|Spring Real Estate 2005
Publication Date: Wednesday, July 20, 2005
It's a mad, mad, mad, mad market
by Carol Blitzer
David Olerich, a Palo Alto Alain Pinel agent, recently listed a house in Barron Park for $965,000; 10 interested parties picked up the disclosure packets and four made offers, all over the asking price. The house sold for more than $1.3 million.
"It gets to the point if you're representing a buyer who's successful, they're mad because they think they paid too much -- or mad because they didn't get it," he said at a recent open house.
So what makes the market so nuts? Continued low inventory and low mortgage rates, coupled with a healthier NASDAQ, are attracting buyers who may have been sitting on the sidelines. The result: higher prices and lots of disappointment.
"I've seen the worst imbalance between supply and demand since I entered the business in 1974," said Olerich. He threw in another factor: generational transitioning where Baby Boomers are paring down and Gen Xers buying up, adding to the demand side.
Today, "a $1.1 million buyer looks at a $950,000 house," said Alain Pinel agent Annette Jahnke.
It's typical for inventory to be lower at the beginning of the year -- and home-seekers in Palo Alto, Menlo Park and Mountain View have found few choices in the first quarter. But, that's no different than it's been for years.
A key difference is the number of days on the market, said ZipRealty broker Abbie Higashi.
"There have been weeks when inventory has been extremely low," she said, adding that there's an influx of buyers from as far away as San Francisco (because they can't buy anything there), plus a big pool trying to capitalize on interest rates. "With every listing you get multiples, hands down," she added.
Not since the heady days of 2001 have houses moved so quickly off the market -- on average 20 days in Palo Alto in February (compared to 24 in 2001, 55 in 2002). Menlo Park is even more dramatic, with average 22 days on the market in 2005 vs. 43 in 2004. Mountain View tops them both, with houses averaging only 16 days on the market in February 2005 vs. 25 in 2004.
"Last year 15 to 25 homes were active at one time, now you'll see five," Higashi said, adding "by the time your buyer is ready, the houses are off the market."
Her advice to buyers (and fellow agents): "You can't start showing properties in the price range stated. They'll need a $200,000 cushion. ...You have to tell them about the market conditions and forewarn them that they'll have to pay 10 to 20 percent over list price to be a serious contender."
It all comes down to supply and demand. Last year, 605 buyers scored homes in Palo Alto, at a median price of $1.15 million. Quite a few more didn't.
Thierry Bui has made 15 offers since last summer, coming up short each time. He's looking for homes with a great location (ideally Palo Alto), curb appeal and at least three bedrooms. Every offer was over the asking price, and he's been told that his offers tend to fall in the middle of the pack.
"If it's a house I really like, I get really depressed -- until the following Saturday when I go look again," Bui said.
Valerie Vauthey, back in the market after a six-month break from house hunting, wants a large back yard, maybe even a "hut on a big lot." She estimates she's seen at least 95 houses since she resumed looking in January. She had seen "so many crappy houses that were so expensive. I was waiting for the market to crash. It didn't," she said.
At the end of February, Vauthey finally made a bid, but had to up her cut-off price to $1.5 million "to get something that looks good." Earlier she'd been tempted a couple of times, but was put off by the "see it on Sunday, bid by Wednesday" mentality. "I found two houses I liked but I had only two days. I wanted to go back. It's a big investment.
"It's like a poker game. People need to win," she said, adding that "it's a game that stakes your livelihood. You could get too much into debt."
These experiences are not surprising, noted Jahnke at a recent open house in Menlo Park. Welcoming people to look over a "wonderful Menlo Park home full of comfort and charm" in the South of Seminary neighborhood, she fully expected more than 10 offers for the house that was listed at $975,000. She got all 10, and the house sold for $1,400,250.
She described a recent bidding war where all four would-be buyers bid exactly $1.6 million for a house where the asking price was $1.4 million. Given a chance to re-bid, her client wanted to up the price by $25,000. Jahnke suggested that if they really wanted it they'd be wiser to bid up by $50,000. The house went for $1.65 million.
Olerich has strong feelings about pricing a property correctly -- so 17 people won't be disappointed and ultimately drop out of the market. Some agents have a habit of listing houses below what they're worth. "It fuels a feeding frenzy and leads to broken hearts," he said.
Any agent that consistently draws huge levels of multiple offers simply does not understand today's market, he added. "We're seeing some phenomenal things -- six offers and one may be way over. That buyer is prepared to pay a premium to be successful" and they'll be there long enough, or expect appreciation to take care of the increase in price.
"You have to make an informed offer," he said, adding "Every time you make an offer that's unrealistic, you're fueling the person who's most propelled to buy this house to pay more."
Ultimately, that makes you -- the loser -- responsible for pumping up the price when the next nearby house comes on the market.
Coldwell Banker agent Deniece Watkins could not agree more. "I've never had a client make more than three offers before they actually purchased," she said. "You don't tell them what you feel. You show them what has sold, for how much money, for what criteria, so they know what they realistically have to do to get in."
Watkins offers advice and some information for both buyers and sellers on her Web site, www.gotagent.com. She stresses offering statistics, and she's got plenty. "In our office (Los Altos), 99 percent is going over asking. It matters if you price the home properly. ...If it goes past seven days in this market, it's too high priced," she said.
Watkins warns that hungry, new agents could entice a seller with a discount up front, but "anyone who's willing to throw away their money is willing to throw away yours."
And, she said, more money is made during negotiations, rather than on commissions. She cites a case where a property is listed at $1.5 million, with a normal 6 percent commission. A seller assumes his cost at $90,000, if he gets his price.
"If they work with an experienced agent, who knows how to negotiate price, terms, liabilities, then more money is made there. They know how to make people compete, how to cover every area," she said, adding that an experienced agent can save a seller money in the long run.
In a rapidly changing market, what's a buyer to do, to guarantee success?
Wait just a bit, if you can, proposes Olerich, who said inventory hasn't been this low in years, and buyers are paying a premium. In February, it was typical for a house to be on the market for nine days and to attract five offers. At that time there were only 29 houses on the market, with another 42 in escrow in Palo Alto.
"In spite of talk of a bubble, there's a lot of unsatisfied demand," he said, noting that more houses traditionally come on in March through June.
He advises buyers to look at everything out there, so when a house comes up that fits their criteria, they can make an informed offer, "not necessarily what the listing price is."
As for the would-be buyer who made offers on 15 houses, Olerich said "he needs a new Realtor. It's a really weird market right now and you need to understand it."
That weird market puts pressure on all the players. "I tell sellers 'you have to think of yourself and your family; you don't create the market, but be sensitive to buyers.' They're jumping through hoops for you. You want to go into it with a good feeling."
Assistant editor Carol Blitzer can be reached at firstname.lastname@example.org.