It’s not uncommon in the Bay Area, especially in the East Bay, for single-family homes to have multiple offers in the first two weeks. Low inventory, high demand, and enticing mortgage rates equal a perfect storm for home buyers vying for the same properties. The final sale price for homes in Contra Costa and Alameda counties rose 12%* over asking since January despite property values remaining steady. In San Francisco, the real estate market is even hotter: Asking prices have peaked at 16% over, compounding on the values for single-family homes, which rose 7.4% from 2016 - a $100,000^† increase!

 

• Low inventory - Both new construction and existing units entering the market have slowed

• High demand - Hundreds of companies have their headquarters in San Francisco, fueling demand for housing from commuters in the surrounding cities

• Inciting interest rates - Mortgage rates are continuing to fall to all-time lows, allowing more qualified buyers to enter the market

• Cash buyers - More and more cash buyers are entering the market, willing to buy ‘as is’

In order to win a bidding war, it’s important to understand the “offer.” In its simplest terms, an offer is known as an Offer to Purchase, and it contains the standard Contract of Purchase and Sale form which outlines how much you are willing to pay, the type of loan, the size of your down payment, the good faith deposit for escrow, closing cost terms, personal property, and the closing and purchase dates. (Your real estate agent will help you write the Offer to Purchase.) At the end of the day, it’s up to the seller to decide which offer to choose, and not all offers are the same.

 

To understand how to make the strongest offer, let’s look at what makes an offer weak:

 

• The buyer starts below asking price

• Small down payment^‡

• Escrow greater than 30 days

• Numerous financial and inspection contingencies

• Contentious terms (e.g., extended HOA fee coverage)

What does the “perfect world” strong offer look like?

 

• All cash

• Short escrow

• Few to no contingencies

Keep in mind that correlation does not equal causation, so although 23% of all homes sold in Berkeley went to all-cash offers^§, it doesn’t mean sellers are cash-hungry and ignoring other offers. In reality, all-cash offers tend to have fewer (and often times zero) contingencies, short escrow, and the offer terms are simple and straightforward. (It’s important to note that contingencies protect the buyer.)

 

Get pre-approved. You may have heard of a pre-qualification, but a pre-approval shows buyers you are seriously shopping. “’Pre-qualified’ means I’ve just looked at your paperwork, but haven’t put the loan through,” says Nicole Donn, a mortgage lender with U.S. Financial Mortgage Lending in El Sobrante, “’pre-approved’ means we put our computer through to Fannie Mae or Freddie Mac’s and got approval.” Demonstrating responsibility can help sway a seller’s decision. It also helps your real estate agent best represent your interests!

 

Appeal to the seller’s emotions. Sellers are very emotional. Sometimes the best deals occur when the buyer appeals to the seller’s sentiments. Writing “love letters” can help ease the seller’s fears of the next homeowner occupying a space they have called home. For example, couples who are expecting children can mention they believe the house will be the perfect place to raise their family.

 

Keep the offer simple. The more hiccups, bumps, and last-second changes a buyer makes, the more likely a seller will favor another offer. “The inspection contingency is the most compelling factor for sellers who are evaluating several close offers,” according to Redfin. “Waiving your inspection contingency shows the seller that you’re committed to the property with its flaws and guarantees that the transaction won’t be delayed by repair negotiations or other associated hiccups.”

 

Consider buying a house in the winter. Homes for sale in the winter tend to stay on market longer and go for less, so sellers have less negotiation power when their listing is receiving fewer and lower offers. Shopping between January to April can produce better results than waiting until mid-Summer, the hottest time for sellers. According to NerdWallet, homes cost 8.45% less on average in the winter months compared to the summer peak.

 

Use a Bay Area real estate agent. The strongest representation often comes from the agent with the best local market knowledge. Fortunately for you, we have sold thousands of homes in Berkeley and the East Bay and we deal with these issues every day. It would be our pleasure to help guide you through the process so you can make the most informed decisions possible.

 

There is a lot to learn about buying a house, and many steps to take, ranging from choosing financing options, investigating schools, learning about the East Bay neighborhoods, conducting home inspections, and understanding the purchase contract. Our real estate agents are among the best and brightest in the industry, keeping pace with updated technology and the ever-changing marketplace and practice of our craft. Contact a Marvin Gardens real estate agent today!

 

 

Notes: