2023: SFV BUYER'S GUIDE
So, you’re ready to buy a house in the San Fernando Valley. Perhaps you live in metropolitan L.A. and want something more affordable. Or, you might live in the Antelope Valley and want to move closer to the city. And hopefully, you’re ready to stop paying rent and to build equity for yourself and your kids.
Regardless of where you’re coming from, buying a home in the Valley in 2023 isn’t easy. If you have ideas of finding a foreclosure at a great deal, or “offering low” on a listing to get the conversation started, you’re in for a long ride. For every good listing, there’s 10 other buyers who are heavily considering it.
Inventory in the Valley continuously stays at record lows. Buyers are funneling in quicker than homes are being built. People who already own homes aren’t moving because they’re intimidated by the high prices.
Our suggestion? If you like a home, offer on it as soon as possible. For more in-depth information on how to get offers accepted, please reference our Advanced Buyer’s Guide.
In this article, we’ll bring you up to speed on the buyer’s situation and what to expect from offering, to escrow, to close. This article isn’t meant to frighten or discourage. You will find your dream house. It just takes a nuanced combination of patience and aggression. By using this website (and its Realtors®), you will be several steps ahead of your competition. This means precious thousands of dollars - and time - saved.
Here's how to buy a house in the San Fernando Valley.
TABLE OF CONTENTS
No, the Market isn't Going to Crash Anytime Soon
How are Home Prices Today?
Prioritize Your Urgency
Get Preapproved for a Mortgage Loan as Early as Possible
Costs of Buying a House
Your Mortgage (And Our Mortgage Calculator)
Find a Realtor®
How to Detect a Listing that Would Take a Lower Offer
Otherwise, You're in a Bidding Situation. Here's What to Expect
Components of a Competitive Offer
How Escrow Works
1. No, the Market isn’t Going to Crash Anytime Soon
Experts agree that prices will continue to rise, though not as quickly as usual. Rapid changes in the market as well as interest rates have made buyers feel uneasy.
The rate will decrease overall from the 6's this year to the 5's by the end of the year. This will set off a boom of prices and we will return to bidding wars by the end of the year. 2024 will be even more competitive. The issue is that inventory remains low. Owners aren't foreclosing because they have enough equity as well. Lending standards remained strict - so homeowners are very capable of making their payments.
Generally speaking, there isn’t a major crash in the near future. There is a possibility for a market correction, but nothing significant enough to outweigh how fast prices are increasing. Economic growth differs from the years leading up to the previous recession because buyers are more protected from shady lending practices. And although prices are increasing, they are doing so healthily.
2. How Are Home Prices Today?
If you haven't checked in a while, the median home price in the Valley at the time of this writing is around $800,000. With 5% down, your monthly payment is around $6,000.
The bank will only lend at most 50% of your net income to be your monthly mortgage. In other words, if you make $10,000 a month after subtracting monthly bills (but before taxes), you can get a mortgage loan up to $5,000 a month. Keep this in mind when looking at home prices.
If you know all this and you’re still going to buy... then buy! Like, right now. Prices and interest rates are only going up. The next section covers with what urgency to approach the homebuying process.
3. Prioritize your Urgency
There are many time-sensitive issues that you must consider, especially in a seller’s market. Some HAVE to move by a certain date. This is most common with families trying to get their kids into a school district.
Some might have a new job. Others want to close escrow on a house before the end of the year to use closing costs as tax deductions.
Don’t forget that buying home in the summer is more competitive than during the winter. This is for a variety of reasons, mainly being that children are off school during the summer. Furthermore, many buyers wait to file their tax returns in order to qualify for a home.
It should be assumed that you will be making multiple offers and may experience disappointment along the way.
Almost everyone underestimates how time-consuming buying a home is. The more it heats up, the more akin to a part-time job it is. You also have to consider your schedule to go see homes. Sometimes, you can’t afford to wait until the weekend for a popular listing. On weekdays, going when you get off work at 5:30 might also not sit well with sellers. And if your Realtor® isn’t around to show you homes when you want to, you should consider finding a more flexible one. Being the first offer is oftentimes the difference between winning and losing tiebreakers.
4. Get Pre-Approved for a Mortgage Loan as Early as Possible
But before you even start looking at homes, get your preapproval. No matter how many times we say, it's not enough. You can’t do anything without a preapproval from a bank. Your offer won’t be considered unless there’s an official letter saying that the bank is willing to give you money.
The preapproval process can take an indefinite amount of time - or as little as 24 hours. They run your credit, look at how much money you have in the bank, and verify your tax returns. There are an infinite number of issues that prevent you from getting a loan, including identity theft, having too much debt, or simply not being able to show where your down payment is coming from. Because of this, listing agents know that getting a preapproval can be difficult. Therefore, they absolutely demand that you have one. Put yourself in the seller’s shoes. Would you accept an offer that doesn’t have a mortgage loan ready to go?
As a rule of thumb, $100,000 of income with around 20% down and no debt can get you a mortgage of up to $650,000, which is just about the sweet spot for homes in the Valley. Keep this in mind when filing for tax returns, thinking about your down payment, and negotiating for a raise. Most importantly, remember that any debt you take on directly affects your purchasing power. This includes car payments, credit card debt, student loans, and other payments.
5. Costs of Buying a House
While many think the down payment is the only cost, there are several more fees.
Your earnest money deposit will usually be 2-3% when buying a house. This is the deposit that you put into escrow to show the seller you’re serious. It goes toward the down payment when you close escrow. In other words, if your earnest money deposit is 3% and your total down payment is 20%, you only wire in another 17% once you close escrow. You get your deposit back if you cancel escrow, as long as you haven’t removed certain contingencies.
You pay for your physical inspection as well. This runs around $300. You pick your inspector, though your agent can probably recommend some for you. Ask us for our recommendations.
Your appraisal will also cost from $300-$500. This is your responsibility, but the lender will order this.
Finally, you have the rest of the closing costs. This is generally 2% of the cost of the house. This includes property taxes, escrow fees, and fees associated with the loan. None of this goes toward the down payment, unlike the earnest money deposit. Remember you’ll need another $10,000 to $15,000 for the process of buying a house. These are due upon the close of escrow.
Don't forget the costs associated with living in a house:
Furniture
Appliances
Utilities, which range from $200-$500 a month
Cable, Internet, which definitely vary.
6. Your Mortgage (And Our Mortgage Calculator)
Remember that if you put less than 20% down, you pay Private Mortgage Insurance (PMI). It might not make sense, but if you own less than 20% of your house, there is an insurance that lenders require. This cost ranges between $200-$400 a month. This is a substantial amount of money, especially if you aren’t expecting it.
Interest rates are in the mid 4%’s. They are going up, although they are still historically low. If you’re thinking of buying, it’s still a great time.
7. Find a Realtor®
The writer of this guide is a Realtor®. It's hard to provide criteria without basically explaining oneself, but here are some guidelines anyway:
Sends you homes ASAP - This is important because homes are sold before you blink. You have to be on it and offer before everyone else.
Takes you to see homes - If you're just finding the homes on your own, then you're doing all the work. You might as well just call said writer.
Doesn't push you - Some agents want a commission check now. That doesn't align with the fact that you're buying the largest investment of your life.
Is a local - The Valley changes dramatically within a 5-minute drive. You need someone who understands that change. Born-and-raised in the Valley is preferable.
Tech-Savvy - You can buy a house almost completely through email in 2023. Make sure your knows this too.
Exercises Fiduciary Duty - This is the real estate agent's blanket term for "has your back to the very end." In essence, your agent must exercise caution, care, and loyalty at every stage of the real estate transaction.
And if all else fails, it doesn't hurt to tell a few agents, "whoever brings me the house gets the job." This will really ignite their motivation.
8. How to Detect a Listing that Would Take a Low Offer
On the rare occasion that a property is on the market for more than 30 days, the price is negotiable. That’s the general industry standard. Anything less than 2 weeks, and don’t consider offering lower.
Houses with shabby pictures can also be great deals. On the off-chance that they’re actually amazing houses, you can consider your competition to be much more limited.
Houses on main streets are often fantastic for their price. They tend to be around $30,000 less than houses away from main streets.
Fixer-uppers also bring potential too. While you can change your house over time, you can’t change your location. A beat-up house in a great area is a wise investment if you’re familiar with how to navigate the situation.
Websites like Zillow and Redfin even display how many "views" and "saves" that a listing has from its users. This helps you further gauge how competitive a listing may be.
And of course, get your Realtor® to check out how many offers a listing has. While listing agents don’t like to disclose exactly how high offers have gone, you can get your agent to bug them.
9. Otherwise, You’re in a Bidding Situation. Here’s What to Expect
There are two rounds of offers. The first time, you just offer whatever you feel makes you look good. In a multiple-offer situation, you’re going to the second round everytime - unless your first offer is just that ridiculously sweet. If not, it’s important to view your first offer not as your best one, but as an introduction to who you are.
By that, we mean to not offer low just to see if someone will take it - unless it’s been on the market for 30 days. A low-ball offer presents you in a negative light and doesn’t show confidence. Sellers are looking for the offer that’s most motivated to close the escrow. A low bid is a show of weakness.
Bid higher than asking price. If you do, you should be able to make it to the second round. This will be called a “multiple-counter offer” situation. As the name suggests, there’s multiple offers fighting in competition. And furthermore, all of you will receive the same response, which is asking for your final price to be “best and highest”.
“Best and highest” is a confusing and ambiguous situation to be in. You can offer as high as you want, and could potentially end up offering $20,000 more than the next best one. One’s first reaction might be to ask how high the other offers have gone. Most listing agents don’t like to answer that question, but they are obligated to answer unless their seller asks them not to.
Ask yourself, how high are you willing to go? There’s a premium to be paid for having what you want when you want it. It’s a benchmark of capitalism, and when demand exceeds supply, we are confronted with difficult scenarios.
Many new buyers are distrustful when their agent pressures them to offer higher. But after losing out on 3 dream homes, buyers start to get the point - there’s likely someone out there who wants the house more than you do.
Here's how to get a better chance to win the bidding war:
The escalation clause.
It plays out like:
"Offer to be $1,000 over next highest offer, up to maximum of $700,000, contingent on satisfactory visual evidence of said offer."
In this situation, you don't have to overbid up to a ridiculous amount, when there is a possibility the second-highest offer is already $20,000 lower than yours. Genius, right? It helps avoid a senseless bidding war.
10. Components of a Competitive Offer
Sellers are generally looking for the items listed below. For work-arounds, please refer to our Advanced Buyer’s Guide.
An introduction letter about your family, with a picture. Most sellers don't want to give up their home to investors. Sellers know they have a gift, and want to feel good giving it to the family that can use it best. If there are specific house features that fit with your family's lifestyle, mention them.
20% down payment or more. The idea is that if a buyer has more cash sitting around, they’re more capable of buying a home. Also, if the appraisal comes in low,