The Heat Goes On

THE HEAT GOES ON HEATBergen’s real estate market shows some signs of cooling, but buyers continue to get scorched. Here’s how to fireproof your search. By Leslie Garisto Pfaff

For someone whose offer on a house has just been accepted, Erik Cruz sounds less than celebratory. Over one and a half months, he’s looked at houses all over Bergen County and made offers on six of them, only one of which—his latest—was accepted, although all of them were at least $40,000 over the asking price. “I’ve been really stressed,” he says. “It’s been really hard.” And as he waits for the results of a recent home inspection, he continues to worry. He has no certainty that the seller will work with him if the inspection turns up a serious problem. “If it doesn’t work out, then I have to keep looking,” he says, ending the sentence with a kind of strangled sigh.

Call it the “COVID bump” or the “suburban migration” (or simply, as many have deemed it, “hot,” “wild” or “ludicrous”), the real estate market in Bergen County and elsewhere around the country is still torrid, though—depending on whom you’re talking with—it’s showing some signs of cooling off. “Right after Memorial Day, it started to cool,” says Sarah Drennan, executive vice president and broker associate at Terrie O’Connor Realtors in Saddle River. She ascribes some of that leveling off to buyer fatigue. Buyers, she says, “weren’t winning contracts in multiple-offer situations, and some of them decided, ‘You know what? Let’s cool it for the summer.’”

On the other hand, Nathaly Castillo, a broker at Weichert Realtors in Tenafly, hasn’t seen much of a break in the heat. Houses, she says, are continuing to draw multiple bids, many of them considerably above the seller’s asking price, and buyers are still taking desperate

measures to secure a home, including waiving home inspections and/or appraisals. One of Castillo’s current would-be buyers has made 16 offers, not one of which has been accepted. Many buyers are scaling back their expectations in terms of location, square footage and amenities. Some, Castillo notes, especially first-time buyers, are actively looking for two-bedroom houses, traditionally less desirable and therefore less costly than larger homes, so that they can find a reasonably priced house and add a bedroom or two after closing or later on. But as the tactic becomes more popular, even twobedroom homes are selling quickly.

Where homes are selling the fastest, says Bob Dzienis, an agent with Better Real Estate, which services all of northern New Jersey, are in the towns with the highestrated school systems: places like Teaneck, Fair Lawn and Ridgewood. Recently he represented a seller in Teaneck who received 14 offers and whose house sold for $50,000 over asking. “That’s how crazy the market is,” he says.

In Bergen, the most sought-after homes are those one might consider “reasonably” priced, if one’s idea of reasonable is, say, a small Cape Cod in a modest neighborhood going for $900,000—$200,000 over asking— as in a recent case Dzienis cites. Luxury houses—those selling for over $1 million— aren’t flying off the market, but they too have experienced a COVID bump. Homes that sold for $1.6 million in 2009, for instance, are fetching prices of over $2 million. And, says Drennan, homes priced under a million in Bergen’s more affluent towns are highly desirable. “The $700,000-to-$800,000 homes in Mahwah, Wyckoff, Allendale, Upper Saddle River are flying,” she notes.

WHAT’S FUELING THE HEAT?

The frenzied market had its start with the pandemic, which prompted many in New York City—hit particularly hard by COVID— to decide to move somewhere where social distancing was a whole lot easier. Some of those folks were working from home and no longer felt tethered to the city; others were drawn to Bergen’s commutability. “All of the towns that follow the train lines out into the burbs are doing very, very well,” says Drennan. Not all buyers were fleeing New York (and Gold Coast cities like Jersey City and Hoboken). Many were first-time buyers lured into the market by historically low mortgage rates. Once there, they faced another result of the pandemic: historically low inventory, fueled, at least in part, by a fear on potential sellers’ part of having strangers trooping through their homes. Drennan notes that, in an average market, Bergen usually has a six-month inventory: That means that if new homes aren’t added or subtracted, everything on the market would sell within six months. Today, the county’s home inventory is at two months.

Barring something unforeseen, most real estate analysts believe the seller’s market will continue for at least the next couple of years. Worries about the Delta variant have continued to drive buyers out of New York City and the Gold Coast, and low interest rates remain a strong motivator in all areas of Bergen’s market. “The projection is that for next year and the year after, we’re still going to see price increases,” says Drennan. “But those increases won’t be double digits like we’re seeing now.” That’s perhaps cold comfort to buyers in Bergen still trying to carve out their place in a tough market. If you’re among them, however, there are strategies you can adopt to give you an edge:

GET PREAPPROVED.

If you don’t intend to make an all-cash offer— and many buyers don’t—make sure you’re preapproved for a mortgage, because, says Drennan, “you’re going to be competing with a lot of other people with cash.” (It should go without saying that, if you can afford to pay for your next house in cash, you’ll be in an advantageous position.) You’ll need a verified preapproval, Dzienis stresses, “which basically means that you’re working with the underwriting department— you’re not just pulling a preapproval off the internet somewhere.”

DON’T EXPECT PERFECTION.

It’s important to distinguish between a need and a want. You may need three bedrooms or a great school system, but you don’t need a glass tile backsplash, and that’s something you can install without incurring a major expense. Jonathan Chen, who’s moving with his wife from Arlington, Va., to be closer to his company’s office in New York City, saw that at 6-foot-2 he couldn’t live comfortably in a low-ceilinged Cape Cod. And after searching for a house during Bergen’s sizzling summer, “I realized that central air was a critical part of our search,” he says. On the other hand, he was prepared to deal with what he calls “small changes” like ripping up rugs and painting walls.

ACT FAST.

“I’ve had buyers ask me about a property that’s new to the market, and I’ve had to tell them, ‘No, it’s under contract,’” says Dzienis. You can still carefully consider a property before making an offer—but you have to do it fast. It’s a lesson that all buyers in Bergen eventually learn these days, but if you enter the hunt prepared to move quickly you’ll save yourself a lot of frustration—and have a better chance at bagging a home.

MAKE YOUR BEST OFFER.

Once upon a time, buyers could make an offer significantly below the asking price if they felt that asking price was too high. But Bergen’s current market doesn’t tolerate lowball offers. “You can defend that low offer as much as you like,” says Dzienis, “but if there are higher offers and people willing to pay, then it’s hard to justify.” In fact, some buyers are writing escalation clauses into their offers, stating that they’ll pay a certain amount—say, $1,000—over the highest offer, up to a specific maximum, like $500,000. Escalators can give you an edge in a hot market, but they also limit your ability to bargain with the seller. And some sellers just won’t accept them.

DECIDE WHAT YOU CAN WAIVE.

Waiving an inspection is an increasingly common tactic, and one that certainly appeals to sellers. But it’s risky. “If you waive an inspection altogether,” says Castillo, “there’s potential for incurring some steep expenses on big-ticket items like a roof, HVAC and electrical.” If her buyers insist on forgoing an inspection, she advises them to put in a contingency clause saying that if their engineer should find a problem that’s structural—say, cracks in a foundation, or environmental—like a leaking underground oil tank—“all bets are off.” Or, suggests Dzienis, you can waive some inspection items, but not anything that’s safety-related, like mold.

Then there’s the option of waiving an appraisal. This is an especially risky proposition in a market where houses can sell well above asking price. If a house is appraised for $500,000 but sells for $675,000, the buyer’s mortgage lender may not be willing to increase the amount of the loan. Some lenders, Dzienis notes, have appraisal guarantee programs, which means they’ll waive the appraisal if it comes in low.

Ask yourself if you’re comfortable waiving an inspection and/or an appraisal—and, more importantly, if you can afford to do so. One important criterion, says Castillo, is whether you’re buying a starter house with the understanding that you’ll likely move again in a few years or looking for that forever home. If it’s the latter, it may be worth the risk to waive.

CONSIDER WAITING.

“A couple of my buyers have thrown their hands up and said, ‘You know what? I think this is a sign for me to wait,’” says Dzienis. Not all buyers, of course, have the luxury of waiting, and others, wary of living in packed cities during a pandemic, want to find themselves a house in the burbs as quickly as possible. If you don’t have an urgent need to move—if, say, you’re retired and considering a move to an area with a more congenial climate— waiting to gauge the direction of the market might be a reasonable tactic. Keep in mind, though, that as prices fall, interest rates may rise.

If you’re selling your house with a plan to buy another, you could miss out on getting the highest possible price for your home if you wait. On the other hand, if the national market cools, that next home is likely to have gone down in price as well. If you’re willing to rent for a while, you can conceivably reap the benefits of both a hot and a cooling market, if you time it right. But, like everything else in a market defined by high prices and even higher anxieties, it all depends on your tolerance for risk—and the expansiveness of your wallet.