When I first meet with a buyer who’s new to the San Francisco real estate market, we discuss the realities of how our market is operating. Because unless you have a full understanding of what to expect, you could spend months wasting time—and not getting what you want.
We’re midway through 2013, so it’s a good time for a recap on what’s happening in our current market. Here are the things you need to know and navigate in order to be a successful buyer:
Most properties are listed at a price that’s lower than what the sellers want. Some markets operate in the opposite direction, with a selling pattern that sees homes listed higher so sellers can have room for expected downward negotiation. This is not the case in San Francisco, unless a property—whether it be a single-family home, condo, TIC or multi-unit building—has been sitting on the market for three weeks or longer. In the latter case, you can sometimes submit an offer for less than asking with some possibility that the seller will budge.
Marketing times for properties are short. Many properties with all the amenities or which are in desirable locations may only have five-day marketing periods prior to an offer deadline. So if you miss the first weekend open house, it’s critical to work with your agent to schedule a showing as soon as possible so you have time to review disclosures, comparative sales and make sound decisions.
There are a lot of cash offers. Approximately 25% of properties sold in San Francisco recently have been cash offers. So if you’re heading into an extreme multiple-offer situation (i.e., 8+ offers expected), there’s a good chance one of those offers will be for cash.
Cash offers don’t equal discounts. A cash offer won’t mean you’ll necessarily get a property at a discount. What it will mean is that you’ll get a call back from the listing agent if you’re in the ballpark on price, particularly if you don’t have any contingencies. But if you write a lowball offer for cash and there are several other offers involved, it’s likely you’ll have to come up in price.
Buyers are waiving inspection contingencies. The current market is a challenge for first-time home buyers who aren’t familiar with property ins and outs and are greatly relying on a home inspection professional to evaluate the home. Competition rears its head from buyers who have purchased homes previously and are familiar with the fundamentals, or from buyers willing to rely on inspection reports provided by sellers. Other buyers are conducting pre-inspections so they can be comfortable waiving inspections in a contract.
Buyers are also waiving appraisal and loan contingencies. Buyers with hefty down payments (30%+) may be going into competitive situations willing to waive an appraisal condition. This means they’ll be willing to kick in extra money if their appraisal comes up short on the value they’re paying. And they also may be waiving the loan condition if their file has already been approved by an underwriting team and they have absolutely no about their financial documentation (or property details).
It’s the year of accelerated contractual timeframes and fast closes. Many lenders are being pressed to condense loan and appraisal contingency timeframes and the close of escrow from buyers looking to get a leg up on the competition. Appraisal and loan approval timeframes traditionally were anywhere from 21- to 30 days. In the current market, however, it seems like three out of five offers that aren’t waiving the contingencies are committing to 14-days or less approval timeframes on appraisals/loans, and 21 days or less on the overall close.