I’ve just been in the enviable position of representing sellers on a popular listing. We’re at the very satisfying finale: receiving multiple offers. I had two extremely busy open houses, and more than three dozen agents asked for the disclosures. By the end of the day we received 10 offers, all over list price. The top four offers were between 25-30% over list price, and the top three were non-contingent.
Edith kitchen before update
Edith kitchen after update
Fortunately the sellers in this case had the resources, and wisely followed my advice to invest in updating the home before bringing it to market. During these past two years of a very active market my mantra has been this: whoever updates the kitchen will get the highest return on their investment. This home is a perfect example: we kept the cabinets–just painted them and added new hardware. We replaced the counter tops with quartz, put in a new sink, faucet and dishwasher. Swapping out an old electric stove was crucial: there’s now a gas line and new gas stove, plus a new vent hood. The floor and lighting are new as well. There were lots of good features of this home besides the important one of location. But kitchens really do capture the imagination for how people will live in a space, cook daily meals, entertain their friends. And kitchens really do sell so many homes! I could hear it in buyers’ voices as they entered the kitchen and said “ahhh!”
In this market I wish I had a dozen listings like this: a home that is well-located near amenities and transportation on a quiet street. But if I and other agents had lots of listings, it would not be the same crazy market! What continues to drive the wild over-bidding is the dearth of attractive listings. The average amount of over-bidding in Berkeley last month was 10.5%, 2.5% in Oakland. But those averages contains some extremes, and my guess is that the March figures will be considerably higher. Within the past two weeks especially we have seen some truly astonishing sales prices that were beyond the list prices by 50-65%, and in some cases by hundreds of thousands of dollars.
So what are buyers to do if they wish to succeed in this market? My strongest advice is to really take stock of your financial ability, and try to come to terms with the amount of risk you are willing to accept. Right now the power is mostly in the hands of the sellers. Each contingency that you include in your offer represents protection for you, and risk for the seller. A great many of the successful offers right now in competition (and it seems that all of the homes my clients want receive multiple offers) are non-contingent offers. Especially if the buyers need to obtain a loan, they need to be willing to do as much in advance as possible to have their file reviewed and approved, so that their offer does not contain a loan contingency. In a rapidly moving market such as this, appraisal is rarely an issue. So inspection contingencies become the question for many. Each home is different, with different physical conditions, different amounts of updating done or required, and with varying amounts of documentation available from the sellers. As much as I hate to recommend it, buyers may need to be willing to accept reports provided by the sellers if they are going to have a chance at having their offer accepted on the house that they love, and wish to have as their new home. It does seem so unfair that buyers must accept what can seem like a high degree of risk. But that is what this market is demanding. List prices are the opening bid in a silent auction. They are not derived in any scientific way, but more they are a starting point that seems reasonable at the time to the agent or the seller, based largely on other list prices from the recent past. So I urge buyers not to get too fixated on the list price. Try to determine the price that seems so high that you would you be happy to let someone else be the winning bidder on the house that you very much want—and then offer a bit less.
I certainly wish this market were not so hard on buyers. And I also wish that we could price our listings closer to market value, and avoid the multiple offers and multiple heartaches of the current system. That is not likely to happen any time soon. As long as our seriously-local market continues to experience high demand and low inventory, buyers will need to give their highest and best offer right from the beginning, and assume some degree of risk. I urge buyers to really understand your budget, know your motivation and your risk tolerance—and then follow your passion to make a particular house your home.
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Already this month I have put a set of buyers into contract, have taken my first listing, have two buyers in contract from December that should be closing soon, and I’m already meeting with buyers who want to start their searches. I’m hearing from several colleagues that they are having a similarly, and uncharacteristically, early and active start to 2014.
