I describe the strategy for sellers here, because buyers need to be on alert 12 months out of the year. Why? Because you only care about buying the right house at the right price – which isn’t affected by the general market conditions. You are looking for the one-off.
Aisling Swindell was paying so much for rent last year—$2,100 per month to live in a studio in Downtown LA—she figured she might as well buy a place.
“The house I ended up buying was $440,000, which is insane, right?” says Swindell, who works for an online fashion company.
That price tag, which is $178,000 below the median in LA County, sounds unbelievable, especially for what she bought: 870 square feet in the city, plus a little yard, lots of natural light, some stylish updates, and charming, 1930s-era details, like wainscoting and solid wood doors.
But while she’s no longer a renter, she still doesn’t, technically, own a house.
Her $440,000 bought her a share of a larger property: a triplex on an 8,344-square-foot lot in Jefferson Park. Her right to occupy the unit, and her responsibility for maintaining it, are spelled out in a contract with her neighbors, who live in the triplex and, with her, are its joint owners.
You’d think there would be more that goes into making a good investment, but who knows any more?
Certain grocery stores may help lift nearby home values, particularly if those stores happen to be Trader Joe’s, Whole Foods, or Aldi, suggests a new analysis from ATTOM Data Solutions, a real estate data firm.
Home sellers who live near a Trader Joe’s earned 51% more at resale than the average seller, according to the study. Homes near a Whole Foods or an Aldi sold for 41% and 34% more, respectively.
ATTOM researchers analyzed average home values and price appreciation from 2014 to 2019, as well as current average home equity, home seller profits, and home flipping rates of more than 1,800 ZIP codes nationwide with at least one of each grocery store.
They say the high-earners who buy a million-dollar house are the losers, but those folks can still deduct the roughly $30,000 per year in mortgage-interest paid on a loan amount of $750,000 (though if they were renting previously they now have to pay property taxes).
Reasons for High-Earners to Buy a House:
Deduct mortgage interest of $30,000 paid on your $750,000 loan (or higher).
Secure where you are going to live over the next 5-50 years.
Build equity with each payment.
Gamble that the value will go up.
Make the family happy.
Reasons for High-Earners Not to Buy a House:
Have landlord pay property taxes, HOA, etc.
Have landlord fix stuff.
Stay flexible on where to live.
Hope prices go down and buy later.
Numbers 1-4 on both lists probably offset each other, so the focus is on #5.
Buyers are engaged – it looks like about 6% of adults are looking for a home, which is the same as last year. Glad to see the seniors on the move too:
Many people start thinking about a home purchase well in advance of actually engaging in the process of finding a home. In a national poll in the first quarter of 2019, 13% of adults reported planning a home purchase within the next year. Of those prospective buyers, 46% are already actively involved in trying to find a home to buy. The latter finding is not different from a year earlier, when 17% of poll participants were planning a home purchase and 46% of them were actively engaged in the search process.
Senior (56%) and Millennial (50%) buyers are the most likely to have moved beyond just planning to actually start the search process, compared to 41% of Boomers. Geographically, 53% of prospective buyers in the Northeast are actively engaged, compared to 42% in the Midwest.
Thanks to reader Just Some Guy for sending in this article from last week – and who wondered why more people don’t live here and commute to the Bay Area?
Buyers like off-market listings because it lessens the competition. All agents have to do is convince sellers.
After five-plus years of aggressively putting money away in savings, Jason Baker and his wife recently accomplished the seemingly impossible and purchased a four-bedroom house in a high-performing school district in the Bay Area.
The process to find a home base for their growing family took three months. They considered both the East Bay and North Bay and quickly learned the competition is tough in communities with desirable schools such as Lafayette and Mill Valley.
The couple made offers on four houses that they didn’t get, before finally uncovering an unlisted home in Marin County and making an offer that was accepted.
“The three months when we were looking was the most stressful time of our life,” said Baker, 38, who works as an engineering manager. “It was more stressful than the wedding, more stressful than the first month at home with a newborn.”
Open houses at properties that were affordable by the Bay Area’s crazy standards were mob scenes.
“When you went to a house and there was a crowd, you just set your expectations to know you’re not going to get the house,” Baker said. “When there were a lot of people, you knew the odds were high someone is going to make a really high offer.”
Through this ordeal, Baker got an inside look at the buyer’s side of the Bay Area’s real estate market and below he shares what he learned.
1. Listing prices are just “marketing” prices. In a region where homes frequently sell for well over asking and agents often list homes with low prices to encourage bidding wars, you can’t trust that a listing price reflects a home’s value. Buyers can find the true value of a home by looking at recent comps, said Baker. “Redfin and Zillow do an OK job of estimating these,” he says. “One of the problems is there is so little turnover in good school districts that there may only be two or three comps in the last one or two years.”
2. Money wins over everything. Love letters to the sellers are nice, but moot within the Bay Area’s market of high price points. “Unless your bid is significantly higher than the second place bid (more than $50,000), expect the seller to ask you to go into a bidding war,” he shared.
3. Forget about contingencies. “We lost a bid on a house that had no inspection report in its disclosures packet, very rare for the Bay Area,” said Baker. “The seller was not willing to accept any offers with an inspection contingency, and there was water in the basement.”
4. All-cash offers win. If you want the slight edge of all-cash, and you don’t have it, Baker suggested a service called Flyhomes that makes all-cash offers on your behalf. “They buy the house, then sell it to you immediately after closing with a traditional mortgage,” he said. “Ultimately we did not end up buying with them, because they don’t have knowledge of Marin like they do San Francisco and the East Bay, but I would recommend them if you were looking there.” They act as the buyers agent, and their fee is paid by the seller.
6. The price point where the crowds thin out at open houses is about $1.5 million. Priced below that, hordes of people will go to the open house. Above that, it’s more like one or two dozen families.
7. Look for unlisted homes. Try to find a well-connected agent who has knowledge of upcoming listings, and use sites like aaltohomes.com to find unlisted properties, advised Baker. “Some sellers don’t want to deal with listing on the MLS or open houses,” he said. “The house we bought was unlisted, and there was only one family bidding against us instead of six.”
8. Get fully underwritten by your lender, not just pre-approved. “Many houses go on/off the market in a matter of days, so you’ll want a letter ready to go in your offer packet with the bank saying ‘Yes, we are prepared to loan them the money,'” Baker shared.
9. You will most likely lose your first offer, and it will crush you. “It will be sadness on the level of a pet dying,” he said. “Try to remember the family that just outbid you is no longer in the market, and you just moved up a spot.”
Here are the histories, and forecasts, of our local Zillow Home-Value-Index for each area:
They are forecasting flat or declining prices in three of our larger areas – and they are also predicting a drop-off in values as the selling season will be getting underway in March, 2020 (which sounds far-fetched).
Their track record hasn’t been that great though. Here is their Carlsbad prediction in December, 2015, when they expected a 1.9% increase for 2016 – the actual was +7%:
The Carlsbad HVI has risen 19% since the beginning of 2016!
Can we agree on one likelihood? Prices probably won’t be going up much in the next year or two.
Being a casual home buyer is fine, and most people are.
They’re looking for the perfect home for them, and they will know it when they see it. But because virtually every house needs something – even new ones – it can be a long hard road in search of perfection.
Try this approach.
Instead of declaring yes or no on each house you see, put a number on it.
At what price would you buy it?
It takes more time to research the comps and compare the features, but it gets you onto the playing field. Here are some of the benefits:
Hone your home-evaluating skills.
Get more familiar with the comps.
Identify what features are most important to you.
If you do make an offer, it bolsters your case with seller.
Your offer negotiations have a specific target.
If you don’t make an offer, it prepares you for the next time.
When do you make an offer?
If your research concludes that you might pay within 10% of the list price, then make a written offer and see where it goes.
If your price is more than 10% below list, then call it in and see what the listing agent says. Nine times out of ten they will hang up on you….and you’re looking for the tenth!
The yes-or-no approach won’t buy you a house – instead, put a number on it!
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "