Tips for Silicon Valley Home Buyers
My 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.
In this district of San Jose, we have been experiencing dreadfully low inventory of homes for sale, and buyers aren’t backing off as much as usual for this time of year – I believe because there is just a whole lot of pent up demand from upwards of two years in a deep seller’s market. What does that mean? Sellers, if you have a problem home, or one not updated or well maintained, this is the time to sell it – buyers have little to choose from so are purchasing properties that need more work than they would bother with in a more balanced market.
Want to learn more about Cambrian Park real estate, the Cambrian district, Cambrian neighborhoods, school districts and zip codes? Please also see this article: Cambrian Park: Good Schools, Low Crime, Close to Los Gatos and Campbell. Cambrian neighborhoods can be located at the menu bar: Neighborhoods –> San Jose (all areas) –> Cambrian Park (SJ).
Be sure to read to the end to see the live Altos charts too – they are near the end of the article so please keep reading into the next page!
Cambrian single family homes trends at a glance
Sales and turnover are fast and steady, and the sales to list price has remained high, over 110% for many months now. It is a strong sellers market. Home prices in the entry level range are up about $300,000 or more from a year ago – making it harder and harder for first time home buyers to get into Cambrian. Many are now looking at Blossom Valley instead.
Trends at a Glance
|Trends At a Glance||May 2018||Previous Month||Year-over-Year|
|Median Price||$1,396,000 (-2.4%)||$1,430,000||$1,100,000 (+26.9%)|
|Average Price||$1,425,020 (-2.1%)||$1,456,070||$1,103,120 (+29.2%)|
|No. of Sales||72 (+10.8%)||65||57 (+26.3%)|
|Pending||54 (-3.6%)||56||56 (-3.6%)|
|Active||49 (+44.1%)||34||31 (+58.1%)|
|Sale vs. List Price||113.4% (-2.1%)||115.9%||105.8% (+7.2%)|
|Days on Market||10 (+13.4%)||9||13 (-21.7%)|
|Days of Inventory||20 (+34.6%)||15||16 (+25.1%)|
And the chart from last month:
|Trends At a Glance||Apr 2018||Previous Month||Year-over-Year|
|Median Price||$1,430,000 (+3.6%)||$1,380,000||$1,027,440 (+39.2%)|
|Average Price||$1,456,070 (+5.2%)||$1,384,410||$1,082,250 (+34.5%)|
|No. of Sales||65 (+18.2%)||55||72 (-9.7%)|
|Pending||56 (0.0%)||56||45 (+24.4%)|
|Active||34 (+126.7%)||15||34 (0.0%)|
|Sale vs. List Price||115.9% (-0.7%)||116.7%||106.5% (+8.8%)|
|Days on Market||9 (+10.8%)||8||9 (+3.6%)|
|Days of Inventory||15 (+85.4%)||8||14 (+10.8%)|
Generally speaking it is still a hot seller’s market and great time to sell a Cambrian home.
The condo and townhouse real estate market for San Jose 95124 & 95118
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:
- 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.
- 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.
- 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.
- 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.
- 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
If 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
Challenge # 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
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.
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 in 2018, you’ll need to get a number of things in order, including hiring professionals to help you.
Purchasing Silicon Valley real estate in this multiple offer market requires strong credit, a healthy down payment, 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
An 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.
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:
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.):
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 normal. Continue reading
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.
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?
First, 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
Hiring a Realtor? Silicon Valley home sellers are very savvy and go at their real estate transactions carefully. However, some may be tempted to try to line all the criteria up in side by side charts and attempt to make a hiring decion that way. Please beware the temptation of focusing on what is “easily measurable” as most important. Sometimes the most easily measurable factors may not be that important at all. Much of what is truly valuable in a Realtor’s suite of services and skills cannot be easily measured in a side-by-side comparison chart.