Like a bull in a china shop, our local real estate market charges on, leaving in its wake the shattered dreams of distraught buyers who anxiously try to piece them back together. The pressure to successfully consummate a home purchase increases daily thanks to the compound effect of rising prices and rising interest rates. With each passing day, buyers are getting less for their hard earned dollar.
Both average and median prices are up about 25% in northern Contra Costa County, compared to the same time last year, and slightly under 20% in southern Contra Costa County. The increases are even more severe in the East Bay and South Bay given their proximity to the Bay Area’s economic centers.
Much of those gains, however, have come in just the last couple of months and point to the likelihood that year-over-year gains will be even higher in the coming months. In my hometown of Pleasant Hill, I recently had a front row seat to an example of documentable gains of over 11% in just six weeks. The data in this case were two almost identically sized, configured, and updated homes, located mere yards away from each other on equally desirable streets. In other words, it was a rare opportunity for an apples to apples comparison.
House #1 was listed in early April at $549,000 and was bid up to $585,000. House #2 was listed in late May, just two weeks after the closed purchase of House #1, for the identical asking price of $549,000. But despite being nearly identical in all respects to House #1, bidding for House #2 stopped at a jaw-dropping $650,000.
As I dug into the recent sales data for more evidence of this phenomenon, I noticed an interesting trend. The market’s intense bidding activity is focused on three types of homes:
1) Homes that have all of those updates and improvements that magazines and HGTV are telling the American public they should want.
2) Major fixers that, cosmetically speaking, need extensive updating. Overly optimistic investors appear to be jumping into these projects in hopes of hitting it big.
3) Single level homes, thanks to the growing numbers of Baby Boomers for whom stairs are a deal-breaker.
Receiving far less attention are those two-story and split-level homes in “so-so” condition. In most cases these are in pretty good condition, but either suffer from some minor deferred maintenance, have dated bathrooms and kitchens, or are just plain poorly decorated.
In one case, I located a home priced at $650,000 that offered a better location and 700 more square feet than the homes mentioned above, yet it was sitting with no offers after two weeks on the market. Although relatively well updated and meticulously maintained, it suffered from a “challenging color palette” that could easily be remedied with $5,000 of paint and carpet updates.
So if you’re a homebuyer who wouldn’t mind doing a little updating to an otherwise solid home, give those less-than-perfect homes a long second look. It takes a concerted effort, especially when you’ve just finished touring a remodeled knock-out, but the decreased cosmetic appeal will leave you in a strong negotiation position and a below asking price offer will have a good chance of success.