Buying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA). (more…)

If you are planning to purchase a home in Silicon Valley, most likely you’ll be working with a real estate professional and together you will use either the California Association of Realtors (CAR) purchase agreement form or the Peninsula Regional Data Source contract (PRDS). Both of them begin with the same basics: who is making the offer, what property is involved, how much is being offered to the home owner and how much is being put down or put into escrow as an initial deposit or good faith deposit.

What is the initial deposit in real estate contracts?

The initial deposit, or good faith deposit, is the amount of money which the buyer puts into the escrow account at the beginning of the transaction. It is usually given in a personal check, which is cashed within a day or two of being brought to the escrow holder (in our area, that’s a title company – in southern California, they tend to use escrow companies or even one of the real estate brokers).

How much is the initial deposit?

In Santa Clara County, or the San Jose area, often the initial deposit is anywhere from 1% to 3%.  I have occasionally seen offers with as little as $1,000 on them but have not seen sellers want to take those offers.  They want to know that the buyer they get into contract with “has a little skin in the game”. (more…)

If you are purchasing your Silicon Valley home “all cash”, you will be in a stronger negotiating position.  Most of the time, you will get a slight discount on the price and the escrow period should be smoother as there will be fewer hurdles with no financing contingency.  Sellers always welcome cash offers, especially now.

What do you need to know if writing an all-cash real estate offer?

First, make sure you really do have your funds available or “liquid”.  Sometimes buyers think that because they have stock worth a certain amount of money, funds in an overseas bank account or equity in another property they will have access to that cash almost immediately.  It often doesn’t work that way.

Large sums of money coming from out of the United States may have to sit in a bank account for some time, possibly 30 days.  Domestic wire transfers usually have little or no hold time. Is your money overseas? You may want to consider moving it well in advance of the close of escrow. Speak with your escrow officer and Realtor about the details. (more…)

Sometimes I read the queries consumers use in finding my site and chuckle at the questions.  Sometimes I’m horrified (one person asked Google how to kill a squirrel and found my Live in Los Gatos blog as I’d written about an old gopher trap there).  And sometimes the questions are really good, and they inspire a post.  Today I saw the one which asked such a good question about residential real estate listings that it is the subject and title of this article. Today we’re going to talk commissions and how much and what percentage is offered to buyer’s agents.

Disclaimer: commissions are NOT fixed by law.  This is a negotiable fee.  Brokerage companies do have the right to set their fees, though.

Sellers have a right to know about the buyer’s agent commission and what’s happening in their marketplace

Some  Silicon Valley real estate agents do not seem to discuss the buyer’s agent compensation (or commission rate) with the sellers.   This cost, paid by the seller as part of the total brokerage fee, is really a marketing dollar.   It can help to attract the attention that may lead to showings and offers. When the oddball listing comes up with an ultra small number, sellers may not realize that it may dissuade licensees from showing their home. (I once actually saw $1 offered!)

Most typically in San Jose today, what is offered to the buyer’s agent is a commission rate of 2.5 to 3% of the sales price of the home.  Sometimes it’s a flat fee, such as $5000 or $10,000.  At times it’s more than 3% (when the seller is very motivated – I have had good luck using that technique with expired listings that were considered shopworn by the buying pubic and their agents).  On rare occasions the figure is less than 2%.  With my clients, I often run reports from our MLS, export it into an excel file and show them the commission rates offered for homes which are for sale, sale pending and recently sold and closed, especially in unique markets or in places where there’s a lot of variation in this amount.  Very often, the homes that are unsold have an overall lower average commission rate as compared to homes that are under contract or sold & closed.  This number can vary based on area, price point, and sale type (distressed sale vs “regular sale”).  We’ll look at one example next, luxury homes for sale in San Jose. (more…)

In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA).  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).  Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate.  And too many real estate sales people do not understand the difference between them.

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller.  Here are a few examples:

- Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

- Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

- Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing.  So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed.  Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.

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Default is a dirty word, but how many Silicon Valley home buyers and sellers understand what a it is?  Consumers often confuse the term default with cancelling the sale at any time – even backing out of a contract during the contingency period for a legitimate reason. Buyers cancelling during the contingency period is very easy to do in most cases and is very seldom a default.

Default is a strong word which refers to a failure to do something promised in contract or not doing it on time; we sometimes call it “non-performance”.  In the purchase agreement, buyers and sellers both make promises to do certain things within a certain time frame, so either one could potentially default.

Defaults don’t always cause the sale to not go through, but they can cause a delay and it may harm the other party – at the very least, not fulfilling the promises of the contract adds unnecessary stress and drama to real estate transactions, which are already, in & of themselves, stressful.

Home buyer defaults

For instance, the following items are areas where a buyer could default (not an exhaustive list):

• not putting the initial deposit (good faith deposit) into escrow on time
• cancelling the sale after removing all contingencies or without cause allowed by the contract
• not removing contingencies on time (or possibly ignoring other deadlines)
• not completing loan papers on time
• not returning the signed disclosures on time
• not bringing “good funds” to escrow in time for closing

Missing contingency removal deadlines may be a default.  For instance, the PRDS contract states on page 1 of that agreement:

BUYER’S  FUNDS:  Buyer  represents  that  all  funds,  including  deposits,  cash  balance,  and closing costs, will be readily available as “good funds” (as determined by Escrow Holder) at  the  time  of  payment.  Obtaining  these  funds  is not a contingency of this Contract.

The loan approval, though, may be indirectly tied to whether or not the buyer liquidates stocks or other accounts to provide the down payment.  What happens if the loan is fully approved except for the verification of this down payment?  The buyer’s job is to have the funds available so that obtaining them later does not cause a delay.  If a delay is caused because the buyer didn’t get the funds ready on time, that is a buyer default.

Not every default is an equally grave problem, of course.  In the case above, the buyer can go ahead and remove the loan contingency and continue to liquidate the down payment assets (which should have been done much earlier in the escrow).  BUT, if the buyer does not complete the sale due to a problem with getting those funds, his or her good faith deposit will be at risk via the liquidated damages clause because getting those funds is not a contingency.

Home seller defaults

Sellers, too, can be guilty of defaulting on contractual promises. Here are some areas in which a seller could default:

• not moving out on time
• not providing completed disclosures or reports on time
• not having work done which was contractually required (such as pest work or repairs)
• not keeping the power & water on for inspections and final walk through
• not providing the loan payoff information, or any other required information, in a timely manner to the title company (escrow)
• causing a delay in closing due to not signing off on time
• refusing to schedule or attend a sign off to sign the closing papers

In Silicon Valley, there are two purchase agreement forms in use: the California Association of Realtors (CAR) contract and the Peninsula Regional Data Service (PRDS) contract.  Generally speaking, the PRDS & CAR contracts are similar on many points.  They are not so similar in the treatment of defaults, though.

What does the contract say about defaults?

Oddly, the CAR contract only mentions the word default twice, and in both cases the topic is a buyer’s default, first in the liquidated damages paragraph (25) and next in the other terms & conditions paragraph (27). (more…)

It seems like a simple enough question: “how long does it take to buy a home in Silicon Valley?”  (Not how long to find the perfect house or condo, but how long from the time the offer is accepted until the sale is finalized and you can move in.) The answer has a few factors which can swing the outcome one way or the other, making the escrow time frame short or long.

Variables that make home buying faster or slower:

• whether or not the seller has pre-sale inspections (with a short sale, usually not)
• whether or not the home is a condo, townhouse or PUD (and if so, if the HOA docs are available upfront or are only ordered once the offer is accepted)
• whether the buyer is only pre-qualified or fully pre-approved for a loan
• the amount of cash down – an “all cash offer” can make the sale very, very fast
• the loan type – an FHA loan will need more time to be processed and the sale will close slower
• the contingencies involved and their time frames as written in the contract
• the sale type: regular vs short sale
• buyer needs or seller needs unrelated to the transaction: they can agree on a somewhat longer escrow in the contract (purchase agreement) if so desired
• if it’s a special type of property, such as a luxury home or estate OR a mountain property, there may be additional inspections needed and it could take a little longer to close on these as well

The fastest home sales I’ve seen are the all-cash offers of houses (not townhouses or condominiums) in which the seller already has excellent home inspections (my fastest listing that sold: 5 days, all cash, buyer HAD to buy within a week or would suffer enormous tax penalties). (more…)