Waiving an Appraisal Contingency

If you are active in the Oakland, Berkeley real estate market then you are aware we are in a seller's market and you have likely heard about all of the non-contingent offers. In a seller’s market there are typically multiple bids on a property.  When a buyer writes a competitive offer in an attempt to win the bidding war there are three main contingencies to consider; the inspection contingency, loan contingency, and appraisal contingency.  These contingencies are in place to protect the buyer, however, a buyer can choose to waive any or all in an effort to strengthen their offer and make it more appealing to the seller. I write many non-contingent offers for clients but I only do this when my clients have a thorough understanding of the risks and implications involved with writing and submitting a non-contingent offer. 

When writing an offer with no contingencies, you are telling the seller that should you cancel, for any reason, you are aware that you are at risk of losing your earnest/initial deposit money.

Because the appraisal is an aspect of the escrow that is determined by a third party, I'd like to further address the appraisal contingency in more detail. Every house purchased with a loan has an appraisal performed.  The hope is that the property appraises at the offer price.  Sometimes, in a seller’s market, bidding wars can cause appraisals to come in lower than the purchase price.  When an appraisal contingency is in place, an appraisal that comes in lower than the contracted purchase price allows the buyer the opportunity to potentially renegotiate the offer price with the seller. In contrast, if a buyer decides to waive the appraisal contingency, they have to be prepared to increase their down payment to cover the difference in the appraised value and their offer price.  

Real World Example: 

You are offering $900,000 on a home and it is your goal to buy a home with a 20% down-payment ($180,000 cash/$720,000 loan).  

The appraiser comes out and appraises the home at $880,000. You have waived your appraisal contingency, so you will need to have funds to cover the 20% down-payment, of the appraisal price ($176,000) plus an additional $20,000. See below:

$176,000 adjusted down-payment based upon 20% of the appraisal value +

$20,000 additional down-payment +

$704,000 adjusted loan amount = $900,000

Why do the numbers change?  A 20% down-payment loan program is based upon the appraised value, not the offer price. The seller accepted your offer at $900,000 and you wrote your offer saying you would pay $900,000, even if it does not appraise at this price.

What is at stake if you take a risk and do not have the funds to cover the difference?  Your earnest money, also known as a good faith deposit.  Typically, in our niche market, buyers are placing 3% of their offer price in a neutral escrow account. This money is held there until the escrow officer has mutual instructions from both the buyer's agent and seller's agent. This 3% is applied to the buyer's down-payment, unless the buyer breaches their contract. "Breach" means backing out for a reason outside of your contingencies or reasons not permissible per the contract. So, if you write an offer with no contingencies, which many buyers are now doing, and you back out because an appraiser values your potential future home for less than you offer, this is considered a breach of contract.

I hope this explanation helps you better understand the risks and implications of offers written without contingencies - specifically, an appraisal contingency.

Will My Home Appreciate?

Many people ask me, "Is this a bubble...when will it burst?"  So I thought, let's track appreciation versus depreciation in the Oakland and Berkeley real estate market.  I tracked sales posted on the local multiple listing service (MLS) back to 1998 and it turns out that we only had 2 years of depreciation, 2008 and 2009.  Funny, I remember that the Federal government gave an $8,000 first-time-buyer tax incentive in 2009/2010 that really boosted sales; and we have not looked back.  

We cannot predict how future markets will pan out appreciation-wise, but it is good to know that going back 18 years there has been only 2 years of depreciation.  This is good data to use in your decision on if or when you should buy.

Natural Hazards, where does the fault lie

When meeting with new clients, I always have a conversation about natural hazards.  The reality is, one will have to determine their comfort level when it comes to natural hazard zones before they enter into a particular transaction.  Many of my clients feel that it is inevitable that one will live in an earthquake fault zone, while others are adamant about living outside of that zone.  Additionally, there are other hazardous conditions such as high fire, liquefaction and landslide to consider.  In this seller centric market, many buyers will overlook hazards to win a property, but keep in mind, when a market shifts and inventory is higher than the buyer demand, some buyers may be discriminating when it comes to what they will accept or not.  Last fall, I had a heart-to-heart with buyers who were strongly considering a home with the trifecta of natural hazards: earthquake fault, landslide and fire zones.  I shared with them this could potentially impact future resale value.  After sleeping on it, they decided not to write an offer.
This interactive website was provided to me by one of the structural engineers that I have worked with. http://pubs.usgs.gov/ds/2006/177/HF_zoom.html
USGS Hayward Fault

Styling, It's Not Just For Celebrities

Every house has a different vibe, style, and architecture. When prepping a property for sale, its individuality should be taken into consideration. Not every home should have a mass produced feel with the same ol’ furniture and marketing. Even though it is a seller’s market there are properties that are not selling and some that are selling short of their potential; therefore, it is important to highlight characteristics and do the proper preparation to stand out from the rest. It is all about collaboration. I work with four different stagers and pair the stager’s style to that of my client’s property. Often it is the little touches that make the difference and set one listing apart from another. I attend Designer Showcase Homes to educate myself on what buyers want and to give expert insight.

Light fixtures and colors are similar to belts and shoes; they have to go with the outfit.  You want your property to look good, right?  Not every house is already adorned with a gorgeous vintage dining room light fixture but adding one can be the key accessory in giving off just the right vibe to prospective buyers when they preview the home. The wrong styling, or repetitive styling, can leave money on the table. When the market shifts, how will your house stand apart?


12 Eastwood 19 large


How much does a backyard pay you?

As I am reviewing some sold homes that earned multiple offers, selling over the asking price; I saw a common thread - really cool outdoor space!  Indoor-outdoor flow is a vital part of California living and a special backyard can make a small house feel bigger.  For the property below that I listed last year in Rockridge, I spent some time browsing on Houzz and Pintrest to see what I liked. I then shared my likes with my clients and we came up with this.  

This is the backyard at 406 61st Street in Rockridge before we placed it on the market.  My clients had always wanted to renovate the space, but after an extensive interior renovation, they  put the outdoor space on hold.

Here it is after flagstone, raised veggie beds and eco-lawn was installed with an irrigation system.

A view from the

Walkable Neighborhoods

Many of today's buyers are willing to pay a premium to live in a walkable community.  Here are the median prices of some sought-after neighborhoods in Oakland and Berkeley. Keep in mind, with charts like this, one outlier property that sold very high or very low can skew the median prices.  To truly understand what a home's value is, one must analyze property condition, disclosures,  inventory levels and property interest. Additionally, I was aiming for neighborhoods where the median price was about 1 million bucks and this is why these neighborhoods were chosen.  What are your thoughts about prices these days?  

This data was collected in mid-December

coming next week!

I am finding that many house hunters are looking for walkability over house size.  Next Sunday, my new listing in Rockridge will open, located blocks away from some of the best food in Oakland!

You could live near all of this!
You could live near all of this!

428 63rd Street, Oakland


A picture is worth a 1000 words

3707 Kansas FLOWER

In a world where people want to see homes in their pajamas in bed, property photography needs to be stellar to grab a buyer's attention.  I love working with my photographer, Peter; he totally gets me.  On every photo session, I explain to Peter what I am trying to exude to potential buyers.  A house is more than the rooms and the staged furniture, it is about setting the stage and giving a vibe.  This photo was captured last week at 3707 Kansas Street in the Laurel District of Oakland - a sweet, sunny bungalow studded with fruit tree- love the bee on the citrus blossom.

I am back - February 2013 Oakland and Berkeley Real Estate Update

Sorry for the lengthy lapse in posts!  I have been very busy helping clients! Over the past few months, East Bay real estate has been a whirlwind.  The combination of low interest rates, high rents, and a surge in desire for homeownership has once again created a sellers market.  Prices in communities of Oakland and Berkeley are still not at the peak prices of 2005 through 2007, but they are up from the steep decline of 2008, 2009, 2010 and 2011.

The biggest equity gains in Oakland have happened in the the walkable areas such as Rockridge and Crocker Highlands. (See the stats for these neighborhoods at the end of this post.)  As more buyers migrate to the sunny side of the Bay from San Francisco,  a higher demand is placed on a home with an easy walk to coffee, restaurants and public transportation.  Lifestyle can often trump home size in importance.

For buyers it is important to consider that interest rates will likely rise as the economy improves. This historic window of "cheap" money will not last forever.  As a buyer, if you plan to keep your new home for a long time, you can count on keeping that fixed rate, low interest loan and will maximize the savings.  I suggest that my buyers consider purchasing a home that will fit their needs for a minimum of 7 years.

Is now still a good time to buy even when buyers must compete, and prices can go substantially over the original asking price?  My answer is yes. Consider this. A listing price is a marketing tool. Many sellers decide to price their homes under its expected sale price to gain maximum exposure during the period the home is marketed to the public. Using this tactic often means that a seller with a home that might be worth $800,000 will price it at $720,000.  When a buyer offers $80K over the asking price, their offer is actually spot on in regard to value. But stopping there does not take the competition into consideration. With multiple buyers offering to buy the same property, it is often necessary to bid even higher than fair market value to win the home. What a buyer should factor into the equation while they ponder what price to offer is,  the record low interest rates. At a 3.75% interest rate on an offer of $811,000 and a buyer just might beat the competition by offering a few thousand dollars more. For example, the monthly payment with a 20% down payment, (not including property taxes and insurance) would be $3004.69.

What's the risk in waiting? Using the same example, if the interest rates rise to 5%, (still a great rate!), your monthly payment would be $3482.90. That equals a $480 per month increase for the same loan. It equates to an additional $5760 per year and $40,320 over a seven year time span. If you decided that you wanted to keep your payment down to the $3000 per month range and interest rates went up to 5%, your buying power would equate to a purchase price of $700,000 as opposed to $811,000- decreasing by over $100K. The risk here is that there is no guarantee that home prices will decrease accordingly by 7%.

A final factor to consider is whether you will  benefit from a tax deduction.  For example, if you make $100,000 annually and pay $30,000 in mortgage interest, you will be able to deduct that cost from your income for a substantial savings. (Please consult your tax adviser for the exact tax saving).

Ultimately home ownership is a personal choice, and a big investment. As you consider whether buying a home at this time  is right for you realize the numbers are now showing that the current market is in a sweet spot. The prediction moving forward is that prices and interest rates are on the rise...


1936 Rancher Captured My Heart on Broker's Tour

Last Thursday I saw a house that I could picture my life in - 2665 Camino Lenada in Montclair. (Listed by Mindy Scott)  I drive down this street almost daily during the school year to drop my son off at Montera Middle School and I never noticed it before.  This street is typically tight with school traffic, but one of the special features about this property is that it is set back from the street on a  large lot size, (.33 of an acre) with plentiful and easy parking. If you decide to utilize the public schools, Joaquin Miller and Montera are a block away.  Additionally, Montclair Village is a few blocks away. This is not a mid century modern rancher, but a colonial rancher with 1930's details including, vaulted beamed ceiling in the living room and many traditional details.  The house just feels good with breezy indoor/outdoor flow, large rooms and great separation of space with an ample master bedroom.  Listed at $972,000, this home was my favorite property on Broker's Tour.

The Market

Spring 2012 has shaped up to be a great for many sellers.  Buyer confidence in the real estate market, continuing low interest rates and a lack of quality inventory has created multiple offers galore.  Where I have seen the most action is: Piedmont, Rockridge, Crocker Highlands, Piedmont Avenue, parts of Montclair, North Berkeley and lower Berkeley Hills, parts of El Cerrito, Elmwood, Glenview, Lincoln Heights, North Oakland, and select homes in Redwood Heights and Upper Rockridge. Here are a few things buyers are going gaga for: Buyers know that the best investment is buying a home that will meet their needs for at least 7-10 years.  Therefore, buyers are looking to purchase a home  that they will not immediately outgrow - ideally having 3 bedrooms or some bonus space. Flow is important!  Many buyers like open space, and really good indoor/outdoor flow. This is sunny California! Al fresco dining is becoming a must... Although many people like the idea of fixing up a property, a buyer would prefer to buy a home that is move-in ready with a minimal amount of work. Natural light! Natural light and the warmth of sunshine makes people happy! Original details including hardwood floors, vintage tiles, period built-ins and mature native landscaping.

Price is key: If your seriously ready to move, when pricing your home it’s best to let go of the idea of recouping what you paid for your house when you purchased it.  Price your house according to today’s current market value using the most recent sold neighborhood data as a guide. You have the best chance of gaining market attention if you are priced slightly under market value.  Price is a key part of your marketing and can make or break the momentum. Although I recommend pricing your home as low as you can go, always list your home at a price you are willing to accept if there is only one offer. Some homes are getting multiple offers and some are not and ultimately your house will sell, (if marketed correctly) at the highest price a buyer is willing to pay.

Some recent stories from the field:

  • A completely renovated tasteful 3 bedroom/2 bath home in  Redwood Heights with great indoor/outdoor flow recently received 5 offers and is pending substantially over the asking price
  • A 3 bedroom/ 2 bathroom Berkeley brown shingle near the Live Oak district received 5 offers and is pending substantially over the asking price
  • A completely renovated 4 bedroom home in Lower Rockridge received 11 offers and is pending over $100+K over the asking price
  • A pristine mid-century in the Oakland Hills 2700+ square foot home with no view but a swimming pool and one bedroom pool house had 9 offers and sold over $80K over the asking price
  • A small 800+square foot 2 bedroom/1bath cottage with new roof, large lush landcaped backyard in the Lincoln Heights neighborhood sold over the asking price with 4 offers
  • A large 1940’s 2 bedroom home in the Laurel is now pending over the asking price after receiving 9 offers
  • A Montclair level-in home with gorgeous outdoor spaces and walking distance to Montclair Village had 11 offers and is pending over $100K over the asking price.

Buying a home in today's market

Compared to last year this is a completely different market for many reasons. If you are currently house hunting in the Oakland and Berkeley neighborhoods and are either tracking the market or bidding on homes, you are seeing multiple offers, aggressive bids that favor the seller.   The areas that experience the most competition are, Rockridge, Elmwood, Crocker Highland, and Piedmont as well as scattered properties throughout Oakland and Berkeley that have a "wow-factor" about them.  Twice in the past month, I have witnessed people dropping their appraisal contingency to get into contract.  This means:  A person offers $800,000 on a home, the appraiser deems the house to be worth $750,000, by dropping the appraisal contingency, the buyer is saying they will buy the house regardless of the appraised value.  If they are getting a loan this would mean in the example above that they would have to put an extra $50,000 down. Many people are tired of waiting for the "bottom" of the market and want to be homeowners now.  They want a place of their own.  They may want to take advantage of low interest rates and they know that renting has no long term return on their investment.  When supply is down and demand is high you will likely not underpay for a home, but there are ways you can make a smart move.  A few of my tips were published in the San Francisco Chronicle last Sunday.  Please contact me for more.  (click on image to enlarge)