The Berkeley real estate market, which has been a world unto itself for decades, has recently entered an entirely new orbit.
“I don’t think I have ever seen the market as overheated as it is now, and I’ve been doing this since 1980,” said Alison Teeman, co-owner of Yovino-Young, a Berkeley real estate appraisal company. It’s gone from an incremental annual price increase to “unprecedented” hikes, she said.
“I don’t think I have ever seen the market as overheated as it is now, and I’ve been doing this since 1980.” — Alison Teeman
The phenomenon is a combination of “almost give-away interest rates,” an incredibly low housing supply, unprecedented post-pandemic demand and a plethora of buyers with deep pockets, Teeman said.
“Every year we think the market is at a peak, and for the past few years we’ve been thinking, ‘Oh my God, it can’t get any higher than this’,” agreed Anna Bellomo, founder/owner of real-estate agents District Homes. The current market? “This makes no sense.”
Take the three-bedroom, two-bathroom house on Harvard Circle in the Berkeley Hills that went on the market in early March at $1.150 million. The house made national news by selling for exactly twice that much. Listing agent Jill Carrigan from The Grubb Company said it garnered 29 offers and had a final sales price of $2.3 million.
“This is an unusual house because it had a fantastic view and a flat lawn, and it was on a double lot,” she said. “It is also on a cul de sac, it’s close to Tilden Park and Grizzly Peak Boulevard, and it’s a mid-century house. Who doesn’t want this?”
But this isn’t the only Berkeley home that has recently sold for far, far more than its list price. Another mid-century home in the hills, a three-bedroom with bay views on Hill Road, listed for $1.3 million in March and closed for $2 million in April. A two-bedroom bungalow on Peralta Street in the Thousand Oaks neighborhood sold for $1.835 million on a list price of $1.250 million. A painted-Lady Victorian with a rentable apartment on Newbury Street near Ashby BART, reportedly sold for $2.25 million on a list price of $1.3 million.
The phenomenon is not limited to Berkeley. Last month, a buyer paid $750,000 over asking for a three-bedroom Craftsman on Santa Fe Avenue in Albany. And it’s not limited to the East Bay either: it’s a trend that has been documented by the media around the country, including in places like Tahoe, New York, Washington DC and Vermont.
“Imperfect houses were a plus”: The grim reality of buying in Berkeley now
It’s not just the “beautiful” houses that cause a bidding war. Ashlee Tran and David Hofmayer have been wanting to buy a house in Berkeley for the past three years, and got serious last June when they signed up with listing agent Sarah Ridge of District Homes.
From the start, the bidding wars were so intense that Ashlee, who has an MBA, created a spreadsheet “tracking metrics over time, trying to predict how popular a house would be,” and what the final sales price would be, Hofmayer said.
“I tracked how many people looked at each house online [Redfin and Zillow provide those metrics]; how many people ‘hearted’ each house; and I tracked their velocity — that is, how popular the house was during the first couple of days, and how quickly the metrics grew,” Tran said. “That gave me an idea of how frenetic the bidding war was going to be.” Using these metrics, Tran said she was able to predict within 5 to 10% what the final price of each house would be.
But even with this intense work, Tran and Hofmayer lost out on their first three or four bids because the sellers chose buyers who could pay all cash. In a couple of cases, Hofmayer and Tran’s bid was $20,000 higher than the others, but they still lost out to the all-cash buyers.
“The sellers didn’t want to worry about the appraisal coming in lower than the sales price, and the appraisals haven’t caught up to the prices yet,” Tran said.
During their ten months of serious house hunting, Hofmayer and Tran learned the importance of decisiveness, speed … and over-bidding. As they were visiting the three-bedroom, two-bathroom Westbrae house they ultimately bought — within the first 24 hours of its coming on the market — their agent heard that a pre-emptive bid had just come in, and it would expire at 10 p.m. that night. So if they wanted that house, they would have to bid immediately.
This house had not been staged; it had a 1940s kitchen and old bathrooms; and it had been rented and still contained some of the renters’ belongings. The asking price was also relatively low, for Berkeley: $885,000. “For us, imperfect houses were a plus,” Tran said. “If it was perfect, we’d be paying more for it.”
Even though this was not a “beautiful house,” Tran and Hofmayer offered $1.32 million — 64% over asking. Since the house had only been on the market for 24 hours, there were only three bids: the pre-emptive bid, theirs and one other.
“Our agent told us that if we really wanted a house, and we thought the house was worth ‘X,’ we would have to pay ‘X + Y’,” Hofmayer said.
In this case, the “Y” factor is “a premium equivalent to the pain of losing that house,” he added. “So you have to be willing to kiss goodbye to $100,000 to make sure you win.”
They called their mortgage banker on a Sunday to get a loan commitment letter for this particular house; their agent wrote out the contract in her car, sitting right outside the house; and two hours later their bid was accepted.
“We finally decided we didn’t need a quirky house: we needed a home,” Tran said.
Berkeley’s been “out of whack” for years
Aman Daro, COO of Red Oak Realty, does not believe that the current Berkeley real estate market is “overheated.” Overheated implies there’s a housing bubble, he said, that homes “aren’t worth what they are selling for.” But, in Berkeley, “the buyer/seller ratio has been out of whack for years, and, other than the financial crisis, Berkeley home prices have been going straight up since 1996.”
In 2015, the largest slice of the single family home market in Berkeley — 46% — sold for $500,000 to $1 million, Daro said. But by 2020, 46% of homes were in the $1 million to $1.5 million range, and only 14% sold for under $1 million.
During that same period, the median price of a Berkeley single-family house increased 43%, jumping from $1.050 million in 2015 to $1.497 million in the first quarter of 2021, Daro said. Zillow records the “typical” Berkeley house as being $1,448,061, compared to a “typical” San Francisco home which is priced at $1,415,450, down 3.2% year-on-year.
Almost anywhere else in the country, such a price tag would purchase a 2,000- to 3,000-square-foot mansion with three to five bedrooms and a sizable, beautifully landscaped lot. In Berkeley, $1.5 million will likely get you an ordinary if charming house, with two to three bedrooms and a very modest lot.
As for neighborhoods, “there are no affordable pockets” left in Berkeley, Teeman said.
Homes in formerly working-class areas in demand
Two- and three-bedroom houses with a list price of about $1 million are in the greatest demand, Daro said. But of course, as the examples cited above testify, few houses sell at the list price in Berkeley. About three-quarters of all sales receive six or more offers, according to Ira Serkes, a Realtor with Compass. And, while there are no hard and fast rules, the sales prices typically increase by 2-5% with every additional offer, Serkes said.
Prices are up all over Berkeley, but they have risen especially quickly in formerly working-class neighborhoods with a lot of smaller houses, often traditional bungalows, in areas such as South, West and Central Berkeley.
“The resilience of the market continues to surprise me,” Daro said.
The housing inventory in Berkeley is very low: it has hovered between 505 and 574 houses for the past five years. So far this year, only 135 houses have changed hands, and if this trend continues that would mean a total of 570 houses total for the year. “Most of the inventory we are getting in Berkeley is because people have died,” Teeman said. “You could say nobody leaves Berkeley except in a box.”
But the real estate market is cyclical, so inventory is expected to increase later this spring, listing agents say. They are not predicting that prices will fall, however.
“That would take a disaster [like an earthquake or major fire], or a big jump in interest rates,” Teeman said. “And even then, it might just reduce the number of bids from twelve to five per house.”
Mass exodus from San Francisco
“There’s a mass exodus from San Francisco,” said The Grubb Company’s Carrigan. “And the number one forwarding address for people leaving San Francisco is Alameda County.” San Franciscans are not moving to Oregon or Nevada City or Texas, as early news accounts had indicated, Carrigan said. They are moving to Berkeley, Oakland and even Contra Costa County.
Purchasing a house in Berkeley right now ‘is not for the weak of heart.” — Jill Carrigan
The Harvard Circle house she sold was on the market for a total of 11 days, longer than some homes are on, because Carrigan wanted to give more people a chance to see it. Due to pandemic restrictions, all house visits must now be carefully calibrated at two potential buyers per half-hour time slot. Appointments were available from 8 a.m. to 8 p.m. for all 11 days, and they were immediately snapped up, Carrigan said. More than 260 people viewed that house, and more clamored for non-existent appointments.
“All the offers were very aggressive,” Carrigan said, although she declined to give a range. Purchasing a house in Berkeley right now “is not for the weak of heart,” she said.
While it’s rare for a house to sell for $1.15 million dollars over the asking price, most Berkeley homes are currently selling for 10 to 40% above the list price, within seven to 14 days of coming on the market, Serkes said.
Serkes recently listed a five-bedroom, three-bathroom house at 31 Maryland Ave. in the Berkeley Hills for $1.25 million. There were only three bids, but the house ultimately sold for $1.77 million. “The over-bid was ten times what the owners invested in preparing the house for sale,” Serkes said.
“People are really thinking about what’s important to them,” he added. “They are realizing that they can be wherever they want to be, rather than necessarily in proximity to where they work. And what they are seeking is blue skies, greenery, walkability and a sense of openness.”
It’s all about instant gratification
The most popular houses are ones which are “done,” Teeman said. “People want instant gratification. They don’t really want to embark on a remodeling project, either because they are working too hard or they have little kids.” Most of the current Berkley home buyers are in their mid-30s and work in the tech sector, she said.
“I do see some buyers feeling very tired, feeling a sense of urgency, and making offers that we think are not really what the house is worth.” — Anna Bellomo
“We are certainly seeing the appeal of the open flow plan. And all the flippers are opening up the space between the kitchen and dining room,” Teeman added. “Everybody is also putting in these big, expensive Nana-doors that slide into the walls,” and create a seamless indoor-outdoor experience. Home offices and “Zoom rooms” also add to the appeal of a house.
“My fear is that people are buying because they are getting outbid so many times, and they are getting sort of desperate,” Teeman said. “They are getting into an auction-like mentality, buying houses without really having adequate time to investigate everything, and making sure this is absolutely the right house for them.”
Buyers also seem to have a short memory when it comes to the dangers of wildfires and power outages: even houses in hilly areas that went through blackout and evacuation orders last year are selling well. Securing, often expensive, fire insurance is also an increasingly important factor.
“I do see some buyers feeling very tired, feeling a sense of urgency, and making offers that we think are not really what the house is worth,” Bellomo said. “But of course the market decides, and the house is worth what somebody is willing to pay for it.”
In nearly post-pandemic, pre-apocalyptic Berkeley, the sky’s the limit.