Can you guess what this home sold for?Can you guess what somebody paid for this tiny beach bungalow? Can you guess how high above-list this fixer-upper went for?
Sound familiar? Real estate memes everywhere are generating lots of engagement in the form of clicks and page views. Since we all have deep, heartfelt connections to home, it’s easy to trigger a collective dopamine rush with the latest update about the market. Who can resist taking a wild guess at what the house up the street sold for? Or how high over asking it went?
Welcome to real estate - the new national pastime and fast-growing spectator sport that’s turning a large audience of people into armchair realtors charged with keeping tabs on the crazy trajectory of the market.
We’re helpless in the face of all the juicy clickbait coming our way: notifications about the tape-measure home run shots that sellers are hitting and posts about the slew of historic records that are falling as the most-lopsided market in history continues to run up the score in neighborhoods across the country.
We love feeling like we’re right in the middle of the action even if we’re only voyeurs sitting on the sidelines streaming virtual tours that give intimate glimpses into all those dream homes. As average places skyrocket toward obscene prices, it’s hard not to watch with a mixture of rapt attention and prurient interest. Call it another form of house porn that people enjoy in the privacy of their own homes while ignoring the 11th commandment: Thou shalt not covet thy neighbor’s home.
Just last week, a Realtor.com post ranked the 10 hottest markets in the country, with Santa Cruz coming in at #2 on that list. Redfin also posted its own list of the 10 top metro areas in the country with the highest sales price over list price, with Santa Cruz ranked #10.
Of course, the real estate market is only fun and entertaining if you aren’t one of those crazed buyers trying to do it for real. Like the guy at work who just put in an all-cash offer with no contingencies, $300k above list and still didn’t get it. Or your friend’s sister who just lost out in a thirteen offer scrum. The rest of us can afford to sit back and play the home version of Jeopardy without suffering the slings and arrows of the outrageous fortune it takes to buy in the toughest buyers market ever.
Let’s Play a Game
Can you guess what this Santa Cruz home WILL sell for? Can you guess how high above list price this Eastside fixer-upper WILL go for? Can you guess what somebody WILL pay for this tiny beach bungalow in Seacliff?
We’re setting the bar a lot higher and bringing our studio audience closer to the actual, the real question that Realtors are wrestling with right now: Not how much did something sell for but how much will something sell for. Anyone who does well on this round might be ready for a call-up to the big leagues.
Back in the good old days of pre-COVID, best practices always dictated that before making an offer, it was crucial to do a CMA (comparative market analysis) and take an in-depth look at all the recent sales in the neighborhood. However, in a market that has appreciated so dramatically in such an incredibly short period of time, conventional wisdom doesn’t count for much anymore.
Real buyers and their agents are trying to wrap their heads around the fact that what a house WILL sell for these days has almost nothing to do with what other homes in the same neighborhood previously sold for. Everyone’s guess is as good as anyone’s guess.
The top has fallen out of the market and there’s nothing but blue sky up there. The only comps that count are the imaginary ones in Sellers’ heads. And this is where we step back and remind ourselves what the definition of Fair Market Value is: The price that a willing seller of a property and willing buyer agree on. It is that simple.
The top has fallen out of the market and there’s nothing but blue sky up there.
But that’s not the same as what a buyer WANTS to pay. It’s what they are WILLING to pay. The entire multiple-offer process is designed to flush out the difference between the two. So, what about Zillow Zestimates? Can players get an extra edge by using one of those ubiquitous online home valuation tools to discern what a home will sell for? This is where I can share some backstory on a sale that just closed in a cute little South county beach neighborhood.
The list price was $1,499,000 and the house had 3 bedrooms, 2 baths, 1450 sq ft and a framed ocean view that was nice but not panoramic. There were 34 offers after the first weekend and even as the listing agent, I had no clue what it would ultimately sell for. Of course, neither did any of the 34 buyers or their agents.
After we went through the multiple-offer process and accepted an all-cash offer with no contingencies and a five day close, I went online to conduct a stealth test of the top-ranked home valuation sites.
Do they really have the secret sauce? Would they be able to hazard a guess that was better than an educated guess from a human? Should we all be moving in the direction of instant I-Buying for a fair, quick and transparent transaction process?
Here are the values they came up with:
- Zillow guessed $1,562,800.
- Redfin guessed $1,763,822.
- Realtor.com guessed $1.442,300.
- SmartZip guessed $1,110,410.
- Chase guessed $1,438,500.
- Homes.com guessed $1,577,593.
- Rocket Homes guessed $1,341,000.
- Realty.com guessed $1,054,000.
- Bank of America guessed $1,378,393.
As it turns out, that little beach house sold for $2,228,000 and even the highest of the “best” online valuation sites was a whopping $524,178 off on the end result! Most were between 50-60% and some as high as 80% off - not exactly a resounding endorsement for the future of buying! I guess the good news is that home valuation sites are free. The bad news is that they are terrible!
So where does this all leave us? How can a good Armchair Quarterback move to the head of the class and get better at guessing what something will sell for? I’m going to offer up my own back of the napkin instant valuation tool for all those buyers agents out there who are struggling. and for all those people who are playing the home version of real estate. I call it: Tom’s Wild-Ass Guesstimator Tool and here’s how it works:
If a property has five offers, then add 10 - 15% to the list price. If it has 10 offers add 20 - 30%. For more than 10 offers, add 30 - 40% and for more than 20 offer, add 40+%. This will get you a lot closer to what something WILL sell for in Double Jeopardy, than anything else you can use.