, a home is 13 percentage points more likely to sell than not having an open house at all, and 26 percentage points more likely to sell than if an open house is held sometime after the first week.

So is there some sort of magic that makes a listing so much more likely to sell if you hold an open house in the first week? Probably not.

What’s more likely is that an open house in the first week is just a sign that your listing agent is working hard to do everything he or she can to sell your home. In contrast, an open house later in the life of a listing is a sign of desperation—a “Hail Mary” attempt to move a listing that simply isn’t priced correctly or doesn’t show well.

So should you hold an open house? If you’re in San Francisco, absolutely. If you’re in Phoenix or Las Vegas, probably not. Everywhere else, it most likely doesn’t really matter whether or not you hold an open house, but if you’ve got a good agent, he or she will probably hold one anyway.

List with Redfin, Sell Your Home Faster and For More Money

As a part of an enhanced fervor here at Redfin for giving sellers better service for less money than traditional agents, I was tasked with a research project to determine how well our listing agents have performed for sellers in recent years. The result: On average, Redfin listings sell 15 days faster and for $8,700 more than the competition.

Let me say that again…

Of course, every broker makes claims like this… but not many brokers employ a team of half a dozen analysts whose sole job is to crunch real estate data and track the company’s performance. Before we make such a bold claim, we actually run the numbers. In this case, we analyzed over 800 Redfin listings and more than 19,000 comparable listings by our competitors—20,256 listings in all.

The overall difference across all our markets was compelling, but some individual markets had an even more impressive advantage. Here are the results for every market where our calculations showed a statistical significance in the difference between Redfin listings and the local competition when it comes to sale to original list price ratio:

But the complete picture is even better for homeowners that hire a Redfin agent to sell their home, because the numbers above don’t even count the additional $5,000+ saved on average by sellers due to the fact that Redfin charges just 1.5% of the sale price for this superior service, versus the 2.5% to 3.0% charged by traditional agents.

In order to bring this superior service to even more sellers, we’re upgrading our listing service in 2012. So what does “upgrading our listing service” actually mean? Just since December, we have:

• Unveiled our Home Price Tool to give sellers a powerful way to determine their home’s value.
• Added prominent highlighting of Redfin listings to our map search, listing alerts, and Home Reports.
• Released Redfin Home Report to help owners keep tabs on their neighborhood.
• Offered $250 in matching funds to help sellers make their home shine.
• Promoted Redfin veteran Karen Krupsaw to head up our listings efforts.
• Hired a dozen new listing specialists to work with Karen and their local market managers.

To recap: Redfin gives sellers more free tools, more exposure, a faster sale, and a better price, all for thousands of dollars less than the competition.

If you’re thinking of selling your home, why wouldn’t you use a Redfin agent?

2012: The Beginning of a Long Bottom for Housing

If you’ve bothered reading the real estate section of just about any newspaper or website, you’ve probably seen more bottom calls than you can count from various real estate professionals since the housing market totally fell apart in 2008. So let’s be up front here.

Yes, we are a real estate brokerage. We make our money by helping people buy and sell homes.

And yes, this is another bottom call. Well… sort of.

Did we come here today to tell you that you need to buy a home right now because any day now prices are going to start shooting up again and if you don’t buy today you’ll pay more tomorrow? Hell no.

We’re not interested in trying to convince you that now is or is not the right time for you to buy or sell a home. We’re interested in the data, and we haven’t been shy about predicting further declines on these pages and elsewhere in the past when that’s what the data suggest.

A year ago we said sales would be up in 2011, and despite the unfair comparison of a 2011 with no tax credits to a 2010 that had the homebuyer tax credit in effect for half the year, 2011 did indeed see about 2% more sales than 2010 in the markets we serve across the country.

So what do the data suggest today? What’s in store for the housing market in 2012?

Buyers Coming Back

Let’s dive into the data. Compared to a year ago, this January…

• Redfin home tours were up 27%.
• Redfin offers were up 26%.
• Redfin website traffic was up 48%!
• Consumer Confidence was up 23%.

So it would seem that buyers are certainly returning to the market, hungry for something to purchase. And with rents across the country beginning to climb slowly as well, the math is making sense for more people with each passing month. But what’s going on with closed sales? If there’s so much demand building out there, why the one percent dip in buyers actually purchasing homes so far this year?

To put it bluntly, selection sucks!

Sellers Missing in Action

Let’s go to the data again. Compared to a year ago, this January…

• Total new listings were down 17%.
• New non-distressed listings were down 10%.
• New REO listings were down 33%.
• New short sale listings were down 20%.
• Total on-market inventory was down 26%.
• Bank repossessions were down 35%.

It’s fairly difficult for sales to see a substantial increase when there just isn’t anything out there to buy. We’ve been hearing it from our customers for months, and their cries are only increasing in intensity as the expected seasonal bump in selection has failed to materialize with the new year.

Just since the beginning of the year, over half of offers submitted by Redfin clients have been on homes with multiple offers, a number that is rising rapidly every month, even through the winter—traditionally real estate’s slow season. Those rare times when something good hits the market, all of the buyers seem to immediately descend at once. This issue is most pronounced in California, where our buyers encounter multiple offers nearly two thirds of the time.

Prices Likely to Roll Along the Bottom

So what does this all mean for home prices? We agree with Bill at Calculated Risk. For home prices around the country, on average the bottom is here.

On the way up, it took a year or two for increased supply and shrinking demand to turn into home price losses. We’re now heading into Year Two of the opposite pattern: supply is shrinking and demand is on the rise. Expect prices to hit the bottom in most markets this year (barring another complete economic collapse, of course).

Of course, the catch is that we’re likely to be here, at the bottom, for quite a while. As in, years.

In some markets where investor activity is heating up (Phoenix), or inventory is especially slim (SF Bay Area), prices may rise somewhat on certain types of homes. In the Bay Area, our buyers have been coming up against multiple offers (many of which are all-cash with no contingencies) in almost three out of every four offers so far in 2012. It’s hard to imagine prices continuing to drop in a situation like that. But overall, the continued slow release of foreclosures by the banks coupled with a steady flow of short sales by underwater home owners will put a damper on prices as the excesses of the housing bubble work their way through the system.

“Shadow inventory” is a term that has been thrown around a lot in the last few years, overused even, but the fact remains that the banks are currently sitting on tens of thousands of homes across the country that they have foreclosed and not yet listed, along with tens of thousands more homes somewhere in between the first missed payment and the actual foreclosure. The banks can only process these so fast, especially now that the light of day has shone on the shady robo-signing processes that allowed them to push through so many foreclosures between 2009 and 2011. We’re talking at least three years’ worth of backlog in foreclosed home inventory at the banks.

Any sign, however slight, that prices may be on the rebound will cause banks to release more of their inventory onto the market, along with a wave of pent-up supply from would-be sellers on the margin to rush to list their homes to take advantage of the “recovery.”

Nationally, prices will probably move ±1% between January 2012 and January 2013. We expect 2012 sales to come in at least 5% higher than 2011, and inventory to be 20% or more below 2011 throughout the year.

We’re slightly more optimistic than our friends at Zillow, who recently predicted an average drop of 3.7% in national home prices during 2012. Meanwhile, famed economist Robert Shiller says that home prices are “not overpriced anymore,” but that “the question is whether we’ll overshoot.”

2012 Won’t be a Cakewalk

Unfortunately, although home prices may be rolling along the bottom in most markets this year, the squeeze on inventory means that buying a home in 2012 is likely to be a frustrating, lengthy experience. And while sellers may be excited about the lack of competition on their street, they probably won’t be thrilled about how much they can sell their house for.

2012: Welcome to the housing bubble hangover.

Will I Make More Money if My Listing Agent Also Represents the Buyer?

A surprising number of U.S. listings – about 1 in 10 — are sold by a real estate agent who also represents the buyer. How, we wondered, does this work out for the seller who originally hired the real estate agent?

Dual Agency Costs the Seller $4,789 On Average
To answer that question, Redfin’s real estate analyst Tim Ellis dug up every sale from January 1, 2011 – December 1, 2011 across 22 counties in nine different states — over 230,000 records in all. The results were remarkably consistent:

In every county we measured, the discount off list price was much larger when the seller’s agent also represented the buyer.

The average discount off list price was worse by 1.6 points with dual-agency sales, which is the industry term for a transaction where the listing agent represents both sides:

For a $300,000 home, dual agency cost the seller $4,789. The consistency across all 22 counties surprised us almost as much as the magnitude of the disparity in outcomes:

Many brokers treat dual agency as a choice the buyer makes, at his own risk, assuming the seller would never have reason to complain about how a buyer is represented. But in fact the damage done is to the original client of the dual agent, the seller.

Is the Difference Because Dual Agency is More Common Among Foreclosures? Nope.
We wondered if the results were correlated with distressed sales, since banks seemed less likely to notice dual agency than a typical home-seller.

But it turns out the prevalence of dual agency is actually higher among traditional home-sellers, not banks. And the outcomes were the same: both traditional home-sellers and banks got significantly worse prices when the buyer did not have his own agent.

Is Dual Agency Even Legal? Mostly, Yes

Concern for the seller is why at least eight states have attempted to outlaw dual agency.

In Alaska, an agent can act as a Neutral Licensee, providing a limited set of services to buyer and seller without representing either side. In Colorado, an agent who starts off as an agent for the seller can meet a buyer and become, with the seller’s permission, a Transaction Broker. A Transaction Broker carries out the deal on behalf of both parties but with  no fiduciary obligations to either side.

Florida, Kansas, Oklahoma also allow Transaction Brokers. Texas allows an agent to act as an intermediary between buyer and seller, not fully representing either, and Vermont allows Limited Agency, in which the agent represents both parties but with very narrow responsibilities to either.

In Maryland, one agent cannot represent both parties, but an agent can represent the seller while still collecting the commission reserved for the buyer’s agent, so long as he doesn’t provide the buyer any advice. In Maryland in particular, it is the seller who loses at the negotiating table in these situations, more than 2% on average of the total home value.

So all of these arrangements are not, regardless of what you call them, usually in the seller’s best interests. The official responsibilities of a transaction broker, neutral licensee, or limited agent differ from the original duties of an agent, but no one else performs the essential duty of the seller’s agent, which is to sell the house for the best possible terms.

For this analysis, we considered any transaction an example of dual agency if the Multiple Listing Service used by agents to record transactions listed the same agent as representing buyer and seller. In a separate analysis, we’ll take up designated agency, in which buyer and seller are represented by two different agents working at the same brokerage.

But Don’t You Also Save Money by Paying Only One Agent? Yep (But Not Enough)
But wait! Is dual agency all bad?

The advantage of one agent bringing together both sides is, of course, efficiency, since you avoid having to pay two agents. Some listing agents will collect the full commission normally due the buyer’s agent as well as their own listing commission, eliminating any efficiencies or savings.

But some will refund a portion of the fee offered to a buyer’s agent. A seller can save 1% or even 1.5% of the total value of the home in commissions; in an extreme case this is almost worth as much as the 1.6% a seller will on average give up at the negotiating table.

But if you’re the seller, the commission savings probably isn’t worth worrying about a conflict of interest with your agent. Even if you get a good price, you’ll need that agent’s advocacy beyond the initial negotiation: when the inspection turns up problems the buyer wants you to fix, or when you need an extra two weeks to move out.

If your agent also has a relationship with the buyer, and a stake in your working with that buyer over others, it becomes harder for the agent to function as an impartial guide to the deal best for you. It may be harder for you to feel like someone’s really watching out for you and you alone.

This is why almost no real estate agent would argue that dual agency or its equivalent is better for the home-seller; the only debate is about the extent to which it does or does not damage the seller.

Where Is Dual Agency Most Common?
What was most surprising to us was how often dual agency and its equivalent occurs. It isn’t just the occasional menage-a-trois: in Baltimore, the seller’s agent is listed as the buyer’s agent in 15% of all sales. In Queens, it’s 34%. Across the 22 counties we surveyed, it was 9%:

By contrast, among Redfin’s 10,000+ clients, dual agency or its equivalent has never happened. We also don’t allow dual agency among our partners.

How to Have Your Cake and Eat It Too
So what does this mean for you as a seller who isn’t using Redfin? Should you turn away a buyer, just because your agent also wants to represent him? Of course not, especially in an age when less than half of all listings sell.

If your agent meets a buyer, he can refer the buyer to another agent or — if you want to avoid paying two commissions – a lawyer, so that both sides have an advocate.

No agent would put a sale in jeopardy by refusing to refer the buyer to someone who can represent his interests. No buyer will hesitate to buy a house simply because the buyer has to get his own agent or attorney.

An even simpler solution is to head this issue off at the pass; the language allowing dual agency is optional in most listing agreements, so your agent can easily use a form that precludes dual agency.

You can also raise the issue in a listing consultation, asking how the agent will handle a situation in which he himself meets a buyer. In my experience, the best agents at traditional brokerages dislike dual agency, though attitudes also vary by market.

Regardless of the prevailing attitude among agents, at a time when 100,000 people will soon be signing listing agreements, one of the simplest ways to ensure you get the best terms is to ask that your agent is committed exclusively to you.

A Series on Data-Driven Best Practices for Home-Sellers

This essay is part of a series that takes a scientific approach to selling homes for more money, faster, with less risk. As listing agents ourselves, we use what we learn to help our clients make better decisions. We also share that with other agents and consumers.

Recently we’ve discussed what season to list your home (surprisingly, winter), which day of the week it should debut (Friday), and whether professional photography is worth it (absolutely).

This has turned out to be very handy information: the vast majority of listings come to market too late, in spring and summer; only 19% debut on a Friday; only 15% feature professional photography.

If there are other analyses you’d like to see us undertake, leave a request below and we’ll dig into it soon.

[Note: This post was updated to reflect a correction in our calculation of what percentage of sales were dual-agency in each market. The sale to list ratios were unaffected.]

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.

Should I Wait Until Spring to List My Home?

Sometimes we start a market analysis project looking for one thing and end up discovering something else entirely. Recently we decided to dig into the data to see if it supported our feeling that winter is the best time to buy, and the worst time to sell. However, when we got the results we discovered that our assumptions were dead wrong.

As we roll through the holidays and into winter, many would-be sellers will be holding off on listing their home, waiting for the spring “selling season” to put their home on the market. But if you’re ready to sell your home now, is waiting until spring the best strategy? Not according to the data, it isn’t.

We pulled a year’s worth of data on three quarters of a million homes listed across the country and analyzed sales statistics by season. Here’s what we found:

• Homes listed in winter sell faster: 46 days in winter vs. 55 days in summer
• Homes listed in winter are more likely to sell: 59.2% sell in winter vs. 53.1% sell in summer
• Homes listed in winter sell closest to their original price: a 2.7% drop from the final price in winter vs. a 5.2% drop from the final price in summer, worth more than $7,000 on a $300,000 home

Yup, you read that right: Overall, homes listed in winter sell best. 5.8% more homes listed in winter eventually sell (compared to the overall percentage of homes listed throughout the year), and they sell 1.4 percentage points closer to their original list price than the median—that’s $4,900 on a $350,000 home.

Spring wins in one category: Speed. Homes listed in spring sell the fastest, sitting on the market for 15% less time than the median. Winter comes in second in this category though, at six percent below the median, while homes listed in summer and fall both sell slower than the median (12% and 16%, respectively).

Apparently not many sellers are on to this pattern, because winter has twenty percent fewer listings added than the spring.

Of course, not all markets are alike, especially when it comes to the weather. In addition to the national roundup, we also pulled this data for most of the cities Redfin serves: Washington DC, Boston, Queens, Atlanta, Chicago, Austin, Phoenix, Las Vegas, San Diego, Los Angeles, Irvine, San Francisco, Sacramento, Portland, and Seattle. Click your city on the list to see the breakdown there.

Keep in mind that we’re measuring correlation here, not causation. Listing in the winter won’t guarantee that your home sells faster, for more money, or that it will sell at all. That said, the data does seem to indicate that winter gets a bad rap for no good reason.

Why do you think most sellers are afraid to list their homes in winter? Should they be? Let’s hear your opinion!

What day of the week should I list my home?

With home sales in the gutter, anyone thinking of selling a home today can use all the help they can get, starting with what day of the week to debut.

Serious sellers know that it is important to make repairs, stage well, and showcase their home online with professional photos, but there isn’t a consensus about which day of the week you should list your home for the best results. This is evidenced by the fact that new listings on the market are spread pretty evenly between Monday and Friday, with each day getting between seventeen and nineteen percent of the total share of listings (Saturday and Sunday are much lower at five to seven percent).

Since you only get one chance to make a first impression with your listing, we decided to dig into our data to find out whether putting your home on the market on a certain day of the week is correlated with sales success. We pulled the data on over a million listings spread throughout the nation over the last twenty-one months, and here’s what we found:

• Homes listed on Sunday get marginally more online views.
• Homes listed on Friday are toured 19% more.
• Homes listed on Friday or Thursday sell for slightly closer to original list price.
• Homes listed on Friday are 12% more likely to sell in 90 days.

The difference in views and sale-to-list ratios were not very dramatic across the week, but in the tours and sales categories, Friday was the clear winner. For the most tours and the best chance of selling your home, list it on a Friday. If you are the kind of seller that is more interested in online views than actually selling your home for a good price, listing on Sunday is a great plan. But since we’re pretty sure that kind of seller doesn’t exist, we’re confident in recommending Friday as the seller’s best day to list their home.

So why would Friday be such a great day to put your home on the market? Our theory is that since home buyers tend to tour homes on the weekends (Saturday and Sunday have 2.5x as many tours per day than Monday to Friday), homes listed on Fridays are the freshest in buyers’ minds when they’re making their weekend plans. It also seems likely that many home buyers sort their weekend “must see” lists by date listed, going to see the freshest homes first so they have the best chance of getting in on a potential good deal before other buyers. These factors put homes listed on Friday in front of more touring buyers on the weekend (which our touring data bears out). More tours leads to more offers, and more offers leads to a better price and a better chance of selling.

That’s our theory, now let’s hear yours! Also, for your viewing enjoyment, we have compiled our findings into the convenient chart form below. Note that while the sales data is based on all listings, the data on views is based only on views at Redfin.com, and the touring data is based only on homes that our agents took our customers out to see.

Which Areas Will Be Most Affected by Lending Policy Changes?

Over the weekend, the U.S. stopped guaranteeing big loans in expensive cities, and ever since the folks in real estate have been holding our breaths to see the market’s reaction. Now Redfin has released new data showing which areas are most vulnerable to the policy change.

First, some background. The reason the government began backing bigger loans in 2008 was because the banks were too jittery to fund jumbo loans on their own. Today, the banks are still jittery about jumbos, but the government is intent on letting the market take its course all the same.

In LA, San Francisco, Washington DC and New York, the government will now only guarantee loans borrowing less than $625,000, whereas on Friday the the limit was $729,750. This means that if you’re borrowing more than $625,000 in those areas today, you’ll now have to pay higher interest rates, and you may not be able to qualify for a loan at all. This could lead to fewer sales.

Projections have differed sharply. Last Monday, the head of the California Association of Realtors was apoplectic: “This is just going to kill us,” Beth L. Peerce told the LA Times’s Alejandro Lazo. But the Federal Reserve estimated that only 3.4% of the loans backed by the government last year would have been affected by the lower loan limit. The Wall Street Journal article citing this data was the most-emailed real estate news for three days straight.

So who’s right, the government or the Realtor association? It depends not just on whom you ask but where. For the areas we cover, Redfin Real Estate Scientist Tim Ellis analyzed sales activity over the last six months county by county and neighborhood by neighborhood to project which areas would be hit hardest. Let’s look first at the county data, so you can also see how loan limits changed:

As you can see, most of the U.S. won’t feel a thing at all, but a few counties will.

Where did these numbers come from? To calculate the percentage affected, we looked at closed sales where the loan would have been below the older, higher limit, but was still above the new, lower limit.

And since government-guaranteed loans require a 20% down-payment, the affected home-prices are actually higher: where you can now borrow $625,500 with a 20% down-payment, you can buy a home worth $781,850. Where the upper limit used to be a $729,750 loan, this allowed you to buy a $912,188 home.

To project how many LA or DC homes are likely to sell for more than $781,850 but less than $912,188, we looked at sales that closed between April 1 – September 30—not currently active listings—just because active listings don’t always sell for their asking price.

There is a gap in this analysis, because loans directly ensured by the FHA don’t require a 20% down-payment, thus expanding the range of homes for which demand will be affected. But we focused on conventional government-backed loans to get a simple, conservative answer.

In order to better visualize how the effect varies by location, we created zip code heat maps of each of the above-listed regions. Here’s the Bay Area, which looks like it will be hardest hit by this change. Click on any zip code to see the breakdown. Red represents 20% or more affected, Orange for 10% to <20%, Yellow for 5% to <10%, and Blue for <5%.

Here are links to the full collection of heat maps (or just zoom out and drag the above map to your area):

• Bay Area
• Washington DC
• San Diego
• Boston
• Seattle
• Los Angeles
• Queens, NY
• Sacramento
• Baltimore
• Portland

Finally, let’s break this down in list form by neighborhood and by city.

San Francisco
Within the hardest-hit county of San Francisco, we can see that the area where I used to live, the Castro and Mission Dolores, is the likely to be most affected:

• Castro: 24.2%
• Bernal Heights: 23.2%
• Mission Dolores: 19.0%
• Russian Hill: 18.6%
• Central Sunset: 18.4%
• Miraloma Park: 17.9%
• Noe Valley: 16.8%
• Potrero Hill: 15.9%
• Sunset District: 15.8%
• Marina District: 15.2%
• Twin Peaks West: 14.8%
• Richmond District: 12.0%
• Mission Bay: 11.9%
• South Beach: 11.4%
• Potrero: 11.3%
• Parkside: 10.9%
• Mission: 10.8%

San Mateo County, Northern California
Traveling south to the second hardest-hit county, San Mateo, we project that the damage will be concentrated mid-Peninsula and north:

• Belmont: 23.7%
• San Carlos: 21.1%
• Millbrae: 19.7%
• Foster City: 15.7%
• San Mateo: 10.0%
• Burlingame: 9.9%
• Redwood City: 9.0%
• Menlo Park: 8.1%
• Half Moon Bay: 6.7%

San Mateo County, Northern California
Rounding out the Bay Area in Santa Clara County, the most-affected areas are all south of downtown San Jose:

• Almaden Valley: 21.7%
• Willow Glen: 16.6%
• West San Jose: 12.8%
• Silver Creek: 11.3%

Fairfax City & County, Northern Virginia
Outside of DC, the closer you get to the Potomac River, the greater the effect:

• Wolf Trap: 20.7%
• Great Falls: 17.2%
• McLean: 15.4%
• Mantua: 14.1%
• Tysons Corner: 11.5%
• Dunn Loring: 10.3%

Arlington County, Northern Virginia
In tiny Arlington County, the most affected areas were all within Arlington, not Alexandria, so we look at the data by neighborhood:

• North Rosslyn: 18.3%
• Courthouse: 15.6%
• Rosslyn: 14.9%
• Lee Heights: 14.1%
• Radnor / Fort Myer Heights: 9.3%

Washington DC
And in Washington DC, the damage is scattered throughout town:

• American University Park / Friendship Heights / Tenleytown: 34.0%
• Southeast Chevy Chase: 30.0%
• Capitol Hill: 13.9%
• Massachusetts Avenue Heights: 13.0%
• Mount Pleasant: 12.2%
• Capitol Hill/Lincoln Park: 12.1%
• Glover Park: 11.7%
• Van Ness/Forest Hills/Wakefield: 11.4%
• Howard University/Le Droit Park: 10.2%
• Glover Park/Cathedral Heights/McLean Gardens: 10.1%
• Foxhall/Palisades/Spring Valley/Wesley Heights: 10.1%
• Stanton Park: 9.2%
• U Street Corridor: 8.5%
• Cardozo/Shaw: 7.9%
• Northwest 7.8%
• Georgetown: 7.3%

San Diego County, Southern California
In San Diego, the most-affected cities are mostly along the beach north of the city:

• Solana Beach: 27.6%
• Carlsbad: 16.9%
• Encinitas: 14.5%
• Coronado: 13.9%
• Poway: 9.3%

Orange County, Southern California
In Orange County, the damage is mostly off the coast:

• Laguna Beach: 15.1%
• Yorba Linda: 13.3%
• Ladera Ranch: 12.6%
• North Tustin & Tustin Foothills: 12.2%
• Rossmoor: 11.5%
• San Clemente: 10.1%

LA County, Southern California
In Los Angeles, the affected areas are all over the map:

• La Canada Flintridge: 17.8%
• El Segundo: 16.1%
• Sierra Madre: 14.9%
• Calabasas: 14.7%
• Westlake Village: 14.5%
• Manhattan Beach: 14.2%
• Rancho Palos Verdes: 13.3%
• Arcadia: 13.3%
• West Hollywood: 13.3%
• Rolling Hills Estates: 12.8%
• Palos Verdes Estates: 12.4%
• Redondo Beach: 12.1%
• Hermosa Beach: 12.0%
• Beverly Hills: 11.4%
• East San Gabriel: 11.1%
• La Crescenta-Montrose: 10.9%
• Santa Monica: 9.6%
• South Pasadena: 9.3%

Suffolk County, Boston Area
In Suffolk County, the hardest-hit areas are all in Boston:

• Bunker Hill/Thompson Square: 12.5%
• Charlestown: 9.8%
• City Point: 9.0%
• South End: 8.8%
• West Roxbury: 8.7%
• Downtown: 8.1%
• North End/Waterfront: 7.8%
• Central: 6.9%
• Brook Farm/Veterans of Foreign Wars Parkway: 6.8%
• Upper Washington: 6.7%
• West Broadway/D Street: 6.6%
• Jamaica Hills: 6.3%

King County, Seattle Area
And finally in King County, the areas most likely to be affected are on the Eastside:

• Sammamish: 16.4%
• Mercer Island: 11.3%
• Newcastle: 10.8%
• Redmond: 8.5%
• Bellevue: 8.2%
• Vashon: 7.9%

Within Seattle, the side of Queen Anne facing Lake Union (11.0%) will be hit hard too.

Over the next few weeks, Redfin will track whether closed sales are declining in these areas, so we’ll keep you updated on how the projections compare with reality.

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.

Buying from a Bank? Get Ready to Play Hardball.

If you’ve been shopping for a home lately, you’ve probably encountered more than a few listings that are either bank-owned (REO) or short sales. In some of Redfin’s markets (Las Vegas, Phoenix, and San Diego) distressed sales make up more than half of what’s selling these days:

With prices that are often considerably lower than non-distressed homes, this plentiful distressed inventory can certainly seem attractive to homebuyers looking for a deal in today’s market.

Of course, we’re never satisfied just to bring you flashy top-ten lists (or top-sixteen lists, as the case may be), so we wanted to dig a little deeper into the data. What kinds of things could we learn about distressed sales that would really help a buyer who is thinking of making an offer on one? As it turns out, the data was happy to talk to us on that subject, providing us with some juicy insights to share with you.

To generate the chart below, we dug into our database to analyze nearly half a million sales that closed between the beginning of 2010 and the end of Q1 2011. The two bars for each market represent the average sale to list price ratio for distressed sales to the average ratio for non-distressed sales. A 100% ratio means that on average, that type of home is selling at exactly its list price. Below 100% means buyers are negotiating discounts, and above 100% means that the sellers are typically getting more than their asking price.

In every single market we looked at, REOs and short sales consistently sell for closer to their list price than the non-distressed homes. This held true across every price band, although the volume of distressed sales is certainly weighted toward the low end. Note that we are using the final list price in this analysis, not the original list price. It is also worth mentioning that we were originally only going to discuss REOs in this post, but the sale-to-list ratios for short sales were so similar that we decided to include them in our analysis as well.

Marcus Fleming, a Redfin Agent in Phoenix has seen this phenomenon first-hand. “Banks are very careful about getting a number of BPOs before listing a home,” explained Marcus. “When it goes on the market they are so confident the price is right that for the first 2 weeks they will accept nothing but offers at 100% of list price.” According to Marcus, even when the home has been on the market for months, banks won’t consider any offers for less than about 95% of list price.

As we were looking at the chart above, we wondered why some markets have a much larger difference between the distressed and non-distressed ratios. For example, in Austin they’re fairly close at 96.7% and 96.5%, while in Las Vegas they’re quite different, coming in at 99.6% and 96.3%. Why might that be?

In order to dig even deeper into the data, we created the scatter-plot below using the difference between the two ratios (i.e. the height of the red bar minus the height of the blue bar) as the Y-axis and the percentage of sales that are distressed (the numbers from the first chart) as the X-axis. The results tell an interesting story:

In general, the more distressed a market is, the bigger the difference between the two sale to list ratios. In other words, in a highly distressed market like San Diego, buyers are a lot less likely to get a bank to negotiate on price than they are in a less-distressed market like Denver. Admittedly, the correlation isn’t incredibly strong, but there is definitely a clear trend in that direction.

In some markets, banks are being especially aggressive with their listings, putting homes up for sale at well below the market value, leading to multiple bids and average sale prices that are higher than the list price. Across the entire data set we analyzed, distressed listings were more than twice as likely to sell for over list price than non-distressed listings (see a chart with the market-by-market breakdown here).

Anna Nevares, a Redfin agent in San Diego has definitely seen this at play in her market (where 41% of distressed sales are closing above list price). “Banks are pricing in line with the market, and sometimes even below in order to drive activity. Buyers are looking for a bargain and the banks know it. Their strategy is working,” said Anna. “Banks price their listings so well that buyers shouldn’t expect much of a discount, if any at all.” On the other hand, Anna points out that non-distressed sellers “typically list their homes with some degree of negotiability built in to the price. Many buyers won’t even look at an over-priced listing, so it doesn’t serve the seller well to price too high.”

So what does this mean for you if you’re thinking about trying to buy a distressed home? Here are our two takeaways:

• “Distressed” doesn’t mean “pushover.” Don’t expect to negotiate much of a discount from the bank. Even in Queens, where buyers of distressed homes are getting the biggest discounts, they’re only averaging 5% off the list price.
• The more distressed your market is, the better the banks are at pricing homes compared to their owner-occupied competition. If you’re seeing a lot of bank-owned homes for sale in your market, your chances of talking down the bank is going to be pretty slim.

The tide of foreclosures and short sales doesn’t look likely to recede soon, so if you’re thinking of jumping into the market, plan your offers accordingly!