Ghost Numbers

Ghost Numbers: Figures of the Past that No Longer Exist

From: Ron Arnold

I’m a “Data nut” as most people know. For over 20 years, I have helped my clients make good decisions by giving them every possible data point that is available.

In order to apply the “Best practices” for valuations of homes, I have interviewed over 300 appraisers and asked them for their formulas and calculations that they use for their adjustments to each home, as well as the specific parameters that they use in choosing their “Comps”. Finding the “best” and most “LIKE AND KIND” comps is critical in finding the best value for a home.

But in the last 2 years since the pandemic begin, a phenomenal that we all call “Irrational Exuberance” in buyers has made values skyrocket in ways that are hard to track and project. These “overly emotional bidding wars” have caused data points to be less accurate.

And now, it’s become even worse. Since about March of this year (2022) when interest rates really started to shoot up, and demand started crashing down, the inflated values from homes that sold right before then have shown themselves to be quite inflated. Why? The irrational bidding wars that were once there, no longer are. So that means that the comps from earlier in the year are actually no longer accurate for what today’s new listings should sell for. The last 3-5 highest priced listings actually have to be tossed.

Let me give you an illustration: On April 7th of this year, we put a 1200 square foot, 3 bed and 1.5 bath Garden Grove home that is in totally original condition on the market for $721,000 and we received 27 offers in 5 days and entered escrow after a furious bidding war at $860,000! Because of some family issues with the sellers, the escrow took 3 months, and it eventually cancelled. So, we put it back on the market on June 29th for the same list price of $721,000 and THIS TIME, we had a tiny bidding war and entered escrow at $736,000. Most of the other offers were at or below list price. That means that, according to the actions of current buyers, the prices of 4 months ago were inflated to the tune of between $120,000 and $140,000!

I actually have another illustration in the City of Placentia that says almost exactly the same thing. Listed at $775,000, got bid up to $863,000, had to go through a 3- month (unexpected) probate process and we ended up selling it for $800,000. The market had an inflated price of at least $63,000 and probably more (the buyers had no place to live after moving here from Kentucky and so were willing to pay more).

What these two real world illustrations show is that Closed Sales or “Comps” from the last 6-8 months are inflated and no longer represent true reality. They are “Ghost Numbers”, or closed sales figures that were created by a type of buyer that no longer exists in today’s market. They just simply can’t afford homes anymore because their monthly mortgage payments have increased by at least $500 a month, and in some case over $1,500 month …..just in the last few months!

I only write this because I care about two things: telling the truth and making sure my clients’ expectations are set by that truth.

So, when I send out comps to you from the last 5-8 months, please recognize that the highest sales were likely ones we cannot attain anymore. Those were between 8% and 20% over market price.  The real estate market is NOT going down, but coming back to normal or “healthy”. That means that in order to get the most accurate pricing on a home today, we need to throw out the highest comps from March thru June because they were only attained by irrational bidding wars…..and those “wars” have vanished today.

My goal, as always, is to get you the “Highest price that the market will bear” and I do everything in my power to achieve that. But I can only get what the buyers are willing to give. And right now, we have found that buyers are being very cautionary, thinking that if they wait, they will get a better deal.

So now, in THIS market with THIS mindset, what we have seen them giving is a more normalized, reasonable and rational representation of value. And it’s also taking much longer to sell homes now. Instead of a home selling in 1-5 days like they have been over the past 2 years, they are now taking from 40-90 days to sell (depending on the city and price range).

We’re now back to the “old days of real estate”.

So what’s the solution?

First of all, patience is needed today. Second of all, expertise. You need an experienced realtor who has seen this phenomenon many times before…..and is not fazed by it. The last two years, any realtor could just put the home on the market and it would sell to multiple offers. But from now on, we’re back to where only the highly skilled will bring the best value: Realtors who provide Professional Staging, Precise Pricing, Robust Marketing and Aggressive Negotiating. These skills will again become the determining factors in getting the best prices in the shortest time. We’ve always done that, and we’ll continue to do that. That’s our calling.

I hope this helps,

Ron