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.

This week I was emailed about a home mentioned on Trulia which seemed “too good to be true”.  It was a distressed property and the reader thought it was for sale for about $650,000 but it is in an extremely upscale suburb on the Peninsula and she could not find the home for sale on our MLS.  She didn’t want to pay to find out if this was a hoax or what, so she asked me to please have a look.

I clicked on her link and saw that it was a feed into Trulia from one of the companies which provides foreclosure information to consumers by paid subscription.  No where did it say the home was for sale, but instead it indicated that $650,000 was the home owner’s loan amount – and that the property had a Notice of Default filed against it.  The house wasn’t worth anywhere near $650,000, of course – instead it’s valued at more than $2,000,000.  (So this would NOT be a short sale – there’s tons of equity in this property.)

Some consumers think that if a home has a NOD, it is for sale.  That is simply not true.  Many homeowners (including some of my clients) have at times missed a payment and then found themselves scrambling a little to get caught up.  It’s not easy but it can and does happen sometimes.

Now imagine yourself as that homeowner with a Silicon Valley house you love but that you’ve had some trouble with late, partial or missed mortgage payments.  You are trying to keep your house but someone comes to your front door and thinks your home can be bought for the amount of the loan or the delinquencies or both.  I’ve seen million dollar homes in Los Gatos with a very small second loan, such as $20,000, that went into default. You’d be seriously misguided to think that homeowner will part with a $1 million home for the $20,000 that is owed.  Just because the seller is behind doesn’t make the seller stupid!

Some of these sites which sell foreclosure info to consumers do both them and the home owner a great disservice by implying that condos, townhouses and houses which are in pre-foreclosure are available for purchase.  If the owner wants to sell, the property will be listed for sale with a real estate agent or broker, or at the very least there will be a for sale by owner ad found on Craigslist or a sign on the front yard.  Show up on that struggling owner’s front porch and ask to buy the house at a crazy low price and you’re just throwing salt on the wound. Don’t do it.

For further reading on distressed sales, pre-foreclosures and short sales:

Q & A on short sales (popehandy.com website)

What’s the difference between short sales and foreclosures? What is an auction?

Short Sales Sell But Often Don’t Close: Why?

In Silicon Valley, it seems the more expensive the neighborhood, the less likely it is that you’ll find a bargain. Saratoga CA home buyers who are working hard to get their feet in the door during this opportunity in the market (with low prices and even lower interest rates) are scrambling to find a creative way to make their budget line up with this high end enclave’s real estate prices.

One solution is to attempt to buy a distressed property in Saratoga – namely foreclosure or a bank owned (REO – real estate owned by the bank) house, condo or townhouse or a pre-foreclosure or short sale listing.

There aren’t many of them to choose from, which makes the few that do come available very prized by motivated buyers.

Below please find a list of all available distressed properties for sale in Saratoga, CA. This city has several school districts so if you are looking for one in particular, please contact me and we can chat about finding you that perfect home.

Note: some of the homes which have a “Saratoga mailing address” with a Saratoga, CA 95070 address actually belong to a neighboring city (or the county), such as Campbell. So you may see some homes in the list below which say Campbell, for instance. Want to read more about Saratoga and its neighborhoods? (I grew up there and graduated from Saratoga High many years ago…) Please also check out this article on my popehandy.com website: Saratoga Real Estate and Saratoga Homes for Sale”. Also check out the Saratoga California real estate market update post on this blog.

Check back frequently – this list is updated automatically!

Frequently I’m asked if I (or another real estate licensee or agent) can help a consumer to purchase a foreclosure.  There are some nuances to this answer, but in short, it depends.

There are several stages in the foreclosure related sales in California.  Often, homes somewhere in this quagmire are listed on our Silicon Valley area MLS or multiple listing service.  If a property is listed in the MLS, then yes, we Realtors can help home buyers with a distressed sale purchase.

1. Pre-foreclosure (where payments have been missed and a Notice of Default or NOD has been filed – often, but not always, these homes are on the market and included in the MLS.  If they’re in the MLS, I can help.  Often these are short sales (but short sales are not always in pre-foreclosure – they may not have missed any payments).
2. Trustee’s sale, or actual foreclosure on the courthouse steps.  No role for a real estate agent here.  There are some big caveats and warnings! First,  often what’s owed against the home is more than it’s worth and the only way to purchase a home here is to pay off all the debts (so it may not be much of a deal!).  Second, if you buy here, you get NO inspection contingency and must pay cash for the house.  End of story – no backing out.  Worse, you cannot inspect it ahead of time!
3. Bank owned or REO.  These are usually listed on the MLS and if so, I can help you with it.  Sometimes banks hold onto them between the trustee’s sale and prior to listing them with a broker.  Often this is only for a month or two but sometimes it’s longer.  If it’s not on the MLS, it’s very very hard, or maybe impossible, to buy it.

While it’s not hard to locate homes where owners have missed some payments, it should not be assumed that these houses are either for sale or that the owners have any intention of selling them.  In my opinion, it would be harassment if consumers showed up on their doorsteps trying to purchase a house where a payment has been missed.  Most, maybe all, of the residents there would be offended.  They may be trying to get a loan modification (a friend of mine got one approved last week!) or have family & friends helping them to get back on track. If it is not listed in the MLS (which you can find at www.MLSListings.com – the public portal of our agent multiple listing service), the odds are overwhelmingly against it being available to you.

Normally I don’t publish press releases, but this one is important – and has some consequences that I think should be mentioned lest weary, distressed home owners think that they are now out of the woods with short sales in California.

First, though, the press release from the California Association of Realtors (a trade group to which I belong).  Afterward, I’ll mention (some of) the negative impact and discuss why I see short sale lawsuits looming on the horizon in Silicon Valley and why this change may add one more reason for litigation.

CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law

LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law.   SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.

“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce.  “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

SB 458 contains an urgency clause making it effective upon signing.

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with nearly 160,000 members dedicated to the advancement of professionalism in real estate.  C.A.R. is headquartered in Los Angeles.

This all sounds pretty good – home sellers who are given a short sale will not have to look over their shoulders for debt collectors and lawsuits over deficiency judgements later as banks try to recoup their losses.  There are many plusses, and CAR is generally correct in applauding the signing of this new bill.

BUT there’s a downside.  The most evident negative is that if the holders of 2nd liens cannot force the homeowner to cough up money (assuming they have it, which some do) for the short sale, these lenders will likely feel inclined to not play along with the short sale and force a foreclosure instead.  After the foreclosure, they may be able to sue for damages and come after the seller later – who knows how many years later, if they determine it’s worth waiting for.

And, of course, this is all the more likely if there’s silent mortgage insurance on the home (placed by the lender, unbeknownst to the home owner).

What will this do to the short sale inventory?  I suspect it will cause more delays and wrangling behind the scenes, slowing down the sale of short sale listings in Santa Clara County and throughout the state.  There may be word games – sellers aren’t forced to pay but if they volunteer, well, then the deal will go through.   Just semantics, right?

Short sale lawsuits are coming

Later, the short sale lawsuits will follow.  Some are in process now.  Already many lenders, real estate agents and home sellers are laying the groundwork for years and years of short sale litigation ahead. Most of it comes down to falsifying information (fraud) or negligence.   There’s enough blame to go around and we’ll find sellers (home owners), real estate agents, lenders, loan officers and others getting dragged into court over some stupid mistakes and calculated lies.

I predict that we will see court action over all of these issues:

• seller fraud regarding hardship (fudging their true status or creating a hardship in order to qualify)
• fraud – some sellers conceal assets to get the short sale, and banks may well find out about it later
• fraud lawsuits against sellers who never should have gotten loans in the first place since they falsified loan documents (and this may be discovered in the future)
• consumers suing banks over abuse of their own due process
• lawsuits about the missing notes (already happening) and the requirement to have the note in order to foreclose
• suits over improper foreclosure proceedings, improper evictions, etc.
• agents will be sued for promising to help get a loan mod, and not really following through in hopes of getting the short sale listing when the loan modification doesn’t come through (are we asking the fox to guard the henhouse here?)
• brokerages will be sued for some of the short sale mills created under their name – agents who build a huge business of short sales but allow some important, crucial details to fall through the cracks – sellers who lose to foreclosure will later sue for lack of due diligence and failure to perform as a good agent
• investors may sue their credit unions for avoidable losses in bungling short sales and allowing properties to go back  to them as REOs, suffering huge losses later
• banks will be sued for pushing too many short sales onto too few a supply of real estate professionals (I heard tell that one bank gave ONE Realtor 200 listings to handle) – these agents can’t do a good job for so many listings and consequently expensive mistakes are being made
• too many real estate agents are overly confident in giving “simple answers” to complex problems and failing to strongly recommend that their clients discuss their situation with legal and tax professionals – this may be the biggest mistake being made generally
• this new short sale law may cause 2nd lien holders to play games with words, suggesting that sellers can “volunteer” to pay – and those sellers will surely later sell for the duress

Tread carefully in this arena of short sales.  If you are underwater on your house and need to get out, talk with a real estate agent who’s ethical and seasoned, a real estate attorney AND a tax professional.  It is imperative that you do this so that you don’t become mired in lawsuits later.  They are surely coming.

Did you buy your house at the peak of the market?

Recently I met with some of my past clients, who purchased their San Jose house close to the height of the market (2005-2007).  In those days it was a hot seller’s market (not unlike many parts of the Silicon Valley real estate landscape today, actually), and buyers routinely purchased their homes “As Is“, meaning no repairs provided by the sellers.  Desperate to get in when prices were appreciating fast, it seemed that most home buyers said “we’ll take care of it after we own it“.

But they forgot.

Actually this didn’t just happen during the peak of the market here in Santa Clara County – there’s always a percentage of consumers who buy As Is to get a better price.  They have good intentions about taking care of the mold, the termites, the roof and whatever else might not be either in good working order or free of infestation.  But once they move in, the “to do list” doesn’t seem to have those items as a high priority, and over time they completely fall through the cracks.

Pull out your old file, find your inspection reports and review them, especially if you are preparing to sell your home

Today I want to encourage you to dig out your old home inspection and pest reports, dust them off, and have a look.  Did you need to address a problem with termites, electrical issues, leaks?  Is there something to take care of with the roof, gutters, dry rot or fungus?  All of those things do not self-correct, but instead grow worse over time. 

If your reports are more than three or five years old, you might consider getting new ones done since in all likelihood there’s more work, possibly in new areas, now. Just make sure you hire a reputable company which won’t gloss over problems, leaving them latent and waiting to cost you more in the end.  Don’t toss your old inspections out – have a look and see if everything that used to be called out is covered.  If you are planning to stay put, is best to correct everything so that your home is kept in good condition for the long haul. If you are planning to sell your home, it’s important to fix it up first if you want to get the most for your sale.  The market is very different from the peak, and having the home improvement work done is more important than ever now.

Are you buying a distressed property (short sale, bank owned, or pre-foreclosure) in Silicon Valley?

If you are purchasing a short sale, pre-foreclosure or bank owned home – let alone one at auction – please be aware that these properties are most often neglected and have more than a normal share of deferred maintenance.

You or your Realtor can look up the sales history for the home.  If it was purchased between 2005 and 2008, there’s a good chance that it was sold As Is and that if any repairs were needed, they weren’t done.

With pre-foreclosures or short sales, sometimes the sellers are well organized and will still have their old reports.  The agent may not be aware that these are available, but they can provide at least some information since pre-sale inspections are usually not provided with distressed sales.

For more reading on this topic:

How often should you get a termite inspection?

Would you recognize signs of subterranean termites if you saw them?

Watch for Dampwood Termites in Silicon Valley!

Yesterday we looked at the types of home sales around Silicon Valley by price point.  Not terribly surprising, most of the short sales and bank owned homes were in the lowest price ranges.  Today we’ll look at this type of information not by pricing tier but instead by geography – in other words, by either town, city or district of San Jose (area).  This post will not cover every area but will be a sampling a few communities, mostly on the west side of the valley (since that’s primarily where I work).

By way of reminder, the small image to the left reflects Santa Clara County’s houses for sale as a whole – all areas and all price points. (You can see the full sized image by clicking on it.) The green area represents “regular home sales” and the brick red and light orange signify distressed  properties listed on the MLS for sale (red is short sales and orange is bank owned or REOs). Next let’s see a few regions within the county to see how things are faring geographically.

1. Almaden Valley area of San Jose – homes listed for sale by type – very few distressed properties on the market!

Almaden is a lovely southwest San Jose suburban community (zip code 95120) that grew up initially with the cinnabar or mercury mining activity.  Today it’s an upscale area of more expensive homes than most of the county, it enjoys really good schools and scenic views of the coastal range as well as the Santa Teresa Foothills.  Housing here is costly but residents love the quality of life. Since the cost of homes for sale here is high, it’s not super surprising, after seeing yesterday’s post, that there are very few distressed homes on the market here. Next we’ll check the other extreme….

2. Alum Rock area of San Jose – this is a less wealthy part of Santa Clara County and generally has been harder hit by the mortgage and housing crisis.

In this east San Jose neighborhood of Alum Rock (near beautiful Alum Rock Park), almost half the homes listed for sale are either short sales or bank owned properties.  That said, Alum Rock has some areas which are much more upscale (and elevated), some with many many acres of land and those pricier properties are not quite so badly hit with the distressed property deluge.

3. Cambrian area of San Jose – a west valley community that often closely reflects Santa Clara County as a whole

The Cambrian or Cambrian Park district of San Jose often has prices, days on market and other trends which are very similar to Santa Clara County so it’s often a good “gauge” of how the area is doing generally.  If you compare this graph to the one at the top of this post, you’ll find them very similar – about 2/3 of listed houses and duet homes for sale are “regular” or non-distressed sales.

5.  Campbell -a little more expensive, great downtown, popular area

Campbell is exceedingly popular as it’s got a charming downtown, enjoys light rail access and is part of the Los Gatos Creek Trail. It’s close to Los Gatos, but more affordable. Here about 70% of the homes listed for sale on our multiple listing service or MLS are regular sales, so a little healthier than most of Silicon Valley.

6. Los Gatos – a more expensive community, fewer distressed houses for sale

In Los Gatos, there are right now just 3 short sales on the market (for houses and duet homes) and NO bank owned homes. As you can see, it’s overwhelmingly “normal sales” and this helps a lot with home values.

A year or so ago, we had a cluster of short sales in one particular east Los Gatos neighborhood and it was really damaging the property values of the “regular sellers’” homes. It’s encouraging to see this correct a bit.

7. Monte Sereno – more expensive still – no distressed houses for sale right now!

Monte Sereno is a tiny city with 4,000 residents. It’s more expensive then neighboring Los Gatos, with whom it shares police, schools, library and more.

With no businesses or commercial buildings, Monte Sereno enjoys a quieter lifestyle.  Most of the activity is either around Daves Avenue School, the post office/city building or the horse trails!

8. Palo Alto -home to Stanford and classy luxury homes

Stately and vibrant Palo Alto is home to Stanford University (and the Lucille Packard Hospital, which is a world class facility).  Schools in this city are top-rated in Silicon Valley.  The city is beautiful and there’s lots to do.  For many reasons, then, Palo Alto is probably the most sought after address in the region, and home prices reflect its desireability. Not surprisingly, then, it’s not likely that home buyers will find many low-cost distressed properties on the market.  When they do appear, they tend to go fast.  As of this writing, there’s just one short sale and no bank owned homes available there.

9. Saratoga – great schools, scenic vista, highly regarded Silicon Valley community

Saratoga is not as costly as Palo Alto, but within Santa Clara County it’s right up there near the top for least affordable.

What I find most interesting here is not the small number of distressed properties on the MLS in Saratoga, but rather that there’s an equal number of short sales as there are REOs (bank owned).  Usually the ratio is more 2 – to – 1.  Maybe it’s a fluke? We’ll have to check and see down the road!

What we see when looking at Silicon Valley houses listed for sale by sale type is that the geographical differences largely mimic the pricing tiers.  The more expensive the area – or the home within it – the less likely you are to find that bargain priced property.

For more info on Silicon Valley Communities, please also see my website’s community information page.

The Silicon Valley real esate market is heating up but it’s not heating “evenly”.  Some price points and areas (or school districts) enjoy a hot seller’s market while other segments are lagging.  A big factor in the overall health of the realty market in the San Jose area is the percentage of listings which are distressed properties, meaning short sales and bank owned homes.  Today we’ll see the ratios of these homes to the regular sales using graphs to get a quick visual take on the market trends and statistics.

Today we’ll look at homes listed on the MLS in all of Santa Clara County (including San Jose, Campbell, Los Gatos, Saratoga etc.) by price point. All of the graphs in this post will reference houses and duet homes combinesd(about 99% houses), not condos or townhomes.

Overall, it looks like about 1/3 of all homes for sale in the county are distressed sales. Next let’s look at this data by price point and then we’ll check it by area.  The images below will be smaller but the colors will represent the same elements in each one (green being regular sales, brick being short sales and light orange being REOs).

Ratio of regular sales to short sales and bank owned homes in Silicon Valley by price point

1. $599,999 and under

This first graph by pricing reflects houses (and duet homes) for sale in Santa Clara County which are under $600,000.

For this group, less than 50% (the green segment) is “regular sales”.  Most of the housing market in this entry-level pricing is distressed properties for sale.

Notice, too, that there are far more short sales than REOs or bank owned homes.

2. $600,000 to $999,999

The next group is homes priced between $600,000 and $999,000 – so these are primarily “move up” home prices, though in some parts of Siicon Valley (such as Palo Alto, Saratoga, Los Altos and a few others), these homes would be a first house, most likely.

3. $1 million to $2 million dollars

The third grouping consists of Santa Clara County houses for sale which are listed between $1,000,000 and $2,000,000.

These are nicer homes but usually not luxury housing per se in most parts of the county. In the more affordable areas such as Morgan Hill, Gilroy, and east San Jose areas, though, these could also constitute estate or luxury homes. (Not in Los Gatos, Monte Sereno or some west valley areas).

It is interesting to see that in this upper price point there are very few distressed sales – almost all of them are “regular sales”.

4. Homes priced at more than $2,000,000 – the Luxury Homes

Luxury homes in Santa Clara County vary but most are in the single million digit prices and very few selling more than $10 or $20 million  (though you may have heard about the recent, history-making $100,000 million sale in Los Altos Hills).

Tomorrow check back to see how these types of numbers shake out by city, town or district – we will view a sampling of them.

What to do.  You are underwater on your Silicon Valley home (you owe more than it’s worth). Worse, you have a “pick a pay” loan and can only afford the lowest of the payment options. So your principal balance is growing each month, and you are sinking further into debt while at the same time your home’s value is dissolving since homes in your price point haven’t yet figured out that we’re in recovery. It’s a double whammy and it’s terribly scary.

If you want to keep your house, you might try to get a loan modification, or “loan mod” from your bank. You can contact them directly or you can go to a nonprofit credit counseling agency for guidance.  (Just Google for one near you, there are plenty in the San Jose area.)

Many lenders aren’t doing this anymore, though, or at least not nearly as much as a couple of years ago.  Why is that? One reason is that the failure rate is so high.  Most people who are given a loan mod still end up in foreclosure – so all it does is delay the inevitable for most of them.  Additionally, it might be better for the banks, if they have insurance, to allow it to foreclose.  Remember, banking is a business and they are there to make money, not to help you out.  So normally they’ll do whatever best serves that end.

If your bank, credit union or whatever lending institution does consider granting you a loan mod, they will want to know that you are capable of repaying it.  So just as when you purchased they were looking at your debt to income ratio, they’ll be doing that again. For them, a loan mod is a bit like reselling a loan – and they don’t want to make (another) bad investment with you. So expect it to be conservative (in other words, tight criteria).

Let’s say you tried to get a loan mod on your Santa Clara County home but you don’t qualify. You feel like you’re drowning in debt.  What can you do?

At this point you are left with some uncomfortable choices and questions. If you want to keep your home, there are a few avenues to investigate.

• see if you can rework your budget to apply more of your monthly income toward housing costs
• consider renting a room out so you have additional funds to make the payment
• would renting it out entirely make sense? If so, could you live more cheaply elsewhere?
• is it possible to get a part time job, or another job?

This is a little like losing weight – with that it comes down to eating less and exercising more. With this financial mess, if you want to keep your house and are denied a loan mod it’s going to come down to making more money and spending less elsewhere so you can satisfy that payment.

At this point in many real estate agent’s post, you’d hear a sales job on how great short sales are.  I’ve been through the training (lots) and I have a fair amount of experience with distressed property sales, but unfortunately I’ve seen the nasty underbelly of short sales.  The success rate is just not that great (about half actually close), it’s an arduous process and in the end your credit IS hurt and you do lose your home. I can’t get really excited about that as an “alternative”.

To me, a short sale isn’t an alternative, it’s a last resort.

If it’s really going to be impossible to make that payment and without the short sale you are doomed to a foreclosure, then perhaps it is your best choice.  But there are so many pitfalls – things like potential tax consequences, debt collection agencies coming after you later for the “forgiven debt” and the length of time involved in most short sales that it’s hardly a happy solution.

Before anyone glibly talks you into attempting a short sale, go talk to a lawyer and a tax professional. I know, you’re broke. You don’t want to spend the money to see these professionals but if you don’t you are literally flying blind and don’t know what may come to haunt you down the road.  So just do it.  And don’t wait until a Notice of Default is filed – or it might be too late before you have any traction to do anything but lose the house.  Stay vigilant and don’t let the depression of the situation cause you to make poor choices that will simply worsen everything.

More upsetting to many is when they feel that the short sale is their best option – but they really don’t qualify.  (In truth, though, often if you don’t qualify, it isn’t really a last resort for you – it is a preference.)  Or they qualify but the short sale is a failure for one reason or another so the home never both sells and closes.  (A few times recently I’ve run into banks or credit unions demanding more than the home is worth. That makes it impossible to sell. Do they do this on purpose? I’m not sure they don’t, unfortunately.)

My hope, though, is that there’s another way – get a renter, get another job if you can, skip the meals out for the next year…find a way to save your home, with or without the bank’s help.

More reading on this topic:

Underwater & Considering a Short Sale or Loan Modification?

What’s the difference between short sales and foreclosures? What is an auction?

A key ingredient in understanding how the Silicon Valley real estate market is faring is the ratio of regular sales to distressed properties on the market (Bank owned or REO listings and short sale listings). Today we’ll study Los Gatos and four areas or districts of San Jose: Almaden Valley, Willow Glen, Cambrian Park, and Blossom Valley.

First, let’s look at the county numbers as a general overview.  In all of Santa Clara County, there are 3537 houses, duet homes, condominiums & townhouses for sale and available (“status 1″ for my Realtor readers) on our multiple listing service. Of those, merely 1964 are “regular sales” (56%), 1105 are short sales (31%) and 375 are bank owned homes or REOs (11%).

Now let’s drill down to a few areas: Los Gatos, Almaden Valley, Willow Glen, Cambrian Park and Blossom Valley.  We’ll check out the ratio of regular sales of houses and condos in each of these areas.  How do these compare to the county average of 56%? Have a look:

This is helpful information for both home buyers & home sellers.  Home sellers need to understand the challenges that come with selling in an area with more short sales or REOs, if they are in one of those parts of the valley.  Or vice versa: if there are few distressed properties on the market, this makes it easier to sell (with less downward pressure on pricing).  Buyers need to appreciate that they will have better luck negotiating in areas where many homes are being sold under some pressure.

A quick disclaimer - if we narrowed this study by school district and even neighborhood school, we might find that these “general numbers” are actually quite different at the hyper-local level.  For example, if you visit a post of mine about the Los Gatos real estate market on my Live in Los Gatos blog, you’d find that when we separated out the various school districts, and even price points, the ratio of distressed properties and their absorption rates change very dramatically.  To see those, scroll down until you see the blue and yellow boxes.

The condo market in San Jose and nearby areas has taken a beating throughout our downturn.  Even so, condos in Los Gatos, Almaden and Willow Glen are faring pretty decently.

Now let’s hone in on each of these five areas and the two main housing types to see the ratio in each of regular sales, short sales, and REOs.
Los Gatos short sales, bank owned homes, and regular sales are next.  Green represents regular sales.  In most areas, it seems that there are about 3 times as many short sales as REOs – but not always. (Read more on the Los Gatos real estate market here.)

It is very dramatic – there are very few distressed houses for buyers to consider in Los Gatos right now: just 5 short sales and no REOs.  (The REOs do come on the market but are gobbled up quickly.)

What about condos for sale in Los Gatos?

This is still pretty healthy compared to most areas we’re considering today, but about 1/3 of the homes for sale are short sales or bank owned homes.

San Jose’s Almaden Valley is another pretty healthy market with relatively few distressed homes. Next I’ll post the graph for houses, then condos, in Almaden.

One of the driving factors for both Almaden and Los Gatos are the great schools. (More reading: check out the Almaden school district and school boundary maps & API scores for all of the Almaden Valley schools.)

Willow Glen, also part of the city of San Jose, is charming, convenient, has great community involvement – it’s always been a highly desirable place in which to live.  Next are the two graphs for Willow Glen houses and then Willow Glen condos:

Cambrian Park, also in San Jose and adjacent to all of the other areas we’re reviewing today, has become more prized over the years, first after highway 85 made it more accessible in the early 90s, and then again recently as the Union Schools began to trend up strongly in the API scores.  (Cambrian has 3 different elementary school districts, ranging from good to great. Read about the Cambrian Park real estate market in more detail here.) Most houses are still normal sales – making it a lot easier for home sellers than is the case for condo owners hoping to sell in the same neighborhoods.

Blossom Valley, yet another San Jose district, is burdened with the most distressed properties by ratio of any of these five places.  For home sellers in the 95123 and 95136 areas, it may well feel like an uphill battle to get a property sold and closed. With condominiums and townhouses especially, this is difficult for sellers there.

Earlier in this article, I gave a “quick disclaimer” about the hyper-local marke.  In Blossom Valley, Sakamoto Elementary School has fabulous API scores.  I have not pulled these numbers out, but I believe that because the school is an enormous draw, homes in that area are probably selling far better than the average in Blossom Valley (and distressed homes are probably selling far faster).

What to do with this information?  If you are buying in a part of Santa Clara County in which there are a lot of distressed homes for sale, you may get a great bargain right now. But be prepared because as more come onto the market, it may hurt your home’s market value.  Conversely, if you wish to purchase in an area with few distressed properties on the market, you may not be able to negotiate as much as you’d like – but those areas may be more insulated from further drops in value.

Downsizing? It may be a dream time for you to move from Los Gatos, Almaden Valley or Willow Glen to other areas where the market is softer.

Moving up?  That may be a little painful, especially if you’re going from an area with more short sales and REOs to another with fewer of them!

No matter what your situation, if you’re interested in buying or selling in any of these areas or nearby, please contact me for a private, confidential consultation.  I’m happy to meet with you and learn if we can work together to help you achieve your goals.

Lately I am seeing a trend with short sale listings which is anecdotal but, I think, significant.  More and more, I am seeing and hearing about lenders which are requiring an unrealistic sales price in order to approve short sales.  When I say “unrealistic”, I mean more than the market can bear in many cases.

I personally had this experience in recent months: I had a short sale listing in Sunnyvale which was priced at market value last summer.  We got three offers, all within 2-3% of each other.  This is a pretty good indicator of market value. (Had we been underpriced, the contracts would have come in higher.)  The bank wanted about 15% more – an absolutely unjustifiable figure.

What to do?  I ran the comps and submitted them.  No impact.  I then paid an agent to do a BPO (broker price opion).  That number came in about 1.5% more than my sales price.  The lender, in turn, ordered an appraisal (which we appreciated), and that came in another 1.5% higher than the BPO (or about 3% higher than the sales price my seller had accepted).  Common sense would dictate that the lender would accept as authoritative the appraisal price, right?  Not so.  They wanted another 1.5% higher still – higher than their own appraisal value, certainly higher than market value.  Needless to say, the buyer did not want to overpay for the property.  Fast forward a six months and the bank now has taken back that townhouse at foreclosure.  It could have been avoided had the lender been willing to be realistic.

As I speak to my colleagues in the real estate industry here in Silicon Valley, I am finding that my story with this one listing is not so unique. I see homes on the market in various west valley communities (Almaden, Cambrian, Los Gatos, Saratoga, Campbell and nearby San Jose areas) that are listed at a reasonable price and then speak with the Realtor and learn that the banks 10 to 15% more than the list price.  At best, this is at the high end of market value (but in many cases is higher still and completely crazy). The agents know that if the house is listed at the bank’s number, they’ll never even get an offer.

It looks as though many of the banks would rather just take the short sale properties back in foreclosure.  Why? There are incentives for them: they can write off losses, they don’t have to deal with second or third lein holders, and they may even have silent mortgage insurance, which doesn’t help if they accept a short sale – it only helps if there’s a foreclosure.

Some numbers:

Closed in the last month, just 26 short sale houses and condos and townhouses in Almaden, Cambrian, Los Gatos, Monte Sereno, Saratoga and Cupertino closed escrow.  In the same areas, there are 129 short sales on the market and available!   That’s 4.96 months of inventory….

Average days on market of these solds = 143   Average length of escrow for these solds = 110 (longest was 253!)

For non distressed listings in the same area it’s 555 available and 132 sold for 4.2 months of inventory.

The US government has tried to make short sales more appealing by offering cash incentives to lenders (and consumers), but it seems to me that right now, the banks are only appearing interested – they aren’t truly working to make short sales happen in many cases. This is not a good trend and it will hurt a lot of people.

Silicon Valley home buyers often “want a deal“, so they may consider purchasing a house, condominium or townhouse which is listed as a “short sale”.  What should you look for if you’re viewing one?

First, it is helpful to realize that the sellers cannot make any money at all from the sale, so often Los Gatos or San Jose area short sale sellers are unmotivated or depressed.  Sometimes they don’t even move themselves out of the way for showings.  A few months ago I saw one in which during a noontime previewing appointment in Willow Glen, two of the occupants were in bed (in two different rooms)!  Needless to say, I felt like I was imposing and left fast.  And I did not return with my buyer clients!

Second, with short sales, most often the sellers are truly distressed financially and the property may have been neglected or have deferred maintenance. Additionally, some sellers in this sad situation are emotionally upset or sad and they may not even keep the property clean. (When you go to see residential real estate, most often the sellers leave unless they are elderly or infirm.)

If you are really serious about buying a Silicon Valley short sale, you need to be able to “look past” things like the sellers hanging around, their dishes in the sink or their messes throughout the home. Beyond that, what should short sale home buyers look for?  There are issues both on site and beyond.  It is extremely helpful, before trying to buy a distressed property, to understand what a short sale is and who qualifies for one. Get educated, even before viewing these homes for sale!  There’s lots you’ll want to know before writing an offer.

1. You want to know how many loans are against the property and if there are 2 or more loans, how many banks or lending institutions are involved. (It’s a lot easier to be successful with a short sale if there’s only one loan or 2 loans with the same lender.)
2. If the real estate is a condo, townhouse or PUD, are there HOA dues which have been paid on time?
3. Find out, with your agent’s help, if the property taxes have been paid.  It is helpful to know the total amount due.  Sometimes the seller or the seller’s lender will ask you, the buyer, to pay these back due items.
4. Get your agent’s help in assessing whether or not the listing agent appears to have any experience with short sales.  These are not normal transactions and it helps a lot of the Realtor working with the seller knows what he or she is doing.
5. If at all possible, try to learn what the “hardship” is.  If the hardship is not legit, it’s unlikely that the short sale will be approved!
6. It is imperative to find out if there’s been a filing for either a Notice of Default or a Notice of Sale and when these happened (esp when the foreclosure auction or sale is supposed to happen). This can change how much time you have and whether or not it’s even possible to get an offer accepted before the lender takes it back in foreclosure.
7. Property Issues
   With short sales there are usually no pre-sale inspections, so you must be extra diligent in your viewing of the house and yard. It would be wise to have money set aside for property repairs as the sellers cannot pay for needed work the vast majority of the time.  Here are a few items to watch for:Does the property appear to have deferred maintenance?
   • Are the sellers doing the regular upkeep, such as keeping the gutters clear of debris from tree leaves or needles?  If not, there could be expensive roof repairs needed as water may be backing up under the roof shingles.
   • Is there any cracked glass? If there are double pane windows, do any of them appear to have seal failure?  (Do the panes look cloudy or as if there’s moisture between them?)  If so, they may need replacing.
   • How’s the carpeting?  Is it clean and stain free?  It may need replacing.
   • If there’s a pool, how’s the water color? Is the filter running? Watch for cracked tile, gaps where masking is needed, and the need for re-plastering (which needs to be done about every 10 years.)
   • Are the fences in good repair?
   • Are there any bad odors at the property? Those can be hard to eliminate, particularly smoke, cooking and pet smells.
   • Have a look at the roof. If it’s a wood shake roof, are the shingles curled and split?
   • If there’s a fireplace, look up at the chimney stack to see if there’s a rain cap and spark arrestor.
   • Are the floors out of level?
   • Is the concrete driveway cracked? How about the walkways? If there’s hardwood flooring, is it smooth and even looking, or does it look cupped? Does the soil grading go away from the house?   Are the downspouts extended or does the water from the rain gutters dump out near the foundation? Beware water in the crawl space! Our expansive clay soils can be disastrous when water is involved, particularly under the house.
8. When buying a distressed home, it is ultra important to inspect it very thoroughly!  It is critical to spend the money and time before you remove your contingencies so that you make an informed decision about whether or not you want to complete the sale.  Sometimes spending $1000 on inspections can save you many tens of thousands of dollars in unexpected repairs later on a home you’d have been better off not buying in the first place.

There will likely be other “red flags” to watch for.  Ask your agent to help you in identifying any unusual risks ahead of time so that you are as fully informed as possible.

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).

Most buyers today have 20% down and are pre-approved, and most sellers today in the San Jose – Los Gatos – Saratoga areas do have pre-sale inspections done.  Escrows for these typical sales are running for these types of transactions close to 30 days, sometimes more like 35 days.

For FHA home buyers, most of the time it takes 45 days to close escrow once they have an offer which has been accepted. Once in awhile, it’s a little longer.  Sometimes a seller may want a longer escrow for various reasons.

Status of the HOA Docs: If the property being sold is a planned unit development (PUD) or condominium, as opposed to a single family residence, it can take longer to complete the sale sometimes if the home owners and their agents have not already ordered and have in hand the home owner association (HOA) documents for the buyer to review.  This very thick packet is extremely important to get to the purchaser so that she or he knows as much as possible about the community. It includes the meeting minutes (where you find out who’s upset about what), the newsletters (any big neighbor issues may be discussed), the rules, bylaws etc.  It can take a week or more, in some cases, to get this from the HOA.  The sooner the buyer sees it, the faster the sale can go.

In general, 30-45 days is the “normal” amount of time for most Silicon Valley residential real estate sales to close. This is what you’ll most likely find in a regular sale or a normal property.

Sixty days is considered a “long escrow”.  Ninety days is the absolute limit that the buyer’s lender would tolerate, but often is so long as to be inadvisable.  A lot can happen in 90 days – loan rates can jump and even if you’re pre-approved, the loan rate change can lock you out of closing.  Most sellers and their agents will not be enthusiastic about a 90 day close of escrow for that reason.

Ditto that for “contingent offers“., which can take quite a bit of time to close.  In Santa Clara County, offers which are subject to the sale of another home are usually fairly unpopular.  Home sellers frequently do not want to deal with these bids at all, but may consider them if their home has been on the market a very long time and if the home which needs to be sold seems to be very marketable.  (For more information on contingencies of all kinds, please read Competing Against Multiple Offers: Contingencies and Timeframes.)

Bank owned properties, or REOs, tend to close within the normal time periods.  However, the banks often are not as generous as “regular” sellers and may permit only 7 days for inspections even if the buyer legitimately needs more time.  (Caution: banks often utilize passive contingency periods rather than active, meaning that if you say nothing and the date passes, you are presumed to be moving ahead with the sale and if you decide not to complete the sale you could be in default.)

How long does it take to buy a short sale in Silicon Valley?

Short sales are sales with a type of contingency, but instead of it being a buyer contingency (which is usual), it’s a seller contingency.  In these cases, the sale is subject to the seller’s lender approving a short payoff AND of the seller in agreeing to any terms in the short sale authorization from the lender(s).  How long does it take to close escrow on a short sale?  This varies widely.

With a short sale, the seller is still the owner (not the bank), but the bank can say whether or not the sale will be completed – either permit it or not.  Because of this power, the bank can sometimes insist on changing some of the terms of the contract, from time frames or price or downpayment that the buyer’s responsible for to the commission the involved real estate agents will be paid at the close of escrow.

How long does it take to get bank approval or lender approval?

Again, it depends on a few things:

• how many loans are there? (one is fastest, most often)
• if there are 2 or more loans, are they at the same lending institutions or at separate ones? (2 loans at the same credit union or bank will be infinitely easier than 2 loans at different banks)
• how much of the seller’s debt will have to be forgiven by the lender? Often a small amount can go through a more streamlined process than if it’s a large amount and may even be worked through a separate department
• whether or not there was a prior sale that fell through – if yes, then the paperwork is probably in the system and the lender just needs another seller to step in accept the prior terms. In those cases, it may be very quick.

The fastest I’ve seen short sales approved by a bank is 2 weeks and the sale closed 30 days later, so it was 45 days total. That is lightening fast and atypical.  More often, if there’s only one loan it takes the lenders 30-60 days to respond to the offer which has been accepted by the seller.  If there are 2 or more loans and they are not all at the same credit union or bank, it could take much longer to get an answer.  Sometimes there is no answer at all….  This is extremely frustrating and should not happen.

For more reading on the topic of short sale escrows and closings, please also review this article:
“Short Sales Sell But Often Don’t Close: Why?”

If you are buying a short sale, it’s imperative that you be flexible as to the closing schedule because so much of what determines it is beyond the control of buyers, sellers and agents.  Once you get that bank approval and the seller agrees to the terms, then it should proceed like a regular sale in terms of time frames.

Silicon Valley home buyers who are looking for a good deal can’t help but notice that prices on short sales and bank owned homes are a bargain compared to regular sales in the San Jose area. But what exactly ARE they? What’s the difference between a short sale and a foreclosure? What are the risks involved in buying one of these in Santa Clara County? Today we’ll have a look at the various types of distressed properties and the risks associated with purchasing each.

What are short sales?

Short sales are when home owners need to sell their home but there’s not enough equity in the property to pay off the loans and closing costs.  So the only way they can sell is if the bank agrees to accept a “short payoff“.  The bank or banks get paid in short, hence short sale.

What are some of the risks in buying a short sale?

What is a Foreclosure?

Foreclosures – there are really two subcategories here:  (i) when the actual auction happens on the courthouse steps and (ii) after the holder of the first loan takes the home back and sells it as a “bank owned property” or REO (“real estate owned” by the bank).

What are some of the risks in buying a bank owned home or REO?

How are the sales of condos and townhouses in the San Jose, Santa Clara County or Silicon Valley area? Just as with houses, the market is getting more active… things are picking up.  The trend is for increasing sales – pending condo sales in Santa Clara County are rising each week.

Nov 1 – Nov 7 = 116 newly sold (sale pending) condominiums and townhouses
Nov 8 – Nov 14 = 123
Nov 15 – Nov 21 = 129

Year over year, it’s up dramatically too.  Nov 1 – 22 2009 = 234 newly pending sales and Nov 1 – 22, 2010 = 366 newly pending sales (that’s a 64% increase).  That is a very huge increase!

Looking at closed sales and comparing it to two or three weeks ago, we see improvement.  Here’s a graph showing the months of inventory for condominiums and townhouses in Santa Clara County, San Jose, Sunnyvale and Los Gatos (as samples). Below please find the months of inventory for all sale types (REOs, short sales and regular sales) and just short sales.  Countywide and in most places, it remains much harder to sell a “short sale listing” than a regular one.

Los Gatos is odd in that the short sales are going faster than the regular sales.  As you can see, that’s not the norm for the county!  My best guess is that the good schools and low prices make short sales in Los Gatos very attractive.  We might find this same trend in other areas with exceptional schools such as Almaden, Saratoga, Cupertino and Los Altos.

Sunnyvale is still struggling but it has improved from the last time I checked the numbers on Nov 13 2010.