Buying a home can be a truly daunting task. In today’s America, it requires that many prospective homeowners sink their entire life savings into a single purchase that also happens to be the place they plan to live. In Los Angeles, where prices are sky-high and still rising, that can be a particularly overwhelming idea.
For many buyers, particularly those who have never owned property before, pricing isn’t the only stumbling block standing in the way of a purchase.
There are also questions of where to start looking, what price range to consider, and how to obtain a loan.
We’ll answer those questions and more in this guide. It won’t address every topic you might be curious about as a potential buyer, but it will give enough information to get you started on your search (or convince you to keep renting instead—seriously, no pressure).
Let’s get started.
How much do homes cost in LA?
Los Angeles County’s median home price was $600,000 in November, according to real estate tracker CoreLogic (sale data for December isn’t yet available, since many homes are still in escrow). That figure, which includes both singe-family residences and condos, is just $15,000 short of an all-time record set earlier this year.
CoreLogic’s estimate includes starter homes and smaller residences meant for one or two occupants, meaning it may actually understate the priciness of the LA market. Home shopping site Zillow calculates the median asking price per-square foot to be just under $429. That means that a typical single-family home of around 2,000 square feet could be expected to retail for about $857,000.
Why is it so expensive?
The cost of buying has been steadily rising, and homes are now pricier than they were even in the years leading up to the Great Recession. Does that mean another financial calamity is approaching? Probably not.
Real estate experts blame a variety of factors for LA’s high home prices, including the area’s persistent desirability among well-heeled buyers and a dearth of new construction to satisfy buyer demand.
Compounding the problem is a reluctance among owners to sell, even with prices as high as they are. CoreLogic finds that the total number of homes for sale across LA County is well below average and has even gone down in recent months.
That doesn’t mean homes are reasonably priced; the data firm also found that Los Angeles residences have been “overvalued” since July 2017. That means that homes are selling for more than 10 percent above the level where historical trends and the salaries of buyers suggest they should be.
What kinds of homes can I buy in LA?
We’ve already mentioned single-family homes and condos, but there are numerous property types to be familiar with in LA.
Single-family homes: Your classic American-style house that sits by itself on its own plot of land (white picket fence and swimming pool optional).
Condos: Condos are basically apartments that you can buy instead of lease. Unlike single-family homes, a condo building and the land beneath it are co-owned by everyone in the complex who has purchased a unit.
Amenities and upkeep in a condo complex are paid for by a homeowner’s association, which is funded through monthly fees paid by residents. Single-family homeowners don’t have to pay these fees—but they are also shoulder any home maintenance costs themselves, rather than dividing them up with neighbors.
Townhomes: Generally attached to neighboring units, these offer the space and feel of single-family homes, but they function more like condos. Residents share ownership of the land around the homes and pay monthly homeowner dues.
Small lot homes: Somewhat unique to Los Angeles, small lot homes might look like townhomes from a distance, but they are, in fact, more similar to single-family residences. The units in small lot complexes do not touch and sit on tiny pieces of land barely larger than the house itself. Buyers don’t have to pay dues to a homeowner’s association and instead pay much smaller maintenance fees for upkeep of communal space.
Co-ops: It’s possible to find some co-ops in Los Angeles, though they are not nearly as common as in other cities, like New York. These are similar to condos, except that buyers don’t technically own their units. Instead, they own shares in an association run by a very powerful board that often vets potential residents. Co-ops are also (usually) a bit cheaper than condos.
“Development opportunities”: It’s possible to buy vacant land and then build something of your own in Los Angeles, but the rules around this are complex, and the process can be costly. Don’t do this if your only preparation is reading this guide.
How much of a downpayment will I need?
Trying to produce a traditional 20 percent down payment can be a significant obstacle in Los Angeles, given the area’s high housing costs. Working with the $600,000 median price calculated by CoreLogic, that’s a $120,000 sum up front.
Fortunately, most loan providers don’t require 20 percent down from buyers. Many home shoppers now pay 10 percent or less up front when purchasing a home (intrepid buyer and Curbed contributor Danielle Directo-Meston made a 4 percent down payment when buying in 2017).
Numerous programs are in place for buyers without much cash on hand. They include Federal Housing Authority loans for first-time buyers, VA loans for veterans and active servicemembers, and Home Possible Mortgages for buyers with low or mid-level incomes.
There are also numerous programs in the Los Angeles area available specifically for first-time buyers.
The disadvantage of making a low down payment is that, in most cases, you’ll be hit with private mortgage insurance payments that drive up your monthly costs. With less equity in your home, you may also be more susceptible to downswings in the housing market, making it easier to end up underwater on a home loan.
Should I bother getting pre-qualified?
Yes. Getting a loan can be a long and difficult process, and, in a competitive real estate market like Los Angeles, it’s best to start as soon as possible. Getting pre-qualified—or better yet, pre-approved—by a loan provider will give you the ability to make a quick offer, should you come across the home of your dreams.
Working with a lender in the early stages of buying will also give you a better sense of what kind of budget you have to work with, and if there are any special loan programs you might be eligible for. It’s also a good opportunity to work out any potential kinks in the lending process (whoops, you added an extra zero to last year’s tax return) before going into escrow, when you’ll have less time to correct these issues.
Do I need a real estate agent?
Technically, no. But trying to navigate the ins and outs of purchasing a home—particularly if you haven’t bought before—can be a real challenge without the help of a professional. Not only can an agent help you with things like finding homes in your price range and arranging showings, they will be able to guide you through the process of negotiating a price with the seller and agreeing upon the terms of the sale.
Am I going to get into a bidding war?
A report from Zillow last year found that over one-third of Los Angeles area homes sold above their asking price in 2017. That suggests it’s common for sellers to receive multiple offers when listing a home.
Still, the local real estate market is shifting. An analysis from Trulia found that 16.5 percent of homes listed in Los Angeles during the month of August were being advertised with a price cut. Since then, home prices have leveled off slightly, suggesting competition is waning among buyers.
How long is this going to take?
Agent Tracy Do, of Compass Realty, tells Curbed that the homebuying process can be as short as a single day and as long as three years. Where your search falls in that time frame will depend on how prepared you are, how picky you plan to be, and whether you get a bit of luck along the way.
“Typically in this market,” says Do, “a buyer that stays focused on their home search should be able to identify a property and close escrow within a six month period.”
Should I just rent instead?
Possibly. Buying vs. renting can be a tough decision, and the answer depends on how long you’re planning to stay, and whether you’re ready to make such a large financial commitment. If you are willing to stay put for five or more years, buying can be a smart investment. If not, renting may make more sense, given the flexibility it provides and the lower amount of risk.
What about gentrification?
Los Angeles has one of the lowest rates of homeownership in the nation, and buying a house isn’t attainable for many residents. If you are able to buy, even if it’s not a mansion in the Hollywood Hills, you’re probably doing better financially than most Angelenos.
That’s important to recognize—particularly if you’re moving into a new neighborhood. Take some time to get to know your neighbors, and be sensitive to the fact that there may be history and cultural aspects of the area you aren’t aware of yet.
When is the best time to buy?
Despite its reputation to the contrary, Los Angeles definitely has seasons, and the same goes for the local real estate market. According to Zillow, late spring is when you’ll have the freshest offerings, with the number of residences hitting the market rising sharply between April and June.
Not all of those homes will sell right away, though, and June, July, and August are the months when the most overall homes are on the market—having collected during the spring months.
Late summer is also a good time for bargain hunting, as owners chop prices and buyers looking to move before the start of the school year exit the market. Per Zillow’s calculations, more than 13 percent of homes listed in LA got price cuts each month between July and September of 2016.
Will my home be destroyed in a natural disaster?
As hot as LA’s real estate market may be, it’s important to remember that no investment here is completely safe, as the entire city sits on an extensive network of faults that can and do produce devastating earthquakes from time to time.
It’s something to consider when picking a neighborhood. Consult state guides and mapsto see which areas major faults cut through.
Home inspections also typically include a seismic report, which will alert you of structural weaknesses in your home and let you know if the property you are buying sits on a liquefaction zone (in which case, a major quake would momentarily give the ground beneath your home a liquid-like consistency, with potentially disastrous consequences).
Because the area is a hotbed of seismic activity, buying earthquake insurance is never a bad idea (though many homeowners choose not to buy it, due to its high cost).
Earthquakes, fires, floods, and mudslides aren’t so common as to make buying in LA a foolish decision. But they are something to factor into your homebuying calculations.