Home Ownership Experience in the Bay Area - Lessons Learned

The seven years of owning two different homes in the turbulent Bay Area real-estate market have clued us into various key points as far as home ownership:

Location, Location, Location: This oft-repeated home ownership rhetoric has spared none on the quest for an abode. But there is more to this adage than choosing a residence based on school district, proximity to work places, view, and the average value of properties in the neighborhood. In a rapidly rising market, as in the early 2000 Bay Area’s bubble period, home ownership in new constructions in the suburbs provided the gold fever as opposed to well-established and comparatively more expensive neighborhoods nearer to the city. The graph below from zillow compares the home prices of two such neighborhoods – Alameda and Brentwood:
For the five years from September 2000 to September 2005, when home prices only knew the upward tick, the total appreciation of an average home in the Brentwood area recorded an astounding 125% while those in Alameda stood at a moderate but still handsome 65%. The trend took an about-turn during the 2005 to 2010 period when the bubble popped – average home price in the Brentwood area nose-dived to 50% while in Alameda took a more palatable 15% drop. As the average time of ownership of a home is around 5-6 years, it is worthwhile to mull over market conditions also than employing location as the sole criteria. Overall, for the 10-year period, the appreciation for an average home in Brentwood stood at just 8% while for Alameda it was closer to 40% - stressing location makes perfect sense when a home is purchased for the very long term.

Timing: Conventional wisdom perceives low interest rates as the prime time for home ownership. Factually, this is counter-productive and favors only the minority that intends to hold the home forever. The average homeowner can profit more by going for home ownership when the interest rates have peaked and is on the downward trend . This notion is based on the economist’s pet supply vs. demand theory. When interest rates are low, housing is more affordable which translates to higher demand, which in turn pushes home prices higher. By the same token, when the rates march higher, properties become less affordable reducing demand and home values, thereby allowing a prospective homeowner to enter at a lower price.

Buyers and Sellers Agents: While most residential real estate transactions involve both buyers and sellers agents, it is not uncommon to see listings bypassing an agent completely. The seller profits by not having to part with the agent’s commission, which is typically 5% of the money realized. The buyer’s assumption is that the costs would be lower sans an agent. The growing number of properties in the market availing of support systems (helpusell.com and other such businesses) in place of individual agents is a testimony to this perception. In our home ownership experience, going with a real-estate agent and specifically the best available wins handily, regardless of the market conditions. The only caveat is the type of agent – ideally, one should employ agents who specialize as either a buyer’s agent or a seller’s agent. In some markets, agents specializing this way are not an available option. If so, it is imperative to steer clear of the double-ending traps: when a popular agent has many listings and also many clients wanting to buy a house, it is inevitable that the agent will try to convince one of his clients into buying one of his own listings. More often than not, the parties involved are unaware of such connections, unless they specifically ask and/or read what they sign off. The downside with such deals is that the agent has a vested interest in double-ending the transaction.

The best agents in an area often have a team of support services that can alleviate the potentially stressful aspects of buying/selling a home such as renting back and relocation.It is important to be aware that there are other agents who do such real estate related transaction tasks such as appraisal, home inspection, insurance, title, etc. Their involvement is relatively transparent to both the buyer and the seller, especially if you have opted for the services of a better real-estate agent.

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Last Updated: 03/2012.

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