Buying Tips

Tips for Silicon Valley Home Buyers

Bel Estos Drive near Carlton and Rosswood in San Jose's Cambrian areaMy Cambrian area of San Jose Real Estate Report was recently published with the updated numbers from the closed sales last month for this part of San Jose (95124 and 95118 with a little of 95008 too). Please click on the link above to see much more information there. Those charts are below.

First, though, I want to share some info that I pulled from the MLS last night. It does appear that Cambrian home prices have come down quite a bit since the peak of pricing in March.  For home sellers wondering why their properties aren’t selling as quickly, this may be helpful. Also it’s good info for those thinking of selling their houses or condos in this second half of 2018.

The very best way to know what the market is doing is to track the same house as it sells and re-sells. However, most home owners don’t move often, so that is not helpful to us. The next best method is to find very similar properties and track them. That would be such as all condos in a large development with approximately the same floor plan / size.

Cambrian often mimics the valley as a whole pretty well, so I thought I would pull up a representative sample from a hot segment of the market to get my own sense of how things are going. I pulled starter homes with Campbell Union High School District, zip code 95124, with 1000 – 1500 SF, 3-4 bedrooms and 2+ baths.

Here are the averages from March to today:

March 2018 (10 sales)  average price per SF $1,100.53  average sale price $1,429,612
April 2018 (15 sales)     average price per SF $1,138.75  average sale price $1,417,000
May 2018 (14 sales)      average price per SF $1,076.54  average sale price $1,375,643
June 2018 (10 sales)     average price per SF   $980.64  average sale price  $1,258,550 (steepest drop from the month before)
July 2018 (12 sales)       average price per SF   $974.35  average sale price  $1,232,958
August 2018 – only 2 closed sales so far, too little data to be helpful

That is a drop in the average sale price of $196,654 over 4 months for this group, or about $49,163.50 per month on average (though some months it is more or less). The data here uses a fairly small pool, so it may not be accurate for all parts of Cambrian, but it is an indicator of what the market is doing overall since this is a very in-demand segment of Cambrian.

If we input this into excel and ask it to generate a forecast through January (which assumes the same rate of change, which may NOT be true), it looks like this – sellers please note, THIS IS WHAT BUYERS ARE THINKING AS THE WAIT TO BID:

Graphic Cambrian forecast

Now I need to remind everyone that the market is often not a straight line. Let’s stop and take a look at the county’s sales (average and median prices) to get a sense of that. Although the general trend for the last few years has been upward, please see that there are MANY drops, particularly in the second half of each year.

Chart of Santa Clara County single family home prices and sales 2009 to the present

As is evident, seasonally, the market does often flatten or decline somewhat in the second half of each year. The peak is most often in spring sometime. Very often, the peak is in March (again, that means sales the month before, which is February, and that means getting your house all ready in January).  So let’s say that the market does drop at the current rate, in January 2019, this hypothetical Cambrian home would be selling at about $886,000, prior to the possible spring surge in pricing. To get the lowest price means buying in December, not buying in January, most likely. But – December also typically has the lowest inventory, so not much selection. For that reason, if you like a home now, I would suggest buying that home now. Buying a home for yourself and your family is not like buying a stock. You are going to live in it, so you will want to like it. I have seen many buyers try to time the market and end up going through December since they hated what was available, and then they got caught buying in the spring madness, and they paid more.

But who knows if prices will rebound in early 2019 or not. Who knows if prices will continue dropping this year. Some years, we have seen drops followed by rapid appreciation. Last year, prices rose through December, confusing everyone. This could be the beginning of a correction, or it could be a seasonal cool down – a gift for wearing Cambrian home buyers.

If it’s the beginning of a correction, buying now does not make sense unless you plan to be in your home for 10 years or so. If it is a seasonal experience, or a blip, then buying this fall is a good idea, since the new year is very likely to see prices move back up.

Which is it? I do not know for sure. The CEO of my company thinks that prices will trail off for the rest of this year, and then return to their upward march in the spring of 2019 (think Feb – April). When I see the hiring, the Google expansion, I know that people have to live somewhere. It may be a standoff between sellers and buyers on price. My usual advice is simple: if you are ready to get on with your life, and you’re going to stay there 5 or 10 years, buying now most likely makes sense.

Trends at a Glance

Trends At a Glance Jul 2018 Previous Month Year-over-Year
Median Price $1,260,000 (-4.0%) $1,312,500 $1,140,000 (+10.5%)
Average Price $1,311,880 (-5.3%) $1,385,810 $1,178,450 (+11.3%)
No. of Sales 57 (-1.7%) 58 77 (-26.0%)
Pending 52 (0.0%) 52 61 (-14.8%)
Active 70 (+42.9%) 49 22 (+218.2%)
Sale vs. List Price 105.1% (-5.5%) 111.2% 107.9% (-2.6%)
Days on Market 17 (+39.4%) 12 19 (-11.0%)
Days of Inventory 37 (+50.4%) 25 (+329.8%)

 

And from the month before: Continue reading

Buy a home - school desk photo as there's much to learn!The idea of buying a home, especially a first one, is both exhilarating and overwhelming. Where do you begin if you want to buy a home in 2018?  If you want to purchase real estate in Silicon Valley before the year is over, you’ll need to get a number of things in order, including hiring professionals to help you.

Purchasing now, in this multiple offer market requires strong credit, a healthy down payment with set aside for reserves and improvements after closing, time and energy,  and no small amount of courage. Looking halfheartedly means you will see properties, but not buy.  After the down payment, probably the most important element you’ll need to have is commitment, and further, you’ll need a strong team of professionals to assist you. Let’s talk about a solid home buying strategy. Continue reading

When it’s a hot seller’s market, like it is right now in Silicon Valley, it is challenging to be a home buyer.  That means it’s also hard to be a buyer’s agent, since it may require writing many, many offers (and a lot of time and energy) before the clients get into contract.  Since Realtors are usually only paid when a property closes, that means it’s not too hard to go broke if a real estate professional focuses a lot of time with buyers.   In other words, in a market like this, most agents would prefer to work with sellers rather than buyers, because it’s more likely that they’ll make a living.

Home buyers Realtors look for these traitsWhat can you do to increase the odds of finding a great Realtor who will take you seriously, work with you and for you, and give it a good effort even if it’s an uphill battle?  First, let’s understand what a real estate licensee is looking for a client – at least in most cases.  Usually, the savvy agent doesn’t want to waste time with people who are not serious, not ready, or who will not be loyal.  The smart Realtor knows that without these three things, it’s unlikely that they will be able to sell that person a home, or at least not in a reasonable period of time.

Serious home buyers:

Only about half of all home buyers will likely buy in the year they think they might, so it’s important for real estate professionals to try to make sure that they don’t spend months on someone only to have him or her remain permanent renters.  The agent must qualify the client to make sure it’s worth the risk of spending time with him or her.

Clues that the buyer isn’t serious include these:

(1) Comments like “I may have to look at homes for a year or two” or “I may need to write a hundred offers to get the right deal” or “I’m in no rush” indicate that this isn’t a big priority for the buyer (so maybe it shouldn’t be for the agent, either). This buyer is able, ready and probably also loyal – but not serious.  Some, though, will clarify with a time frame and this is a game changer. “My lease is up in July, so ideally, I’d like to get into contract in March, close in April and move in May.  But if I find the right house sooner, I’ll buy sooner.”  That works!

(2) If there are two decision makers, having only one do most of the house hunting and the other showing up at distant intervals often indicates that it’s a priority for one but not both.  Sometimes that’s not the case, but it is a red flag.  Both need to be serious. Continue reading

multipleoffers3 300x170 - Why do you keep losing out on multiple offers?

Multiple Offers

You may have heard that the Silicon Valley real estate market is slightly softer now than it was a a few months ago.  That’s true – at least for most of Santa Clara and San Mateo Counties and nearby. In many cases there are now half as many offers as there were in February, March, or April. But it’s still a hot seller’s market, and that means that often there are multiple offers, overbids, and sales with no contingencies.

For my last few listings – which have been in San Jose, Saratoga, Los Gatos, the Cambrian area of San Jose and the Campbell area of San Jose – there’s been a consistent “spread” of offers.   If there were 6 offers, it might look like this:

  1. Best offer frequently the highest price and best terms. It is 10-20% over list price, 25-30% down at least, and has no contingencies for inspection, loan, and most of all, appraisal (the percentage over has to do with whether the home was priced spot on the value or strategically under).  These offers come with all disclosures signed, and the buyer’s agent has even done her or his Agent Visual Inspection Disclosure.  They include the proof of funds and usually also write a nice letter to the sellers about why they want to purchase that home.
  2. The best offer is also someone who’s been SURE that he or she or they wanted the home from the very beginning and looks ROCK SOLID. NO WAVERING, not a “last minute” offer. Any hesitation on your side will cause the seller to not feel good about your odds of closing the sale. Be consistently interested if you want the sale. A shaky looking buyer may not include their proof of funds.  Perhaps they would not sign the disclosures yet or otherwise submit an incomplete package.  They don’t come across as certain about buying this property and need a few days to see the property again, or show it to their parents, or otherwise confirm the decision to buy. Their agent is not so thorough. If the TDS is not fully signed off, is the buyers’ agent trying to sneak a 3 day right of cancellation into the contract? The best buyer’s offer doesn’t look shaky – it looks dead set on buying the home and has done everything possible to convince the seller of their conviction.
  3. The second best or next runner up is usually strong on terms (at least 25% down, few or no contingencies) but perhaps made an offer price a little under the top value.  Sometimes the next runner up has a good price and mostly good terms, but something is not quite as solid.  If the offers are tied but one buyer has no contingencies and the other has any, that will be the tie-breaker.
  4. Middle of the pack is usually a combination of a price where the home should appraise, a solid down payment, and few or no contingencies. It may be a price that seems “reasonable”. Buyers may feel that it is “a fair offer” or a win-win. Often the fair offers aren’t good enough to take the prize in multiple offers. If you can project what most buyers think a home will be worth, maybe you might want to consider getting ahead of that pack and seeing where the pricing trajectory will take you.
  5. Bottom offers are under, at, or barely over list price, and include an appraisal contingency as well as others (one for loan or one for property condition). If there’s a rent back, they want their PITI covered.

If you’ve been writing offers and not succeeding, try to see your own pattern in this spread.  Is there one thing, or perhaps are there two or more things, you’re just not ready to do?

Why it is so hard

Continue reading

money faucet graphicIf you are tired of paying $3,000 per month in rent for a 1 or 2 bedroom apartment and have decided that you want to buy a Silicon Valley home, you may find that it’s complicated and scary as the San Jose area is in a very deep seller’s market. Let’s take a quick look at the major challenges and decisions you’ll face as a potential Silicon Valley home buyer.

Silicon Valley home buyer challenges

Affordability – or the lack of it

The cash challenge - the Lincoln 5 dollar bill as a jigsaw puzzleChallenge # 1: the cost of housing is staggering, whether you are renting or buying, whether you are a first time home buyer or you’ve just relocated from somewhere else less expensive (meaning almost anywhere). Homes under a half million dollars are few and far between, as the newspapers and media have recently announced, and the median price of houses in Santa Clara County is about $1.1 million (and closer to $1.3 million in San Mateo County, less in Santa Cruz County), with the average price being higher still. Of course, condos and townhomes are less pricey, but they will have Home Owner Association or HOA dues to factor in. Same with mobile homes, which nearly always have space rents of $1,000 or more in Silicon Valley. If you want to buy a Silicon Valley home, figuring out “how much house” you can afford when purchasing can be a painful exercise. (Hint: your success in life is not reflected in the size or remodeling of your home here. The odds are good that you will be disappointed when you see how little you can buy.)

How much can you afford in this hyper expensive real estate market?

The old rule of thumb is that a consumer can qualify for a mortgage for 3-4 times his or her annual income. Translation: if you make $200,000 per year,  and don’t have other debt (student loans, car payment, etc.), you may get a mortgage of $600,000 to $800,000 (and then you need the down payment on top of that).  In most parts of Silicon Valley, that means buying a condo or a townhouse, not a single family home.  In addition to the down payment, there will be closing costs, and most likely repairs to the property since in the current market sellers usually aren’t providing section 1 pest clearances or doing other repairs. Cash is crucial.

Challenge #2 if you want to buy a Silicon Valley home: money for the down payment, closing costs, repairs, and reserves – it’s more than you might think.   Pulling together the hefty down payment and other needed money is always hard. In this crazy area, though, most people who want to buy a Silicon Valley home need not just 20% down, but additional funds in order to be competitive with multiple offers. So you may need to be able to throw $200,000 to $400,000 down on  that normal, non-luxury house or townhouse.  Saving that much money is a trick, and many first time home buyers either get help from parents or are cashing in on stock options to pull it off. Most of the time, home prices seem to appreciate faster than buyers can save, so having some sort of boost beyond your own saving power is critical for most.  This has been true for many decades here – both the relatively high cost of housing and the difficulty in pulling together 20% or more for the down payment. (It was true in the late 1980s when my husband and I were trying to buy our first home, too.)  It’s even harder now, though, as 25% is often the bottom amount that will get your offer seriously considered if there are multiple bidders on a home for sale. Continue reading

club-almaden-sign
What makes Almaden so highly desireable a place in which to live? Real estate prices are among the highest in San Jose (and Silicon Valley). For much of Santa Clara County, its a little remote; the commute might be a little too far for some, or so its thought. But that may be a misconception.

Where is Almaden Valley?

Almaden sits nestled between the Santa Teresa foothills and the Santa Cruz Mountains in a southwest corner of Santa Clara County. It touches the Los Gatos and Cambrian Park borders on one side, Blossom Valley on another and stretches toward Morgan Hill at the base of the valley. The major roads winding through Almaden are Camden Avenue, Almaden Expressway, and Coleman Avenue. The local landmark, viewable from much of Almaden Valley, is the famous Mount Umunhum, perched at a high point of the coastal foothills and recently opened to the public as park land.

Why Choose Almaden Valley?

Great living: Almaden boasts low crime, great schools, and strong community involvement. With nice public facilities such as a rec center and library, and some neighborhood communities with cabanas and busy swim teams, its family oriented and kid friendly.

almaden-golf-course-view-smallerScenic open spaces: Almaden has lots of open spaces with golf courses, parks, and trails. The southernmost part of Almaden and some of the hilly areas are still beautiful horse country too.

Continue reading

Appraisal value does not equal market valueAn appraisal is an opinion of real estate value  by a licensed appraiser, employed when a house or condo is under contract or sale pending with a mortgage, so that the lender does not over-invest. In other words, when an appraisal is used in escrow, it is to protect the bank which is lending money on the property. Appraisals may be used at other times, too.

Market value is what home buyers and sellers will agree on as the sale price of a property.  When Realtors work up a comparative market analysis or competitive market analysis, they try to figure out where the home will sell in the future, or what the market value will be.  They will also strive to bring that sale price to the top of the possible range of likely values – or go beyond it.

Put another way, appraisals attempt to determine the most precise value for what a home should be worth. Home buyers may or may not agree with an appraisal’s results, though.  The appraisal value does not equal market value.   The market may find the property to be worth more or less than what an official appraisal states as the worth of the real estate.

With an appraisal, there is a subjective element to the opinion of value.  For instance, if a brand new kitchen sink is tangerine in color but in great condition, will the appraiser ding it for being unpopular, or value it higher for being new?  I can tell you that most Realtors would take off projected value for that poor color choice – but I doubt that an appraiser would.  How about a flag lot? Is that worth more or less than a standard lot on the street? Most buyers would prefer a home on the street, and that may impact the sale price, but will an appraiser devalue a flag lot? Maybe.

Or with a view, how much is it worth?  Recently I sold a Saratoga home with a fantastic, once in a lifetime view.  The appraiser who came out for the bank downplayed the view as not having much value at all.  The home buyers who bid on the property, though, thought it was all about the view.

Fair market value is when there is just one buyer (or couple) and one seller (or couple) and the property is purchased with no undue pressure on either side.  It’s not a fire sale for the seller.  The buyer isn’t competing in a crazy multiple offer situation.  The appraisal will have the best odds of matching market value in this circumstance, but even then, it’s no guarantee. In the San Jose area, if there’s only one buyer for the residence and it’s a moderately priced piece of real estate, there may be something wrong that makes buyers somewhat devalue the home. (This is because we have perpetually low inventory – at least as of this writing in 2017.)

In a rapidly appreciating market, appraisal values often lag the probable buyer’s value (or market value). This is because appraisals are always backwards looking in time.  They consider the closed sales.  If a property closed escrow 3 months ago, that purchase price was probably agreed upon 4 months ago, since most escrows run about 30 days.  With multiple offer situations, we may get 6 offers on a Silicon Valley home and four of them can be at a certain number – but the appraisal comes in lower.

Home buyers decide on their pricing based on sold homes which are similar as well as the current competition and the trajectory of the market.  In spots, they say “run to where the ball is going“. If you run to where the ball is now, you will miss it.  So too with an actively changing market.

Sometimes the market gets soft, either generally or in certain pockets or pricing tiers.  When that happens, home sellers can find themselves frustrated if there was a recent appraisal but home buyers don’t agree with the stated value.  “But the appraisal said it’s worth MORE!”  Buyers don’t care about the appraisal. If the buyers who step up to the plate with an offer are the only ones bidding, there’s a good chance that the ultimate sale price negotiated will be the true market value.  That does not make the appraisal wrong, it only means that either prices have gone down a bit since the appraisal or that market conditions have created a lower sale price.

 

 

 

Related reading:

All comps are not equal

Home inspection vs. appraisal

Valuation: price per square foot is only part of the answer

Severe inventory shortage

Why is it so hard to buy a home in Silicon Valley?  Most of it has to do with our ongoing and severe inventory shortage.

I initially wrote the article below on Feb 9, 2012.  I thought it was bad then – and I suppose that relatively speaking, it was. But it’s much worse now!

Today is May 1, 2017, and I ran the numbers of available single family homes in Santa Clara County in a chart comparing since January of 2012.  Have a look, and please note the year over year numbers:

2017-05-01 Santa Clara County Inventory of Single Family Homes

The situation has only intensified since I first wrote this article in early 2012.  There are many reasons for the problem: older people won’t sell for tax reasons (mostly capital gains). move up buyers who elect to stay and add on rather than deal with hugely increased property taxes.  In general, home owners are opting to “buy and hold”.

Is it hard to buy a house in the San Jose area? You bet.  And unfortunately, I don’t see an end in sight anytime soon.

*********************************

Original article: Feb 9, 2012

Right now I’m working with a number of very frustrated home buyers.  Silicon Valley real estate inventory is painfully low, and in the lower price ranges especially, that means multiple offers are fairly common.  FHA home buyers, in particular, are getting out bid and out negotiated by all cash buyers, many of whom are investors.

How low is the inventory?  Let’s have a look at January’s inventory for houses & duet homes (“class 1” or single family homes) over the last ten years in Santa Clara County (San Jose, Los Gatos, Campbell, etc.):

2012  1,382
2011  2,007
2010  2,426
2009  4,759
2008  4,872
2007  2,698
2006  2,202
2005  1,285
2004  1,612
2003  3,119

The average January inventory of available houses over the last 10 years is 2,636.  At 1,382, January 2012’s available inventory of houses for sale in the San Jose area was just 52% of normalContinue reading

thrasher-logo-Los-Gatos-CA-Pest-Termite-CompanyIf you live in Santa Clara County, once known as The Valley of Hearts Delight, you no doubt appreciate our mild, sub-tropical climate.

Unfortunately, so do the termites.

We have two main types of termites here (and other wood-destroying pests too), drywood termites and subterranean termites.

The subterranean termites, or subs as they are called, can be identified by the mud tubes they build from the ground or floor up the side of a wall. As their name implies, they live underground, and build the tubes as they go. Pest Control operators will remove the tubes and treat the area, injecting chemicals underground at spaced intervals, to exterminate them. See my post on identifying subs here.

Drywood termites, or drywoods, may live anywhere in the the home where there’s wood to eat. If they are found only in one or two areas, a licensed pest control company may do a local treatment. The difficulty with local treatments is that drywood termites may also be lurking in places that cannot be seen, such as between the walls. For that reason, the standard recommendation is to fumigate (also called to tent or to fume) the structure.

If you live in the Santa Cruz Mountains, you may also have dampwood termites to contend with.
Continue reading

As I hold my listings open in and around Silicon Valley, I am amazed at the number of people interested in buying a home who are on their own and not working with a buyer’s agent. If that describes you, do you feel that you are a little afraid of a buyer consultation with a Realtor?  Not sure what to expect, or concerned that you may be coerced or manipulated into hiring someone you don’t want to work with?   Let’s talk about how that appointment usually or often works, and how you can meet with an agent and not feel like you have no control.

What is a home buyer consultation?

Talking over a computer  -buyer consultationFirst, let’s talk about what a home buyer consultation is.  In a nutshell, the appointment has just a few purposes: (1) to help the home buyer to learn about the process, what’s involved, and to answer questions about what happens and what kind of choices there are. (2) It is a job interview for the real estate professional – is this someone you would want to hire? Even though the seller usually pays the commission, the buyer’s representative is someone you hire or not. (3) It is also a chance for the Realtor to see if you are someone that he or she can or would like to work with, too.  The interview is a two way process.

How long does an initial buyer appointment take? Where does it happen?

In my experience, most of these initial appointments can run anywhere from 30 minutes to an hour or more.  The length of it is often driven by the consumer’s questions.  If it is clearly not a fit, either side can say it’s time to wrap things up and call it a day.  If the appointment goes well, it may last longer. Continue reading

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Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


Selling homes in
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