How to Get a Below Market Purchase in An Overheated Market

will likely recover and those who purchase now will likely have 10% equity or more built in when housing preferences return to pre-pandemic norms.

Land is an excellent investment in this market

For anyone considering purchasing land for a tear down and rebuild, this is a great time to be purchasing a property. The pandemic has created an urgency for finished housing, and turn-key homes that are nicely presented are in high demand. The dearth in supply of luxury homes is most pronounced in Atherton, where every home that is within a year of completion has been pre-sold. This pandemic demand for larger luxury homes has pushed demand up so high that I was recently involved in a bidding war for a $22M home in Atherton that received 5 offers and sold for more than a million above list price. Similarly, Michael Repka, the head of the DeLeon Listing Team, has sold two eight-figure homes with multiple offers over the past 6 months and he has informed me that he has three more coming.

While all families want and will pay top dollar for a finished home, construction has fallen out of favor and consequently land values have underperformed. This is due to two pandemic trends, the first being that buyers want their home immediately and will not wait the two to three years to build their dream home. Additionally, COVID really hindered construction, and time delays and cost increases that came about made this one of the worst construction cycles ever. Furthermore, prices for items like lumber are up 3 to 5 times what they were two years ago, so the cost of construction has also gone up. Most of my experienced builder clients feel that the supply chain disruptions and spike in commodity prices will subside (but not return to previous levels) from their current peaks, so building in the future will likely be a bit less expensive than now while the finished home will enjoy strong demand for years to come. We are already seeing loggers dramatically increasing production of lumber, and this trend is likely to continue.

Seller mistakes can be capitalized upon

The 2021 market is a strong one, but not a forgiving one. That is, if a mistake is made by the seller or listing agent in poorly presenting the home, overpricing it, not marketing it well, or giving an opportunity for select agents to show it to our buyers before permitting full competition (i.e., “off market sales”) etc. – then a buyer can definitely get a good value. I am directing my clients away from the homes that are well presented and well-priced, for these homes create an auction dynamic and are jumping to above-market values. Ironically, it is those homes that are priced above market value that in the end sell for below market value. I have gotten some great outcomes for clients – more than a million dollars below list price – by choosing the most motivated seller to negotiate against. It is much better to come in alone and negotiate down than to fight amongst a dozen other offers.

Additionally, it is only in the last three months that the housing market jumped in appreciation. If you can get a home that came on the market before April, that home did not get the jump that new homes received from the appreciating market. Focusing on homes that are lingering effectively brings you back to 2020 market conditions, where prices were 7-10% lower and where I am directing the majority of my value-oriented buyers.

Reach out to me at ken@deleonrealty.com or 650-543-8501 so I can let you know about the latest best values or winning strategies to help you get a home below market value regardless of strong market conditions.