Bay Area Housing Market Update Q2 2022 | Real Estate Is On Sale

Did you know that real estate is on sale?

Thats really how we are all feeling! We’ve come off our spring peak and real estate is trading for 8-12% less than it was just a few months ago. In this market update, we’re going to go through some anecdotes, a few facts, and a few pieces of advice on what you can do moving forward to be successful in this market. 

The spring market shifted forward.

That’s right – we are in a market shift. We are well off our spring peak and the market is looking for some footing. Typically, we see the spring market really heat up right after the Super Bowl. However, this year, it was on fire starting around January 15th. Even though it started early, it made up for it by staying late. It feels like we ran well into June before any feeling of a slow down occurred.

In April, we even got nine buyers and sellers into contract just in that month alone. We were also seeing homes with multiple offers and even heard of one home that received 41 offers! 

The spring party has come to an end.

Then, as we shifted into June, and the air left the room. It’s like a party that has come to an end and what it feels like everyone is shuffling towards the exit. The best way I can describe this is that the market feels like a squish balloon that you find the day after a birthday party. There is still air in it but its just not floating as high as it once was.

Buyers are on vacation or distracted.

One other thing we’ve observed in this June market has to do with buyer behavior. As you may know, there are a lot of buyers who have been waiting for years and years for this competitive East Bay real estate market to calm down to take a breath. Now that it has, many buyers have either gone on vacation or are otherwise distracted.

As of late June, prices are about 10–15% lower from the spring peak. To be fair, the best homes are still transacting with multiple offers. So being the “house of the week” has never been more important. However, if you don’t end up being the house of the week, you can expect to rack up days on market and possibly have to take a price reduction. 

To give you an example, below are stories from two negotiations where our buyers succeeded in winning the day. In these two cases, we were either the only offer present on the offer on the table.

Offer no. 1: A 4D/2BA House in Montclair where our offer was $150,000 less than what the seller wanted

The first scenario we want to share was a home in Montclair has four-bedroom, two-bathroom with a large detached garage and a big lot. In this particular case, we were one of one. However, we simply were lower than what the seller wanted by at least $150,000.

As we all know, that wouldn’t have worked two or three months ago. But now, not only were we the only offer, and the seller wasn’t happy. Long story short, over the course of 48 hours, we negotiated the seller down closer and closer to us. They gave us a counteroffer, but we rejected it. They again gave us a verbal counteroffer, and we still said, “No, we’re not interested.” and looked at some other properties. This resulted in the Seller getting a little nervous that we might actually disappear. That’s because they knew they didn’t have anything else going.

Ultimately, about 48 hours after the original offer was written and submitted, the Seller finally realized we weren’t joking around. It dawned on them that we were actually seriously going to leave and go somewhere else. So, they came back to us saying, “We’ll go back to your number, which was $150,000 less, as long as you pay the city transfer tax,” which was a net increase of about $10,000 for our client. Our client then answered, “Well, for that amount of money, we’d love to have this house. Let’s do it. “

It’s a classic case of having a bird in the hand. Lesson learned: be present and stick to your guns when you have the power.

Offer no. 2: A large Victorian in North Oakland where the buyers offered quite a large down payment

Another set of buyers we worked with over the past couple of weeks was this couple who were looking for a home in North Oakland. They really wanted a place in North Oakland, and they had bid on one but lost out on it.

They then found this Victorian with an ADU in the back which was quite large. So, the offer date came, and they were the only offer, yet again. The sellers came back to us and said that we weren’t quite where we needed to be on price. It’s worth mentioning, though, that these buyers, had a significantly large downpayment. They were quite payment-sensitive and wanted to use their cash to keep their payment low. 

Explore options that could help tip the negotiation in your favor.

At the time, we were aware that there was someone else was circling, but they weren’t putting pen to paper. So we knew that we were the only option the sellers had in writing. So, we said, “Okay, we’ll come up to the price that you said you wanted. But what we’re going to ask for is a credit for you to pay down the interest rate. That way, the payment stays more or less the same.

Now, because they had such a big cash payment, we can move a few things around and do that. So, we sent that back to the seller, which essentially increased their net by around $30,000. Unfortunately, that wasn’t quite as big of a net as they were hoping for, so they came back to us saying, “Well, what about this timing?What about if they move in early? “

We also explored several other things, such as closing faster so they wouldn’t have to extend their lease any further. In other words, we explored for terms we could agree on, like transfer taxes, closing timing, rent backs, etc. Ultimately, what happened is we backed ourselves into a number that more or less hit the original net. But this time, we got rid of all these extra terms.

As you may have noticed, rather than focusing on the top line price, what we did is we took the negotiation and focused it on some of these terms, like when can the buyer move their possessions in, cancel their current lease, etc. By doing so, the seller started focusing on terms as opposed to the top line price.

Buyers have power that they haven't had for a long time.

While it’s still a sellers market, we’re seeing a power shift in the negotiation power between buyers and sellers. If you’re a buyer here in the East Bay, what we recommend is just show up. Being at the negotiation table has tremendous value (see the above stories). That’s because what we’re seeing is that offer dates are coming and going or Sellers are entertaining offers as written. Therefore, as a buyer, it really helps if you just show up and write an offer. Putting your hat in the ring and seeing where the chips fall is the name of the game right now.  You miss 100% of the shots you don’t take. Our advice: take some shots! 

There is a gap between sellers and buyers.

Another thing to note in the market right now is that there is a gap between sellers and buyers. The sellers are still looking at the spring comps. This means that they’re looking at the prices from two, three, or four months ago. We all know that those prices have dropped by 10%, 12%, or even 15% in some cases. 

On the other hand, the buyers are looking forward and becoming more payment sensitive. Worry and fear of recession, inflation, interest rates, has many playing it safe and even more sitting on the sideline. 

That gap can be a hard one to bridge. And there is no guarantee you can. This is especially true when the agents, or the buyers and sellers themselves, are talking back and forth, but when it’s time to put pen to paper, and that offer goes in front of the seller, everything changes. As they say, talk is cheap. 

Once in writing, it’s real. It takes hypothetical “blah blah” and turns it into real numbers. Often, a legit offer makes sellers think, “Shoot, I don’t want to be the one left holding the bag. Who knows, three more months and this is going to be worth 10% less potentially?” As the saying goes, a bird in the hand is really worth two in the bush. That written offer will be a game changer, and it might win you the day just by making it.

The people who are showing up and being present are seeing success more often than they used to.

That’s what we’re seeing at the moment. This mentality of, like, “Oh, if I can’t get over the comps, or I can’t spend more than the next person, it’s not even worth writing,” isn’t applicable at the moment. Where we’re at right now is exactly the opposite of that. So it is actually worth writing that offer. That’s why you make sure you are present, show up, and write an offer, even if you think it’s low. That is the number one thing we can tell you, potentially, as a buyer.

The Fed has raised interest rates.

Let’s also talk about interest rates for a moment, because we’ve been hearing this from a lot of buyers. Obviously, the Fed has raised rates and mortgage rates have gone up as a result. This makes a lot of buyers pull back because they’re seeing that their payments are so much higher than they would have been had they jumped in earlier in the spring. So the conversation we’re having with many of the buyer clients we’re working with is to look into alternative options.

Speaking of rates, check out the blog we did about the cost of buying now vs waiting here

As we’ve mentioned in the second scenario above, you can also explore asking the seller to buy down the interest rate, which often costs less than a 3-5% price reduction. Another option is to look more into creative financing, like a seven- or ten-year ARM product, 2/1 buy downs, etc. There are countless options out there.

So really, there are a couple of things you can do as a buyer right now. First and foremost: be present. Then, you can explore other types of financing and really start to dig into the terms. Look for opportunities to get the seller to credit you some closing costs or explore available lender credits/promotions. You may even be able to negotiate some repairs. 

Tips for Sellers --What You Need to Focus On

As a seller, what you really need to be focused on more than anything is being the house of the week. Make sure your presentation is nailed so perfectly that you’re getting all of the energy, and eyeballs, that are out there.

If you’ve got an odd floor plan, a lot of stairs, a busy street, or some other knock on the property, you have to overcompensate. This is to get the energy to get people to come forward. You may even consider saying, “Hey, I will pay up to a point to buy your interest rate down and advertise that just to draw a little bit of extra energy.” That doesn’t necessarily obligate you to do it. However, it gives you something else to use as a negotiating tool to pull someone to the table. That way, you can actually have a conversation with an interested buyer. 

WE hope OUR Bay Area Housing Market Update for Q2 2022, "Real Estate is on Sale," has helped you.

If we can give you more context on the process of buying or selling your home, please do not hesitate to reach out. Our information is below. 

Here’s to all your success!

Bay Area Housing Market Update Q2 2022 | Real Estate Is On Sale

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Bay Area Housing Market Update Q2 2022 | Real Estate Is On Sale