ZAP! Zap! Zap!!!
Maybe it's just me, but every time I touch the light switch, the copy machine or a door knob, sparks fly. (Ouch!) It's gotten to the point where I don't want to touch anything at all. (Get me a stick.) It's much worse at the office where the carpet seems to really conduct electricity.
Okay, I really HATE that feeling.
Shock, followed by a few colorful words, aren't my experience alone, as Buyers and their Agents try to figure out what the next coveted property will fetch.
"It got what?!"
Honestly, there's not much rhyme or reason to many of the outcomes we are currently seeing in the marketplace today where the list price is clearly the opening bid to what has become a fast and furious blind auction. (Zap!)
Which poses the question
"How much is this home going to sell for?" An impossible one to answer - especially when it often comes the first day a house enters the marketplace. (Let's table that discussion until we know the level of competing interest.)
Yes, I can run the comparable sales in the neighborhood to provide context (and do), but in a RISING MARKET, you can't write a winning offer based on last week's comps. That's the quickest way to a losing bid.
So what's it all mean exactly?
Which is an important consideration. While we travel this journey together, these are your dollars at stake and you need to understand the risks involved as appraisal and loan contingencies are often waived in our desire to create a bullet-proof offer. And while the current frenzy is incredibly difficult on Buyers, when I represent Sellers, they are absolutely looking for the offer that has the fewest roadblocks to jump, the highest price, and the strongest terms,which translates into the "contingency-free" offer. (Zap!)
Even when a Buyer willingly waives their appraisal and loan contingencies (a tough thing to do if you aren't actually buying with CASH) the lender will require an appraisal just the same. Banks want to know that the property on which they are securing the loan, will, in fact, hold its value. Thus underwriters will only approve up to 80% on the LTV (loan-to-value) ratio of any given property, which means you may need cash reserves when waiving your appraisal contingency to make up for any shortfall. (Zap!)
As an example: if you bid $1,000,000 on a darling home in the Temescal, but it only appraises at $950,000, you, as the Buyer, are going to need to come up with the delta of $50,000. (Zap!) The risk gets more profound if we bid on a home in Piedmont at $3,500,000, but the appraised value comes in at $3,000,000! (ZAP! ZAP!) So Buyers who truly are borrowing 80% instead of coming in with 30%, 40% or 50% as a down payment, aren't in a position to risk the shortfall, AND should never do so.
On the other hand, Buyers who have taken their file all the way through underwriting, have secured the promise of funding, and have an ample down payment that allows for some flexibility - should the appraisal should fall short -may comfortably choose to waive their appraisal and loan contingencies(and usually will) if they want to secure a home in heavy competition. That's just the reality of today's marketplace. (Yes, it will eventually shift but when, is anybody's guess.)
Do I have sleepless nights around these issues?
Yes, I absolutely do (which is why I am writing this at 4:00 am in the morning), as do many of my Buyers at this point in the game and with good reason; these are high-stake investments and we all want to know that we have made a wise choice and haven't "overpaid" (a term that's only every used in hindsight. In the moment, Buyers pay what the "market will bear.") Moreover, no one wants to feel vulnerable, but I'm afraid there's just no other way. When it comes to home ownership, buying is often a GIANT leap of faith.
Is there an easy answer?
No, there isn't, but we can mitigate some of the risk by understanding that home purchases, by and large, are long-term investments, so if we stay put, keep our properties in good shape, and tend to them with loving care, our homes should appreciate over time.
Put another way, if you think your stay in the Bay Area is only temporary, now may NOT be the best time for you to purchase. (I know, Realtors aren't suppose to say that.) Bide your time, continue to save and wait for the correction. (It's bound to show up sooner or later as ALL markets are cyclical.)
Whatever you decide, I'm here to support you as long as you make your choices understanding all of the risks involved. Choose wisely, meaning look for the property that sells in any market, (a highway out front is overlooked in a seller's market, but not so much when the tables turn.) Inevitably, Buyers become Sellers so find a universally appealing property and you are much less likely to get shocked when this all settles down. (Zap!)
How can I help you?
Julie Gardner, has been writing The Perspective for 15 years and has published more than 600 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.