In order to reach a broader audience I am now posting to the Berkeley Hills Realty Blog:
Home Spun: A Bay Area Real Estate Yarn
There you'll find updates about our real estate market and behind the scenes looks at the perspectives of buyers and sellers alike. We also throw in pieces about what's in bloom, what's in season and what's on our minds!
From an earlier posting to Home Spun:
Appraising the Current Market Condition March, 2008
Today our Berkeley Association of Realtors auditorium was packed to capacity with Realtors wanting to get the latest information on the status of loan availability and appraisal conditions in this changing market. Our speakers, one representative each from the mortgage and appraisal industries, confirmed what we’d been hearing anecdotally from our colleagues. Loans were super abundant a year ago, with everyone knowing someone moonlighting as a loan broker who could get you “such a deal!” Last summer came the implosion of sub-prime lending and the virtual disappearance of jumbo loan products, those loans larger than $417K. Fast forward to our current state. The pendulum has swung so far that now folks with a fully documented loan application may have great difficulty getting financing if they have less than 20% down, gorgeous credit scores, and substantial assets. Buyers who can stay within the limit of a $417K loan can still get very attractive rates, today at the 5.5% level. But buyers who need to borrow amounts up to the new “super-conforming” limit of $729,750 need to be prepared for much stiffer requirements (see FHA and Freddie Mac Daddy from March 6th, in the Berkeley Hills Realty Blog. )
One of the elements of loan approval that has been mostly in the background up until now is the appraisal process. In our area we have for more than a decade been able to assume that homes would appraise for their contract value, except in the rarest of circumstances. If a property had multiple offers, as so many did, that was a strong argument in determining that market forces were setting value, and that we were in an area of increasing values. Lenders allowed appraisers to use closed sales back as far as six months, and there was reasonable flexibility to use properties that shared a similar characteristic to the subject property, even if they weren’t in the same neighborhood.
The job of the appraiser has changed dramatically over the past few months. Marian Huntoon, the owner of Real Valuation in Berkeley, spoke to our Association today about the intensity of scrutiny that appraisers must now face. Lenders want to see properties used as comparables that sold within three months or less, and they insist on having both an active and a pending sale in the same neighborhood. Appraisers are now routinely making significant adjustments to value in order to use “comparable” properties that are really not very comparable at all. Marian estimated that it takes appraisers anywhere from twice as long to four times as long as a year ago to complete an appraisal report that is acceptable to the lender. Appraisal reports are now routinely sent back to appraisers with the request that additional adjustments be made to reflect declining market conditions. That is really a loaded phrase. Lenders are now reviewing market conditions with an extremely broad brush, defining the direction of the market by county, not by city, nor by neighborhood. Those of us who are actively representing clients in this area know that we are still seeing multiple offers on many properties in the most desirable neighborhoods. We are back to seeing pre-emptive offers both in the modest and in the most expensive price ranges. So to have both Alameda and Contra Costa Counties defined as a whole as “declining market conditions” makes us all a bit crazy. Explain that to my buyer who lost out in fairly modest competition of only four offers. He still didn’t get the house he loved! And then there was the James house, receiving 17 offers last week after only one Sunday open house (see our March 14th entry below).
But it is also true that there are properties sitting for a few weeks before they sell, as opposed to selling according to a pre-established seven or ten-day schedule. And then, even in some of our most desirable neighborhoods, there are the short sales, trust sales and foreclosures. Those are topics for another day!
Tip for Home Sellers: Review carefully with your listing agent what the recent sales have been, closest to your home both in location and style. Try to step back and look at the data the way both buyers and appraisers will now be forced to look: at currently active homes, those recently pending, and the sales back only a very few months. Even if some buyers might be willing to offer a very high price, unless they have unusually high cash reserves to make up the difference, most buyers will need to have your home appraise very close to their offer, in order for the contract to close. Sellers should come to expect to see both financing and appraisal contingencies in the majority of offers, rather than assuming that buyers will waive those contingencies in order to have their offer accepted. The goal is not receiving and accepting a very high offer. The goal is, and really always has been, to close the escrow, and at an acceptable price.
From Arlene’s Newsletter, Autumn 2007
Dear Neighbors and Friends,
I cannot remember a time when the real estate market was more in the news, and being discussed by more people who have no interest in buying a home! Since mid-August mortgage mayhem has captured everyone’s attention, not just nationally but internationally. I recently returned from the convention of the Calif. Assoc. of Realtors and spoke with many other association Presidents about their markets. Merced is dead. Fresno is frustrated. In every session I would hear “now that the market has slowed,” and by the end of the week I wanted to scream!
So what am I seeing in our very local market? Yes, there’s been a change and it’s mostly about financing. Buyers who have less than 20% to put down are paying more for their loans than a year ago. Buyers who have a solid but not huge salary and good credit, would earlier have had many options for “stated income” loans. They could declare the amount of risk they felt comfortable assuming. But we all know that translated to some buyers taking outrageous risk, and the lenders allowing them to do so. Now lenders are generally more cautious, and have instituted tighter review guidelines. Overall it’s a good thing. In the short-term, some lenders are over-reacting and making buyers jump through some crazy hoops. I suspect that will settle down within the next few months. Yes there are a few foreclosures and short-sales here, but very few so far.
And what about prices? I know there are buyers, including some of my own, who are still hoping that prices will drop here as they have elsewhere. So imagine their frustration when they’re reading all this doom and gloom press, only to discover that the house they want, and they want to make a luke-warm offer for, already has four offers. Or the open house they were going to visit was cancelled because someone made a gorgeous offer the first day it came to the market. This is not happening in Stockton! But multiple offers are still common in Berkeley. Not as many as a couple years ago. Now two to four is considered a good response. And some lovely homes get only one offer. I continue to get many “price reduced” flyers, and some houses fail to sell. But this is not the “buyers’ market” of the news. This market cannot be claimed by either side, or described in just one word, unless the words are mixed, unsettled, surprising.
I took a look at my newsletter article from exactly a year ago. My summary points are all still true! The buyers aren’t very motivated: they think prices might drop sometime soon. They’re increasingly picky about condition and features. They want a loan with ideal terms. And renting appeals to many Gen Xers just fine. The houses that are fully updated, as well as staged, perform the best in this, or any market. Some sellers are offering incentives to agents — an extra point of commission, a vacation, even a new car, if their house sells quickly. But the basic problem is each side wants this market to be favorable to them, and until both sides accept a change, instead of a balanced market, we have a struggle.
From Arlene’s Newsletter, Spring 2007
Dear Neighbors and Friends,
So how’s the market?
Lately I have been known to make outbursts over my Sunday morning cup of tea. It’s usually because I’m reading an article in a local paper purporting to give an update of our real estate market. Some of the articles come from wire services and describe a totally irrelevant national picture. Other times the article is describing the “local market,” but what they’re really discussing is the entire East Bay, from Hayward through Hercules. “Which planet are these people on?!” is a common question I ask whomever will listen. But mostly I am asking myself: how do I best counter this misinformation for my new buyers?
I am someone who likes a challenge, but lately several articles in the print media have made the task of educating my clients all the more difficult. This Sunday’s example was a headline declaring: “Home buyers now have the market advantage.” Explain that to the 18 buyers who competed on a fixer last week in Albany. When I visited the brokers’ open the agent was standing in a flooded kitchen wielding a mop. Two of the offers she received a week later ranked as “ridiculously high.” A lovely traditional home in North Berkeley listed at just under a million received nine offers and went “really high.” This week two homes in North Berkeley got at least fifteen offers each. Two weeks before, a home in a coveted block of the Claremont that had been listed in the fall but did not sell, came back on the market. It received three offers and supposedly went from just under $2M to $2.5M. In the same area and same week a home listed for $1.35M, fully updated, received three pre-emptive offers. Multiple offers, pre-emptive offers, contingency-free offers, concessions to the sellers such as free rent-back: we’re seeing it all again.
To make any simple declarative statement about our market is always risky. To declare what we’re experiencing locally as a buyers’ market is just inaccurate. In my role as a Director of the California Association of Realtors, I speak with many colleagues throughout the state. I certainly hear about communities where much of the inventory sits for several months before receiving an offer. I’ve heard about the huge number of condos for sale along that long beach in Long Beach. And I know that outside of California there are areas of true market devaluation. I also know that you don’t really have to go very far from Berkeley to find pockets of inactivity. Even some good areas of Oakland are not seeing this flurry of activity. In Richmond there are currently 150 two bedroom, one bath properties on the market. That’s more than the entire inventory of Berkeley. And indeed things were slower even in Berkeley last autumn.
But right now, in the first part of March, in all price ranges in Berkeley and the immediately adjacent communities, we are experiencing an active market. And it’s following a familiar pattern: the buyers are ready before the sellers. It makes perfect sense: buyers must decide that they are ready to make a move, and ideally speak with a responsible Realtor and a trusted loan broker. The seller, on the other hand, must not only prepare mentally and emotionally, but must start disposing of possessions, pack the rest, choose a listing agent and make the myriad other decisions required to effectively sell one’s home. And they may also be involved in buying on the other end. It is not shocking that the basic equation of supply vs. demand is producing, in the early spring, a little flurry of activity and the return of multiple offers in many cases.
The imbalance between buyers and sellers seems especially acute this spring. My guess is that all those buyers who were sitting on the fence in the fall, hoping that prices might actually drop, have realized that’s not going to happen. So we have the holdover buyers from 2006 joining some number who would normally have joined the fray in 2007 anyway, producing an especially high number of buyers ready to pounce on a small amount of inventory. The sellers who either had no choice but to sell now, or who were contrarian enough to believe that there never was a bubble, have benefited from being ready early in the year. The question no one can answer is: once this “glut” of buyers has made their purchases, will the market continue to be strong?
It’s true that not all properties are experiencing blissful results for the sellers. A house with a quirky floor plan, or one needing major structural work, or one that appears over-priced will sit around in any market. You’ve probably heard it before, and it’s still true: homes that are priced appropriately, and perhaps a wee bit low for what they are, that are presented attractively and marketed actively by a trusted agent will do well in any market. If they are in a desirable neighborhood, and are mostly updated, then they have even more advantage.
When people learn that I’m a Realtor® it is common for their next question to be “So, how’s the market?” The only truly valuable market update is the one provided by your agent, who knows your priorities, who knows what neighborhood you want to live in, who knows your price range, your taste, your ability to accept risk and how quickly you need to move.
The good news is that the annoying article, having proclaimed a buyers’ market in the headline, went on to urge sellers to choose an agent who was a good communicator, someone who could present a solid market plan and would market the property extensively. That’s good advice in ANY market.
(This article appeared in the Berkeley Daily Planet on Friday, March 9, 2007)
