Top Five Secret Luxuries of the Bay Area Housing Market

Sshhh… We've got it and it’s a secret worth keeping to ourselves.  A quick trip to LA taught me that the lifestyle coveted by the rapidly growing pool of billionaires is not only ours--but relatively affordable. Last week, this Berkeley girl swapped her old Birkenstocks for new Jimmy Choo’s and teetered into a private event auspiciously titled, “Luxury Connect.” It was hosted at the $135 million dollar Beverly House in Beverly Hills.  The one-day affair was limited to 100 attendees and boasted a panel of the who’s who in the Los Angeles luxury real estate market. 

While I sat furtively listening to the guys from Million Dollar Listing, I started to notice an interesting pattern.  Luxury is becoming less about conspicuous possessions (bad call on the new shoes) and turning more subtly towards an idealized daily life. Today’s high-net-worth elite covet luxurious creature comforts in and around their not so humble abodes.  Surprisingly (or not), the new list of must-haves matches nearly perfectly with what we know and love about our East Bay neighborhoods in Oakland, Berkeley and Kensington.

Here’s what the East Bay’s got that's hot in multi-million dollar LA estates:

1. Views: When asked what tops the list of “must haves” for the financial elite, broker Sally Forster Jones quickly declared, “views.” You know you have reached the pinnacle of your career when you can claim outstanding views. Areas in the East Bay such as Berkeley, Oakland, and Kensington, boast bountiful views of the San Francisco skyline and the Golden Gate Bridge, and deliver spectacular California sunsets night after night.

2. Eco-friendly: During a session on design and construction Innovation, architect Leo Marmol noted that opulence is often tempered by guilt.  If you can afford to fly by private jet, chances are you’d like to offset your emissions by shrinking your carbon footprint while at home. Billionaire’s homes are shrinking in square footage while emphasizing their energy efficiency and use of sustainable resources. The East Bay got the global warming memo and acted appropriately. Berkeley is number seven on Mother Nature Network’s Top Ten Green US Cities, posting Berkeley as “a great place to find an abundance of organic and vegetarian restaurants also on the cutting edge of sustainability. Berkeley is recognized as a leader in the incubation of clean technology for wind power, solar power, biofuels and hydropower.”  Oakland is ranked even higher, claiming the number four spot, having, “access to an abundance of fresh, organic food, much of which is locally sourced. It's also home to the nation's cleanest tap water, hydrogen-powered public transit and the country's oldest wildlife refuge. Oakland also plans to have zero waste and be oil-independent by 2020, and already gets 17 percent of its energy from renewable sources.”

3. Recreation:  Health-conscious billionaires are retiring the treadmill, preferring trail running with a personal trainer over the tedium of the home gym.  The East Bay Regional Park District is something of which the East Bay can be proud. The system comprises 114,000+ acres encompassing 65 parks in Alameda and Contra Costa County, including over 1,200 miles of trails.  But this isn’t just about staying in shape; people seem to be looking for a greater connection to the outdoors. Busy entrepreneurs like to know that recreation is easily accessible and luxury real estate investors want their safe harbors to do double duty as vacation retreats.  Aside from our local splendor, it is a great Bay Area boon that fabulous weekend destinations like Napa Valley and Lake Tahoe are within easy driving distance.

4. Mild Climate: High-end smart houses are now equipped to adjust the air temperature, lighting and music to daily preferences. While our historic homes may currently lack high-tech habitat controls, our weather more than makes up for it. Where climate is concerned, it’s no exaggeration to say we are the best.  According to Wikipedia, “based on data gathered by the National Oceanic and Atmospheric Administration, Oakland is ranked No. 1 in climate among U.S. cities.”  Many out-of-state visitors are surprised to learn that few of our homes feature air-conditioning.  Instead, the Bay provides natural climate control for the area.  And, if ever it starts to feel too warm, the fog drops in to kindly reset our thermostat.

5. Car-free Commute: During the “Under 40 Luxury Buyer” panel, agent Kat Carrol expressed that her buyers are looking for locations with good public transportation.  The wallets of the young and wealthy now sport a passport and a transit card in lieu of a driver’s license.  Let’s face it; there is nothing cute about sitting in traffic--no matter how fab your Ferrari. On my trip home from LA, I left the hotel about forty-five minutes early in case my driver hit traffic on my way to the airport.   Not a problem here, as our extensive Bay Area Transit System (BART) is a commuter’s dream and can get you to work no matter how far you travel.  Not impacted by street traffic, BART can deliver you all the way to San Francisco Airport (SFO), an international hub for worldwide travel. Alternatively, if you want a more personal mode of stress-free transportation, try a bicycle.  With Berkeley’s impressive network of Bicycles, and Oakland’s innovative Super Sharrows, safe cycling options and exceptional weather encourage happy, healthy commutes.

Life is rough here in Berkeley, and I’m finding it hard to limit myself to just five reasons to gloat.  The East Bay has always been a world class destination ripe with cultural riches that include art, opera, theater and music. Then there’s the food. Berkeley’s own Alice Waters pioneered California cuisine, and Michelin star restaurants abound around the Bay. But, maybe one of the best kept secret luxuries is our ability to celebrate uniqueness in all its forms. When everyone is special, it gives the gift of low key anonymity to our local celebrities. 

California Dreaming on Such a Berkeley Day / Living SF Luxury at Berkeley Affordability

View from 934Arlington.com

Fifteen years ago, Buyers looking for their Bay Area "dream house" were likely to tout a bay view as a top must-have. In today's market a view is still wonderful, but more and more buyers are willing to sacrifice a front seat at our beautiful sunsets for the more practical ability to walk to a local coffee shop.  At Berkeley Hills Realty we call this the "latte factor."

A noticeable shift took place in 2009 when a study, Walking the Walk, came out with a subtitle; "How Walkability Raises Home Values in U.S. Cities." The research shows that homes in walkable neighborhoods are worth more money in nearly all metropolitan areas. And yes, coffee shops count. The WalkScore algorithm used in the study looks at a multitude of categories; coffee shop, grocery store, movie theater, park, bookstore, drug store, clothing/music store, restaurant, bar, school, library, fitness, and hardware store. The study author, Joe Cortright, states, "An additional one point improvement in average Walk Scores adds between $700 and $3,000 to the value of a typical house, holding all other factors constant." Remind me to tip my barista.

Local amenities not only support the value of our housing stock and add to the joy of our daily lives-- they may just help save the planet. In June of this year, NBC News contributor, Diana Olick reported:

Car shares, bike shares, improved rapid transit and teleworking. All are the product of a new generation that is more environmentally conscious than any before it and more willing to use its own energy to get around town, rather than tapping expensive energy sources. Millennials prefer urban cores, even ones outside of major metropolitan areas, because they want to be able to walk or bike to work and stores.

Living the good life in the Bay that bears the name San Francisco might make you think you need the City to enjoy its creature comforts.  San Francisco's got it, but the price is steep. Instead check out some of our walkable neighborhoods in the East Bay. 934 Arlington Avenue in Berkeley (open Sunday 10/12/2014) offers a great WalkScore and a spectacular view.  With fabulous neighborhood shops, nearby amenities and better affordability, you can live like a San Franciscan while spending like a Berkeleyite.

Grab a great cup of coffee at your favorite local shop and compare to 934 Arlington home values of $408 per square foot to San Francisco housing prices.  Don't dribble your coffee as your jaw drops, we think you will be delighted and amazed.

Slap a Sign Up and We Are Outta Here

Is there a real estate bubble in the East Bay?  If so, is it time to cash out?  If you want a one way ticket out of the Bay Area and you own your own home, the numbers seem to be in your favor. In April, 49 homes closed escrow in Berkeley at an average of 120% of their asking price.  The upside potential is even more amazing as three lucky sellers closed at more than 150% of their asking.  Back in March, we saw an example as high as 167%. Apparently, it pays to have the great home everyone wants, as higher quantities of multiple offers drive the highest overbids.  Luck only works as an exit plan unfortunately, because jumping into the bidding wars as a buyer isn’t as opportune. (See Priced out of my own ‘million dollar’ Berkeley block by Reichi Lee as published by BerkeleySide.)  This may be one of the main reasons for sale signs aren’t up in more front yards.  If you cash out now, it may look daunting to try to buy back in.

Back to the bubbly: I hate to label the current housing boom as a “bubble” mainly because of the fear the word provokes in an area where many are still nursing wounds left by the recession.  We need a less scary word, maybe just “bubble-lite.”  True, the market is soaring in much the same pattern as once again our housing supply can’t meet the current demand.  But this market is somewhat different. It is expected to have a softer deflation, because this time homeowners have more skin in the game in the form of actual equity in their homes.  This is due to two factors.  First, new lending restrictions are implemented which often necessitate higher down payments in order to qualify for a home loan.  The second reason is a little less obvious to those outside the feeding frenzy and is a direct result of the psychology associated with multiple offer situations:  You know the expression, “a bird in the hand is worth two in the bush.”  In this case, the birds are Benjamins.  Given the choice between multitudes of buyers, many sellers feel most comfortable with the buyer who has the most Benjamins in hand. In most cases all cash offers, or offers with high down payments, stand a better chance at being accepted.  As a result, homes still sell high, but with more actual pennies in place.   In 2013, 52.2% of buyers had down payments greater than 20%, and nearly 30% were all cash buyers. These two equity elevators will work like a buffer against the fear of future short sales and foreclosures.

Timing is everything and more housing inventory has come on the market this week, easing some of the market zealousness experienced in April.  Such weekly shifts are not predictors as small blips in inventory will not adequately meet demand and level the market place.  East Bay housing demand may be on the rise.  Before this bubble can pop, we have another market propellant unique to our neck of the woods (or seeping in our direction out of Silicon Valley).  Facebook was the first to test the waters of the post-recession economy by going public.  Despite a bumpy start, they paved the way and now it seems many California technology companies are ripe for going public. According to the founder of several tech companies, Marcus Nelson, “Should the bull market come out to play, expect a successful Twitter IPO to kick off a domino effect for other Silicon Valley tech companies – and well beyond.” As companies go public and stock options are realized, this could inject more fuel to the equity fire.  These stockholders may look to the city first, but often come across the Bay to find relatively affordable real estate.  Prepare to see more cash offers in our future.

Now, if we only had more homes to sell….

Open Letter to East Bay Sellers: “Please, Raise Your List Price”

Yep, I said raise your list price.  Some real estate professionals can’t believe that these words would come out of another agent’s mouth.  The more common challenge is getting a reasonable and marketable list price from an emotionally attached Seller.  (Everyone tends to think their home is the best on the block, myself included.) 

Enter the East Bay Real Estate Market, where low inventory translates to multiple offers.  Some say you can’t price a home too low in this hot market as the price will self-correct upwards and then some when the bidding war happen.  This is not an absolute truth.  Seeing multiple offers all around has us thinking that Sellers may in fact need a new strategy.  Here are our reasons for asking Sellers to increase their price:

1.       It’s Worth It! Not to overstate the obvious, but we are in a booming market.  We started talking to some of you a while ago when you first thought about putting your home on the market. While you may have had a price in mind based on that initial conversation, it is time to revisit the recommended sale price. Your home is likely worth more.

2.       You Might Be Missing the Mark. Too low a list price may put the property below the range of its targeted buyer.  If you expect a million dollars for your home, you can’t sell it at a bargain basement price.  Buyers who are qualified to spend $1,000,000 may start looking a bit lower--but not substantially so.  After all, they want a million dollar house, so why should they start looking at homes in the $700s?  If you list your million dollar home at $700,000, and the buyers looking at it can only afford $800,000, you may miss your audience.  To increase your odds for success, price your home within 10% of your targeted sales price.

3.       Bidding Wars Don’t Always Bring the Top Price. Everyone in this office has heard stories of the houses that sold for two times the asking price.  These are specific anomalies that, because of their freakish nature, gain the most buzz.  They are not the rule.  In markets where homes sell repeatedly with multiple offers, more predictable patterns begin to emerge.  A general pattern might be noticed, for example, whereby a home with three offers may go over asking by 10% or so, whereas a home with 14 offers may go over asking by 30% or more.  These overbids tend to cap out by about 40% when buyers begin to step down from the competition based on affordability or perception of a property’s value.  Here’s how the numbers could affect you: if you price a home worth $600,000 at $400,000, you may get lots of offers based on the unbelievably low price (not surprisingly, many bargain hunters are included in this group).  However, those offers may top out at about $560,000--40% over--even in the spontaneous bidding war. It may be worthwhile to instead start at an asking price of $550,000, get a few offers, and eventually sell at $605,000 (while only 10% over, still a higher net than the previous example) . This is tricky because most Sellers still see the sheer numbers of offers as proof of success—and not the potential net. 

4.       Breaking Hearts Isn’t Easy.  It is often fun to put on a good show and charm dozens of buyers into writing fabulous offers.  It feels especially nice to field all the love letters that come in telling you that your home is the only one on the planet that could house their future memories.  But there is an emotional letdown that happens after the 24 offers are heard.  The heartache comes when you have to tell 23 buyers—all of whom fell madly in love your home—“we’re just not that in to you.”   Heartbroken buyers get fed up watching the homes they like close at 30% or more over the price they saw at the open house.  This frustration, if left unchecked, actually begins to force Buyers out of the market and onto the sidelines.  This could end up tamping your ability to receive offers.  We have gotten calls from clients who won’t make an offer while under fierce competition from other buyers.

5.       Tell Me What You Want, What You Really, Really Want… Perhaps the best argument for a higher price is based on your own instinct and the price you are ultimately willing to accept.  This determination should come after a frank and realistic conversation with your agent about where the value truly lies.  Assume you only get one offer (and it does occasionally happen in the East Bay), can you take it?  If the answer is a quick “no,” your price is not realistic and should be revisited.

Price is the most important marketing decision related to the successful sale of your home.  Deriving the right listing price is complex.  If you would like to speak to an expert about the best strategy to maximize your home’s value, please reach out to one of our experienced agents.  

Home Buyer Tip: Why Building Permits Matter

Having spaces properly permitted is ideal.  However, it is not uncommon in our area of older housing stock to come across spaces that have not been permitted.  When we evaluate non-permitted space these are our concerns:

1. Market Value.  Often, even non-permitted spaces still have an inherent "use" value.  The value of the space in our area is usually related directly to the quality of the improvement and usefulness of its purpose.  Because of our competitive market (and frequency when non-permitted spaces sell at high value), it is hard to pinpoint any direct correlation between  a lack of permit and decrease in value. 
2. Appraisal Value.  Conversely, we have seen non-permitted space effect the value in the eyes of a lender.  Some bank appraisers will not give ANY worth to a non-permitted space.  If the banks appraisal comes in lower than needed to achieve the desired loan amount, this is a risk for the buyer.  The buyer may not be able to qualify for the purchase.  Buyers should protect themselves with a loan and appraisal contingency.
3. Potential Future Liability.  Some jurisdictions have taken a fairly easy going stance regarding existing spaces.  However, if you ever want to improve the space by adding plumbing or electricity, it may be necessary to bring the entire space up to code and pay for permits in order to permit your improvements.  Also, some cities have been aggressively pursuing code violations- via dive-bys, trolling through the Internet and showing up at open houses.  This has been met with some pushback in these communities.  This is a potential risk for any of the areas we sell in should the local jurisdictions decide it is worth a little bad PR to seek the revenue such violations could bring into the city coffers.
4. Lack of Oversight.  Finally, having proper permits means that the space was inspected and meets the standards of the codes current at the time of the inspection.  Without permits, this code check did not take place.  Even with a good inspector, there may be defects that cannot be seen because they are hidden behind drywall or under floor coverings.