I have several clients who are genuinely concerned about over-paying in this market. I completely understand this concern and in no way disregard it. Frankly, the money is not mine, so the purchase needs to make sense for the buyer. The problem is that Oakland and Berkeley have very limited inventory. In Rockridge, only 56 homes sold through the local Multiple Listing Service for the entire year of 2016. If you purchased in this market, you likely paid what you felt was a premium to get into the neighborhood. Maybe you waived your contingencies and paid more than the appraised value. You may be sitting here thinking, "Who does Deidre think she is to encourage this type of offer?" Well, the fact is that the market has not slowed down in 2017 and prices thus far have surpassed what folks paid in 2016. Essentially, if you bought last year, you are ahead of the game.
But let's be honest: The market can soften and values can decline. This is real estate, a commodity that fluctuates just like other investments. If you are buying in this market and are only considering certain areas, you will likely need to pay a premium, but the key is to do so wisely. Purchase a property that will fit your needs for the next 7 to 10 years or more. That way, you won't have to worry about the market going up or down because you won't be selling. Furthermore, the market may soften, but interest rates will likely go up.
This morning I was talking with Vanessa Bergmark, the owner of Red Oak, about our market's similarities with the stock market. Let's say you invest in a retirement account with a goal of retiring in 2030. You may work with an advisor or select mutual funds based upon moderate growth. You may see retirement rise and fall, but you do not panic because you're not retiring anytime soon. You would not do a panic sale at the threat of further decline; you would wait it out. You should have the same outlook when buying a home: Buy a place you can afford that fits your needs and is in a neighborhood that works for you. Enjoy life and hold on to your property.
I have heard many buyers say they would never pay that much for that house and, just like that, values increase even more. Earlier this year, I had clients who were trying to buy a home in South Berkeley but did not want to spend more than $950,000. They wrote a $950k offer and were verbally countered to $990,000. They decided to liquidate some assets and stretch to the $990,000 price in order to buy the home. Fast forward 6 weeks later, a home within 1 block closed escrow at $1,200,000. By stretching in that moment, those buyers scored a home that they love and have stopped chasing the market. If you're currently looking to buy and are not offering enough money, you are chasing the market with your next offer.
Five years ago, I helped someone buy a fixer in the Rose Garden area of Oakland. At the time, I worried that they overpaid. (Yes, I worry all of the time for my clients!) For that year, they paid top dollar for a home in that condition, yet one year later a home half the size on the same block sold for $100,000 more than what they paid. Fast forward, 3 more years and they are ahead by $250,000.
This is not to say that you should buy a lemon or buy beyond your means; rather, focus on what you can afford. Buy smart and for the long haul.