"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.
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.