Silicon Valley is mired in an extraordinarily deep seller’s market, and has been for a couple of years now. Want to buy a home? No one who understands the market at all will tell you that it’s going to be easy. If you are serious about becoming a home owner rather than a shopper, it’s time to get serious about what it will take for that to happen.
In a deep seller’s market, it’s very helpful to have a game plan or strategy for purchasing a home. The best place to begin is with an understanding of your competition and the inherent risks of buying in this climate.
- Approximately 30% of all sales in this area are “all cash”. Not all cash buyers are savvy and may make mistakes (such as vastly overestimating the value of a cash offer – sometimes the lowest price comes from a buyer without financing). All cash buyers need to be educated, too.
- When homes sell in under 2 weeks and with multiple offers, there’s a very good chance that the winning bid came in with no contingencies for inspection, loan, or appraisal. Sometimes it’s all cash and non-contingent on the normal items.
- Most home buyers will have done a lot of research on how to compete in multiple offer situations. A few years ago I wrote a series of tips and they are still good today. Major hint: it’s not always only about price or even primarily about price. The terms matter, and so do a few things which are harder to measure (and can include all sorts of things – even whom you hire to work with you on the purchase). http://sanjoserealestatelosgatoshomes.com/summary-of-tips-for-multiple-offer-situations-silicon-valley-real-estate-contracts/
- If you dawdle, you risk being priced out of the market. Sometimes when beginning to shop, home buyers who are new to the game feel that they have power and can “wait until the market improves”. The problem is when there is deep scarcity of inventory and a ton of amply able buyers, the prices are going to go up steeply. If you take a year to buy, most of the time – unless you are extraordinarily lucky – it will cost you dearly. I have seen buyers wait so long that they basically used up their entire down payment. Since 2 years ago, prices are up about 25% to 30% in most of Santa Clara County and the San Jose area. If you have been looking for 2 years, your down payment has been spent. This is a real case of time versus money.
- The greatest fear that buyers have when purchasing in a raging seller’s market is that there will be a correction or crash, and they’ll be left with an over-investment in real estate. Put another way, they don’t want to overpay and they really do not want to be upside down in their home. No one wants to overpay. But right now, many homes that sell will not appraise (many do, but quite a few don’t).
So that’s the starting point – steep competition, a lot of “all cash” and a lot of “no contingencies” – when it comes to homes newly listed and gleaning multiple offers right away. Read the rest of this entry »