What to pay is about more than your income: 2014 prices set new record
Originally appeared in Bay Area News Group publications on January 9, 2015
“Overspending is a very attractive trap. If people like what they’re doing, despite the worry of debt, they won’t do anything about it.”
– Adriane Berg
This seller’s market leaves buyers “between a rock and a hard place.” Continuing to rent becomes less palatable as rents escalate. For many, it comes down to either buying or leaving the area.
Last year, prices in three popular, Oakland neighborhoods surpassed the peaks of 2005 to 2007. In the past twelve months, multiple offers were the norm and this looks to continue into 2015. Faced with pressure to “win,” buyers desperately dueled to outbid each other.
Often lost in the competitive shuffle are important questions. How much is too much? If you are not flush with cash, how will going for a maximum loan impact your lifestyle and future financial security?
94602
This area includes Glenview, Dimond, Oakmore, Lincoln Heights, Joaquin Miller and Laurel. In 2013, the average sales price was $633,800, with 63 properties selling for $800,000 or more. There was an almost eight per cent bounce to $683,500 in 2014, with the number of closed sales being approximately the same; 83 reached or surpassed the $800,000 mark. This eclipsed the 2005/06 zenith of $655,000. Both years saw 22 sales exceeding one-million dollars.
94611
Montclair and the Piedmont Avenue area are in this zip code. Solds decreased from 339 in 2013 to 308 in 2014 while the average sales price surged from $847,400 to $977,300. This was a rise of 15.3 per cent from 2013 and approximately $14,000 above the previous peak in 2007. There were 101 listings closed for a million dollars or more in 2014, a year-to-year gain of 32.
94618
This incorporates Rockridge, Upper Rockridge and the Country Club area. Average sales price rocketed from $1,061,900 in 2013 in 168 sales to $1,251,500 with 39 fewer closings (129), an almost 18 per cent jump. The 2014 average price was up approximately $135,000 from the 2007 record. Million dollar or over sales totaled 64 in 2013 vs. 87 last year. Note that while almost a third of 94611 sales in 2014 were in the million dollar and plus range, a whopping two-thirds of 94618 closings were at this price point.
Location
Make sure you understand the pros and cons of different locations. Where you buy will always be key to value. Despite the fact that areas like West Oakland are improving, the pecking order of most to least desirable locations has remained constant throughout my real estate career.
Condition
Although critical to value, condition is often minimized by buyers and their agents in this type of market. I consistently see homes I have urged my buyers to “take a pass on,” sell in multiple offers at far above list price. I advised my buyers against them because of reports indicating expensive known repairs and clues for other unresolved, but costly, problems. In many instances, their condition is so questionable that I would not recommend them even at asking price.
It is not unusual for buyers who have won a bidding war to move in and do little or nothing to correct serious “deferred maintenance” items. This can include foundation, drainage, roof, framing, seismic and pest control. Out of sight, it is easy to keep it out of mind. This usually happens because the buyer does not fully understand the severity of the problems and that they almost always get worse and cost more to handle in the future.
Even when the buyer is clear on what needs to be done, after stretching to purchase, he commonly does not have the large amounts needed for the work. Failing to take this into consideration before buying, or denying that the problems are substantial, does not change reality once you own the home. When the above is combined with the need to upgrade and remodel rooms and electrical, plumbing and/or heating systems, the predicament is compounded.
Comparable sales
In some ways, buying a Bay Area house in competition is like participating in a high stakes poker tournament. The difference is that the poker professionals have done their homework. They know the other players and their tendencies. Poker pros also are familiar with how much various pots are worth and what their spending limits should be. Home buyers, conversely, generally have little knowledge of the game, the players or how much to limit their bets.
As a buyer, you should be aware of the highest recent prices paid for the size and type of home you are contemplating on a specific street and nearby comparable ones. If you intend to offer the same or more than the highest comparable, be conscious of the risk you are taking.
Final thoughts
Just because you can qualify for a purchase price that will set a new neighborhood record does not mean you should do it. Consider all your expenses, not only your new mortgage, property tax and insurance. Also, bear in mind what your situation as a homeowner will be when price increases slow down, as they invariably will. Plan to be in the property at least five to seven years; the longer your stay, the safer your investment.
The crucial thing is not to prevail “by any means” in a multiple offer scenario; it is to look back later and be glad you did.
Related Articles:
Condition: What Your Agent Should Tell You
Check Drainage
Today’s seller’s market is creating future victims: An Insider’s Look at Multiple Offers