The Oakland Housing Market
I’m going to attempt to explain something that I don’t understand: the Oakland housing market. My KISA and I have now dedicated over six weeks to looking at houses to buy in Oakland. As I mentioned in the previous post about this, Oakland is the only area left in the Bay that we can afford…and even that is becoming more of a pipe dream. Let me explain why.
- Every house has two prices – a list price and a purchase price. Now, that’s not different than anywhere else in the US except that the mentality of this is different. Normally you have a list price and you’ll offer a little under that, the seller accepts, and that becomes the purchase price. Out here, they have a list price that is admittedly under what the property will sell for. (I personally believe they pull a number out of the air, but I’m sure they do some research to figure out what price will attract the right clientele that they’re looking for – not too high to deter people, but not too low for people to dismiss it.) There then becomes a bidding war with all interested buyers. It’s not unusual to see houses being sold for $150K-$300K over list price. On the date the offers are due (we’ll talk about that in the next part) they will take the top three offers and counter offer them for more than what was initially offered. This is what separates the boys from the men. You can then offer considerably more than the counter off just to ensure it will be your new residence. If not, let’s hope it wasn’t the only house you were interested in.
- A house is not listed for very long on the market, so you have to act quickly. There is a methodical process to the timeline from when a house is prepared to be listed until the time they accept an offer. First, the owners will have an inspector and pest control company come out and assess the property. Once that information is received they now know what needs to be fixed on the property or disclosed to put it on the market. They can then choose to pay to have everything fixed and have a clean disclosure or disclose the estimates of what it’ll cost the new buyers to fix whatever ails the house. (Many owner occupied houses don’t make the fixes.) Now, don’t think they do this out of the kindness of their hearts – they do this in hopes to prompt people to forgo an inspection when bidding gets tough and then close faster on the house. Next, if it’s owner occupied and not a flipped house, the sellers will then spend the first weekend putting their belongings into Pods or storage. That Monday the Pods will be picked up. Tuesday the staging company comes and either stages the house with the existing furniture or else puts all new furnishings in the house (always the latter with a flipped house). Wednesday a professional photographer comes and takes pictures of the house. Wednesday night or Thursday the house is listed on the market. Sunday there will be an open house for a few hours, and typically it’s the only open house unless there are some quirks to the property. On Tuesday or Wednesday the sellers will accept offers on the property. Normally they don’t accept preemptive offers, so there’s no use in tempting them with an early offer. By the end of the week their house is sold. And, if you were out of town for the weekend, you may have just missed out on your future home, so don’t plan to have a life while you’re looking for a house.
- The market conditions are controlled by supply and demand. Currently in all of the Bay Area there is very little supply, or people looking to sell their houses, and lots of demand of people looking to settle down and wanting to buy property. This means you have to riffle through the limited amount of properties that come on the market and figure out what you’re willing to settle for, unless you have a trust fund or are CEO of a start-up that just went public or was acquired and you have the money to put down on a house way over list price.
- When you write an offer, you’re not just sending them an offer, but painting a story of your life. Yes, like most places they get a contract with your offer price. In addition to that, you write a letter to the sellers stating how great of people you are and why you should be the future home-owners (and proceed to argue with your sig other on what picture you should enclose of yourselves to make yourselves look professional, yet fun, yet responsible, but not staged). This is where stealth LinkedIn and Facebook stalking comes in handy to know everything about the sellers – even if they birthed their youngest child in your potential new home (I wish I could say I was lying about that being true). You write them a check for your down payment amount to prove how serious you are about buying it. You also send them either a bank statement or print screens of how much money you have in your accounts (or just savings if you’re wealthy) to prove your check won’t bounce and that you’re not poor. Your lender sends them a preapproval letter along with an additional letter talking about how great of people you are and how quickly they can get you to close on the house (aka get the seller their cash). Your realtor schmoozes their realtor and gives up his or her free time to go to any realtor open houses they have to make themselves memorable when your offer comes in. (This is in addition to your realtor calling them incessantly in the days leading up to their offer date to see how many people have submitted offers and to get a ball park of what you should offer.) You sign their disclosures, saying that you realize all the defects of their home and promise to not make them fix them. And, if you want a little cherry on top, your realtor (and maybe your lender) will present your offer to the selling realtor and the seller, if they’re willing. Yep, it’s that exhausting.
- Getting a loan to buy a house in the Bay Area isn’t easy. Granted, cash is king, but most of us don’t have over a half a million dollars lying around. A lot of young couples out here take money out of their 401K to have upfront cash to buy a house, but I prefer to keep my money where it is, earning me the retirement I dream about. Plus I don’t have enough loot in my retirement fund to buy more than a run-down shack. You can do a traditional loan and put 5% down, but the maximum loan amount for that is $417,000. And, unless you’re looking for a one bedroom or a condo, this won’t buy you a house. You can do 10% down, but the maximum loan amount is $625,000 (that’s an easy $50,000 minimum, plus closing costs). Thankfully we found a loophole. There are loans out there called FHA loans. This is the financing method I used to buy our last house in Madison. An FHA loan is intended for first time home buyers, but since it had been over 2 years since I owed a house I qualified in Madison. Since my KISA wasn’t technically on the mortgage in Madison and I don’t own any existing property we were able to qualify for this. The down payment on an FHA loan is only 3.5%, but the loan max is again $625,000. We’re very ok with that because while it limits our house search a little, we don’t care to be house poor just to own. Unfortunately sellers are jaded, thinking FHA loans are for low-income people and that they have a tough time assessing, but we’re going to take our chances.
Given all this, it is difficult to stay positive and to have the energy to consistently look at places; I’d guess we’ve looked at somewhere between 20-30 houses and have put in offers on three. With that being said, if I send you links to the latest house crush I have, don’t get too emotionally attached like I do and pick out your guest bedroom because the odds are unfortunately not in our favor. And, if I send you a link to a dilapidated old house that we’re buying for a half a million dollars, don’t judge me…just offer to come visit and help us make it into something habitable; you would feel bad if our future babies died from eating lead paint chips, right?