The “A” List

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 $1 million plus 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 are seeing strong demand, while others 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 structural or foundation challenges. “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 backs to a freeway 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 excessive freeway noise. And when the market is slow, these homes can take an extended amount of time to sell.

“B list” properties are everything else, and represent the vast majority of homes for sale. They are average. 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.

Here is a graph of the all active, pending, and sold properties that have closed in the last 90 days in Pleasanton. It shows the distribution of the days on market for the market overall. Based on days on market, which is one way to look at it, “B list” properties are the largest segment with almost 1/2 the market. “A list” properties represent about 1/3 of the market, a good indication that the market is pretty good. And the “C list” properties represent about 20% of the market.

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. And if you segment this list further by price range, the higher priced homes will have a much smaller “A List” and a larger “C List”, as upper end homes typically take longer 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.