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May 15, 2013

SF Sellers List Low & Look for Cash Offers

Most buyers in the current San Francisco market learn quickly that most sellers are pricing their homes lower than the price they’re seeking. This is a particularly common strategy in a seller’s market. Multiple buyers become interested and write offers. Sellers then have the upper hand when it comes to selecting the highest and best offer, which often translates into countering multiple buyers and having to negotiate little.

A look at all single-family home and condo sales in the time period from March 13-April 13, 2013 provides a clear window into the current market. Of the 218 single-family homes (median price: $965,000, 43 cash sales) and 264 condos (median price: $855,000, 61 cash sales) that sold, only a handful sold for less or at the asking price.

What this means for buyers is that it’s very important to know and be at peace with your maximum price point. Particularly in centrally located neighborhoods near public transportation, retail areas and freeways, competition is strong for what little inventory exists. A good rule of thumb is to consider properties priced at a lower number.

And yes, sellers will always prefer cash transactions to those involving a loan. This is because cash offers—accompanied by proof of funds—are much more of a sure thing than a loan. There are typically no appraisers involved, and there’s no underwriting team that can possibly torpedo the transaction. Cash offers also provide flexibility for a fast close, if that’s desired by the seller.

There’s not a conspiracy among sellers to “trick” buyers into thinking they can afford a property that will undoubtedly receive multiple offers. The reality is that sellers see success among homeowners listing low and selling higher, and they simply follow that strategy. (The real estate industry isn’t terribly imaginative, in case you haven’t noticed.)

If a seller decides to buck the trend and list at roughly the price he or she really wants for the house, there’s a likely chance that buyers will dismiss the property because they believe they’ll have to bid higher in order to get the property. So that condo that’s worth around $900,000? The seller who lists at $799,000 will do infinitely better than the one who chooses to go with $875,000.

For now, the list-low strategy pervades San Francisco real estate, and cash offers are popping up with surprising frequency. As the market fluctuates, this will probably change. But it’s important to know what to expect so you can refine your own house-hunting strategy.

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