Underpriced homes are driving Bay Area bidding wars. Is Sacramento seeing the same?

Sacramento’s supercharged housing market – characterized by outsized demand on one side and a scarcity of supply on the other – has led to a dynamic where, in some ZIP codes, buyers are paying on average 3% or 4% above the listing price for a home, according to data from Redfin.

The data, which reflects averages from the month of August, showed averages on the high end at 7.58%. Twenty-nine local ZIP codes posted averages above 4%, according to the Redfin data.

Bay Area homes on average are also selling well over list price, though percentages there are often in the double-digits. Those percentages are driven — at least in part — by sellers who purposely price homes below their market value to drive bidding wars that often result in bloated final sale prices, according to reporting from The New York Times.

The numbers in Sacramento aren’t quite as startling as those in places like Berkeley or Oakland. But given the region’s proximity to the Bay Area and the competitiveness of the housing market in recent months, The Sacramento Bee looked into whether some of that market’s extravagance may be leaking over to Sacramento. So, what do local real estate experts think — is a widespread underpricing strategy impacting the Sacramento market?

The short answer: not really.

Signs of slowing, but market remains competitive

Erin Stumpf, a broker associate at Coldwell Banker and the president-elect of the Sacramento Association of Realtors, brought up the crafty underpricing strategy herself in an interview with The Bee, warning that it might be contributing to elevated statistics. But when asked, Stumpf and other local Sacramento real estate experts said that the practice occurs mostly in isolated incidents.

“We do see that in this market,” Stumpf said, but, “I don’t think it’s quite as prevalent as some people may think.”

In the Bay Area, Stumpf said, pricing a house can be an arbitrary exercise because the market is so imbalanced. While in some cases an underpricing strategy is used on a hot property in Sacramento, those cases are the exception that prove the rule: even in one of the most competitive housing markets Sacramento has ever seen, it’s still nothing compared to the aberration that is the Bay Area market.

“I don’t think agents are savvy enough to do it all over Sacramento as a collective,” Tim Collom, another Sacramento realtor, said.

Ryan Lundquist, a Sacramento appraiser and housing market analyst, said that the Sacramento market is actually now starting to see signs of normalcy. Some seasonal slowing is taking place, he said, though the market has definitely not returned to it’s calmer, pre-pandemic state.

According to Lundquist’s evaluation of Metrolist housing data, 35% of homes in the Sacramento region in August sold for at least 5% over list price. But one third of homes still sold at or below list price. Compare that to June, when Lundquist’s analysis shows more than 48% of homes sold for at least 5% over list price while around 24% sold at or below list price.

Navigating the real estate market

So how should buyers and sellers navigate the Sacramento housing market right now? Here’s what the experts had to say.

Gather as much information as possible

To ensure you aren’t falling prey to an underpricing strategy, make sure you understand what the market value of a house really is by looking at sites like Zillow. You should also try to find out how many offers have been made on a house to determine whether a bidding war might ensue, according to Collom.

“There’s kind of a general rule of thumb, you go five to $10,000 over the asking price for every single offer,” Collom said.

Avoid getting caught up in the headlines

Lundquist and Stumpf both recommended keeping your head down a little bit — it’s not useful to make decisions based on old information, and predicting the future is a boondoggle, too.

“Figure out what makes sense for you and do that,” Stumpf said. “There’s certainly ways that you can make informed decisions to optimize certain timing of things that we typically see in our typical, seasonal cycles here, but I wouldn’t get hung up on that. I would just try to find the property that works best for you.”

Sellers need to set a price for the market that actually exists, not the market that drew eye-popping headlines in months past about all cash buyers swooping in to purchase a home for tens of thousands over list price, Lundquist added. Don’t aim for unicorns, he said.

This story was originally published September 22, 2021 at 11:26 AM.