Hot Market or Hot Property?
August 31, 2010 by Tom Schieber
Filed under Blog, Featured Posts, Market Update
So, I read a facebook posting the other day from a local realtor. Something to the effect of “The market is HOT! Just sold my Discovery Bay listing with multiple offers!” Statements like this are very common in real estate, and can be misleading. We are in a classic “dalmatian” market. It is hot in spots, and kind of sluggish in others. Some price ranges and neighborhoods (Deer Ridge, around $350k) are seeing strong demand, while other segments of the market (3bed/2bath around $250K) are struggling. It is inaccurate to make broad statements about the market, good or bad, based on one sale. One sale does not a market make.
One way to look at the market is to segment it. I find it useful to think of the market in terms of A list, B list, and C list properties.
“A list” properties are the crem de la crem; The properties that are in excellent condition, superior locations, with superior amenities and appeal. “C list” properties are the left over properties; properties with location challenges, or severe deferred maintenance, lack of a usable yard, or foreclosure properties that have been vandalized. “B list” properties would be everything else, including homes with moderate appeal with no real location or structural issues.
“A list” properties will sell in any market, assuming they are priced somewhere in the realm of market value. Many times they will receive multiple offers, especially if other homes in the price range are clearly inferior. So, in the facebook example, the property being referred to was an “A list” property. It sold fast with multiple offers. No surprise there.
“C list” properties will struggle in any market, even hot markets. If the home is a foreclosure property and is missin kitchen appliances for example, it might take a while to sell, even if the market is over-heated. I don’t have a lot of buyers coming into my office and demanding to see homes with no oven or dishwasher. Because of the challenges that short sales present, we can put them in this category as well. And when the market is slow, these homes can take an extended amount of time to sell.
“B list” properties are everything else, and there really aren’t a bunch of them for sale. They are average, probably traditional sales. They have some nice features, but are a little tired, or have pools that take up most of the yard, or have some negative points as well as positive.
The truest indication of the strength of the market overall, in my opinion, is how the B list properties are faring. In a hot market, B list properties sell relatively quickly, and get good prices due to lack of inventory and strong demand. In a sluggish market where there is lots of inventory and/or weak demand, B list properties tend to take a while to sell, and might need a price reduction or two to sell.
So, when you encounter the “The market is HOT! The house next door sold in 2 days with multiple offers!” statement, you might want ask them about the 2 homes down the street that have been on the market for 45 & 60 days respectively. And conversely, when someone complains that the market is slow because their friend has a house that took 4 months to sell, remind them of the one around the corner that sold in 3 days. When talking about the market, it is always best to avoid using the exception to prove the rule, in all market conditions.
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