There has been much talk of an impending recession and slowdown in the real estate market. While the East Bay has not experienced a significant decline in activity, and Berkeley open house activity is brisk, sales have been mixed since mid-2018.
There is a metric that is not getting as much attention as it should: the cancellation rate. When a seller and agent list a home, they work hard to make it sell through a combination of home preparation, marketing and setting the right list price in order to attract as many buyers as possible.
No one wants a listing to go unsold, and yet the number of Berkeley listings canceled in 2018 increased 60% year over year.*
A total of 18% of listings did not sell. This may not seem like a large number, but it had been no more than 13% for the previous five years.
This issue is even more pronounced in the upper price points: one-third of properties listed above $2 million went unsold, more than double the previous year.
So why the sudden jump in cancellations?
Over the past few years, the Berkeley real estate market has been ridiculously hot: the median price of a single-family home increased 47% to $1.3 million between 2014 and 2018. It was not uncommon to see homes receive more than 10 offers, then sell significantly over list price with an all-cash, contingency-free offer.
The Berkeley real estate market has been ridiculously hot: the median price of a single-family home increased 47% to $1.3M between 2014 and 2018.
But those days may be behind us. The average Berkeley home sold for 17% over list price in 2018, but that number has been declining for the past two years. The average days on market also increased from 19 to 21. Price continues to grow, but appreciation has slowed.
The shifting market changes by neighborhood, by price and even by week. That kind of 3D chess is very difficult for even the savviest agent and seller to predict. So if a Berkeley seller wants to reach the successful conclusion to listing her property, she may want to keep this in mind:
There is a saying in real estate, “There is no such thing as a bad property, only a bad price.”
As such, Berkeley’s growing cancellation rate may be driven by inaccurate prices. If the seller’s list price, as well as their expected sale price, do not take into account buyer expectations, there will be a disconnect between the cost and the home’s perceived value. Buyers are likely to ignore the listing, reflected in low open house attendance and/or no offers to purchase. The response can be clear within one to two weeks’ time.
At that point, the seller may work with her agent to reduce the list price with the goal of generating more interest and offers. If they are unwilling to reduce the price, they may temporarily withdraw the property from the MLS in order to update its appearance and limit its “wear out” with buyers, or cancel the listing outright and walk away empty-handed.
It is critical that all sellers, not just those in Berkeley, adjust their expectations based upon the current state of the market. How does your listing compare to similar properties, even those in other neighborhoods? Is your list price competitive? Do buyers believe there is a benefit to buying your property over another?
Marketing, staging, location and home prep are all important, but the list price should take all of these factors into account. Buyers will be spending what they think is top dollar, and they will want to make sure there is value in their investment.
At the end of the day, buyers set the sales price of a home. They are still hungry to purchase property, and some properties are still receiving multiple offers, but sellers should set reasonable expectations in order to avoid the increasing threat of not selling at all.
* Cancellation analysis generated from multiple listing service (MLS) data. This doesn’t take into account “off market” properties — those that are not entered into the MLS.