By Eugene L. Meyer
RISMedia, August 2008- Pity the plight of the hard-working real estate broker in Berkeley, California. In these hard times, listings may generate only five offers, compared to a dozen at the height of the housing boom. Days on market? Forget about it. On a desirable property, one open house or two at most and these babies are going, going, gone.
“It all comes down to the fact there are buyers and sellers,” says Eugene Millstein, a Berkeley broker for more than 30 years. “A house I just listed, three bedroom, two baths, old kitchen, old bathroom, very old kitchen, no garage, no off street parking, no driveway, no garage. But a pleasant house, nice sized rooms. I listed it at $1,075,000 and there were five offers and it sold for $1.3 million.” In this particular neighborhood, Thousand Oaks, five of six homes that closed in a recent two-month period sold for more than the listing price.
Nationally and within the Bay area, Berkeley is one of the few still hot markets in an otherwise cool real estate climate. Similar sizzling markets include some neighborhoods in San Francisco and the Silicon Valley; the Hamptons on Long Island’s East End; and, of course, the mother of all markets, Manhattan.
These are pockets of wealth where “New Low Price” or “Price Reduced” signs are seldom seen, where seldom is heard a discouraging word, and where foreclosures, short sales and lender-owned houses, also known as REOs, are the exception. To the law of supply and demand, add another critical factor: Wealth. And not just income but assets, and, often, access to family money that finesses any financing issues.
From a broker’s perspective, selling desirable properties in still hot markets involves not a lot of heavy lifting. A simple Sunday newspaper notice may suffice. In Berkeley, that means advertising in the San Francisco Chronicle, the paper of choice for open houses.
“Generally what happens here,” Millstein says, “is we put things on the market and, say, we’ll have it open two Sundays and we won’t hear any offers for two Sundays. Even if somebody has an offer right away, we say, sorry, we won’t listen to it. We hear offers on the Wednesday after second Sunday.” The Thousand Oaks home “sold soon as we heard offers.”
If all real estate markets are local, Berkeley serves to prove the point. Many of its homes were built in the 1920s. The city of 100,000 doesn’t allow tear downs and additions are strictly limited. But with the University of California-Berkeley, highly-regarded public schools, scenic hills and water views, a plethora of restaurants and shops known collectively as the Gourmet Ghetto, it is a much desired location. With the Pixar studios close by in not so fashionable Emoryville, movie millionaires contribute to the demand for its limited supply. Overall in Berkeley, prices were up 12.9 percent from March to May compared to the previous 12 months.
“I think Berkeley has always been an island,” says Berkeley broker Ira Serkes. Multiple offers and stable or rising prices in Berkeley, Serkes says, are also a function of “people staying put and a severe lack of inventory.” Meanwhile, just a few miles away in other East Bay area communities, it’s a totally different story. “If you go three miles north or south of Berkeley, you’ll find dropping prices,” Millstein says. Overall, San Francisco area prices plunged 22.1 percent in the past year, according to the Case-Shiller Index.
“The other interesting thing,” adds Millstein, “is people are putting huge down payments, gigantic, like they’ll buy for $1.3million and put down $800,000. A number I sold they never even got a loan. One went for $2.9 million and they paid all cash. Three of my last big sales were all cash. They are not trading up. Either they’ve made a lot of money or they have family money.”
Clear across the continent, here’s what you might find on Long Island’s fashionable Hamptons and East End, according to Rick Hoffman, senior regional vice-president for the Corcoran Group: “The market has kind of cooled off, but the high end segment is still very hot.
The very high end market remains very, very strong, and our very, very low end market remains very strong. When I say low end, I mean under $750,000.”
Recently, he said, “We just had a bidding war on a property listed at $4.8 million, and it sold for close to $6 million. Three people bid. It was down to two at the end, then it was a sealed bid and the highest bidder got it. Really pricing it well or a little below can generate interest in that property and generate that type of situation.”
Manhattan is another still hot market, according to Dottie Herman, President and CEO of Prudential Douglas Elliman Real Estate. “It’s not as hot as last year, but we still get multiple offers,” she said. “It’s very dependent on the property. On very high-end and trophy type properties or certain special buildings, we still get multiple offers. Properties priced well have gotten multiple offers.” The same applies in the Hamptons, where her firm is also active. “On oceanfront properties where there are not many of them, when they come up for sale, we get multiple offers. But far as momentum, it’s been a bit slower.
“When it comes to New York City, people are still pretty high on it. There are no foreclosure [tour] buses. In the suburbs, it’s different. It’s not like everything sells in a day, but we do have bidding wars, when property makes sense and there a demand for it.”
While there is virtually no new construction in Manhattan, conversions of hotel rooms to large spacious condos are helping to fuel the market, with many sales to foreign buyers. Herman lives in one such building on Central Park South, the Art Deco Essex, erected in 1930, a mix of hotel rooms and condo units since 1974. The Dubai Investment Group acquired part of the building in 2005 and, with a $50 million renovation, has converted more hotel rooms into condos. “They sold out within seven months, and the majority of units were sold to Italians,” she says.
The rule of wealth applies also in Upstate New York, where there are pockets of prosperity in housing sales. “There are certain parts of the county, like Woodstock, that still have the good pulse,” reports Joan Lonergon, principal broker/owner of Coldwell Banker Village Green Realty, headquartered in the counter-culture capital of Ulster county, in the Hudson Valley about 110 miles from New York City. “I wouldn’t say things are flying off the market like they used to. Yes, we’re still getting multiple offers on some things and others are just languishing.
“Woodstock holds its value generally much more than lot of other areas because of its proximity to New York, it’s a year-round vacation community, not just for a ski house or summer house. People see that has lot of value. Also, a lot want to move up into the Woodstock area and telecommute, so can go into city just a couple of times a week. If you figure a one-bedroom condo in Manhattan on the low end is $1.5 million, what you get up here for that might be 15 to 20 acres of land with a 4,000 square foot house.
“The average sales prices in Woodstock are probably the highest in the county. We always feel like it’s one of the few places where the market comes back first and goes down last. Another reason it holds its value is the fact Woodstock doesn’t overdevelop. We don’t have large subdivisions where builders have really gone out on limb and are now really stuck with all these houses. We also have extremely strict zoning. It has a lot of character that’s not going to change substantially.
“Luckily for us, a lot of the money that comes here comes from outside the area, so usually there is a certain amount of discretionary income people can put down. If there’s a shortfall in cash, they can make up from 10 to 30 percent. That’s another reason we’re a little insulated.” Still, while the Woodstock market could be much worse, Lonergan says, “We’re certainly not Berkeley, California. Five offers? Nothing like that is happening there.”
The Virginia hunt country, an hour west of Washington, D.C., is yet another area where wealth is keeping the market humming. ” I don’t’ know if hot is the word, but we certainly are enjoying a good market in the high end here in hunt country,” says Philip S. Thomas, whose Middleburg real estate firm specializes in big estates often purchased by old money. “Multiple offers happen once in a while, but it’s not the norm.
“We were never in a situation where had a dozen offers, for whatever reason. We are not in that kind of marketplace, never have been. Ten, twelve years ago when AOL [which located its headquarters near Dulles International Airport, midway to Washington] and people like that were going great guns, yeah, we had multiple offers, but not since then.
“It’s just a good strong market and a lot of people have wanted to buy properties here. That number has dwindled a bit, but we’re still very busy. But these aren’t Mc Mansions here. These are very fine custom built homes, houses for people who are not in the real estate business; it’s for their own personal use. The numbers of people have lessened, but there are viable people who are looking for places, not bottom fishers but qualified people willing to pay a reasonable price.
“Two things drive interest in our area. One is horses, all facets of the horse world, people interested in horses or ponies or whatever for their children to show or ride. The other one is we’re forced to live in a protected area, meaning lot of our properties are in easement. So I find a beautiful place on 50-100 acres overlooking 500-600 acres. You ask an agent what’s going to happen there? Will there be half a dozen bulldozers putting roads in? No, because we’re in easement area; they can’t do that. That’s where people that have money want to be.”
Prices in hunt country are not soaring, but they’re not falling, either, according to Thomas. “It’s not a fire sale situation out here by any means.”
Meanwhile, back in the Thousand Oaks neighborhood of Berkeley, in a zip code (94707) where the median sales price is just north of $1 million, the downbeat housing market remains largely an abstraction. “There could be one or two or three foreclosures, but not many,” says broker Millstein. “Most buyers in Berkeley put down 20 percent, so they didn’t have subprime mortgages” on which to default.
For him that means no gimmicks needed: “We just market. We just make the house look as beautiful as possible. Then we just advertise the hell out of it for two weeks. The people reading the paper think prices are dropping and they can wait. Then I have to re-educate them. They are shocked. The word spreads. A house goes on the market for $1 million, goes for $1.3 million. Berkeley-it’s a lifestyle decision.”
Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.