Spiraling Bay Area home prices
San Jose home values have gone up 8.5 percent over the past year and Zillow predicts they will rise 3.0 percent within the next year. The median price of homes currently listed in San Jose is $839,000.
The median price for a single-family home in the Bay Area is $800,000, a sum that is simply out of reach for many familes. Others, like Jeff and Kate Baker (at their request real names are not being used), are more than willing to pay Bay Area prices. In fact, an $800,000 home in a safe Oakland neighborhood would be considered a win for this trauma nurse practitioner and former teacher.
The Bakers, who are moving to the area from Davis, have two children, a 14-year-old son in high school and an 11-year-old daughter with autism. After their daughter experienced both physical and emotional abuse at school in Davis, the Bakers found a private school in Oakland better equipped to help her thrive. What they have not been able to find is a home to call their own.
Working with Realtors Cameron and Nicole Platt of Abio Properties, the Bakers are willing to spend up to $1.3 million for a house in a safe neighborhood. Their dream home would include three bedrooms and two baths, but at this point they are considering anything on the market.
According to Linnette Edwards, Platt’s partner at Abio Properties in Oakland, the Baker’s situation is far from unusual. “Buyers are being driven by historically low interest rates and the potential of those rates going up,” Edwards said. “They are also buying because rents in the area are so high and the rental market so tight.
Edwards estimates that 10 percent of buyers in the East Bay area make all-cash offers. In South Bay that number is closer to 50 percent. All-cash offers, particularly those with no contingencies attached, are attractive to sellers because they mean that the buyer has enough money to make up the difference if the home does not appraise at the sales price.
Unlike most markets, the list price in the Bay Area serves as a suggested starting point. According to Edwards, “It’s not uncommon to see a home go for 30 percent over list price. I’ve seen them sell for 50 to 60 percent over list price.”
Desperate to get into a home, Edwards knows of families who have pooled their money to buy property. She knows of buyers who have borrowed from family and friends in order to pay cash for a home and then repay the loans by taking out a mortgage.
Edwards recently heard a colleague say, “When you’re writing an offer, if you’re not on the verge of throwing up on your shoes you’re probably not offering enough.”
House hunting programs on television often feature uncompromising buyers with a wish list, people who refuse to buy unless they get everything they want. In the Bay Area, it is the sellers who are in the driver’s seat. They decide which of several offers to accept and they alone determine which terms are agreeable.
“It’s really tough right now,” said Colleen Marchbank, a broker associate with Keller Williams in Los Gatos. “This year has been particularly hard for buyers, but you just keep trying.”
Marchbank is currently working with a couple willing to pay up to $1.7 million cash for a 2,000 square-foot, threebedroom, two-and-a-half-bath home. So far, like the Bakers, they have been outbid.
Marchbank calls the current frenzy a “strain on the whole system.” One of her primary concerns is the fact that home buyers must waive most contingencies in order to be considered serious. When a buyer asks for a financing contingency, the seller can simply move on to the next offer.
“I’m making up tricks I have never used in my career,” said the 18-year real estate veteran. “For example, the accepted way of handling earnest money is to have it in escrow within three days of acceptance. Now, I make sure buyer’s money is in escrow within 24 hours of acceptance. Above and beyond that, the deposit is non-refundable.”
She also asks the mortgage lender to preemptively call the seller’s agent in order to assure them that the buyer is qualified to purchase the property.
At one point, Kate’s parents gave the couple money to increase their down payment, but even with $800,000 cash up-front they have had no luck.
According to Kate, the house hunt has been tough on her daughter. “She has inflexible thinking and has struggled with the lack of routine, the lack of normalcy.”
Issues that had greatly improved — like which foods she will eat, clothes she will wear, and her bedtime routine — have become problems again. Due to the fact that they cannot have them in their rented apartment, the family dogs are being cared for by others. And the parents who have always been able to fix anything are having trouble coming up with a solution.
As Kate sees it, she and her husband are better off than most people. Not only does her husband have a job that will allow them to make a Bay Area-sized house payment, but they have family willing to help them with the down payment. She wonders about the nurses, electricians, and teachers who serve the community but cannot afford to live in it.
After looking at 40 or 50 houses, Kate says, “I think our experiences with our daughter have taught us that it’s a marathon, not a sprint. We can’t get caught up on every pebble and still finish the race.”