Tips for Silicon Valley Home Buyers
Be careful what you wish for. The news stories make it sound so attractive – get a home for 10% less than market value. That may happen. Sometimes. The national average for short sales actually closing is extremely low, by some counts as low as 10 or 11 percent.
What about San Jose area short sales? Lets start with the lay of the land in Santa Clara County specifically (Silicon Valley includes Santa Clara County and a bit of Alameda, Santa Cruz, and San Mateo Counties). Some areas are loaded with short sale listings, others have few, if any. The ˜best deals, in terms of low pricing, are going to be in areas with a lot of the short sales because they sell for less and pull property values down, making them more and more affordable. Those are the areas with lower priced homes, generally, the entry level areas.
In places like South San Jose, the south county areas, and Blossom Valley, for instance, most of the entry level homes are short sales. Values are plummeting there.
In places like Cupertino, Saratoga, and Los Gatos, there are hardly any short sales. Virtually none. And home values are rising.
Have you always dreamed of buying a home close to, or in, the western foothills in Santa Clara County, such as Almaden, Los Gatos, Monte Sereno and Saratoga? Some of the prettiest parts of Silicon Valley are snuggled into the base of the Santa Cruz Mountains. With views of downtown San Jose and the southern San Francisco Bay Area on one side, and rolling, grassy and redwood & oak filled hills on the other, its certainly scenic. Additionally, these areas all tend to have very low crime and good schools.
As a saavy foothill-area buyer, you will want to understand some of the unique issues that this geography may present. The most important of these may well be the issue of water control and drainage.
The Santa Clara Valley, and most of the neighboring Silicon Valley areas, is composed of mostly clay soil. This is an extremely strong substance – so much so that settlers used it, mixed only with a little straw and water, to form adobe bricks for building.
The caveat with clay soil is that when it becomes wet, it expands, and when dry, it contracts. In fact, we call this condition ˜expansive. The amazing thing is that the clay is more powerful than concrete. And that is the problem for houses and other buildings if the ground is expanding, contracting, or alternating between the two.
What can a homeowner do? Its imperative to try to control the amount of water near (or under) the home as much as possible.
Which part of the Santa Clara Valley
is seeing all of this foreclosure and pre-foreclosure activity?
Depending on where you live in Santa Clara County, you may be seeing a whole lot of distressed properties on the market – or you may be seeing none at all. This is part of our current “bifurcated market” situation.
Generally, the more expensive areas of Silicon Valley (Palo Alto, Cupertino, Saratoga, Monte Sereno, Los Gatos, Almaden Valley and Silver Creek) are not suffering from a huge number of listings in which the sellers are in financial straits. There are some, though.
It is the less wealthy areas in San Jose (including parts of downtown, the east side, south San Jose, Santa Teresa, Blossom Valley) and the south county cities of Morgan Hill and Gilroy) where there is an inundation with short sales – in the lower price ranges especially.
Generally speaking, most short sales, preforeclosures and bank owned homes are priced below $600,000.
How can you tell if a home is in pre-foreclosure?
Homes listed for sale in your neighborhood of San Jose, Saratoga or Los Gatos that are in pre-foreclosure may look like any others available. They may have granite in the kitchen, beautiful baseboard and crown molding, new dual pane windows, and on and on. The sellers may have borrowed and borrowed to improve the property, be unable to make the payments due to job loss, divorce, or other problems, and now be in default on a loan, heading toward foreclosure.
This status usually doesn’t “show” unless you have access to the county records or have a subscription to a service that lets you know the status (and those services are no where near 100% reliable, by the way). Your real estate agent, who should have a subscription to the MLS with full information, can see a report at no cost that shows the foreclosure history. (Not all pre-foreclosures are short sales.)
What’s a short sale? Being in “pre-foreclosure” means that the seller has missed payments on a loan in which the real estate owned is used as collateral, or security. Let’s say a home is worth $1 million, but the amount in default is a small loan, perhaps of $25,000. If the home is sold, it can pay off the debt in full.
Sometimes, though, a distressed seller bought higher than the home is now worth. When prices fall (and if the owner bought the home with a low down payment especially), selling the home will not be enough to pay off the loan. So again let’s imagine that a house is worth $1 million, but the owners owe $1.1 million on it (and to sell they have to worry about closing costs to boot). By selling the home, foreclosure can be averted – but to do so, the bank will have to agree to not being repaid 100%. This is a “short sale”. (Not all short sales are in preforeclosure, though, as not all home owners of these properties have missed payments on their mortgage.)
We’re seeing a lot of short sales in the entry level markets. In these cases, current owners bought their properties a year or two ago – for 10% or 20% more than those houses are now worth.
In the higher-priced regions of Silicon Valley, it’s less common to see a short sale than it is a straight pre-foreclosure because someone just can’t make the loan payment (due to some new problem like divorce or job loss, or because the adjustable loan went up and the payments are now untenable).
I’m going to be blunt here: it is really hard to help when we, as agents, don’t know what is truly going on. It’s not a whole lot different than keeping important things from your doctor or lawyer. If you want help, it is imperative that you tell your hired professionals what is going on.
For that matter, if you are interviewing agents to list your home or to help you to buy your next home, expect those agents to ask you about your needs and motivation. Hiring an agent (and the agent agreeing to take you on as a client) is a two way relationship. Both sides need to be clear and honest with each other.
Let me give you an example. Years ago, I had some prospects (not yet clients) in Monte Sereno who inquired off and on for years about selling their home. At one point, it became a “hurry up” situation. Luckily, they told me the truth: one of them had been diagnosed as terminally ill. The sick one did not want to saddle the survivor with selling the home after the death.
A real estate agent is someone who’s taken a course (or more) and passed a state exam and is licensed by the state to sell real estate.
A Realtor (pronounced REEL-TOR, not real-a-tor) is an agent who’s ALSO a member of the National Association of Realtors, which is a voluntary trade group. Realtors promise to abide by and take very seriously their Code of Ethics. Ever wonder what is in it? It’s not short and is quite comprehensive. Take a look:
Please understand that not everything that is legal is also ethical – Realtors have a higher standard of practice. Often non-Realtors (at least in Siliocon Valley) are not full-time agents but dabble in real estate. Realtors are usually full-time and work as professionals.
Finally, if you have a problem with an agent who’s not a Realtor, you have to complain to the state. With a member of NAR, who is almost always also a member of the state association (CAR – the California Association of Realtors) and local (either SILVAR – the Silicon Valley Association of Realtors or SCCAOR – the Santa Clara County Association of Realtors), you can take action locally for most any issue and do not need to go all the way to the state level. Agents work hard to remain in good standing with the local, state, and national boards.
In the San Jose area, most of the large realty firms are “all Realtor” offices. Usually becoming a member of NAR, CAR and either SILVAR or SCCAOR is a requirement for joining the company. In other areas and in other states, in can be different. So it’s mostly the independents where you’ll find a real estate licensee who’s not also a Realtor. But ask!
When you interview an agent, then, the first question to ask is this: are you a Realtor?