Market Update

If you have been reading my Market Updates recently you are probably aware that:

• San Miguel de Allende is sitting on almost four years of inventory depending on the price range. (Up to 20 years of inventory in the million-plus price range.)
• Inventory has grown every month since late 2018. Prices have dropped at least 15% to 20+% since the peak of the market in mid-2018.
• In April of this year, our algorithm indicated that 50% of the homes on the market are overpriced, with 40% being at or above the mid-2018 peak price.
  • San Miguel always measures Time on Market in months or years instead of days, like booming markets elsewhere in the world, but this is unprecedented. 
• For reasons I described previously, many sellers will not negotiate much on their overpriced homes.
• Lastly, unless we see several months with a high volume of sales, which would reduce the inventory and or create a lot of emotion on the streets, it appears that actual sales prices will continue to stay flat if not move downward. 

However, as I´ve mentioned many times, there are always motivated sellers at every price range.

What Every Buyer Should Understand

The asking price, previous price reductions, and how long the property has been on the market may or may not be reflective of the home’s or property’s current value. 

I had clients a couple of weeks ago who told me they only wanted to purchase something if they could get 30% to 40% off the list price. Although I understand what they are looking for, stated in this way, this goal won´t serve them well.  Let me explain why.

• I can show you homes that are advertised as “recently reduced 25%” and represented as a great bargain when in reality their “reduced” price is still at or above the mid-2018 peak. To be a bargain, one would want to offer less than the asking price, but not 40% less.
• There are also homes that have been overpriced and on the market for a year or three and have finally made a huge price reduction to be in the range of fairly priced. Offering 30% to 40% less probably won’t get the home.
• I can also show you homes that were listed this year at 30+% below the peak of the market and perhaps 10+% below current value. These are already priced well and the sellers would probably never need to go down much further.
• Evaluating what to offer for a property should be relative to the home’s current value. To find that, I would always recommend working with an agent who can tell you what the home’s peak value would have been in mid-2018 and adjust accordingly from there. Homes further out have more downward price pressure than homes right in Centro.

So what should your buying strategy be when you are looking to purchase a home in San Miguel de Allende this fall and winter season? The answer somewhat depends on your own personal situation. To individualize your strategy, let me share three different experiences and results from clients from the past few months.

Dream Home
We had some clients who fell in love with a particular home and really didn’t like any of the others that they saw.  We explained to them that the home was probably 20+% overpriced. Their first offer was reasonable and perhaps 5% below the real value, but $100,000 less than the asking price.  The seller countered only reducing $5,000 from the asking price. The buyer’s second offer was probably at the current real value of the home. Again the seller countered only offering another $5,000 reduction and explaining that he had overpaid for the house in the first place.  After a couple of weeks and many conversations, the buyers decided that since they planned on keeping the house 15 to 20 years that it wouldn´t be horrible to overpay a little to get the home that they loved.  In the end, they purchased their dreams and paid perhaps 6% to 8% more than the real value. (Not recommended for buyers who only see holding the property for a short time period.)

Multiple Attempts
These clients were not strapped for cash but were feeling the need to be conservative and purchase wisely.  They weren’t necessarily looking for the best bargain, but neither were they willing to overpay for a home.  After a couple of days viewing various homes, they came up with their list of two “dream homes” and one “this will work for us.” In our opinion, all three of them were still priced around the peak mid-2018 price and had not been reduced to reflect current prices. 

We helped them make an offer on the first dream home, with an offer a little below what we thought was the real value but 25% below the asking price. The seller didn´t budge on his price.  A second offer was made at the real value of the home.  Again, the seller only countered with a minimal price reduction so the buyers gave up on that one and moved on to their second choice.

A similar process happened for the second dream home with two offers and two unrealistic counteroffers. So the buyers move on to their third choice. 

In making an offer on the third home, the seller seemed very reasonable and in the end, the buyers got the house at or a little less than the current value of the house.  Unfortunately, the sellers of both of the dream homes weren’t willing to be realistic on price. The buyers ended up happy but had to make three attempts before they found a suitable home.

Bottom Feeders
We’ve have successfully helped several clients in the past few months who really only wanted to purchase if they could find an extreme bargain.  Although there are several listings that are priced 25% to 45% below the mid-2018 peak prices, only a few of them are in choice areas and most have some other stumbling block getting to, near to, or within the house. Few are within close walking distance of Centro and most need at least a little if not a lot of work.  My best guess is that half of the clients have been very happy with their results and the other half a little disappointed that they couldn’t find a great buy within their price range and in the condition they were hoping for.

Every month that passes a few more sellers will become more motivated and willing to negotiate on price. Motivation can come from a change in plans, family circumstances, financial pressures, and the list goes on. The point is, in every market, there are sellers willing to make a win-win deal.  No matter what your circumstances, our agents can help you find a buying strategy that best suits your needs and find the buyers who are looking for a deal that reflects the current market conditions.