May 1, 2008
What Happens When Expectations Don’t Match The Market?
A plugged-in reader writes to vent:
I’m selling a Loft [in the Mission]. We just dropped our price 20K and got an offer over the weekend for 89K UNDER our new lower offering price. Are you kidding me?! Is this really what people are thinking they can get away with? Now I guess I’m lucky – because this apartment doesn’t HAVE to sell, I just WANT to sell it. So I told the people that made the offer to – well, you can guess what I told them.
Personally, I am shocked that it hasn’t sold for asking. It’s a fun, happening area, and that’s the kind of apartment it is – I guess people don’t buy fun when the market is like this. *Sigh*
As far as we’re concerned, it’s an anecdote about managing expectations of buyers and sellers alike. (And to be honest, the “Motivated Seller!” language in the listing might not be helping with either.)
UPDATE (5/2): And the offering party weighs in with his perspective.
First Published: May 1, 2008 11:00 AM
Comments from "Plugged In" Readers
Well, I think this seller and many others better begin to get out of what I expect is a strong sense of Denial and back to reality.
Given the ongoing number of foreclosures, the continued tightening of lending we will see even in SF I dare to say, increased # of have to sell and buyers being those with the smarts to have cash and good financial management. Those of us in that camp realize even in SF real estate, the fundamentals (meaning income to price of properties) always matter in the long run.
I think SF is about 1 year behind perhaps 1.5 years behind the OC and San Diego and I will say this -- 20% price drops are just the beginning down here even in communities that are next to the beach.
Posted by: Cal Housing Bear at May 1, 2008 11:20 AM
It surprises me that your attitude is around 'getting away with something' - I always thought the concept of negotiation was the buyer comes in low and you come in high. Somewhere in the middle you meet or part ways.
We just bid 125k under for a house, got countered, offered another 25k and got it. This market has changed and that heady days of over asking are not longer the norm.
Posted by: JB at May 1, 2008 11:25 AM
An axiom worth remembering:
A property's worth is what somebody is willing to pay.
Posted by: sfmom at May 1, 2008 11:26 AM
Sellers offer what they think something is worth and buyers counter. That's called a marketplace and its the most efficient model for determining true value. Maybe your expectations are too high and this buyer's too low. You can be frustrated, but, only that you overpaid or your "investment" didn't pan out the way you'd hoped. In the end, the market determines what the place is worth, not the seller who's emotionally and financially invested in the outcome. The bottom line is, unlike other investments, you get the benefit of living in it while you wait to sell. If you know it's worth more, then hold on and wait for the market to agree with you. Enjoy all that fun you're having.
Posted by: buyersremorse at May 1, 2008 11:28 AM
"Personally, I am shocked that it hasn’t sold for asking."
Shocked! Shocked I tell you!
In fact, I thought this post might have been someone being facetious. Or provocative.
In other cities and in other times it's been customary to offer between 10-20% below asking price and negotiate from there. What I find shocking is the sense of entitlement that many SF sellers seem to have. Sigh. The market will be what the market will be.
Before moving here I spent 6 years in Paris, 5 in NYC and 10 in Boston. I know the prevailing thought is that SF is special, but believe me its the San Franciscans themselves that are special.
[Editor’s Note: Not facetious or fictional (but perhaps provocative).]
Posted by: andyc at May 1, 2008 11:32 AM
Do you hear that? It is the sound of the world's smallest violin playing a song of sympathy. Why do some people think bubble like appreciation is an entitlement??
Posted by: JR at May 1, 2008 11:33 AM
"Is this really what people are thinking they can get away with?"
That is probably the same thing the bidder thought when he saw your asking price.
Posted by: location at May 1, 2008 11:36 AM
So whats the listing? It'd be interesting to see how "shocking" the list price is :).
Posted by: sj at May 1, 2008 11:37 AM
I think a loft is the mission is worth about 20% [less] in 2009 than it was in 2005. so that's about what i would offer. this buyer may be wishing he had aken the offer in a couple of yrs
Posted by: Spencer at May 1, 2008 11:38 AM
It's funny how sellers were "okay" with bids $89K OVER asking, but now that an offer comes in $89K BELOW asking, it's shocking.
To me, it just illustrates the typical seller mindset that pricing only goes in one direction - UP. Too bad for them real estate still sells in a MARKET, with buyers and sellers negotiating to agree on a price. Sounds like this fool's wishing price is too high for the market.
Posted by: greater fool at May 1, 2008 11:58 AM
"(And the “Motivated Seller!” language in the listing might not be helping with either.)"
Nor is it apparently accurate. Don't put stuff in your listing that's not true, then you're less likely to be "shocked"
Posted by: Realist at May 1, 2008 12:04 PM
Is this even real?
What kind of fool writes into SS with this? Don't they realize they are just going to get picked apart by the bears? Were they looking for any advice even? Or just whining?
I'm a bit confused by this sellers motivation for disclosing this.
Posted by: Craig at May 1, 2008 12:07 PM
socketsite's getting desperate. Kicking off a "discussion" about the obvious.
Posted by: anon at May 1, 2008 12:07 PM
I disagree with the idea that (in other markets or times) "it's customary to offer between 10-20% below asking price..."
What's customary is to offer what you think the property is worth. Sometimes that's 10-20%, or even more, below asking price. Other times it's at or even above asking price. Value is often in the eye of the beholder, which is why buyers and sellers can't always agree on a price.
Granted, there are buyers or speculators out there who go around offering 20% under asking price and hoping they find someone who will bite. But I wouldn't say that's "customary." I've been around a while and have owned properties in a bunch of markets, and I've never seen one where a blanket statement like "it's customary to offer 10-20% below asking" could be made.
You have to evaluate each property on its merits and decide what you think it's worth -- both in the market, and to you. That's a point people miss sometimes -- sometimes a buyer is willing to "overpay" because a particular property has extra value to them, for their own reasons. Is that stupid? Not if there are other factors that weigh more heavily than the money.
What I HAVE seen are markets where there seems to be more expectation that there will be dickering... many buyers set their price a little high, sellers make their first offer a little low, and they usually come to some compromise in the middle. But some sellers seem to get offended at the inevitable lowball offers.
Personally, as a seller, I try never to be insulted by an offer. If I get an offer I'm unwilling to accept, even if it's really low, I'll counter it - sometimes at the listing price, if I genuinely feel that's what the property is worth. If I get a series of lowball offers from different buyers, though, I have to start questioning my beliefs about the property's value. But I try not to close the door on any potential buyer unless I decide they're just wasting my time.
The best advice I can give anyone - buyer or seller - is to try not to be emotional about this stuff. Don't get insulted by an over priced home or an under priced offer, just counter offer and see what happens.
The property I live in now is a good example. I felt it was way overpriced and I made an offer at what I thought it was worth. The seller was "insulted" and declined to counter.
Three months later, the seller's agent contacted mine and asked if I was still interested. The seller had come to the realization that my offered price was indeed the market value, and I ended up buying the property for exactly what I'd initially offered. But the seller lost three months worth of carrying costs by being unrealistic and getting insulted.
Posted by: Dave at May 1, 2008 12:17 PM
As a former huckster in Atlanta, this is how the market has always been there. It's called "negotiation." Sellers in SF have been spoiled long enough.
Posted by: Tweety at May 1, 2008 12:24 PM
i'm in escrow $100k lower than the asking price right now (like jb above, offered $125k under and signed it up on the counter).
the listing broker had boasted about expecting 'many offers' b/c of the floods of folks passing thru the open showings. so much so that i was not going to bid at all. come bid date late afternoon i receive a call from said listing broker informing me that NO bids came in. now we're talking!
this is a classic example of mismanaging expectations. fortunate for me; less so for the sellers.
moral of the story is buyer's now think they smell blood and are acting accordingly...
Posted by: paco at May 1, 2008 12:28 PM
Motivated seller, meet unmotivated buyer.
Posted by: Anonymous at May 1, 2008 12:39 PM
Can you give some details on the place you are in contract in at $100k under asking. Neighborhood, unit size, ballpark price and sq ft? Thanks!
Posted by: JJ at May 1, 2008 12:40 PM
Great, fun, happening location! Especially around Beretta..
Posted by: sf at May 1, 2008 12:50 PM
If the new asking price were really reasonable, before the drop, someone would probably have bid $20K under asking.
If you get no offers at all at your asking price, you are usually more than $20K over.
You can use the facts you have here to get a rough sense that people will offer at least 89K less if you can get close enough, so they probably would have offered 89K less at your original asking if the original asking price were within 89K of the market price. So your original price was at least 89K too high, or you would have gotten an offer.
I realize it isn't an exact science, and there is something to be said for moving down into a certain price range, but a 20K drop was almost certainly not going to garner a full price offer.
Posted by: tipster at May 1, 2008 12:58 PM
If the property in question is 88 Hoff Street #206, the last transaction price was $637.5K in July 2006.
The owner is basically asking the same price ($639k), but he may have to come down a bit in this market. Dave is absolutely correct in his advice not to be emotional and don't take any offer personally.
As for the comment of "getting away", this is just a bitter owner going through the 3 phases of accepting reality: ridicule it, question it, embracing it.
Posted by: asiagoSF at May 1, 2008 1:12 PM
Socketsite can do better than to post some griping moron's comments about trying to sell a crappy loft in a horrible market.
Let's get back to highlighting interesting properties, not the garbage selling in SOMA and the Mission.
Posted by: gh at May 1, 2008 1:15 PM
ashbury hgts, $500/sq ft based on tax record sq ftge ($325/sq ft on actual sq ftge).
i believe the tougher loan environment thwarted my usual competition. i'll probably be putting 50% down.
Posted by: paco at May 1, 2008 1:16 PM
You may consider the Mission to be a fun neighborhood, but many do not want to live there. Since you say you do not have to sell, you are fortunate that you can hold the property longer and see if the value goes up. But don't be surprised if a year from now, perspective buyers offer even less.
Posted by: Brian at May 1, 2008 1:17 PM
asiagoSF is correct - its 88 Hoff St. #206
We are basically asking for what we paid in 2005 for the place (so all of you thinking I was a price gouging unrealistic money grubber were pretty much wrong.) We put in new bamboo hardwood and 4K in assessment costs to improve the roofing on the building. The neighborhood is flush with new restaurants, and we are a block from BART. Its also the cheapest best located Loft on the Market right now.
I'm not bitter. I'm just not selling to someone unwilling to pay what the place costs. If it won't sell now, I'll keep it.
Posted by: secki007 at May 1, 2008 1:25 PM
I bet I know which one you got, Paco. Nice one. I just did a deal over there and everybody was super happy.
Posted by: fluj at May 1, 2008 1:27 PM
"I'm not bitter. I'm just not selling to someone unwilling to pay what the place costs. If it won't sell now, I'll keep it."
What you paid for it and its current value are completely unrelated, uncorrelated things. Do not think for a second that they are related. 6 months ago people paid $120 per share for Bear Stearns stock -- today they're getting $10.
Worth, value, market, bid, ask, mark, mid -- look up these definitions.
True worth is what someone is willing to pay, not what you're asking. You probably will end up keeping the place and doing OK if you can rent it out (and prop 98 passes). If you can't you're going to get crushed by inflation and opportunity cost.
Posted by: scurvy at May 1, 2008 1:45 PM
$500/sqft??? 325 actual??? Nice. Was it a SFH?
Posted by: Craig at May 1, 2008 1:46 PM
it surprised me too.
craig, it used to be an sfr and hopefully will be again someday...
Posted by: paco at May 1, 2008 1:52 PM
You probably will end up keeping the place and doing OK if you can rent it out (and prop 98 passes). If you can't you're going to get crushed by inflation and opportunity cost.
If they can afford to keep it, and like living there, and there's no reason to move, they're not going to get "crushed by inflation and opportunity cost." It is, after all, a place to live.
And I'm not sure how inflation comes into it. If there's inflation, they have a real asset. It would be more of a problem if there was deflation (which I don't see).
Posted by: anon at May 1, 2008 1:52 PM
I know the building, my business partner lived there until about a year ago or so. There is definitely a lot to do around there and its a pretty convenient area.
I might actually consider leaving out the proximity to the 16th Street Bart station as a selling point. Sure, being close to public transportation is generally awesome, but that corner is the largest open air black tar heroin market in the city.
Hey, that's the big city, and I personally love urban life. However, that corner is a little notorious....
Posted by: jasper2008 at May 1, 2008 1:53 PM
jasper2008 - yep. Its a lifestyle choice to be sure!
Posted by: secki007 at May 1, 2008 1:56 PM
anon is right. As a homeowner (or any debtor, really) you actually want inflation if you're at a fixed rate because it devalues your remaining obligations while your payments are fixed. This is why developing countries often try to inflate away their debt burdens.
The operative question being how the property is actually financed. This being San Francisco, it's statistically unlikely the mortgage is a 30-year fixed. And since they don't have to sell yet, not a 3/1, either. So I'm guessing 5/1 or 10/1. But maybe they paid cash and could care less. Not like it's any of our business anyway, although they did share their anecdote with the group...
Posted by: Dude at May 1, 2008 2:01 PM
Based on recent sales for the area, this is still priced a bit on the high side on a price per square foot basis. Sales have ranged from $450-700 per square foot with most being in the mid $500 range. Don't forget, although a lot of people like the "Valencia Corridor" (which is actually the edge of Inner Mission) not a lot want to actually live on top of it. Also, don't forget that as newer construction, you are directly competing with all the new construction around town. My guess is that it will go for around 620k, about $600 per square foot.
Posted by: Enthano at May 1, 2008 2:07 PM
Go to http://www.sfgov.org/crimemaps and do a search. Notice all the purple circles and orange triangles within a block of 88 Hoff?
Posted by: urban_angst at May 1, 2008 2:17 PM
Go to http://www.meganslaw.ca.gov and do a search. Notice all the blue squares within 1/10th of a mile of 88 Hoff?
Posted by: urban_angst at May 1, 2008 2:21 PM
I guess that was my earlier point.....in the last 90 days within a couple blocks there's been 346 Drug/Narcotic charges, 8 forcible sex offenses, 67 armed robberies and 142 Assaults including such hits as "ASSAULT ON A POLICE OFFICER WITH A DEADLY WEAPON" and many others.
That's 10 police official reports a day, average, within 1/2 mile of that corner. And since junkies and gang members tend to solve problems within themselves, you can bet there were actually quite a few more crimes than that.
But hey, you can get robbed in the Marina or Pacific Heights too. I think that overlooking numbers like this is somewhat harder in todays market though. Don't mean to pig-pile on the seller, I'd still live there....
Posted by: jasper2008 at May 1, 2008 2:22 PM
secki007 - The 20k price reduction is only 3% under list. The offer presented is 14% under although I would speculate that they figured you would counter. Given that property taxes are something around 1.14% of the purchase price, it's paramount to get that price down, from a buyer's perspective.
Then again, I think the offer is more than reasonable since I would consider living near 16th St Bart to be a huge negative, (see jasper2008's post) but that's just me.
But you were a buyer once, didn't you try to negotiate the best price you could when you bought? Why would you expect anyone else to do anything less?
It's just a business transaction.
Posted by: sfresident9 at May 1, 2008 2:35 PM
anon and dude, we're crashing on terms. I refer to "deflation" and "inflation" in the Austrian sense -- money supply and credit. I'm not using it in the new-fangled American way which is to refer to prices.
Right now we're getting deflationary in terms of credit. Look at M' and it's clear that banks are hoarding cash and not lending out -- nor are we printing money at any great rate to counteract this reduction in net credit.
To be honest, I'm not sure I'd classify real estate as a hard asset like timber, gold, oil, etc. I'm also not sure how things will unfold, but the smart money around the world isn't betting on *anything* right now -- they're just sitting tight in various forms of cash and cash equivalents.
Posted by: scurvy at May 1, 2008 2:58 PM
No one will even pay $600k for that loft. You bought at the top and that is unfortunate. Mission lofts are soft these days...
Posted by: dg at May 1, 2008 3:24 PM
@scurvy I believe condominiums are exempt from rent control anyways: http://www.sftu.org/rentcontrol.html
Posted by: sj at May 1, 2008 4:08 PM
Honestly for that location, if you can get $550K, you should take it. This is one of the most dangerous locations in the city and the loft is cookie cutter (no offense). The bidding price will be less than $500K by the 2nd half of 09. you are just past the peak of the largest home appreciation period in history. There's nowhere to go but down.
Posted by: Spencer at May 1, 2008 4:11 PM
I love hanging out in the mission, but this is just way too close to 16th and Mission to expect that much per square foot.
Yes, plenty of great bars and restaurants nearby, but there's a big difference between living on 16th and mission and living on 16th and guerrero. It's like night and day. Personally, no block makes me more uncomfortable to walk through at night than 16th and Mission, and I live down the street from Haight and Webster!
Good luck, but if you need to get out within the next two years, you may want to give that buyer a call back because there's only more competition coming online on much safer streets.
Posted by: noseeum at May 1, 2008 4:18 PM
Fluj, or any others currently with fingers on the market, I'd love to hear your take on this one. I would imagine this one is one type of property you would see some risk in holding in hopes of a near term (less than 2 years) market increase just due to what I and others have said, similar properties and location.
After all, my hot air is just conjecture.
Posted by: noseeum at May 1, 2008 4:23 PM
Date Price Appreciation
Nov 30, 1999 $318,500 --
Jun 17, 2004 $550,000 12.8%/yr
Jul 27, 2006 $637,500 7.3%/yr
There are previous sales in 11/99 and 6/2004. An apple in the making?
Posted by: chuckie at May 1, 2008 4:39 PM
I tried not to pile on. I really did....
"We are basically asking for what we paid in 2005 for the place (so all of you thinking I was a price gouging unrealistic money grubber were pretty much wrong.)"
Ahhhh..... the old adage - real estate never goes down in value. Stick with that. Let us know how it turns out for you.
Ever consider you paid too much for it?
Posted by: Treeman at May 1, 2008 4:41 PM
Yeah. Hoff is not going to be devoid of black tar heroin users any time in the near future. That's always gonna be problematic. The property had a terrific runup and it probably reached a plateau or by now worse.
That said it is a rather nice looking albeit typical unit and some people do love the Mission. I could see it selling for asking. I think it would probably sell pretty quickly for like 615-620K or so. Again, I've made the point many times on here but there is a lot condos out there for buyers to choose from these days. I would advise a client of mine to hold and that's just what the seller said he will do.
Posted by: fluj at May 1, 2008 4:54 PM
scurvy - i am not sure why you think the passage of prop 98 would impact the value at 88 hoff. surely you know that sf rent control doesn't apply to buildings like this that were built after 1978. unless, of course, you think that this owner would benefit if the state was unable to do public works (like water infrastructure) or if the city couldn't do zoning. or, perhaps, you suspect that this particular owner is a land use attorney who would get lots of extra business from all of the litigation that the proposition would inevitably generate.
Posted by: curtis at May 1, 2008 5:02 PM
"I would advise a client of mine to hold and that's just what the seller said he will do."
Thanks for stepping up to the plate one more time, fluj. The seller can hold, but he may not see the price he paid for many (5 to 10) years to come. Hopefully he loves living there. If not, my advice would be to take what he can get.
Posted by: chuckie at May 1, 2008 5:08 PM
BEST LOCATION??? HA! Unless you want to feel like you live in a dilapidated third world country.
Posted by: sf at May 1, 2008 6:26 PM
Posted by: Sunny Jim at May 1, 2008 6:29 PM
If market determines price, How can you say someone "overpaid" for a property they purchased in 2005? By definition (willing buyer and seller) that was the market price at that time. Is one market price right and another wrong?
If the market knows all and is the arbiter of "true value", how can Bear Stearns be worth $120 one day and $2 in the next few weeks? The truth is the market is NOT an accurate measure of value.
Markets, all markets, are driven by two emotions by GREED AND FEAR! Buy when it is near; sell when it is dear. When you understand this; you will make money.
Posted by: jimmythekid at May 1, 2008 6:43 PM
yo kid, jimmy the,
the market is a very good indicator when it is liquid and deep (like, say, the s&p futures market.)
the real estate market on the other hand is still marked by greed and fear; but it is neither liquid, nor deep. underpricing of scarce inventory creates the perfect storm whereby some bidders get carried away and pay far above the competition in an overbid situation.
i have been in this position before once as a seller. we received one offer so far above the others that we could not really counter the others for fear of losing that one outsized bid. that's one of the many benefits sellers realize when they play that underpricing strategy in a seller's market.
another more common situation in the past few years here in sf has been that first timers will buy crappy stuff so as to "get on the ladder". they buy small, dark, damp and in questionable nabes and that enabled many lesser fools (sellers of said product) to trade up. trade-uppers (sic) were willing to pay more than they thought properties were worth b/c they were selling crap for more than it was worth. the market was distorted by scarce inventory then. that's still the case for old victorians and edwardians in certain nabes; not so for newly built lofts and condos in other nabes.
i would contend that this scenario was foreseeable even if the extraordinary duration of it was not.
Posted by: paco at May 1, 2008 7:33 PM
Umm, you can say, "someone 'overpaid' for a property they purchased in 2005," because they did.
Markets are never "wrong"; but participants transacting within them can be.
In this case, 2005 Heroin-Central Condo buyer "overpaid" unless and until he can get his asking.
G'luck wit dat,
Posted by: Debtpocalypse at May 1, 2008 7:34 PM
you wrote "Markets are never "wrong"; but participants transacting within them can be."
i commend you for accuracy and brevity and wish i had written same.
Posted by: paco at May 1, 2008 7:46 PM
In this case, 2005 Heroin-Central Condo buyer "overpaid" unless and until he can get his asking.
Umm… Using your "logic" it would be equally true to say that unless and until he sells at a price less than his purchase. He has not overpaid.
Posted by: jimmythekid at May 1, 2008 8:01 PM
only if carrying costs of buying are in line with comparable rents and opportunity cost of sunk funds. still, it is logical what 'e stated..
Posted by: paco at May 1, 2008 8:49 PM
You guys crack me up.
"Markets are never "wrong"; but participants transacting within them can be."
"the market is a very good indicator when it is liquid and deep (like, say, the s&p futures market.)"
What does that mean? Was the run up in prices in real estate over the past several years "wrong"? Some would say yes. Was the internet stock bubble "wrong"? Would seem like it. There are numerous cases where markets can be argued to be "wrong". But if markets are never wrong, how can the participants in that market be wrong?
Was the S&P futures market "wrong" at the end of year 2000 before the tech stock crash? Was the sub prime market "wrong"?
The fact of the matter is that a "market" is made up of individuals and if there are enough "wrong" individuals that are driving the market, the market itself can also be "wrong".
Funny thing is people still talk about what a fair price is in today's terms. Hey in 2-3 years, it might be worth less or maybe more. We just don't know for sure. Some of us have a better idea than others, but there are no guarantees. If a major earthquake hit and destroyed the property was the homebuyer "wrong" and overpay?
Posted by: Scott at May 1, 2008 9:13 PM
You said it all my man. You said it all. What a bunch of gibberish!!
Posted by: jimmythekid at May 1, 2008 9:24 PM
You bought at the peak. Why do you think you'll get the same price now? Check out the chart of Cisco. What happened to you if you bought at $60/share?
Check out the chart of SF area home prices from 1989-1996. What happened if you bought in 1989?
You might get your ask. Then again, you probably won't.
Posted by: David at May 1, 2008 9:33 PM
Amazing how someone's whining and pouting about the offer they received inspired 60 responses in so little time.
Posted by: Dede_sf at May 1, 2008 9:38 PM
well said. as to the earthquake question, well that depends on whether your building stays intact, or not. if so i would think that demand for housing would far outstrip supply, to the favor of landlords.
"The fact of the matter is that a "market" is made up of individuals and if there are enough "wrong" individuals that are driving the market, the market itself can also be "wrong".
i don't think so. in extreme markets where mass pschology sets in the majority will be on the wrong side, paying too much for tulips or soma lofts, as it were. that does not make the market wrong. it means its better to be a seller than a buyer.
"Was the internet stock bubble "wrong"? Would seem like it. There are numerous cases where markets can be argued to be "wrong". But if markets are never wrong, how can the participants in that market be wrong?"
um, one seller can sell to many many buyers.
as to nasdaq 2000, there were inexpensive opportunities to short one of the greatest alltime bubbles; and its always the few who fleece the masses in extreme reversions from the mean.
in other words there are fewer winners than losers but the winners make out big time.
markets cannot be wrong; they can diverge from underlying fundamentals like a river overflowing its banks. just b/c lots of people lose does not mean that the market is wrong.
Posted by: paco at May 1, 2008 10:42 PM
I'm not even sure how to respond. I think I'll just leave this one alone its bordering on absurdity.
Posted by: Scooter at May 1, 2008 11:20 PM
Posted by: Rebarka at May 2, 2008 11:31 AM
paco, re: post quake real estate, you can use New Orleans and Katrina as an excellent model.
Immediately after people started moving back, the dry real estate was a hot commodity and rents for larger SFH shot through the roof. Some families wanted to move back and the wealthy could afford to pay high rents. My father rented his home to Shell Oil for $8k per month for a 4BD non-flooded house (pre-paid for 3 years, too).
Then time passed and the bottom fell out of the market as For Sale signs littered the streets (even in dry nabes). If some people wanted to move back, they didn't necessarily want their old place. Many people couldn't deal with it and just moved on elsewhere. The rental and RE market in NO has stabilized a little bit and is no longer falling but sales are very slow. A large part of this is insurance -- nobody can get homeowners insurance and you can't get a mortgage if nobody is writing policies in your area. It's that simple. The same thing will happen to SF if a large quake devastates a majority of the city. You think earthquake insurance is expensive now? Ha!
It will have nothing to do with people wanting to move back or not moving back. It will be pure economics (oh and don't expect any money from the Feds).
Posted by: scurvy at May 2, 2008 1:09 PM
Ok, so I’m the buyer in question (someone I’m acquainted with forwarded me a link to this discussion).
First, I’d like to say that I’m quite sympathetic to the seller. We considered not making an offer at all since they appear to have bought pretty much at the peak of the San Francisco housing market, we even told the seller’s realtor that we would consider dual agency to try and soften the blow (so they could hopefully reduce their commission). However you have to understand that we don’t want to find ourselves in the same situation as the current seller as prices continue to fall in San Francisco over the next couple of years.
The public records on this loft at Hoff say it has 954 square feet. A 2 bedroom, 2 full bath, top floor loft at 17th and Bryant with 1126 square feet just sold for $15,000 less than what the seller wants for this unit, and that is in a significantly safer part of the Mission.
We’re already concerned that in a year it will be worth substantially less than what we offered. I’m sorry if our offer offended anybody, we will just go look at other places – we’re not in a rush. If someone bought a few years before the peak it might be less painful to deal with today's prices.
Posted by: stephen at May 2, 2008 1:26 PM
Wow. What a thread! Maybe you guys can work out a deal right here and forget the realtors? Fluj, get this settled and they'll cut you 2% i'm sure! Good luck to both buyer and seller.
Posted by: noseem at May 2, 2008 2:01 PM
"A large part of this is insurance -- nobody can get homeowners insurance and you can't get a mortgage if nobody is writing policies in your area. It's that simple. The same thing will happen to SF if a large quake devastates a majority of the city. You think earthquake insurance is expensive now? Ha!"
its not really the same thing as floods are waaay more common than city flattening earthquakes. you are not required to purchase earthquake insurance to get a mortgage. you should be required to have flood insurance in new orleans though, and the lack of said insurance could well be the last nail in that coffin for the lowest lying sections of town.
conversely, there are plenty of banks willing to lend on properties in the marina despite the heavy risks there...
Posted by: paco at May 2, 2008 2:08 PM
good call noseem!
Posted by: paco at May 2, 2008 2:09 PM
paco, your statements are correct *now*. They will not be correct *after* a massive earthquake (Loma don't count). Even as we get closer to our 30 year countdown timer for the next massive quake, there is already talk out of the insurers/mortgagers that they want to require earthquake insurance in SF and surrounding areas. Seriously, the game will change on a scale incomprehensible to most.
Posted by: scurvy at May 2, 2008 2:23 PM
You should not apologize for making an offer below what the seller is asking. As everyone here has pointed out, the market determines the price and the seller needs to wake up to reality. I think you made a very generous offer, especially for that ares. Did you check out the thread on The Beacon? There's a reference to a space at the Glassworks for $564/sqft in South Beach. It's much larger but it does give an indication of current market conditions. It's hard to time the bottom but if you can wait a couple of months, I would. By then you may have the Hoff seller calling you.
Posted by: yoohoo at May 2, 2008 2:26 PM
you could be right but i'm not convinced. any links?
Posted by: paco at May 2, 2008 2:29 PM
Loma Prieta doesn't count? It was larger than the 1868 earthquake. If we're talking massive earthquakes R.E. will be the least of anyone's worries. Not sure where you got the 30 year countdown timer from. From Loma Prieta so 2019?
1838 to 1868 = 30 years
1868 to 1906 = 38 years
1906 to 1989 = 83 years
Posted by: fluj at May 2, 2008 2:37 PM
paco, no links sorry, just my observation of human behavior over time. When things are good, you don't need to worry about things like insurance, proof of income, the cash flow generation of a company, etc. When things go pear shaped, fear outweighs all and the game changes.
Insurance commissioner Steve Poizner has already started a working group on mandating EQ insurance in high probability areas. This is mainly to protect mortgage underwriters and banks from people walking away after a big quake (since a lot of new homeowner have zero to little equity). However, even he knows that this is going to be a sticky issue with the RE market currently where it is.
Posted by: scurvy at May 2, 2008 2:40 PM
I guess it's going to get really ugly. Just saw the Glassworks bank owned, these were pretty pricey and considered to be very desirable when built. So much for trying to sell my rental. Oh well, buckle up...
Posted by: view lover at May 2, 2008 3:13 PM
I don't think you should apologize, either. If the seller is not realistic and you did your due diligence then you did what you could. If they are not realistic about their listing price then they will just chase the market down. It is a business deal, and you will find the home you want at a price you're comfortable with.
Posted by: San Mateo Home Sellers in Trouble at May 2, 2008 3:15 PM
Seller, if you are not in a rush and think the price is what the market will bear, then wait for a better offer. I had a buyer make a very solid offer (40% cash) on my place but for 8% below asking. I said "N F W" and a month had a buyer at full asking.
Posted by: anon at May 2, 2008 3:18 PM
If you dont want to sell and you dont have to them you shouldnt. I dont think you should be bitter about getting a low ball offer, because you would be doing the exact same thing. no one wants to get stuck holding the bag.
The market has to find its level. It looks like were getting into a market where the bid is below the ask. The market will eventually make itself when all sellers cant just hold back, or the economy comes back. which do you think first??
I say the market in SF has to drop 10% across the board -- unless its some thing completely unique and scarce.
when that happens i would be a seller and a buyer.
Posted by: Louis at May 2, 2008 3:42 PM
Come on Seller. This is not a personal thing, this is business.
Posted by: pennybags at May 2, 2008 3:51 PM
fluj, The 30 yr countdown is clearly a reference to the "99% probability of a major earthquake in CA in the next 30 years" that was all over the news a few weeks ago. See, for example:
With respect to your dates...you know they're not even all on the same fault (San Andreas, Hayward, San Andreas, San Andreas), right?
Regardless, the 1868 quake had an epicenter right outside Hayward (destroyed almost every building in the city, and also caused significant damage in San Leandro and Fremont). The Loma Prieta quake had an epicenter in a remote part of the Santa Cruz Mountains. So yes, the 1868 quake was slightly less intense at the epicenter (6.8-7.0 vs. 7.1), but it would be disingenuous to claim that is was a "larger" quake from the Bay Area's perspective. Heck, by that argument the 1964 Anchorage quake was a "larger" quake for us!
Posted by: gmh at May 2, 2008 5:50 PM
Why would anyone ever get insulted or offended by a low offer from someone who's not a personal acquaintance or friend? I would expect an anonymous buyer to seek the best deal, not to be charitable to me out of exceptional friendliness to a stranger. If it's ridiculously low and reflects a lack of understanding of comparable price, then a simple "no thanks" will end the transaction. All of these N F W or no way in he** type responses simply reveal an emotional tendency that doesn't ultimately have anything to do with completing a transaction.
In a negotiation, a buyer with a low offer is saying, "this is what I will pay right now." The seller can (a) reject, or (b) counter, or (c) accept.
Stephen, you make a persuasive argument for why you offered what you did, particularly in listing a specific comp that was more attractively priced.
Is there anyone out there who is willing to say that the buyer here acted inappropriately somehow?
Posted by: anon at May 2, 2008 7:23 PM
actually, the buyer acted appropriately. He did his homework and knew the comparable market at the current moment and based his offer on that intelligence rather than hype, or so it appears.
Posted by: viewlover at May 2, 2008 8:13 PM
Yeah I know they aren't the same faults and I know that the 1868 quake was technically smaller but caused more damage. I just didn't know about the "30 Year" thing. If I saw it on the news, I forgot. One of my best friends works at the USGS. He actually maps earthquakes and recently conducted a pretty big seminar about the 1868 quake. I have talked extensively about earthquake probability with an authority on the subject and I never heard anything about any 30 year rule.
Posted by: fluj at May 2, 2008 10:00 PM
we even told the seller’s realtor that we would consider dual agency to try and soften the blow (so they could hopefully reduce their commission).
Soften... the... blow...? Reduce the commission?! Folks, the reason to use dual agency is to get the agent to work for you and give the seller a swift kick in the pants. You will get more in seller concessions by fully incentivizing the agent than by trying to convince the agent to accept a "reduced commission".
Posted by: EBGuy at May 3, 2008 12:41 AM
EBGuy, I think you may have misunderstood the buyer's goal here. The seller's agent charges 5%, then pays 2.5% to the buyer's agent upon completion of the deal, right? The buyer here apparently did not have a buyer's agent. So by letting the seller's agent represent the buyer and seller in dual agency, the seller's agent doesn't have to pay 2.5% to a separate buyer's agent.
The seller's agent can then charge a 2.5% commission to the seller and is no worse off than if he had charged 5% and given 2.5% to another agent.
Or, the seller's agent can charge 3.5%, and then both seller and seller's agent are better off.
I've seen both happen before. If a seller's agent is no worse off and it gets the deal done, it's a win win for everyone except for the buyer's agent that the buyer didn't have to hire.
Posted by: jared at May 3, 2008 8:30 AM
i just utilized this strategy myself. you make what's called a 'net bid' which means you do not expect any commission paid by seller. it has the effect of making your bid 2-3% higher to the seller than it would be, it lower's the seller's capital gains (if any) and reduces the seller's transfer tax. plus you close at a lower price and capture that basis for your future property taxes.
in fact its a boon to buyer and seller and the only losers are the taxing authorities and the realtors. how's that for a prescription
for what irks the common socket siter?
Posted by: paco at May 3, 2008 9:01 AM
Okay, well, next time try Google! When I search for "30 year earthquake" it's the *first* link that comes up (UCERF page dated Apr 15).
Posted by: gmh at May 3, 2008 9:04 AM
Markets tend to fluctuate.
Posted by: paulj at May 3, 2008 11:26 AM
"A plugged-in reader writes to vent:"
(In my best Indigo Montoya accent: 'I do not think "plugged-in" means what you think it means...'
Posted by: John Swapceinski at May 3, 2008 6:03 PM
As a San Francisco Real Estate Broker, I can tell you that the reason SF Real Estate prices are holding is because very few owners are as desperate to sell as the rest of the bay area, and can hold out till the market turns. Lets face it, to own here, you have to be in the top 5-10% of US wage earners, and probably still had to borrow your first downpayment to get into this market. It is my opinion that SF Real Estate prices have declined by 20-30% just like everywhere else. There are just no statistics to prove it. I'm sorry to say this but the person who made the initial posting here will never sell his property at the price he wants for a very long time.
Posted by: Michael Thomas at May 8, 2008 6:31 PM
UPDATE for anyone still reading this: the seller of 88 Hoff Street has now lowered the price to $599,950.
So it started at 659k then went down to 639k and now it's down a lot more. He'll probably unload this for around 575k when it's all said and done. Amazing.
Posted by: interesting at May 15, 2008 5:08 PM
"It is my opinion that SF Real Estate prices have declined by 20-30% just like everywhere else. There are just no statistics to prove it"
Brilliant insight from a RE Broker. Bravo Mr. Thomas. I love it when RE agents and brokers post on here. LOL
Yep, just saw the drop to 599k today as well. Wake up, people.
Posted by: dg at May 17, 2008 1:47 PM
Not to toot my own horn (okay, just a little) but I said under $600k for this.
Just sold for $580k on 7/2/08.
Not quite that $615-620k eh there Fluj? :)
Posted by: dg at July 29, 2008 12:46 AM
"Not quite that $615-620k eh there Fluj? :)"
Nope, guess not. Sigh. I lose in the blogs on these, and ironically conversely lose in real life.
Clients of mine wrote an 11% under bid on a Russian Hill TIC that had been on the market for months. I figured, nothing ventured nothing gained. We'd at least get countered. At the last moment a realtor from the same brokerage as the listing agent came through with a bid @ asking and they didn't want to counter us because they were "insulted."
So the moral of the story here is, this. Take it all with a grain of salt. Each property is different. Hoff street has its share of challenges. But I will concede that I was off on my free estimate. (Would I have tried to game it for a client, tho? Yeah. I would have.)
Posted by: fluj at July 29, 2008 7:06 AM
I agree Fluj. Just having a little fun with you. ;)
Posted by: dg at July 30, 2008 12:19 AM