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). (more…)

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.
(more…)

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. (more…)

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.) (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…)

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.

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.

(more…)