"Julie, tell us the truth," (I always do . . .). "How many homes are we going to have to bid on before we successfully get into contract?" the earnest young couple half-heartedly asked.
"Well . . .," I responded, "that depends entirely on your learning curve." (Sorry to be so blunt,)
Regrettably, it's no joke that in this quickly escalating marketplace, both Buyers (and Agents), are finding it extremely difficult to keep pace, especially if you are from out of town, or worse yet, out of state, where Real Estate appreciation doesn't skyrocket at warp speed, AND where buying and selling something as important as a home, can take several weeks (or months) to transact, as opposed to mere days. (Wouldn't it be nice if we could just breathe a little and take some time? Yes, it would.)
Welcome to the Bay Area where available housing stock is well short and demand is exceedingly high! As such, nearly every good listing (and even those that are less than perfect) is experiencing multiple offers and often, with surprising results. (Note to Sellers, if you have a home with difficult flaws to overcome, NOW is the ideal time to sell it.) Moreover, Buyers are jumping through hoops to compete and come out ahead of the pack.
By way of explanation; last week I wrote two offers that both would have been hands down winners in last year's market, but came out well short in this year's. In both cases, the prospective Buyers had pre-inspected, waived the appraisal, loan, and inspection contingencies, were willing to close within seven days and were prepared to pay ALL CASH. (That's what I call committed Buyers.) But here's the thing, someone else was willing to pay far more and matched their very aggressive terms in kind. It's also worth noting (in this less-than-happy ending), that all of the other Buyers didn't get nudged out by a nose; they got beat by hundreds of thousands of dollars!!! In one instance, the house went nearly 65% over asking! (Say what?)
That's fairly sobering news to digest for Buyers when they have already come in 25-30% above the asking price, AND as their agent, it's not great news from where I sit either. Aside from the fact that I truly want to deliver the home to my clients, my earnings are actually dependent upon it as well. As Realtors, we are only paid when we actually close a transaction so I'm highly motivated to craft a winning offer. However, the sad fact is that when 17 Buyers step up to bat, only one will hit a home run and the rest will be left to regroup and move on to the next viable opportunity. (Batter up!)
In addition, it's noteworthy that the majority of the Bay Area's current listings have been strategically under priced as much as 25% in order to create the feeding frenzy that carries the value back UP. Whether you believe this to be disingenuous or not, it's a pricing strategy that has proven to be highly successful time and again. In other words, sharp pricing is here to stay. If you understand that this price represents the starting point and NOT the finish line, as Buyers, you'll be better positioned to adjust your expectations to meet the true "market value."
What's this mean moving forward?
It means that we (that's includes us agents) are going to have to recalibrate to gain a better understanding of where today's market actually lies. According to Trulia, metropolitan areas in and around "tech hubs" (Google, Apple, Facebook, Twitter . . .) average 82% higher housing costs than other large cities nationwide (with the exception of Austin, TX and Raleigh, North Carolina,; 'metros' that evidently have room to expand and keep up with the growing housing demands).
What's perhaps more surprising, according to Trulia, is that much of this gap predates the Internet era, which compared current "price per square foot" to "price per square foot" statistics back in 1990. Even then, the measurable gap in these coveted areas sat at 52%! In short, it's always cost more to live in California where the sun shines (almost) year round and where flip-flops are the preferred footwear. (Bring on the rain. We so badly need it.)
So why's it feel so much tougher?
The gap is wider; the next house UP is a BIGGER jump. There's more real cash in the market. There's TREMENDOUS pent-up Buyer demand. There's too little inventory; housing starts have failed to keep up, and interest rates are historically low, making the affordability index, well . . . unaffordable. And finally, while it's a great time to sell, the thought of competing in this difficult marketplace as a BUYER, has kept many people firmly ensconced in their homes.
My best advice to Buyers (and I'll be one soon) is to put more weight on what it costs to carry, as compared to what it costs to buy, AND then be prepared to write an offer that truly separates you from the pack.
That's the way to successfully acquire your next home - or your first (since you so kindly asked). Let's play to win.
"Your home is lovely," my GRUBB colleagues pointed out, "but you'll need to get rid of about 50% your tchotchkes." ('Tchotchkes!?!' Really? Now that's rather insulting.)
Having decided to sell my own home this Spring, I had invited the GRUBB Co. team over to price my house after the weekly Tuesday morning meeting. (Like most homes in Piedmont, it's fairly unique which makes it tough to accurately comp.) For the record, I already had packed away every family photo, had judiciously edited my collection of white Stoneware, had removed almost every book from the bookshelves and had erased nearly every trace of my family's human imprint, and yet . . . . (I'd really only wanted a pricing consultation, yet the HITS kept on coming . . . )
"I'd take out your oriental carpets and replace them with sisal rugs instead. You'll want to 'neutralize' your home as much as possible," the stager proclaimed. (I'm beginning to hate that word.) ENOUGH ALREADY! (I'd only invited her over for a consult on the OUTSIDE gardens.)
OMG (!) the process of selling a home is so much more invasive and offensive than I remembered. From the inspections to even the most well-intentioned opinions, it all feels so incredibly tortured, doesn't it? (I promise to be kinder to my Sellers from here on out.)
"Thank you," I tersely responded, "but I don't think so. While I appreciate and understand your intention, the last thing I want to do with respect to my own home, is to 'neutralize' it," I said. "If nothing else, shouldn't a home at least be 'personal'?" (No, not really.)
Here in lies the difficulty with most of the homes we bring to market these days. Having set the expectation of a fully-staged home, we have developed a tendency to liberally criticize those properties that aren't or don't look catalog ready - and with good reason.
Statistically, STAGED properties sell for much higher and create the public perception we want to convey: serene, uncluttered, elegant . . . (you get the picture) AND, more importantly, they allow the prospective Buyers to move themselves in and you out. In short, we want the Buyers focused on the house - not on the lovely things in it! True, a home should be 'personal' when we live in it. It should absolutely convey who we are, what we love, and how we live, BUT it should be much less 'personal' when we go to sell.
This is, after all, a BUSINESS TRANSACTION first and foremost. (It just doesn't feel like one.) Still, have we sacrificed the soul of the house to beige and blue? (Excuse me, I meant "Sahara Sand" and "Sea Glass." ) Are we to believe that no one reads anymore and that shelves should carry little more than a well placed piece of corral?
And what of those who aren't in a position to afford moving out prior to the sale and then incurring additional expenses for staging, painting, gardening, and carpet and window cleaning? Staging costs aren't insignificant, starting at about $5000 and quickly escalating from there, depending on the size of your home and the amount of furniture, art, and accessories that will need to be brought in.
Is there no reasonable middle ground? (Yes, there is.)
While some houses truly require a full-on intervention, others will only need some modest rearranging and some good editing to get the job done. My current listing on Alta Avenue in Piedmont used Edit/Style/Shoot for their staging and in the space of two days this dynamic team came in and did a remarkable job rearranging what was already there, editing what didn't fit, and bringing in new bedding, pillows, towels and a perfect chandelier to replace the over scaled one that had previously hung there. While the bones haven't been changed much, the experience in the home is dramatically different now and it photographed just beautifully. (Thank you ladies.)
So what's the moral of the story?
Knowing that doctors make the worst patients, lawyers, the worst clients, and Realtors, the worst, Sellers; I may have to follow my own advice which is to step back, emotionally disconnect, and get out of my own way. (There may be hope for me yet.) Most importantly, I have co-listed my home with my colleague, Jane Anderson, and I am going to let her hold my house open to the public - it's time to turn it over to the professionals. (Time take a dose of my own medicine . . .)
"We LOVE the house," the darling young couple exclaimed. "What will we need to do to get it?" (They've recently relocated from the East Coast and surprise (!) the market operates entirely differently here.)
"Well . . " I began, "you will need to pre-inspect the home, accept it as it is, comfortably waive your contingencies, and offer substantially MORE than the list price to beat out any other interested Buyers who also love the house . . . AND if you can close in mere days instead of weeks, so much the better."
GULP! (I'm so sorry, that's not much of a Valentine, is it?)
"But we can pay cash," they earnestly countered. "That's great," I responded, "but All-Cash purchases only move you to the front of the line; they don't provide a discount." According to the NAR website (The National Association of Realtors) "All Cash" sales surged after the financial downturn in 2008 from 10% to more than 30% of sales nationwide by 2012. Here in the Bay Area, that figure is much higher still, where young tech millionaires compete with everyday folk like you and me AND can easily outperform us both on price and terms ('terms' are contingencies such as insurance, appraisal, inspection and loan approvals).
True, many of these "All-Cash" transactions came about through speculators and investment companies that were lapping up underwater and distressed sales for investment purposes, but even here in the Piedmont, Rockridge and Berkeley, where REO opportunities (Bank Owned Properties) are exceedingly rare, it isn't unusual to see several "All-Cash" offers at the table on any highly coveted home. (Uh, that would be almost ALL of them.)
Whether it's Twitter money, an inheritance from a well-heeled uncle, or a loan from your oh-so-generous parents, prospective Buyers have a much tougher litmus test these days, which can make it very difficult for the 'Average Joe' to compete in this arena. In other words, a move UP, or even a move down, will often require us to sell our current homes first in order to have the net proceeds available to purchase later. (Yes, that requires a leap of faith.) That doesn't mean that offers with attached loans won't prevail (remember, the majority of home sales STILL involve a loan), it simply means that you are going to have to be smarter about it. The truth is, whether it's a loan or your own personal wealth, the transfer of funds from either a bank or your personal accounts is always 'ALL CASH' to the Seller at the close of escrow!
So what gives? Shouldn't that level the playing field?
ALL-CASH Buyers need not bother with either appraisal or loan contingencies, which shortens their time in escrow considerably. They needn't even worry about insurability if they are foolish enough to concede this important component as well. (Warning Will Robinson! I'm not advocating you buy a home with no insurance. DO INSURE YOUR HOME!) My point is, that the heavy influx of cash, coupled with less available inventory (homeowners are now staying longer in their homes), has made purchasing a home much more contentious and competitive than it's ever been before.
So if you are in heavy competition, you really love the house, and you are purchasing it with a loan (as most of us will be) you will need to be pre-approved by a local lender, be ready to jump as soon as the house hits the market, get aggressive with your terms, and offer MORE money than the All- Cash Buyer at the table. If you do that, many Sellers will be willing to wait a few extra weeks for a bigger payoff. (Wouldn't you?) AND BTW - you'll want to work with a REALTOR who is an "area specialist" and knows the players and the market well!
How's that for tough love? (Don't worry, I'll be here to help you every step of the way.)
"I teach a plein air art class on landscape painting," my Buyer said as we looked at the spectacular bay views,"perhaps you'd like to join us sometime?" "I would," I responded, "but I have a BIG problem." "What's that?" he politely asked. "It's a talent problem," I replied, "as in . . . I have none!" "Talent," he kindly responded, "is highly overrated . . ." (Thank you, I appreciate that.) I'm reminded of this every few years watching our Olympic athletes take center stage as they compete for gold, silver and bronze. No matter the sport, no matter their background, these young men and women have all dedicated countless hours to learning their craft, AND performing under heavy pressure when it really matters. Sure, they may have been born with excellent genes, a predisposition to high endurance, superhuman balance, and above average hand-eye coordination, but even so, they haven't found their way to Sochi by relying on raw talent alone - they've prepared for the world stage by repeating and perfecting their skills over, and over, and over. . . And so goes with any endeavor we pursue - whether we are swinging a bat, arguing in a court of law, or selling Real Estate (which sums up my family in a nutshell). It's the practice and the preparation that makes one excel above another. While it's true that the vast majority of us "simple folk" will never reach the exalted peaks of our extraordinarily gifted Olympic athletes, many of us will aspire for excellence in our own right - both professionally and personally. However (and this is the tough part for many of us to swallow) true excellence cannot be achieved WITHOUT a few tough lessons along the route. In fact, it's the challenges that create real growth and the willingness to risk that propels us forward. Sometimes, you have to just "get into action" and let the chips fall where they may . . . Much closer to home, my beautiful niece, Anna, is looking to "get into action" herself, having just graduated from the University of Washington and seeking to join the work force as a full-fledged adult. And while she's studied both here and abroad over the past several years, she really has no clue as to what it is she'd like to do from this point forward (being a grown-up is a BIG leap from sheltered student). To no one's surprise, a degree in "Art History" is largely theoretical. (Stimulating, but theoretical.) But that's to be expected; college isn't intended to be a trade school; it's about exposure to many disciplines. (Note to our kids, learn to CODE if you want job offers beating down your door upon graduation.) Nevertheless, these well-intentioned, college educated kids are anxious to join the work force and contribute. They're just not exactly sure how to do so. (I've got my own college student graduating in June so I understand the drill all too well.) "Envision the perfect job," my good friend, Lois, an HR director counseled Anna over lunch a few weeks ago. "Realistically assess your strengths and weaknesses, and THEN understand that you're first position will look nothing like it . . . What you're aiming for is an entry point and the opportunity to grow from there." In other words, it's not so much about one's talent, it's about the effort we put it in to it day in and day out. (Work, work, work!) Or as another friend recently reminded me who's spouse has made quite a name for himself at Pixar in Emeryville, "Computer Animation didn't even exist when my husband graduated from college. The company came about with hard work and vision." It's never been more true: there's a world of opportunity for those who work for it. So let's get to work. (Yes, of course we had to segue into Real Estate at some point. You didn't think I'd really let you off the hook; did you?) Whether you are selling or buying this spring, I am here to help and gratefully, I am not alone. With nearly 50 years of local experience, 67 full-time agents and a team of in-house marketers, graphic designers, photographers and Brokers, you'd be hard pressed to find a firm more in step with the East Bay marketplace, or more goal oriented then The GRUBB Co. In short, when you work with one of us, you gain the collective wisdom and experience of us all. (And isn't that nice? Yes, it is.) But don't just take my word for it, we've got market share graphs to prove it and I'd be happy to send them your way. They speak more eloquently than my words ever could (just send me an email request). Hey, let's go for the Gold. (And if anybody's hiring, please let me know! I know a couple of great kids who need jobs.) What's Happening? Rates went down this week as the stock market took a hit over concerns about China's weakening growth. (We live in a global economy!) Whatever the financial news du jour, rates remain historically low meaning that NOW is a great time to buy. (But please check in with your lender, lending criteria has also changed in 2014, making it tougher to qualify.) ARMS (adjustable rate mortgages) are back in play so there are several fantastic options from which to choose, depending on your circumstances and long-range plans.
"You were totally on my mind," the card read, "until I started thinking about bacon." OR as my friend, Mavis (typically, a STRICT a vegetarian) says whenever she orders a BLT, "Bacon doesn't count; it's a condiment!" Ahhh, the things we tell ourselves. . . This is especially true of our homes and the value we place upon them, AS IN:: "I know my neighbor's home sold for 'X,' but mine is in better shape, more special, and has more style . . .". That may be so, but it doesn't necessarily follow that whatever improvements you have made to your home will directly translate to what others are willing to pay to own it. In fact, it's the nature of Home Buyers to poke holes in every property they see as they begin to move you out - and them in. So it's not just that Buyers are being hypercritical, it's truly (for better or worse), part of the process . . . "I don't like the color on the walls." "What were they thinking putting beige carpet in the bedrooms?" "Oooh, I hate the wallpaper." And so it goes . . . the list of cosmetic complaints can be as varied as the people coming to view the home. (It's why we ask Home Sellers to leave whenever the house is being shown. Trust me, you don't want to be there.)
As your Realtor, it's my job to point out to prospective Buyers that these elements can all be easily changed. True, some cosmetic changes and improvements are more expensive than others, but on the whole, most of a prospective Buyer's concerns are easily addressed with a good contractor and minimal fuss and expense. *On the other hand, moving walls and adding on to a home are much BIGGER challenges that may require not only an architect, but often, design review as well . . . so don't confuse the two.
Still, even "turn key" homes are rarely, "turn key." What's perceived as a plus for you, such as wall-to-wall carpet, may prove a stumbling block for someone else with dogs. That pool you love? It may be insurmountable for a family with young children. And granite countertops, while typically a good choice, may in fact, be off-putting if the new Buyer has their heart set on carrara marble instead. In other words, our choices are OUR choices - and don't necessarily translate into higher dollars when it comes time to sell. But let's just concede for argument's sake that your home is more special, in better shape, and worth more than your neighbor's house that just sold down the street (mine is). Even so, I'm still going to recommend that you price it appropriately and let the market carry it UP! Why? Because, strategically, it's nearly impossible to underprice a home, but it's almost fatal to overprice it. Today's buying public has never been more keenly educated on market values thanks to the Internet and they'll come in droves if your house is perceived as an excellent value, while conversely, Buyers will stay away if it is perceived as overpriced - even in an overheated marketplace. "But won't I get more if I start higher?" Not in my experience. Overpriced properties tend to languish on the marketplace and end up chasing the market DOWN . . . and that's a very tough road as you correct the price until it finally finds its sweet spot. This is especially true for multi-million dollar homes, that quite honestly, can be difficult to price. While square footage of both the house and the property are important factors, it's the "emotional component" that really drives the success of a sale. Which is why some charming, smaller homes often factor out for MORE money per square foot than do the mansions on Sea View or Glen View. Finally, given that every home in Piedmont is unique and special (there's nothing cookie cutter about our community), pricing is truly a subjective art for every agent - no matter the years in the game. Sometimes we get is right and sometimes we don't. BUT if you believe in your home (as I do) have a little faith; the market will deliver, especially with too little inventory and unprecedented Buyer demand. What I'm really saying is don't get hung up on the starting point when it's the finish line we are working towards. Hey, that's just my two cents for what's it worth. Not everyone agrees and they are entitled to their opinion. In the end, I work for you and I will price the home to meet your objectives (within reason). However, your objectives shouldn't be a moving target, so let's clarify them upfront and then work to bring home the bacon. Which brings me back to my original premise; when it comes to BLT's (and home sales), let's just agree that it's all about the bacon! I don't care what you tell yourself - that's non-negotiable. What's Happening? *HEADS UP! Please note that a new ordinance is in place with respect to home improvements that I suspect has much to do with the drought California has been experiencing these past few years. As of January 1, 2014, California Civil Code Section 1101.4(a) mandates that when remodeling or making improvements on your home, ALL nonconforming fixtures must be converted to low flow, conforming faucets, showerheads and toilets BEFORE a certificate of occupancy or a finaled permit will be issued! Say what? In other words, minor home repairs may just trigger more expense than you previously thought with respect to any nonconforming fixtures in other rooms. How broadly this new ordinance is applied with respect to "improvements," is anybody's guess. (Is a replaced water heater enough to kick off this requirement? How about a new roof?) While each city's planning department may ultimately decide to enforce this rule subjectively, DO expect that if a permit is involved, this ordinance will very likely come into play. Unfortunately, the scope is rather large and the wording rather vague. (Don't you hate that?) Yes, I do.
Julie Gardner, has been writing The Perspective for 17 years and has published more than 650 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.