Silicon Valley home buyers want to understand time frames, expectations and requirements when signing a purchase offer on real estate.  One of the most important to fully grasp is when the initial deposit check will go to escrow and be cashed.

The quick answer to the question about when the Silicon Valley real estate purchase offer check will be cashed:

Your initial deposit check or good faith deposit check (or wire transfer or other means of conveyance) is due within 3 business days of acceptance (also called “contract formation”) unless the contract is changed by checking the box and filling in the blank for a different answer.  By the way, everywhere else in the contract, time is measured by “days”, not “business days”. This is the one exception! (more…)

Which is better: buying or selling a home in “fixer upper” condition, or aiming at “turnkey”?   In Silicon Valley today we are experiencing a shortage of good inventory. Home sellers may be tempted to market their home without preparing it well.  Buyers may feel that they will get a better deal if they purchase something that needs some work. What is really in your best interests?

Silicon Valley home buyers decide: bargain price and do the work, or turnkey and pay a premium?

Often it’s not a black and white choice of extremes between a “total fixer” and a “completely remodeled” home, but often there’s a basic stance that Silicon Valley home buyers must take: am I searching for turnkey or something that needs work? And if it needs work, how much am I willing to do?

A deep discount will be had on properties which are “all original”.  The question, though, is whether or not it will be worth the effort and cost to go through the trouble of extensive repairs and thorough remodeling.  Often the biggest projects are more profitably taken over by contractors – and even then it may not be profitable in the long run. Last summer I sold an original condition home to a contractor who remodeled and sold it.  The contractor did a lot of remodeling and sold the property a few months later for about 18% more than he paid for it.  When you consider the costs of buying and selling (8-10%), the cost of the remodeling (probably another 8-10% of the purchase price if you include the value of his labor), I’m not sure he really make much money.  For his sake I hope so.  For consumers, though, not contractors, it’s even harder to break even with huge remodels if you want to sell anytime soon.  What you do, do for the long run and for yourself – not because it will make you money!

At the same time, buyers need to be careful of homes which have been flipped by investors for a quick profit: they may have simply done the most visible work, leaving undone items which still need addressing, such as pipes, foundations, or structural items.

A few questions to ask yourself if you want to do a massive remodeling job (and buy a fixer upper):

• Do I have the time to oversee the work?
• Am I knowledgeable about construction? Or do I have time to research and learn prior to doing it?
• Can I do what I need and still put aside an allowance of 20% for non budgeted surprises?

For most buyers, changing paint, carpet, windows, appliances or counter tops is a big enough assignment. Rearranging floor plans and expanding a house is going to be too much work, cost, liability and stress for most.

Repair and staging advice for Silicon Valley home sellers

For most people who are selling Silicon Valley real estate, the house, townhouse or condo they are about to put on the market is the single largest asset they own. For this reason, maximizing the return on investment is extremely important. Most sellers avow that they want top dollar for their home.  Many, in the next breath, say “I want to sell As Is and I don’t want to fix anything.” Those two, unfortunately, are mutually exclusive. (more…)

Many Silicon Valley home buyers rely on PMI, or Private Mortgage Insurance, to purchase a house or condo. But what is it and who needs it?

Private mortgage insurance is usually required with loans in which the buyer has less than a 20% down payment.

PMI does not protect you, the residential real estate consumer. It protects your lender in case you default!

FHA loans don’t have PMI but instead there is a “government guarantee” and for that you pay a premium – so not called PMI but it works similarly. The cost may range from 1 – 2.5%.

FHA or Conventional with PMI?

If you have less than 5% down, FHA will be your only option. But between 5 and 20% down, you may choose.

If you are trying to decide between FHA and conventional loan products with PMI, talk to you mortgage broker or banker to see which one really costs more in the long run, factoring in the total package of interest rates, premium rate etc. (FHA loans may come at a lower interest rate but with other added costs – so don’t just compare interest rates.)  The result may depend on the loan to value of the property, your credit score, and other factors. There don’t seem to be any “easy answers” as to which one is necessarily better.  This decision will require a little research!

If you expect to be bidding in multiple offers, this is another consideration too – it can be very hard for home buyers in the South Bay to win out in multiples if they are using FHA financing (as opposed to conventional).

Finally, like HOA dues, PMI is not something you can usually deduct from your income taxes (unless the PMI cost was simply rolled into your interest rate).  Please talk to your lender and tax professional for more information on PMI and the tax ramifications.

Related reading:

Is your lender pushing you into an FHA loan?

The challenge of being an FHA home buyer in a seller’s market

First Time Home Buyer with FHA Financing? Make Sure That Your Offer is Well Drafted!

Silicon Valley home buyers (and sellers) are faced with a myriad of questions and choices when completing or reviewing residential real estate contracts to purchase the property.  One of them, early on, is whether or not a particular day is chosen for closing escrow or if instead it’s a number of days from contract formation (acceptance) to closing.

Which is better?

The are pros and cons to each approach, of course.  Many buyers want to be able to plan, without any ambiguity, when they will move in to their new home.  (For some this can be a matter of feng shui, astrology or a sense that some days are more fortuitous than others.)  This can work if negotiations are not protracted.

With distressed sales, though – bank owned properties (REOs) and short sales – and sometimes with multiple offers, the negotiations time frame can be hard to predict and if you pick one particular date, you may well have to change it later or find that you don’t really have enough time because a week or more gotten “eaten up” with counter offers, waiting for a bank or seller to respond or other delays. In those cases you may want to have the flexibility of writing in the length of escrow (number of days) rather than picking a certain date.

As always, talk with your professional real estate licensee for guidance as each case may be different.

For several years, we’ve seen declining residential real estate prices in much of Silicon Valley.  In many areas, though, prices are now either flat or bouncing up and down within a small range such that the probable buyer’s value or market value is very close to where it was a year or two ago.  Today’s San Jose Mercury News reports

“In a report to be released Monday, Clear Capital, a real estate valuations company in Truckee, predicts that prices will remain almost flat this year — compared with a 4.7 percent drop in 2011 — in the San Francisco-Oakland-Fremont metropolitan area, including Contra Costa County. Silicon Valley should see a 1.6 percent increase in home prices, compared with a 2.5 percent drop last year, the company said.” (Bolding mine.)

A small, modest increase in pricing is usually healthy for home sales as it gives buyers the confidence needed to finally take the plunge. It’s immensely challenging for people to buy when they believe any product – cards, home appliances or houses – will be cheaper in a day, a week or a month.

Home sellers who have wanted to move up from a starter home to the one they hope to spend decades in have felt somewhat trapped by lack of equity in many cases.  In others, the idea of selling for less than at the peak was so upsetting that they felt terrible about moving ahead prior to a full recovery.  Most now understand that getting back to prices at the peak of the realty market in San Jose and Santa Clara County will take many years.

Some of them are tired of waiting and are electing to forget about the profit they could have had if they’d sold at the peak.  These folks have decided to make the jump now to get on with their lives, despite less equity than hoped for initially, while at least interest rates are so favorable.  (It should be added that the move-up home will now cost less also!)  This can be a very wise decision since buying a house, townhouse or condo is usually not one purchase but two: you’re buying the loan product also and the total cost of home ownership should factor in both the costs over the lifetime of the loan as well as the purchase price. (more…)

Recently I was speaking with a neighbor of mine in Los Gatos who’s a high powered lender with decades of experience all over Santa Clara County.  In the last year or two she’s been doing many more FHA backed loans, rather than conventional ones, as smart home buyers, especially first time home buyers, try to get into a house while both home prices and interest rates are at record lows.  This makes a lot of sense as it can take a long time to save 20% or more and in that time, both interest rates and real estate prices in Silicon Valley could go through the roof.  (If my kids were out of college and working, I’d be encouraging them to buy a home using FHA backed financing too.)

FHA backed mortgages do require a lot more work, though, so I extended my sympathy that she’s having to jump through so many hoops and that they are for much smaller sales prices (many areas of San Jose have dropped 35 – 40% since the market collapse).  Mortgage brokers often make about 1% of the value of the loan as their compensation, so I imagined this great loan officer spending twice as much time with FHA paperwork as on a normal loan, on a smaller priced property, resulting in “half the pay for twice the work”.

Apparently that’s not the case with FHA loans!

“It’s better for me when the buyer uses FHA”, she assured me.  Really?  “Instead of getting 1 point, we are often paid 2.5 points when we close an FHA loan.”   That didn’t seem unfair to me since there’s a lot more paperwork involved.  But consumers probably don’t realize that their banker or mortgage broker will be paid much more if the loan is FHA backed rather than conventional.

If you have saved enough money for a conventional loan product but your lender is pushing FHA, be doubly careful before deciding what to do. There are pros and cons to each loan product you buy (you are “buying” or “paying for” a loan).  Make sure that you aren’t getting FHA financing only because it is more profitable for your lender.

Cinnabar winery sign (Big Basin Way, Saratoga)

In many communities such as Saratoga, Los Gatos, Los Altos, Willow Glen, Campbell and Palo Alto, there is a high premium placed on homes which are close to the downtown area.  Many real estate agents advertise these as “walk to town” but the idea is simple: it’s nearby, you can stroll, skate, ride or bike, wheel yourself and forget the car.

Downtown Saratoga, also called Saratoga Village, welcomes residents and visitors to a charming, scenic area with fabulous shops, spas, wine tasting venues, restaurants and more.  This part of the city boasts top scoring schools as well as lovely older and historic buildings and a gorgeous park alongside Saratoga Creek. Whether you spend an afternoon or a lifetime in Saratoga, this part of town will call you back again and again!

What do you need to know about buying a house, townhouse or condo in downtown Saratoga?

There are a few points which you are well served to know when purchasing residential real estate in this upscale community. We’ll touch on a few of them here: historic homes, traffic & noise, natural hazards, parking, and special issues with condos, townhouses and PUDs (planned unit developments).

First, this downtown Saratoga Village zone is historic; while not every property is deemed historic, many are and that means that there will be restrictions on remodeling and expansion of single family homes or houses. For instance, original glass in windows may need to remain if you’ve got a Victorian house dating from the 1890s, and expansions may need to be off the back of the home so that the facade keeps its initial look and feel (just examples).  This can be frustrating if you buy a luxury home that “needs work” and you are surprised later. If the house was built before 1950 or so, double check the rules! (more…)