Buy a house in LA: How we survived the bidding wars

Now pre-qualified for a home loan and with our Monopoly money in-hand, my husband and I were ready to start house shopping in Los Angeles. In the beginning of the year, before we even hired our realtor in May, we began combing through all of the major real estate listing sites for a bigger-picture look at the very challenging market, scoping out our desired areas IRL, and passively touring open houses.

Unsurprisingly, our under-$500,000 budget priced us out of already-buzzing neighborhoods in areas like the Westside, Eastside, and NELA, so we narrowed our search to South LA (where the average list price is $475,000 according to Redfin) and over the hill in The Valley (where median single-family home prices recently dropped to $630,000 reports Daily News).

South LA looked promising for its investment potential, thanks to the under-construction (and very highly-anticipated) Crenshaw Metro line and the Rams Stadium—but we were also privy to the fact that we’d be considered gentrifiers, so it’d be of utmost importance to become active members of the community, respect longtime residents, and understand the neighborhood culture. (In other words, we’d try be good neighbors—regardless of the ZIP code.)

We also considered crime, school ratings, and how long we realistically planned to stay. Though we’d been living in West Adams for the last three years, the rest of South LA was still unchartered territory to us—making it a risky move to buy property there.

As former Valleyites—I grew up on the outskirts and my husband and I previously lived in North Hollywood—we were already familiar and comfortable with the SFV. His commute to work would take about an hour (in a car, sigh), but my flexible schedule as a work-from-home freelancer posed no geographical conflicts. Another very enticing advantage of the Valley (one envied by many transplants): Close proximity to my family, a.k.a. free babysitting. There was also a higher likelihood of getting more square footage for your buck (read: a front and back yard), a familiar story across generations.

“More than ever millennial buyers are willing to look in the suburbs in order to get a more updated home and more space,” says Gabriela Venegas, an LA-based Keller Williams realtor at the Carrasco Group. “I've had several clients start their search for condos on the Westside, only to eventually decide that a single family home in the Valley is a better fit for them and makes more financial sense. They are willing to make the sacrifice of having a longer commute in order to get into the fast moving real estate market before they are priced out.”

After apartment hopping for over a decade (three years was our best record in one spot), we longed for a permanent place to call home for at least five years and possibly over a decade—but we accepted that our budget would require serious patience.

That’s something that LA-based financial advisor Leighann Miko, founder of Equalis Financial, stresses. “Don’t get distracted by shiny objects, like the quick flip in Los Feliz,” she says. “Be willing to expand your search criteria in terms of location and style.”

Venegas tells me that she always recommends that her clients decide on their “non-negotiables” first. “My rule of thumb is this: Don't compromise on the things you can't change,” she says. “The paint inside and out, the flooring and even aspects of the layout can all be changed over time and should carry less weight. But things like the neighborhood and the proximity to the freeway are set.”

Given our slim pocketbook, we knew we had to compromise on some of our wish list items, like living near a Metro stop (or a one-hour max driving commute for my husband), and having both front and back yards, all hardwood floors, and a garage or carport, to name a few. We decided not to budge on living in a relatively safe neighborhood, a spot at least 1,000 feet away from the freeway (due to air quality and health concerns), air conditioning and heating, and some sort of driveway or designated parking (covered or not).

Major fixer-uppers were also out of the question as we didn’t want to apply for a home improvement loan. With a 1-year-old and another little one due this fall, we simply didn’t have the time, space, or patience to devote to renovations; nor could we compete with all-cash buyers. Condos and townhouses (which come with homeowners’ association fees) were off the list as they weren’t covered by our FHA loan.

When it really came down to filtering out the “no” homes, we relied heavily on Los Angeles Times’ extensive neighborhood maps for school ratings and violent crime data and its freeway pollution map for checking air quality. We also surveyed areas at various times of the day and used sites like Redfin and Trulia.

Our home bidding experience read like a cliched history of romantic relationships: The first house broke our heart, we rebounded with the second, had fun with a few more, and then ultimately found The One. Just like with finding love, hindsight is always 20/20—we’re eventually bound to find the imperfections of the place we now call home. (For now, we’re enjoying that blissful honeymoon period before the inevitable major water leak or AC fail.)

The first heartbreaker came in the form of a Spanish-style three-bed, two-bath built in the ’20s and listed for $460,000. We knew better than to imagine ourselves within its spacious floor plan, light-filled living room, and upgraded kitchen, but we proceeded to fall head over heels anyway and offered $10,000 over the asking price. We were countered with “best and highest offer” and removal of the appraisal contingency, but in the end, we weren’t competitive enough. We quickly got over that hard but necessary first defeat, especially when we found out it ended up selling for $492,000.

Via Allan Tuttle, West Coast Realty

Speaking of contingencies, Venegas notes that default periods in purchase contracts are 17 days for inspections, 17 days for appraisal, and 21 days for a loan. “I never have a buyer enter into escrow removing any of these contingencies. They are in place to protect a buyer in the most important purchase of their life, so I never recommend removing them ahead of time,” she explains.

Up until the final house, the rest of our bidding “wars” got hot and heavy one minute, then cooled down in the next.

There was the charming midcentury modern home with mountain views located in my hometown; we offered the list price of $480,000 (which it sold for), knowing that we wouldn’t have room to counter. (Our soon-to-be party of four would’ve outgrown the two-bedroom space anyway.)

Then there was that too-good-to-be-true house with four bedrooms (one of them possibly unpermitted) on a seemingly quiet stretch of other 1920s-built Spanish-style abodes. Located not far from the first home we bid on and with a starting price of $409,000, we were this close to putting in an offer—until we double-checked the exact neighborhood, Chesterfield Square, currently ranked by the LA Times as the community with the highest violent crime rate.

By the time we bid on a pristinely upgraded and restored (original built-ins like plate rails and all) Craftsman in South LA, we already knew there’d be a fat chance of making it beyond the counter-offer stage. (We offered $5,000 over the asking price of $475,000; it ultimately ended up selling for $480,000, presumably to buyers with more attractive financials or a larger down payment.)

Via Judi Reimer, Re/Max Estate Properties

Exhausted and now with a healthy dose of rejections under our belts, we were ready to take a temporary break from our house hunting. We wondered if it would be wiser to revisit our search in another six months or consider renting a larger space.

“Some people will say there is never a bad time to buy a house, it’s an asset after all,” says Miko. “But when you have an overheated market where buyers are willing to spend tens of thousands of dollars in excess of the fair-market value of a home, it may be a good time to take a break and enjoy rental living a bit longer.”

According to our realtor, Trent Slatton, fall and winter are historically slower seasons in real estate, making those times ideal to buy. Of course, the best opportunities are in markets with high inventory, a downward pricing trend, and fewer buyers, he says, “but no one [really] knows when the next down market will be ... you could wait another two years for it, continue to pay rent, and not take advantage of the tax write-off for your mortgage.” Simply put, the buyers’ circumstances (like a growing family and having enough cash for a down payment) often dictate the “right time” to buy.

Back to our search: Just when we were ready to throw in the towel, we found our home. Having toured countless houses that ran the gamut of total fixer-upper to totally bizarre (or both), we had a pretty good idea of what to expect based on the listing photos. Pictures really are worth a thousand words, and we knew we’d need to act fast—so we put in an offer four hours after the listing went live, scheduled a tour of the home for the very next afternoon, and immediately sent a “Dear Seller” letter after our visit.

This move isn’t uncommon among buyers competing in a seller’s market, says Slatton, who urged us to come in strong out of the gate. “If you fall in love with a home that appears to be in excellent condition [and in a great] location, has tons of charm, and is priced mysteriously low, it’s highly likely that there are at least three to 10 other buyers who feel the same,” he says. A seller’s market isn’t the time to try to get “a deal,” especially if the comparables show that the home is priced properly.

“Be prepared to do something extra to stand above your competitors. This does not always mean a higher price, but often better terms,” he adds.

When it came to countering, we put down an earnest money deposit of 3 percent, which “is often a key factor in an offer getting accepted,” our Berkshire Hathaway agent says. “A seller’s market is not the time to try and get in with 1 percent,” and it may also be helpful to increase the deposit after certain contingencies are cleared.

At Slatton’s recommendation, we also countered with an escalation clause, offered to shorten contingencies for inspection and appraisal, and showed willingness to negotiate on repairs, to name just a few concessions to appeal to the sellers.

According to Venegas, the Keller Williams agent, shortening some of the contingency periods is one way for buyers to show sellers that they’re serious. “For most properties, we can perform all of our inspections within 10 to 12 days so that's a way to make our offer more competitive,” she says.

While we can only speculate why the sellers really chose us, it’s likely that we owe our success to our agent’s constant communication with the other party and our striking while the iron was red-hot. In addition to reaching out for a status update every few days, Slatton also made clear to the sellers that we were willing to make the transaction as reasonable and easy as possible.

Venegas agrees that getting creative can be key to, well, getting those house keys.

“This is such a competitive seller's market that the average home has four to five offers on it within the first week,” she says. “Sometimes it's not all about money. Ask your realtor to call the listing agent and try to get a feel for what the sellers are looking for in an offer and what is important to them.”

Recounting one success story, Venegas says offering to make a deal run smoother can score points with a seller. When one of her buyers wanted a property that had fallen out of escrow (the prior potential buyers had been dragging their feet on the inspection, she says), Venegas went ahead and contacted a home inspector, then gave the sellers three options for inspection dates and times. “This put the sellers at ease and we opened escrow the next day,” she adds.

Up next, we’ll examine the very sensitive G-word: How not to be a gentrifier in LA, according to local experts. Stay tuned for more, including the grand reveal of where we ultimately landed.