When Agile Meets Real Estate
It’s not a great time for home buyers across the country and the Bay Area is no exception. The median sale price for single family home in Santa Clara County reached $1.9M as of the end of March 2022. The 30 year fixed rate for jumbo loan (greater than $970k) has reached north of 4% and is expected to go up further this year. While some buyers chose to stay on the sideline to speculate a market correction, there are buyers who unfortunately must find a home in the ultra competitive environment (upsizing for kids or for example). I was also in the trenches early this year when I tried to find a rental property in the red hot Austin market so I can definitely relate to the frustration and challenges the Bay Area buyers felt. While the home prices in Austin was (and still is) low compared to that of Bay Area, there was just as much competition as investors tried to get in before interest rates go up further.
Austin and Bay Area real estate markets have their differences but the approach to securing a winning contract in both markets is actually quite similar. From my experience, the winning formula is iterate and refine the bids as quickly as possible. It might sound like agile development in a tech start-up, because in essence the principles are the same.
Define The MVP
The Minimum Viable Product.
A minimum viable product is a version of a product with just enough features to be usable by early customers who can then provide feedback for future product development — From Wikipedia.
In the home buying process, this is equivalent to narrowing down the initial criteria of your home. This includes the types of home, number of rooms, budget and locations. While we can all fantasize the number of rooms, the space, and luxury features in our dream homes it is crucial to focus on the things that solve our immediate pain points. They could be a dedicated office for WFHers, ample yard space for kids, commute distance, or access to amenities. On any given week you should have at least 4 to 5 homes that fit your MVP criteria and at least 1 you have interest in bidding. Otherwise, go back to the drawing board and redefine how your home should look like. Having a back up location is great, but avoid looking all over the place. See my previous article on Bay Area locations and the relative performance and downside protection across different areas.
Iterate Rapidly
It is tough to gauge the market price when 20% over list price is the norm. The best way really is to receive market feedback and recalibrate as quickly as you can. The longer your feedback loop the longer it will take you to seal a deal. Today’s rising interest rate environment makes fast iteration even more critical.
Austin is arguably one of the hottest housing market in the country in the past couple of years. The bidding wars were no joke and felt very much like buying a home in the Bay Area. Fortunately I was able to find an investment home relatively quickly and I think my fast iteration approach definitely helped sealing a deal before the home ownership cost goes up even further. Granted, buying an investment home is different from buying a primary home because there’s less emotion involved. However, I do think there is enough similarity as far as winning by getting market feedback quickly.
My Journey
In a span of 1 month, including the Xmas holiday, I virtually toured 29 homes in the city of Leander and placed 8 offers with the help of my agent:
My first two offers (A and B) were really meant to test the red hot market and I was not expecting to win at all. I wanted to know how competitive my offers are if I stick with the numbers that makes sense for me as an investor. The market feedback showed there is a large gap I had to close.
I then accepted my rental cash flow won’t be great and was more aggressive on my next three offers (C, D, and E). I got a little closer to within 5% from the sale price. The demand on home D was unexpectedly high so that one was way out of reach.
I pushed harder on the next couple of offers (F and G) and got me to within 2% of the sale price. That’s when I knew I just needed to push a little harder for a home in the same area. Luckily, home F came back on the market a few days after it went into contract and I pulled the trigger to match the last 2%. Voila! I won a contract after just 1 month in the market.
Closing Thoughts
That 1 month stretch involved a ton of virtual touring, disclosures and comps review, bidding, and repeating. It was definitely not an easy process by any measure but it got the results I needed within the timeframe I set for myself. Now, I’m not suggesting my Bay Area buyers to move as fast as I did, but I do strongly advocate buyers to follow the same principle in any competitive market.
Beware though, when one bids in too many areas this approach becomes less effective. Some areas might consistently see 30% over list price and some might not, depending on their overall attractiveness. This is why having a clear definition of the MVP is step number 1 and the MVP needs to be revisited if the home buying progress stalls.
Hit me up if you are a Bay Area buyer struggling to find a home or wanting to start your real estate journey. Let’s chat! IG: @jason.h.realestate
