News & Research Archive

Pulse Of The Market (Pulse 66 - Robin Red-Breasts and Value)

Feb 09, 2009

You are not going to see any mention of this in the Chronicle, but a couple of robins have been spotted. To wit: a condominium on Russian Hill, listed for $1.125 million had five offers and went into contract within 48 hours. A singlefamily home in the Marina that was originally listed for $5.4 million on August 8, reduced to $4.85 million 60 days later in October, then reduced to $4.5 million in mid-November, received four offers over the holidays and closed on January 20; sale price confidential. Did those four buyers all go to the same New Year's Eve party and drink from the same punch bowl? Let's get the recipe out there to all the hesitant buyers.

One can't blame would-be real estate buyers for being a bit nervous when both Citigroup and Bank of America stocks decline 20% and 29% respectively on Inauguration Day and then both rebound 31% the very next day. "Honey, we lost our down payment on Tuesday, but got it back on Wednesday." Right!

Let's Talk About Value

So what is a property worth these days? The answer is a bit more complicated than it would seem. At the end of November, I had a client interested in the Marina property. At $4.5 million, I thought it was reasonably priced. I encouraged him to make an offer at $4.0 million to see what the seller would do. I thought we had a good chance of buying the property under the then list price of $4.5 million. When my client told me that he was planning to visit Africa, I commented that the property would probably be gone by the time he returned in the New Year. (Editor's note; I am not always so prescient, but now and then I get it right.)

Here's the deal. I think we probably could have purchased the property for under $4.5 million in early December. Let's assume $100,000 under. But with four offers at the end of December, I'll bet that the property sold for more than $4.5 million. Let's assume that the winning offer was $100,000 over the asking price. So what's the actual value of the property? Did the value change by $200,000 in the space of 30 days? That's an increase of 4.4%. Well, it all depends on how you define value.

Here's my point. The proverbial comps that most people rely on are highly suspect and may be even counterproductive if one pays attention to sale prices without understanding the context. Comps don't tell you about the nature of the specific transaction and whether more than one offer was considered at the same time. This makes a big difference. The value or worth of a property is not a fixed number, contrary to what the media, as well as many buyers and sellers, think. It's not like the bid/ask mechanism of the securities markets. When those buyers and sellers come together in a specific trade, together they establish the value of the security at that particular moment. The real estate world is much less liquid and very different.

On the Subject of Market Bottom(s)

One of the nice things about writing these Pulses is that I get feedback, some of which is very enlightening. One comment from last month's Pulse, "Waiting for Godot", focused on the fact that the real estate market will not have one bottom but multiple bottoms. Though the S & P 500, which is an index, will have a defined bottom from which the next bull market may launch, within that one index there are a number of industry groups, not to mention individual stocks, each of which will experience a bottom at times quite different from the overall index. While we do not have a similar real estate index, single-family homes in xyz neighborhood at the $1 million dollar level will have a different bottom than the $500,000 condominium in abc neighborhood, and so on. In other words, it's back to "Waiting for Godot", if you are waiting for the bottom.

For the $1 million+ condominium and $4.5 million single-family home, in their respective neighborhoods and at their specific price points, those markets have bottomed so far as those buyers are concerned. Perhaps more importantly, they now own homes they wanted, and the sellers sold properties they needed to sell. Sometimes we confuse "the news" with our news, which is a very personalized slice of reality. Relying on news or pundits to tell us what to do or when to buy is only one option, or we can take back our lives and make choices based on our actual situation. The robins are out there if you take the time to notice, but you need to go outside and look closely to see them.

Written by: Malcolm E.A. Kaufman


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Top Producer at McGuire Partner. He refers you to his website,, where you can see recent issues of Pulse of the Market and learn more about him. He invites your comments, suggestions, and questions.

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