How to Navigate the Low-Inventory Bay Area Real Estate Market

As interest rates creep up, the housing market is finally starting to slow down the slightest bit, but buyers still face a number of obstacles on the way to their dream home. High selling prices, a fast-paced market favoring sellers, and most of all, notoriously low inventory mean that buyers have to work harder than ever to purchase. Many homes are selling within a month of hitting the MLS sites, receiving multiple bids, and closing for higher than the initial asking price, even forgoing inspections in some cases. So how can a buyer compete in the current situation? Whether you want to purchase one of the luxury homes in Silicon Valley or a San Francisco property, being prepared in multiple areas is the key to success.

If you want to be competitive in a tough housing market, start by getting pre-approved. While you may be sure that you know how much the bank will be willing to give you, you don’t want to find out you are wrong after you found your dream home and placed a bid. Instead, sit down with a loan officer at your bank and get a finalized number on your preapproval letter. Having this will also prove to sellers that you are serious about purchasing, which may be just the edge you need to beat out another offer.

If you plan on paying with cash, be prepared to make that clear to sellers and have the money ready to go. If you are planning to liquidate an investment for your purchase, do so. That way, when you place an offer on a house, you can reassure the seller that there won’t be any delays due to your finances.

In the current housing market, it is likely that any house you look at is receiving multiple bids, so how do you stand out from the pack? There are a few ways to make your offer a bit more interesting.

The first is to increase your earnest money deposit so that the seller knows you are serious and feels more protected. While the amount is typically somewhere between 1 percent and 3 percent, going up to 5 percent or more may help quiet any concerns or interest in other bids.

You can also adjust and reduce your contingencies. Typically, it is built into the bid that the offer is dependent on the home passing inspections, closing in a certain window of time, meeting a specific appraisal number, or any number of other conditions. If you are confident that the house is in good shape, you are not relying on selling your previous house before closing on a new one, or you are paying cash rather than financing, you may find it worthwhile to eliminate some of these clauses. There’s certainly risk involved, particularly when forgoing inspections. But if you are prepared to handle any repairs on your own, the benefit of owning your dream home may outweigh the cons.

You can also simply offer more money, increasing your bid. While you may force some of the other buyers out of the running by doing so, you are also likely to end up paying more than the house is worth. However, to some degree, the value of the house is dependent on how much it is worth to you. 

When the housing market faces such low inventory, it is important for buyers to pay close attention to new MLS listings so that you can arrange to be one of the very first showings. Most houses in the Bay Area are currently under pending sale within a month after a short bidding war, so your best chances are to be one of the first to bid.

It’s important to check for new listings at least once a day, whether you do this yourself or your real estate agent does it for you. If you see a house you might be interested in, clear your schedule to see it as soon as possible. You should also be prepared to move fast if you like it. Gone are the days of sleeping on the decision to make an offer — if you want to purchase the house, ask your agent to get the offer in that night.

An experienced agent may be the weapon you need to buy a house rather than finding yourself forced out of the market. Realtors are trained negotiators, and their extensive networks mean that you might just have an inside track to new houses entering the market before they are officially on sale. A good agent will also be able to help you get your bid in fast, craft appealing counteroffers, and, perhaps most importantly, tell you when to walk away rather than taking a bad deal.

Maybe you’ve dreamed of living in a certain neighborhood your entire life, or you’ve always wanted to buy a Craftsman-style house. It is easy to get locked into your mental vision of what the home buying process should look like. However, at any time, but especially in today’s market, keep an open mind.

Some things on your list may be non-negotiable. You need the three bedrooms because of your kids. You need the office since your job has gone permanently remote. However, some things on your list, like the architectural style, might be a bit more fluid. Take a look at houses that fit other items on your list, and you might just find that you love a cozy Victorian with a bay window more than you expected.

This is true for neighborhoods as well. While you may have always dreamed of living in downtown San Francisco, you may find that Alameda is a bit more your speed. Don’t miss out on an otherwise perfect house because you are overly locked into your expectations. However, in contrast, don’t bid on a home that you hate or simply doesn’t fulfill your needs.

When you’ve talked to the bank and looked at your finances, you may have set your budget limit, and many people use this as a base for a range. Don’t ignore homes that are under your range — you may find a home that is a bit underpriced for any number of reasons, even though it is in good shape — or can easily be made into good shape.

If at all possible, wait to buy. Keep an eye on the houses available, but don’t settle for a house you don’t love. Instead, continue watching and waiting until the market balances or your dream home finally hits. This isn’t a perfect strategy — it is expected that, at least for a while longer, prices will continue to rise, but it is an option that may pay off for you in the end.

Don’t shy away from fixer-uppers or houses sold as-is. While in some cases, these require so much work that it may not be worth it for most people, when the market is as hot as it currently is, you may find that the expense of renovating a house is less than the expense of having to wait for a perfect option to come along.

If you do decide to purchase a fixer-upper, be prudent. Make sure you still get an inspection done so that you know exactly what needs to be done to make the house up to your standards and build a clause into your offer that allows you to bow out if the repairs look to be too much. That limit varies from person to person — maybe you are OK having to replace the plumbing, but rewiring the house seems just too overwhelming.

Don’t miss out on your dream home in a fast-paced, under-stocked housing market. While purchasing right now might be a bit more complicated than normal, it is certainly possible; it just takes a bit of finesse. Reach out to Kara W. Lee, real estate agent, to find out other ways to navigate buying in a seller’s market and for assistance getting into your dream home, whether that is one of the condos for sale in San Francisco or one of the Peninsula properties. Contact Kara today.