This week, a four-bedroom home in Berkeley’s Elmwood neighborhood sold after just three weeks on the market for a staggering $2.4 million, 42% over its asking price of $1.69 million. There were multiple offers on the house. The sale has raised eyebrows both in the neighborhood and among real estate professionals. However it is far from being the only example of escalating home prices in Berkeley and certain nearby areas, a development fueled by an influx of cash buyers falling over themselves to outbid competitors in their determination to snatch up property locally.
“I’ve never seen a market like this,” said Ira Serkes, a Realtor at Pacific Union Real Estate who created the Berkeleyhomes.com website. “The market has changed dramatically.”
“It’s really crazy,” echoed Marlene Leverette, who heads up the East Bay offices of McGuire Real Estate, describing the current real estate climate. “It crept up on us last year, and Realtors are all seeing the same thing: a lack of inventory and lots of cash buyers overbidding on homes by 20-40%.” Leverette said the surge is not restricted to Berkeley. Her colleagues at McGuire offices in San Francisco, the Peninsula and Marin are all telling similar tales.
Leverette recalls registering a shift in the market last July when the 2,700-square-foot home at 2620 Piedmont Ave. in the Elmwood sold for $1,502,000 a few weeks after being listed for $1,195,000. “It all began then,” she said. “It meant we had a new comparable.”
For Serkes, the sale that made him sit up and take notice happened more recently. On May 15, the five-bedroom home at 1551 Hawthorne Terrace in North Berkeley closed escrow at $2.69 million, on an asking price of $1.9 million, after receiving five offers.
Serkes has collated data that show that the median overbid for all sales in Berkeley is currently running at 13% above asking price. For homes selling for $1 million and above, the median is 20% above asking price. Several overbids have been worth over $500,000, he said, as evidenced by the examples cited above.
DJ Grubb, co-owner of The Grubb Company, which focuses on real estate in Piedmont, Berkeley, Oakland and Kensington, said he believes the rush to buy high-end homes in Berkeley is not so much interest rate driven but rather fueled by a new confidence in the economy.
Meanwhile, Joann Sullivan a real estate agent at Thornwall Properties, said buyers have been waiting for a long time to pounce, but that they are no longer willing to wait.
“They have been watching interest rates come down and they are ready now,” she said. (Although interest rates are still historically low, they have ticked upwards in the last month.)
Serkes agrees: “Buyers recognize the prices have turned around and are back on the way up. Buying now means that they’ll get into the home at a better price than in the future.”
The trouble is that the inventory of homes for sale in desirable neighborhoods is limited. Sullivan attributes this to the fact that sellers have also been playing a waiting game — with many of them afraid to list their homes for fear that they would not make back their money on prices paid at the height of the market. The result: rising prices and competition. Sullivan’s office is routinely seeing 12-15 offers on its listed homes.
In addition, a significant proportion of the buyers real estate agents are working with are paying cash. Serkes said that, last year, 38% of his client transactions had all-cash buyers. Sullivan puts the percentage at her office between 25-30%.
Certain buyers are also doing their homework so they can pounce on a coveted home with speed. “Buyers are making cash offers with no financing and no contingencies,” said Leverette. “They read all the disclosures and get all the inspections in ahead so they can move quickly.”
Serkes adds: “When you have the cash you can often pay more and you just want to be settled, so you do.”
Many of the $1 million-plus homes that are selling in Berkeley are closing escrow just weeks after the first of perhaps only one or two open-house showings. The 1930s Mediterranean home at 2911 Avalon Ave. in Berkeley’s Claremont Court sold for $2.5 million this week, on an asking price of $2.1 million, after just 40 days. And it took just 25 days for 2900 Forest Ave. to sell on April 30 — for $1,854,000 on a list price of $1,495,000.
Of course this can make life difficult for a potential buyer who is simply looking to buy a home and needs to go through the usual mortgage approval process. Leverette said many of her clients are having to put up to 10 offers on different homes before they succeed in securing one. “It can be hard,” she said.
So who are these cash buyers? Clearly they have funds. They are often young, too. Leverette said she’s seeing Generation Y first-time buyers, many of them working in tech or biotech. She said there is also a lot of Asian money, and buyers coming in from Canada.
Sullivan echoes this view: “There are lots of buyers from the tech world and from the Pacific Rim,” she said, adding that the latter are often looking at properties principally as investments. While most people would say Bay Area home prices are plain silly, they may be less silly to people coming from cities such as Hong Kong or London. Globetrotters who base themselves in the Bay Area but travel all over the world for work are common too.
Grubb said his company is seeing buyers with old family money which has come down the generations. “They are ready to buy now because they don’t like the volatility of the stock market,” he said.
He added that the sales prices we are seeing, while high, do not necessarily represent the high water mark for the value of the market. “After they buy these homes, buyers are investing hundreds of thousands of dollars into them which means their ultimate value is even higher,” he said.
“Just when you thought you had prepared your buyers for escalating prices, here comes another one to break the last record,” said Anthony Riggins, a real estate agent at East Bay Sotheby’s, speaking of this week’s $2.4 million sale on Piedmont Avenue.
But, said the professionals, this is not another bubble. The key difference compared to pre-2008 is that the market is not being buoyed by high-risk loans. “This is not familiar territory,” said Leverette. “There’s often no financing involved at all.”
Asked which areas he thinks are particularly hot right now, Riggins, who said he is swamped with listings and buyers, pointed to The Uplands, a street in the heart of the Claremont neighborhood. “The power of The Uplands might be the one area in the East Bay where you don’t see the prices stabilizing anytime soon,” he said. “Everyone always mentions [the city of] Piedmont as the most stable market and/or best investment. The sales in The Uplands this year might be proving otherwise.”
In October 2012, 60 The Uplands sold for $1.85 million on a list price of $1.45 million while, the next month, 130 The Uplands fetched $1.379 million on an asking price of $1.089 million.
Leverette cites the Claremont area, Thousands Oaks, North Berkeley as well as Rockridge as being particularly sought-after, while Sullivan mentions Albany — “Prices are way up over there,” she said.
As to what the rest of the year is likely to look like, Serkes said summer is usually a slower time for home sales, but he’s reluctant to make predictions given the current climate. “So many people want to take advantage of the market,” he said. Sullivan, who notes she has had more listings in the past year than ever before, says she expects more inventory to come online. “I certainly hope so,” she said. “It will help stabilize the market.”
Grubb, however, believes there is a “tremendous amount of traction” going forward: “$650 per square foot, which is what we are seeing for high-end homes in Berkeley, is low for the Bay Area. We are just getting started!”
This story was updated following an interview conducted shortly after press time.
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