I would then hold off on doing anything as there is usually a 10 year adjustment in real estate, some say its a bubble, crash, whatever you determine to define it as.

Never had a bubble or a crash in the 2000s because it is a very stable market anchored by the state government, universities, and health care.  

Not unlike anywhere else, disruptions in employment could have an impact (like the 2001-02 tech crash that hit the area harder than most areas).

This way, if they have a friend crash on the couch it can happen but it shouldn't turn into a long term issue. 

Even when we crashed the prices, we did not have a lot of bookings throughout the summer.

Right now if you don't want to go outside California, then hoard a lot of cash until this entire thing comes crashing down.  

If the market crashes.

Because if we agree to 125k and the market crashes in the next 18 month he can just walk away right?  

As for your questions re a "crash."

They almost always will lend in your county as well, and if they're a satellite county to a larger urban area, they may have come through the RE crash a little better and are still doing investment property loans.