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Softness in the San Francisco real estate market

by sfishome on September 26, 2008

Buyers have been telling me for months that the San Francisco real estate market is down, and so they want to underbid – not just the listing price – but the “fair market value”. However, in the San Francisco neighborhoods my Buyers are interested in, they have been wrong – most properties are selling at their asking price, and many are selling above their asking prices. A home in Cole Valley just went to a Buyer who bid more than I told my clients the home was worth. So the San Francisco market, at least in the nicer neighborhoods, is not down. Well, that is… until now…

It still remains to be seen, but the past 2 weeks of incredibly bad financial news – when the bailout, AIG, Lehman Brothers, etc – hit the airwaves, a lot of San Francisco Buyers paused. For one thing, Buyers don’t like being “told what to do” by Sellers… offer deadlines really irk Buyers, especially in markets that aren’t super-hot. And I know of two homes that set offer deadlines because there was a buzz about them with several buyers saying they wanted to write offers…. but once the offer deadline was announced, the Buyers froze, and did not write offers. My buyers got one of those two homes at well under the asking price, when just a week earlier they thought it would sell over the asking price. The other home is still on the market with their offer deadline having come and gone.

Now this is NOT a complete stop to the San Francisco market… in these past two weeks there have been some very competitive and active sales… like the Cole Valley home that sold for more than what my “CMA” (Comparative Market Analysis) told me it was worth. But that home did not set an offer deadline… and apparently 3 buyers all showed up at the same time with offers… thinking of course that they were bidding in a non-competitive environment that became competitive on chance timing.

In addition to the anecdotes above, I checked out “District 7”, San Francisco’s northern neighborhoods of Pacific Heights, Cow Hollow, Marina and Presidio Heights. So far there have been only 6 Condos sales with 1 to 3 bedrooms. This time last year there were 15. That’s a significant drop off, and I believe caused almost entirely by the word “bailout”.

So the big questions are… will this last? Is the market going to use this as an excuse to drop in a bigger broader way? Or is this temporary?

For now I only have anecdotes… one Buyer who will buy as soon as they find something they like… and we’re talking in the $1.4 million range. A few others who have been market skeptics for some time, who are now more emboldened in their beliefs. But they were so unlikely to buy to begin with, that not buying won’t impact anything. On the other hand I have 3 pretty well priced listing, but they are on the “lower end” (not low though – all are btwn $700k and $800k) and that seems to be where most of the skeptics are. In the $1.2 million and above range, most of these buyers have enough money to weather any storm… and lack of quality inventory is the primary thing that’s kept them from buying.

So if you are a San Francisco home owner thinking of Selling… make sure you prep your home to show it’s best (painting and staging), and if you’re in a highly sought after neighborhood, my guess is you will have PLENTY of Buyers ready to pounce… but DO NOT set an offer deadline.

Since I still have many more Buyer clients than Sellers, it’s simple supply and demand. If demand far out stips supply, the market can’t drop far before those Buyers jump in and lift it right back up.

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