Multiple offers have returned to many segments of the Silicon Valley real estate market, so it is more important than ever for motivated home buyers to pinpoint the pricing.

Most of the time, when there are multiple offers, the sales price goes higher than the list price.  Does that mean you would be over paying for the property? Possibly.  Or it could simply mean that the listing agent and home seller listed it strategically low – under its true market value.  In that case, the list price was never the expected sales price.  Unless you and your Realtor carefully analyze the comps (comparable listings, pendings and sales), you won’t have a sense of the probable buyer’s value for that house, townhouse or condo.

Common home buyer mistake

A very common mistake for new home buyers is to get as far as to analyze the comps and find what they think is market value…and then start subtracting for everything wrong with the house.  This is because they assume that the house is supposed to be perfect, or that they should not have to pay for any improvements or repairs after close of escrow.

The difficulty here is that most of the time, the house or townhome or condominium is not brand new.  The comparable sales were not new, either. A 40 or 50 year old property is not going to be in perfect condition.  Had you or any buyer seen all of the comps’ presale inspections and disclosures, you’d have learned that they also had a myriad of things wrong with them – mostly small but items to be repaired, replaced or improved nonetheless.

If possible, find out what you can about the the condition both of the real estate you want to buy and that of the recently pending or sold properties.  Were they sold As Is? (If they got multiple offers, that’s probably the case.)  Sometimes the MLS will reveal, in the private agent comments section, whether the property got multiple offers, if work was needed or done etc.

In short, if you are buying a used home, especially if it’s decades old, expect that it will not be in like-new condition.  If buying it in a multiple offer situation, use comps of a similar age and realize that all of these homes have at least some little items (not health and safety) wrong and also had repairs required in 99% of the cases.  So if you find the market value and then start subtracting, you will fall short and not be able to compete in purchasing the home – and in fact will probably end up low-balling, unintentionally.

To really pinpoint the pricing, it’s imperative to understand the true condition of the comps and not mistakenly assume that they were all absolutely perfect. Then you are really comparing “like to like”.

Fear of over paying & fear of not getting the home

Multiple offer situations tend to make buyers nervous, especially if they really want the home and aren’t just throwing a lowball offer out to see if it works (not a strategy I advise). If you make a great, strong offer and win, you may find that you have buyer’s remorse immediately!  The odds are that you were willing to pay more than everyone else.  Sometimes several offers come in at the same price, and that’s more consoling. But just as often, yours was the clear best offer.  How will you feel knowing that no one else was willing to go as high, or write terms as strong, as your offer?  It’s a little nerve wracking.

The other extreme is when you “just miss it”.  Sometimes with multiples, there are a couple which are neck and neck, and you lose the house by a slim margin.  Sometimes there are two nearly identical offers but one is just a tad  better: either the terms or price are better, the offer is better written or presented, or some small (even emotional) item like a letter from one buyer and not the other could be the tie-breaker.

It’s easy enough to do the little things which can be tie breakers.  Harder is the $5000 or whatever price difference.

With these two fears in mind (over paying or not winning the home), I suggest to my buyers, once all the analysis is done, to write an offer that they can live with whether they get the house or not.  And I talk about winning in multiples (and immediately knowing that no one else would go as high, most likely) or missing it by a hair.  “Will you be OK if you miss this home by $5000?” is a question I often ask.  “Will you be OK if they do accept your offer?”  Write such that you can sleep either way – that you put your best foot forward and are ok if someone else pays more for it and are happy if you get it.

Your agent can’t tell you what you “should” offer.  At the end of the day, it’s your money and it’s your home or real estate investment.  You have to live with getting – or not getting – the property.  Your Realtor can and should provide you with good comps, and if well experienced, can probably estimate what the most motivated buyers would likely pay to get the property.  Then it’s up to you, whether it’s worth it to you to compete and if so, at what level.

Please also read:

What are typical buyer costs when purchasing a home in San Jose?

Lead paint

What happens in escrow?

The weekend has rolled around and you are scheduled to see a few homes with your Realtor.

What should you expect?

Hopefully, the home will be clean, pleasant, and viewing it will be relatively stress-free.   Most of the time, the sellers will not be home and you’ll be free to walk through the home and mentally “try out” the space. How does it feel? Will your furniture fit? Does it work with the way you live?

Sometimes, though, sellers either can’t be gone or don’t understand that they should be gone for the viewing.  Once, when my family and I were house-hunting for ourselves, a homeowner not only followed us around very closely, but also followed us into the yard, where he moved a lawn chair so that he could aim it at us and keep a closer eye on us!  (To this day, my kids refer to it as the house where “that man followed us all around”.)

There can definitely be too much proximity.

Today I was showing four homes in AlmadenValley (an area of San Jose)  to my buyers.  I was very specific about when I’d be at each property, and rang the doorbell right on time at one house where the owner had volunteered earlier that “I have company but come on over, we’ll be out”.  Unhappily, it appeared that he wasn’t in the least thinking about being gone when we arrived – he opened the door and buttoned up his shirt as he let us in, looking a little disheveled, a little rattled.  His lady friend was likewise composing herself as we made our way into the foyer.

Now that’s embarassing.   Luckily, it’s also fairly uncommon, though many agents who’ve been in the biz awhile have stories of seeing more than they intended to while making their way through a home.

When you’re visiting residential real estate, almost anything can happen. So be sure that your agent rings the doorbell, knocks, and pauses before rushing in – even if there’s an appointment.  Better to take your time then see more than you bargained for!

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.

For homes all over Silicon Valley, its important, my home inspector tells me, to use downspout extenders so that the water from rain collecting on the roof dont all dump out right next to the house. Ideally the water would run to a gutter in the street or to some other drainage system. Additionally, it is important that soil (or walkways) be graded such that any water would run away from the house rather than toward it. Frequently, though, we see homes with ˜reverse grading and any rainwater, pool splashing etc. may run toward the house rather than away from it. Thats a problem that needs correcting.

For homes near or in the foothills, things are further complicated because runoff from the hills may be aimed straight a neighborhood or home. Your home may be in the path of the runoff, for that matter.

Geotech engineers (they are the specialists for this issue) will assist the homeowner (or buyer) in determining how to limit the amount of water moving toward the house. Sometimes that will be a combination of work with the downspouts, grading, and drainage systems. Other times its much more involved and costly. There are some areas in Los Gatos and Almaden Valley, for instance, where the water table is very high. During an El Nino year, with lots of rain, the water table may get pushed beyond the brink and a spring may pop up near or under your house. Capping the spring is not going to be a cheap fix. But be aware, if youre home buying in some of these areas, that you may run into this issue. If so, plan to call an expert, a Geotechnical Engineer, to assess the situation and provide suggestions to remedy it.

What are some of the symptoms, or red flags, to watch for if youre buying a home near the hills, that there may be a drainage problem? Heres a list of possible clues – they could also signal other issues too, so this is not a diagnosis, just a clue that something needs to be investigated:

• floors out of level
• interior doors that dont close or stick
• cracks in walls
• cupped hardwood floors
• musty smell in the house
• cracked or lifted concrete outside, in the garage, or anywhere visible

Many homes in the foothill areas are sold with pre-sale inspections already done. Before writing an offer, review these carefully. The property or home inspection may also flag drainage issues that could be causing (or cause in the future) significant structural damage. Here are a few to look for:

• cracks in the foundation
• stains on the foundation or effusion (mineral desposits), indicating water in the crawl space
• cracked, buckled, or lifted cement (which you may or may not have noticed)
• mildew or mold in the attic (indicating a high amount of evaporation in or through the home)
• reverse grading conditions

By carefully viewing hillside homes and reading the pre-sale inspection thoroughly, you should have a sense of whether or not there are any potential issues with water and drainage. You may also be surprised that the homeowner or seller has addressed these dilligently. When the issue of drainage has been well handled, you may see these features at the property:

• the concrete around the home and in the driveway is in good condition (and is not brand new – sometimes home sellers will replace the driveway or walkways but not address the cause, so sometimes a brand new bunch of paving is a red flag)
• the grading appears correct
• the downspouts are tied to an underground system that moves the water away from the house
• there are drains at points around the home to carry water away
• you see no cracks in the garage floor (if you cannot see the floor due to rugs or storage, make sure you do see it!)
• doors and windows all open easily
• the crawl space is dry and appears to have a history of being dry

Finding a property in which the owner has aggressively addressed the issue of water around the house, particularly before there are any structural problems to fix, is a real boon to a homebuyer. We live in a region where many sellers simply slap granite onto the kitchen counter and call the home improved or well maintained. The structural stuff isnt very sexy, and most buyers dont appreciate if drainage work is there or not, but ultimately it is one of the most important aspects of homebuying to be evaluated. The right improvements and care will make the property more functional and in need of fewer repairs in the long haul, and will give saavy buyers peace of mine when they purchase it.

For further reading:

What about the living in the Los Gatos Mountains (Santa Cruz Mountains)? post on Move2Silicon Valley relocation blog

Cracked Foundations, Adobe Clay Soils and Water in Silicon Valley (this blog)