For Luxury Buyers in California’s Bay Area, the Moment to Negotiate May Have Finally Arrived
After years of breakneck activity, luxury inventory is on the rise while bidding wars have petered out
The San Francisco Bay Area’s juggernaut of sales activity and home price growth has been one of the most dramatic U.S. real estate stories of the past several years, and even amid pandemic-driven changes in buying activity, sellers maintained a firm upper hand.
Now, however, many parts of the region are showing early signs that buyers may finally get some relief.
“There’s an overall clear indication of a slowdown, or a stabilization I think might be a better word,” said Anton Danilovich of Golden Gate Sotheby’s International Realty. “We’ve been going at 150 miles an hour for two years, and now there’s a 50 mile an hour decrease, but we’re still moving at 100.”
As buyers react to a combination of record-high prices, sharply increased interest rates, and economic and global instability, market dynamics have adjusted accordingly.
“I think like a lot of areas in the country the [Bay Area] market seems to be pivoting, but it’s interesting, because we still have relatively high prices,” said Danielle Hale, chief economist for Realtor.com. “But we’re also seeing homes sit [on the market for a bit longer.] That could mean new opportunities going forward, but we’re not seeing that yet.”
In the first quarter of the year, new listings over $1 million were up quarter-over-quarter in every Bay Area county analyzed, and were up year-over-year in Napa, San Francisco, Alameda, Solano and Contra Costa counties, according to data collected for Mansion Global by Realtor.com. And while luxury homes also spent more time on the market than in the previous three quarters, as well as in the first quarters of 2020 and 2021 in Marin, Napa, San Mateo and Sonoma counties, overall, prices have yet to budge.
To wit: Every county analyzed saw year-over-year price increases other than Alameda, Contra Costa, and Solano counties, and in spite of increasing time on market in the area, wealthy Marin county saw the steepest price increases of any county, at 36%.
“Generally speaking, luxury home sales in the Bay Area have been holding up quite well, much more so than less expensive segments (which are seeing significant declines),” said Patrick Carlisle, chief market analyst for Compass in the San Francisco Bay Area. “However, I believe luxury buyer demand is indeed softening with all the stock market volatility in May—affluent buyers are typically much more affected by scary stuff happening in the financial markets than by interest rates.”
For high-end buyers, then, Bay Area property may still not be anyone’s idea of a steal, but there’s also more breathing room and negotiability in the market than there has been in years. Below, what to know about navigating the changing market as a buyer:
A Market With Fewer Bidding Wars—and More Room to Negotiate
While actual prices have yet to decline, experts see rising inventory and time-on-market as telltale signs of a more favorable market for buyers.
“What the data signals to me is that there may be a gap between what sellers are expecting and what the market can really handle right now,” Ms. Hale said. “Buyers appear to be approaching the market with a bit more caution, so it might take longer to find agreement between buyers and sellers.”
Another positive sign for buyers: The frenzied bidding wars that have characterized Bay Area buying in recent years seem to have abruptly evaporated.
“What’s happening right now is inventory is rapidly increasing and pending sales are down,” said Taso Tsakos, managing partner of The Agency’s East Bay office. “Before buyers were competing with seven, 10, 12, 15 offers. Now we’re putting properties on the market and instead of getting five or six offers we’re hoping to get one.”
With fewer bidding wars, it’s also no longer the norm for homes to sell wildly above their asking prices. “What we’re seeing is things are still going into contract, but it’s not ‘here’s $400,000 over asking,’ that’s just not happening,” Mr. Tsakos added. “Depending on how it was priced, you might just get the asking price now.”
All of which means that savvy buyers finally have some room to negotiate. “I think if you have some flexibility, the market does seem to be at a turning point,” Ms. Hale said. “It’s fair, especially if you’re not in a rush, to test how much negotiating power you may have. It’s likely more than you’ve had in the last couple of years.”
And for luxury buyers who’ve found themselves frustrated and removed themselves from the market altogether, the next few weeks and months may be a prime time to resume the search.
“Sales data is a lagging indicator of offers being accepted, i.e. the data we get when a sale actually closes lags when the offer on that sale was accepted, typically three to six weeks earlier,” Mr. Carlisle said. “As demand softens, typically inventory goes up, competition and overbidding declines, and the ability to negotiate increases—and buyers become choosier.”
Identifying Areas of Opportunity
Current market dynamics appear to be comparatively uniform across much of the Bay Area, and one of the biggest takeaways for buyers is also a simple one: If you got frustrated and gave up your search over the past few years, now’s the time to get back on the hunt.
“It’s not like the East Bay is way more dramatic than the South Bay,” Mr. Tsakos said. “Throughout the Bay Area it’s pretty consistent that we’re now not seeing crazy offers over asking, we’re seeing fewer offers, days on the market are accumulating, which we haven’t seen in a long time.”
Numbers alone may also fail to tell the full story about the particulars of a local market. While Sonoma County has seen inventory and days on market increase, “We’re seeing more inventory, but not a lot of quality inventory,” said Carol Sebastiani of Sotheby’s International Realty in Sonoma. “There’s definitely a demographic of buyers that are looking in the high end, and they don’t want a project. They want something that’s turnkey and they’re willing to pay a premium for it.”
As during much of the pandemic, buyers willing to take on a fixer-upper are more likely to find deals. At the same time, rising interest rates have reduced the pool of competitors for certain properties.
“2.5% to 5% vastly changes the criteria of what buyers can afford or what they’re looking at,” Ms. Sebastiani said. “On the east side of Sonoma there are a lot of very cute older cottages, and for a while if anything came on at $1 million or up, you would see five or six offers. For the first time we’re not seeing multiple offers on those properties, and that’s definitely an effect of the interest rate hike.”
Overall, a broad sense of instability has affected buyer behavior across the region (and across the U.S.), and for buyers with the budget and the stomach for it, that may have created a prime moment to make moves. “I’m seeing buyers backing out [of deals] and maybe nothing changed other than that they’re scared,” Mr. Tsakos said. “There’s talk of a recession, there’s the Ukraine situation, [with interest rates] they can’t afford what they qualified for a few months ago.”
And ultimately many of the factors driving down sales activity could prove to be temporary blips rather than signs of a longer-term decline.
“We have a war going on, interest rates are through the roof, the stock market’s in the gutter,” Mr. Danilovich said. “All of these things are temporary but do reduce available and willing parties to transact. “[Sellers] were so used to these last two years that now people start panicking and thinking ‘oh no, what’s happening,’ and they shouldn’t. It’s not a sign of a decline overall.”
“As a buyer you need to attack when seller confidence is low, not when it’s high,” Mr. Danilovich added. “If you can capitalize on this low consumer environment, you can get a good deal on a home.”