Silicon Valley home buyers want to understand time frames, expectations and requirements when signing a purchase offer on real estate.  One of the most important to fully grasp is when the initial deposit check will go to escrow and be cashed.

The quick answer to the question about when the Silicon Valley real estate purchase offer check will be cashed:

Your initial deposit check or good faith deposit check (or wire transfer or other means of conveyance) is due within 3 business days of acceptance (also called “contract formation”) unless the contract is changed by checking the box and filling in the blank for a different answer.  By the way, everywhere else in the contract, time is measured by “days”, not “business days”. This is the one exception!

Two sets of forms, almost the same regarding the initial deposit

In Silicon Valley, we have 2 sets of forms that we use for writing contracts, completing disclosures etc.  One is the PRDS or Peninsula Regional Data Source forms.  The other is the CAR or California Association of Realtors forms.  In many ways they are similar.  Regarding the good faith or initial deposit, they are nearly identical.

The PRDS Real Estate Purchase Contract is briefer & more streamlined, so let’s start there.

Let’s look closer at the area for the amount being deposited and have a better look at the words :

Once again, it’s 3 business days – though there are almost a myriad of other choices as to what’s happening with the check!

Bottom line: when you write an offer or contract on a house, condo, or townhouse that you wish to purchase in Silicon Valley, be prepared to have the check get cashed by escrow within (not after) 3 business days!

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.

Some Silicon Valley home buyers do not want to have their own buyers agent, but instead expect that they can find properties in the San Jose area that they want to see and request that the listing agent show it to them in a private appointment.  These same potential buyers may be surprised that the listing agent may refuse to show them the listing outside of a regularly scheduled open house – that is, if the seller is permitting open houses.

What’s going on?

In earlier articles we’ve discussed the need for a buyer broker agreement (verbal at the least, but possibly in writing) and why you, as a buyer, ought to have your own representation at the negotiation table.  (If you missed these, see the links under “related reading” below.)   Today I want to dispel the myth that the listing agent is required to open up and show condos or houses for sale to anyone who calls and requests seeing them and explain why that’s the case.

Showings of homes for sale are determined by the listing agreement or contract between the home seller, the listing agent or Realtor and the broker

The most important thing for buyers to understand is that the accessibility of the home for viewings depends upon the agreement, verbally or in writing, between the owner of the property and the agent/brokerage hired to market, negotiate, and sell the real estate.   It’s not an “on demand” situation where an interested buyer can insist on seeing the property as desired. Here are some of the expected scenarios and reasons why showings are somewhat restricted most of the time:

• Some properties are tenant occupied and it may be the case that you cannot even see the house or condo until after your offer is accepted. Most often it will be challenging to see homes with renters in them, but it is possible, usually, to see them prior to purchasing. (This is less true with duplexes, triplexes and four plexes. Apartment buildings are always sold “subject to inspection”.)
• Other times there may be a restriction such as 24 or 48 hours notice required for showings when homes are owner occupied.
• Most of the time, the seller has requested that any private showings, by appointment, involve ONLY pre-approved buyers. The sellers don’t want to waste their time with tire-kickers.  They want serious buyers.
• Most of the time, a seller will not want the listing agent to also represent the buyer and will expect serious home buyers to have a buyer’s agent.  If you are working with your own agent, that’s who should show the home to you.  If you have your own buyer agent, he or she can see what is involved in showing the property to you by looking at the agent version of the MLS (which includes showing instruction information and restrictions)
• Some sellers want open houses, some don’t.  For those selling a home during the holidays, often the for sale sign and lock box are removed and it becomes harder to get into these properties.
• Safety is a HUGE concern, both for home owners selling on their own and for realty professionals. Each year, Realtors and other real estate professionals are injured or killed in their line of work. If this surprises you, ask yourself how smart is it to meet total strangers at an empty house? It’s not.  If you want the listing agent to show you the house, expect to be asked a lot of questions (are you preapproved? if so, with who? how can we verify that?) and usually expect to meet the agent at the office first. Many Realtors will ask to photo copy your driver’s license prior to taking you to the home – this is for personal safety reasons. We realize that you will feel uncomfortable but please remember that real estate is risky for us and we absolutely must be cautious.

Related reading:

Do You Need a Buyer’s Agent? Or Should You Find a Home, Then Use the Listing Agent?

Silicon Valley Home Buyers: Should You Use a Buyer Broker Agreement?

Smart, saavy Silicon Valley real estate agents won’t take just any listing.   New agents (or brokerages, for that matter) or those struggling may be less picky.  This may be confusing to home owners who find that some Realtors will agree to list the home, others won’t – so let’s discuss it a little.

Real estate licensees aren’t just people who hold open houses on weekends.  Rather, real estate agents are independent businesspeople in the business of selling real estate. Many of them work 50+ hours per week.  In order to be successful, they have to evaluate the probability of success, whether with buyers or sellers, before deciding to take on those clients.  If they agree to work with buyers who never buy or sellers who never sell, they will be out of time, out of money, and if they make this judgement mistake too often, out of business entirely.   In the last 4-5 years about 1/3 of real estate salespeople have left the industry.  Those who are surviving or thriving are very judicious about how they expend their time and resources.

Under some circumstances, home sellers may project enough “red flags” or have unreasonable expectations such that real estate agents will turn down the chance to list their home.  Here are a few things I’ve run into over the years, either personally or heard about from other agents who said no to sellers:

1. Unrealistic expection on likely sales price of the home (demanding more than the probable buyer’s value of the home)
2. Unwilling to compensate agents or brokers as they require OR expecting them to take on far more work than is to be expected in selling a property (such as overseeing the entire remodel of a house – we are not general contractors!)
3. Overly restrictive showings (too much advance notice, insisting that listing agent be present for all showings)
4. Not permitting some basic marketing or access avenues (no open house, no sign, no lockbox) or unwilling to follow sound professional advice on staging, presale inspections to make the property attractive to buyers – these are “basics”
5. Problems with showings (messy, smelly homes or sellers insist on staying home during showings, follow buyers around in the house etc.)
6. Secretiveness – when sellers won’t level with agents about their plans it sets a bad, even scary, tone that causes agents to worry about hidden risks
7. Nastiness, second guessing or micro-managing – some sellers may want to call the agent 8 or 10 times per day or desire to oversee even the smallest detail on marketing the home (see every email sent, for example).  Others can be rude or insulting.  Some constantly double check everything the agent says to verify every angle or detail and then quotes back to the agent “well another agent I know says…” which is frustrating and insulting.  Sometimes listening to others at work, who are unqualified to give real estate advice and getting that “over the cubicle wall advice”, causes home owners to not follow their agent’s advice (see # 4 above).
8. Concerns over legal problems and liability, such as a home owner with dementia selling the house rather than the adult kids or other friends or relatives getting a power of attorney to do it for the parent (I have run into this directly). If there are any mental capacity issues, it is a lawsuit waiting to happen.

Most of the time, real estate agents want to list good homes and have the opportunity to market and sell them.  If they (or I) see enough “red flags” with a seller or the property, though, it’s time to decline the opportunity.  Often times, these same houses do not sell the first time they are on the market but later become an expired, withdrawn or cancelled listing.  (Sometimes they simply take a very long time to sell as the owners adjust to market realities and begin to accept their agent’s advice.)  Sellers wonder to themselves, “why didn’t my house sell?”  The answer is often an inflated price but just as often there are other problems compunding the failed sales effort too, very frequently an unwillingness to follow professional real estate advice.

Not every home will sell.  A wise real estate sales person will not get hooked into a listing agreement where the seller isn’t as motivated to sell the property as the agent is to sell it.  This is a team effort, requiring a shared vision of what needs to happen.  Even under the best of circumstances, homes don’t always sell.  So if there are big issues from the seller or the way the home is shown, it’s a bad business decision for the real estate licensee to get tied to them – it’s too much like trying to do the job with one hand tied behind your back. Who agents and brokers work with is ultimately a business decision.  If they are turning you down for the listing contract, at the end of the day it’s a statement about your or your property’s business risk. If you are confused as to why they decline the opportunity to list your house, townhouse or condo, you can always ask them, and most likely you’ll get a helpful answer.

Selling a house or home is usually very challenging and emotional, even under the best of circumstances.  It’s all the worse if the folks on the other side of the transaction – the buyers, their real estate agent or both – are difficult, rude, hot headed, verbally bullying, not performing on time or otherwise making the escrow and sale more upsetting than is necessary.  What can a seller or listing agent do about it? Can the seller cancel the contract and boot the bad guys out?

If there is a seller contingency, it may not be hard to do this at all. (For example: home sale subject to seller finding replacement property – they can just not look!) But that’s rare. Most of the time, only the home buyer has contingencies.

In Silicon Valley, we have 2 different contracts in use – the CAR and PRDS.  Before we can answer the question of how to get rid of nasty buyers or agents, it’s important to know and understand the contractual agreement clearly.  So the first question is “what does the contract say?“  Often the sellers don’t have an easy way to boot obnoxious agents out of contract.  But it may be possible to catch the buyers in a default (that is, not performing) via some subtlety in the contract and that may eventually enable the sellers to cancel the contract.

Both of the purchase agreements used in Santa Clara, San Mateo and nearby counties include a list of rights and responsibilities for both sellers and buyers.  They also include time frames: buyers and sellers must do these certain things within a specified number of days (some are boilerplate and others are written in and variable). So these contractual “technicalities” may be time frames which have been ignored inadvertently.

It’s no slam dunk most of the time, though, to get rid of buyers and their real estate representatives.  Usually it will be necessary to put the other side on notice that they are out of contract and to give them a chance to get back on track.  This official notice that they are at risk of having the sale cancelled is called a “notice to perform“.

At what point can you give a “notice to perform”?  There’s a little debate about this, so before electing to send over that kind of missive it might be good to have your agent check in with his or her manager or broker.  Some agents and sellers, if feeling harassed, may issue one before a deadline is even missed by the other side.  Normally this is taken as hostile – it is – and can seriously worsen the relationship between buyers and sellers without having any practical or helpful impact on the problems. In other words, it’s a bit like waving the red cape.

It’s not fair, having to deal with rude, nasty people who say untrue things, who bully others and seem to be just emotionally playing with the folks on the other side of the transaction.  I know.  Sometimes there’s not much you can do about it in the immediate sense.  But nastiness finds its own punishment, eventually – even if you never see it.

Rude, nasty agents (and agents who encourage or allow their buyers to be that way) risk every future transaction in the area since their colleagues will talk about them – a lot!  There are a few Realtor bullies in the Saratoga and Los Gatos market areas, but who they are is no secret to other real estate professionals in the area.  Agent reputation is so important! When there are multiple offers, the loathed agent and his or her clients will be at a huge disadvantage. So too with some homes that don’t sell – it can be that the agent community is literally boycotting a jerk. In the long run, it doesn’t pay to be obnoxious.  Call it karma, but other agents remember the guy who took advantage of a typo for personal gain, who showed the love of bullying at every turn or who controls to the point of choking out everything and everyone.  So too on the other end of the spectrum – a well liked agent who “plays fair”, communicates and performs without drama or game playing will find doors open that might otherwise be closed.

This is also true of everyone else we deal with too – title companies, inspectors, repair people.  A bad turn will be told to the entire agent community, but so will a good turn or going the extra mile. Reputation eventually is its own reward or punishment.

Got a nasty situation on your hands? One of the best things you can do is to keep a calm head. As a seller, you can say no to unreasonable demands.  If the buyers shoot you an addendum, even if it is reasonable but you want them to back out of the sale, you can say no. You are not obligated to do more than make the home available for inspections, provide your disclosures in a timely manner, keep the house and property up and any other contractual requirements.

Sometimes the listing agent is so frustrated at the inability to protect sellers from rude buyers’ agents or buyers that he or she gets emotional too. This doesn’t help.  If you’re angry or upset, don’t leave a voice mail or shoot over a snarky email.  Let yourself calm down first.  If the other agent is doing it to get a reaction out of you, don’t give him or her the pleasure.  Let calm heads prevail.

Sometimes a  friend will call or email me and say that he or she is buying or selling a house, has a Realtor but wants my advice about the real estate purchase contract nuances, analyzing comps, or any other real estate related question. Usually it’s someone out of my Silicon Valley market area, though a few times it’s been someone closer to home.

Most professionals don’t want to be asked to give professional advice when they aren’t going to be compensated – this is true for lawyers, doctors, and many others.  But it’s also true for real estate professionals, too.  The problem, though, is not really that some folks overstep the bounds of asking for a favor. Instead, it is a matter of ethics.

I cannot interfere or meddle if you or they have a Realtor.  This is part of our Realtor Code of Ethics:

Code of Ethics
The Code establishes time-honored and baseline principles that come from the collective experiences of REALTORS® since the Code of Ethics was first established in 1913. Those principles can be loosely defined as:

• Loyalty to clients;
• Fiduciary (legal) duty to clients;
• Cooperation with competitors;
• Truthfulness in statements and advertising; and non-interference in exclusive relationships that other REALTORS® have with their clients.

Non Realtor real estate licensees also have boundaries on what they can and cannot do, too.  One big area is that we are not supposed to advice outside of our areas of competency.  I feel pretty good about a lot of areas ranging from Santa Cruz to the south to Redwood Shores to the north and Fremont, Pleasanton or Livermore on the east bay plus all of Santa Clara County.  But I don’t know Sacramento real estate, Santa Barbara Real Estate or San Diego real estate, so it would be wrong for me to suddenly delve into those arenas.  Even more so if that friend or relative asking “for a favor” were working with a Realtor or other real estate licensee and my commenting would constitute interference.

What’s your home buying style?  Impulsive? Cautious? Analytic?  Deep bargain hunter?

A few times in my real estate career, I’ve worked with Silicon Valley home buyers who were so anxious to purchase a home that I was concerned that their impulsivity might be a cause for buyer’s remorse later.  When that happens, I try to slow them down a little – I’ll suggest “let’s look at least a few homes” if it happens that they want to buy the very first home they saw. Part of my fiduciary duty is to look out for my clients’ best interests, and sometimes that means putting the brakes on just a little (or telling them what they don’t want to hear).

More commonly, it’s the other extreme that I see in our very well educated, extremely analytic population: paralysis by analysis or an overabundance of caution. (Sometimes it’s overabundance of bargain hunting.)

The vast majority of successful Silicon Valley home buyers are somewhere in between: they set up their priorities and goals (“I want to buy in the next 4 months at this price with this location or school and this type of property and size of home”). The clearer they are on their goals, wants and needs, the easier it is to help them get it – as long as they have realistic expections. That is key!

Once – only once – I sold a Los Gatos house in which the husband purchased without the wife’s physically seeing it.  This is rare!  They had moved so many times that he understood precisely what mattered to her, and if the house met that list, he was good to go.

The national average for the number of homes seen before buying is about 10, but it is more than that here in my experience.  If buyers know what they can afford and what they want, often they and I can narrow what’s seen online to 10-20 homes we visit in person and from those, one or two should be a best fit.  For highly motivated, determined, realistic and organized buyers, and this can usually happen in 2-3 weeks.  (If you are selling one house and immediately buying another, this is really the only way you can swing it without having to rent in the interim.)

What are the odds of successfully buying a Silicon Valley home this year?

How likely is someone to buy a house or condo?  It varies, of course.  As a Realtor who is not in it for one transaction but instead for a long term relationship, I want to help consumers to make good choices.  It is usually easier to slow down the impulsive home buyer (note: not all real estate licensees will do this, some just want to make a quick sale) and harder to move someone who’s bogged down by unrealistic expectations or exaggerated fears to the middle zone where they are able to write a successful purchase offer on a home.

Most of the time, capable buyers who don’t write the offer after months of looking are either overly cautious (afraid of overpaying, usually) and unrealistic about market values (often wanting something for 10-20% than it’s worth in the current market), although sometimes it’s another issue entirely, such as husband and wife not agreeing on either the priorities or the budget.

If you’ve been looking at homes for more than a couple of months, or have seen more than 20 homes and not found yourself able to write a purchase contract with your Realtor, it’s time to evaluate the process and what the stumbling blocks might be.  Are you hoping to find a perfect house at a perfect price in the perfect location?

Waiting for perfect….

This situation of “waiting for the right house to come on the market” is not so unlike the seller of the overpriced house waiting for “the right buyer to come along”.  If all of the other home buyers have seen and rejected that listing, it’s not very likely that another home buyer will come along and decide it’s just perfect or that the price is right.  We speak of the “probable buyer’s value” and try to determine what the odds are that a buyer will pay what the seller expects. For a sale to happen, the buyer and seller expectations have to line up.  So too for home buyers – if you have seen everything over many months, it is extremely unlikely that any new listings will fill the bill any better.

How your Realtor can help

If you find yourself unsuccessful in home buying and it’s been a few months, and you’ve seen plenty of properties, talk with your Realtor.  It is very difficult to be objective about oneself  and where one might be on the spectrum.  If you’ve hired a good real estate agent or Realtor whom you trust and who is presenting you with homes to see that match your basic list, ask him or her what the issue seems to be and what needs to happen for you to be a successful home buyer.  Please be open to hearing what your realty professional has to say and suggestions being made.

Over the last few years, I’ve helped many San Jose area renters to become home buyers.  Sometimes they did have to write a few contracts before being able to buy (if there were multiple offers it can be very challenging!).  Sometimes they had to change their expectations, order of priorities, location or budget for it to work for them.

If you really want to buy – and not just look – now’s a great time. Interest rates are fantastic. In many areas of Santa Clara County it’s a buyer’s market.  If you can line up your expectations with the market realities of today, you can be a homeowner too.

For further reading:

How To Increase The Odds That Your Purchase Offer Will Be Rejected

Home buying

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).

There are many differences  between the CAR and PRDS contracts, but both of them have a place for listing at least some of the disclosures which are to be expected and whether or not the buyer intends to order a termite or pest inspection.  The CAR form also has a place for listing any other inspections the buyer intends to have done.  (Below find part of the section which lists inspections – too wide to fully reproduce here, unfortunately.)

One of the nice things about the CAR contract is that it is very clear as to who’s ordering and paying for what.  Nowhere in the paperwork, though, does it state that unless an inspection or disclosure is named, it cannot be ordered later.  So what is becoming common practice “in the field” is to simply not mention these disclosures or inspections in the offer.

Is that lender fraud? Might be – I will leave that to our attorneys to say for sure. Most of the mortgage people I talk with suggest that we simply leave things out to keep the situation uncomplicated. (I wonder if others in the bank feel the same way?)

The difficulty comes when buyers want to buy and sellers want to sell but the house, or pool, or some other element isn’t 100% perfect… If the bank sees the inspections reports and disclosures, it will of course show that the 50 year old house isn’t “like new”.  The bank doesn’t like that.  In more than a few cases, lenders essentially don’t permit an As Is sale.  In these cases, the banks, credit unions or other lending institutions start rewriting the obligations on buyers and sellers.  Maybe the buyer wants to do the repair differently after close of escrow – perhaps with alternate materials, but now is forced into paying for whatever is fast just so that escrow can close.

It’s not a simple problem, it’s complex.  Just as every house or condo is unique, so too are the issues that come with them.  If it were a simple matter that every house had to have a pest clearance, we could easily manage that.  But in fact it’s not so straightforward.  In response, agents and home buyers are leaving more and more blanks in the contract.  Personally, I’m not comfortable with it.  I present the situation to my clients, they talk with their banker or mortgage broker, and they decide what to do.  I think we could have a better solution, though. Don’t you?

Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.

Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).

So how does this impact you, the Silicon Valley real estate home buyer or seller?

Imagine you’re on the board of any of these institutions.  What do you do to protect your shareholders when something like this happens?  Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future.  You hand down new policies and get them implemented immediately.  No exceptions.

Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none.  Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine).  We will still close escrow, but late.  This never makes anyone happy.

Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines.  Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale.  But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise.  In escrow, no one likes surprises, especially if they cause any sort of default.

This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans.  Got a great bank that performs fast and is free of legal battles? Please share it here!

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.

Selling stocks, mutual funds or bonds?  The listing agent may be satisfied if not 100% is liquidated up front but will want to see that a substantial amount is already in cash.  Remember, though, that selling off those assets is NOT a contingency of the contract.  If the stock market falls through the floor tomorrow and you’re already in contract and with no financing contingency, your initial deposit could be at risk should you not complete the sale – that would be considered a default. (Please read your real estate contract carefully!)

Some home buyers write “all cash” offers when in fact they are taking money out of another residence or real estate.  In truth, it may look like a slam dunk to get the money but if there are any complications with the refinancing of the other property, those home buyers could be at risk.   These sales are contingent upon financing – just not the home in escrow!  There are many ways in which these transactions can get mucked up, so be careful if skipping a loan contingency when in fact a loan is needed.

Second, if you make an all-cash offer, you must provide proof of funds along with your purchase agreement.  It would be foolish for the listing agent and seller to not require this cash documentation -  it is an important element or term of your contract.  Your agent can white out or black out your address, account number for the sake of privacy but leave showing your bank balance and name.

Third, one of the pluses of an all cash offer is that it can close faster. If all the conditions are right, this could be just a few days or a couple of weeks.  My fastest ever was 5 days; there were already loads of inspections (2 of everything, as I recall) and the buyer was in an enormous hurry due to a tax deadline with a 1031 exchange.  An offer without financing could close in 2-3 weeks even if the buyer wanted new inspections.

Why would a seller want this? Sometimes the seller needs cash in the bank to purchase the next home.  For example, you could purchase his or her house in 3 weeks and that seller could complete a sale on another house maybe a week later.  (The seller would often deeply appreciate a brief “rent back” for that week or so to avoid 2 moves in a short window of time.)

How much of a discount could you expect with a cash transaction vs one with a loan?

Probably not as much as you might think. (About a year ago I had a listing that received multiple offers.  The lowest – a true low-ball offer – came in about 20% lower than list price.  The highest, of course, was well over list!  The low-ball buyer said “but my offer is all cash!” and could not believe that he didn’t get the house.  Most sellers will wait 30 days for that much more money.  Wouldn’t you?)

In my experience, the cash discount varies but is usually in the 2-4% range.  Most sellers (but not all!) will take a little lower of a sales price in order to have the higher probability of success with the closing due to no loan issues.  If there are multiple offers, you may get no discount but you will be the winning bid.  All cash is always a help!

For further reading:

What happens in escrow?
What are the benefits to paying cash for a home?

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.

Example: Luxury real estate for sale in San Jose – homes over $2 million and the commission rate offered

Right now in the city of San Jose, there are 20 homes listed at or over $2,000,000 which are available to purchase.  The average commission rate offered for these luxury homes is 2.65%, but the rates range from 2% to 3%. Here’s the breakdown:

2% = 3 homes
2.25% = 1 home
2.5% = 10 homes
2.75% = zero
3% = 6 homes

If we eliminate the one REO and two short sales, the average rate goes down a tad, to 2.6%.  There are no pending sales in this market, and just 2 that have closed escrow in the last 3 months, one at 2.5% and the other at 3% (average 2.75%).  This is possibly a hint that listing the property with just 2% might not be a good idea. Or is it a fluke?  If we look at what has closed in the last  12 months in this strata of high end San Jose homes, we find that just 6 homes have sold and closed – clearly, it is an uphill battle to sell an estate type property in San Jose right now!  The average commission rate offered for these sold luxury houses was 2.625.  The breakdown is as follows:

2.0% – zero
2.25% – zero
2.5% – 4 homes
2.75% – 1 home
3.0% – 1 home

Of the sold & closed homes, not a single one had a commission rate at less than 2.5%.  There may be other things at play – but this would be a “red flag” if I were taking the listing and my client wanted to offer less than the 2.5% to the buyer’s side.  It would be an indicator that perhaps we should look at this issue a little more closely, because it could potentially damage the odds of selling. I would not advise offering 2% to the buyer’s side, given these numbers.

Isn’t this information that sellers should know about?  I think so.

Splitting the brokerage fee: is it 50/50?

Sometimes, agents take listings for a certain percentage but do not share with their clients what amount of that is being offered to the buyer’s side.  If the seller agrees to a 6% listing (as an example only), he or she might assume that 3% will be offered to the buyer’s side.  This does not always happen, though.  Some agents keep 60% of the commission, reasoning that “they do most of the work”.  This happens in all segments of the market, but perhaps most especially among some “short sale experts“.  It is a good idea, when listing your home for sale, to ask about this and find where it is itemized in your listing contract.  Some listing contract forms include the commission rate breakdown, but others do not (only calling out the whole fee).  When the home is on the MLS, ask to see the full or “agent” printout.  The commission rate for the buyer’s agent will be there!

A related issue: the stigma of the greedy agent.  The total commission offered is not a secret to the buyer’s agents forever.  At closing, both agents receive packets from the title company handling the escrow, and the dollars are laid bare.  Agents can see if the listing agent split the brokerage fee evenly or not.  And if not, they may prefer to not work with that greedy listing agent in the future.  Ideally, you want to hire a real estate agent with a great reputation, one with whom other agents really want to work.

In summary: sellers need to be given total transparency on the commission rate and where the brokerage fee dollars go.

Does any of this matter to Silicon Valley home buyers?

If you are a Silicon Valley home buyer, most of the time you will be unaware of the commission rate offered to your agent.  Most agents will show you most homes for sale – but if they run into one with an ultra low fee offered, that may not make it onto your showing list unless you have signed a buyer broker agreement.  Think of it like the for sale by owner homes – there’s either no guarantee of compensation or very little compensation.  If you want to see all homes, regardless of compensation offered, consider signing a buyer broker agreement.  It can open doors for you!

Side note – where the money goes after closing:

The public sometimes believe that all agents make a ton of money for very little work.  I’d like to address that misconception for just a moment and discuss what agents “keep” out of what they “earn” at closing.

In most cases, the Realtor or real estate licensee does not keep 100% of the fee or commission which is paid at close of escrow.  Most agents work at a brokerage which takes a portion of the compensation – anywhere from 60% to 15% usually goes to “the office”.  Sometimes, too, a referral fee is paid – that would come “off the top”.  Most typically agents keep 60 – 80% of the commission.  And out of that, they pay a number of things, of course: fees to the brokerage, memberships and license fees, etc etc. – often amounting to 30 – 50% of their take home – and then they pay Uncle Sam!  The “net net” or amount to live on after all of that can be as little as 1/3 of what they are initially paid.

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.

Lately I have been given a lot of incomplete FIRPTAs from listing agents in & near Silicon Valley with the request (or demand) that my buyers sign them.  They explain “we don’t have to provide the social to the buyers anymore”.  These well intentioned agents have mixed up two choices and provided something of a hybrid that cannot be used to satisfy the requirement of the form. Hence this post.

It’s not just happening to me and to my buyers. There’s an immense amount of confusion about how to properly complete and handle the FIRPTA form in California real estate sales.  Most of it would be solved if people (buyers, sellers, realty agents, transaction coordinators and brokers) would simply read it and not assume what the requirements are.  (Silicon Valley Realtors have long heard local real estate trainer Guy Berry admonish us in class to simply read the forms.  He scrawls in large letters on the board for his class on the purchase agreement: What does the contract really say?)

So let’s do that.  Let’s see what the Seller’s Affidavit of Nonforeign Status And/Or California Withholding Exemption really says. To begin with, I uploaded the 2 page FIRPTA document onto my Valley of Hearts Delight website, so you can access the entire document by clicking on the link (it will download into a new window – it’s a pdf).  You might be surprised, especially if you are taking your information second-hand and have not read this form yourself in the last two years. (And if in doubt about any of it, please contact a real estate attorney for clarification.)

What is the purpose of the Seller’s Affidavit or FIRPTA?

Why do we have this form at all? The very first part of page one answers this question. (Words in red are mine.)

Internal Revenue Code (“IRC”) Section 1445 provides that a transferee (buyer) of U.S. real property interest must withhold tax if the transferor (seller) is a “foreign person”.  California Revenue and Taxation Code Section 18662 provides that a transferee (buyer) of a California real property interest must withhold tax unless an exemption applies.

So for starters, we are told that buyers must withhold tax from the sellers unless an exemption applies when they buy real estate in California. That’s what this FIRPTA form is all about: it tells the buyer that there is an exemption.  By completing this form and providing it, the seller is giving an affidavit that he or she is not subject to the withholding tax for either the Federal Government or for the State of California. The buyer is off the hook for holding money back in escrow from the seller.

In case the seller doesn’t already understand how serious this requirement is, the next line in the form continues with underscoring its gravity.  It’s the seller’s form, so “I” refers back to the seller (or transferor).

I understand that this affidavit may be disclosed to the Internal Revenue Service and to the California Tax Board by the transferee, and that any false statement I have made herein may result in a fine, imprisonment or both (bold is mine, not original).

I think that makes it pretty clear that the FIRPTA should be treated carefully. Unfortunately, that’s often not the case.

What information must be provided on the FIRPTA?

The next section has a few areas which are required to be completed by the seller (none is said to be optional).

1. The address of the property being transferred (or sold)
2. The seller or transferor’s information:
   1. Full name
   2. Telephone number
   3. Address
   4. Social Security Number, Federal Employer Identification Number, or California Corporation Number

It is usually the fourth item which is not provided when agents or sellers balk at this requirement but many times they also do not want to provide their telephone number either if this is being given to the buyer.

Does this completed FIRPTA, with Social Security Number, have to be given by the home seller to the home buyer?

Luckily, the next few words provide relief from the panic that sets in when sellers, who are rightly worried about identity theft, realize that the law says that they must give their personal information to the buyer of their home.   The bolding is in the original document, not just for emphasis here.  Read on:

Note: In order to avoid withholding, IRC Section 1445(b) requires that the Seller (a) provides this affidavit to the buyer with the Seller’s taxpayer identification number (“TIN”) or (b) provides this affidavit, with TIN, to a “qualified substitute” who furnishes a statement to the buyer under penalty of perjury that the qualified substitute has such affidavit in their possession. A qualified substitute may be (i) an attorney, title company or escrow company (but not the Seller’s agent) responsible for closing the transaction, or (ii) the Buyer’s agent.

This is good news for sellers.  While the FIRPTA form still MUST BE COMPLETED, it can now be given to the title or escrow company (or an attorney, if that attorney is handling the closing).  So to recap, here are the choices:

1. The completed FIRPTA may be given to the buyer OR
2. The completed FIRPTA may be given to the closing agent which acts as a “qualified substitute” (title company, escrow company, attorney or buyer’s agent) and the qualified substitute in turn gives a document to the buyer gives the buyer a statement saying that the completed FIRPTA is in its or their possession

The statement by the qualified substitute does NOT provide the personal information directly to the buyer, so this is by far the choice most sellers and agents prefer.

Near the bottom of the page, in huge type font, is an admonishment to the buyer, if the affidavit is given to him or her, to not misuse the TIN or SSN.

Buyer’s unauthorized use or disclosure of Seller’s TIN could result in civil or criminal liability.

Some real estate agents (and offices or even whole brokerages) sometimes deliver the FIRPTA to the buyer or buyer’s agent with the key info blacked out, whited out or missing, and demand that the buyers sign it.  Buyers cannot do that.  Under the signature line, it states

(Buyer acknowledges receipt of a copy of Seller’s affidavit.)

This first page of the Seller’s affidavit is not complete unless the personal information is included (there are check boxes to be selected also, but as these are not a source of confusion or contention I will omit them from this discussion).

Remember, if the seller should pay the withholding tax but doesn’t, the only protection a buyer has is this completed form.

Summary:

• The FIRPTA must always be completed if the seller asserts that no withholding should be kept to pay taxes
• The completed FIRPTA may be given to the buyer but it is not required IF a statement of qualified substitute is provided by the person or entitity in possession of the completed FIRPTA to the buyer
• It is a fairly common mistake for listing agents to give the buyer a FIRPTA with sensitive information blocked out or omitted, but this is a confusion between the two options and does not satisfy the requirement of the form

What does the qualified substitute tell the buyer about the seller?

Not much.  Some title companies draft their own forms, but California Realtors have access to the CAR forms online and may use Form QS (sample at link, which takes you to a pdf of the qualified substitute form.)

A word about qualified substitutes in California

In northern California, typically a title company handles the escrow functions.  (In southern CA, often there’s a separate escrow company, which sometimes is owned by a real estate firm involved in the transaction.)  Many title companies are willing to be the qualified substitute and to receive the completed FIRPTA and provide a statement to the buyer that they have it.  But not all title companies are willing to do this. The California Association of Realtors keeps a list of which companies will do it and you can find it on the CAR website: FIRPTA Qualified Substitute Service.

What are the exemptions to using the Seller’s Affidavit?

There are a number of reasons why it may be legitimate to skip this form altogether:

1. The seller is a foreign person and the withholding tax must be paid
2. The sale is less than $300,000 and the buyer intends to use it for personal use (with some caveats)
3. The back of the Seller’s Affidavit (link above for full document, on page 2) provides explanations of exemptions
4. Other exemptions listed on the IRS website

What if the seller refuses to provide a completed FIRPTA to the buyer or qualified substitute when it is required? Or if the buyer knows the information on the Seller’s Affidavit to be false?

The IRS website (see link above) states:

The certifications in items (3) and (4) are not effective if you have actual knowledge, or receive a notice from an agent, that they are false. If you are required by regulations to furnish a copy of the certification to the IRS and you fail to do so in the time and manner prescribed, the certifications are not effective.

In other words, you may have to withhold the money due to the federal and state government, or you may owe this money yourself if you are the buyer. Please consult an attorney!

What is the liability of the real estate agent if the FIRPTA is false and the agent knows it?

The IRS discusses this, too, on the same page as above. The agent may be liable for the withholding tax too, but the damage is capped at the amount of commission paid. This next small paragraph is addressed to buyers:

If you receive either of the certifications discussed in item (3) or (4) and the transferor’s agent or your agent (the transferee’s agent) has actual knowledge that the certification is false, or in the case of (3), that the corporation is a foreign corporation, the agent must notify you, or the agent will be held liable for the tax. The agent’s liability is limited to the amount of pay the agent gets from the transaction.

So if you, the buyer, or your real estate agent, knows that the FIRPTA is not on the level, you may be liable for the taxes due.  Please seek the help of a good lawyer immediately!

Before signing the Seller’s Affidavit or any other form, Silicon Valley home buyers & home sellers should read and understand what they are being asked to sign.  Take your time and do it!  It is very risky to breeze through this, just as much as it is to rush and be incomplete with the contract or disclosures.  Be wise and be careful.

Other issues: Broker Policies and Agent Practice

Sometimes a brokerage will have a very clear policy about the qualified substitute, but particular offices or agents may ignore it.  For example, a large, local brokerage with a fine reputation is Alain Pinel, Realtors. They have a document for their agents explaining how the FIRPTA and qualified substitute is to work – and it’s correct.  But this year I closed a transaction with a very pleasant APR agent who had no comprehension of this form.  It took me many emails with links and explanations to try to get across what should have been known already from within the brokerage.

Disclaimer: this post is not intended to be legal advice.  Please contact a qualified legal professional if you seek legal advice.

For further reading on the FIRPTA form and laws:

Definitions of Terms and Procedures Unique to FIRPTA (IRS website)

Federal Withholding: Foreign Investment In Real Property Tax Act (article on CAR site)

FIRPTA for Real Estate Investors, Brokers and Agents (article on About.com by Jim Kimmons)

Silicon Valley home buyers sit on pins & needles once they have written their contract to purchase property.  They wait and wonder and may have trouble sleeping while they expect a response. This is normal, of course. It’s hard to wait.

What happens after the Silicon Valley real estate contract is signed?

Sometimes, offers are presented in person by your buyer’s agent directly to the listing agent and sellers and there may be a nearly immediate response, or at least something soon after – within a few hours.  More often, though, now offers are presented by email to the listing agent, who in turn gets it to the seller either at a personal meeting or also by email.  Most of the time there is a counter offer, but sometimes there was enough communication ahead of time between the agents that in fact an offer is written in an acceptable fashion and is simply accepted by the sellers without any counter (or there were multiple offers and one was good enough to accept without a counter).

Some real estate trainers insist that every offer should get a counter offer – sellers should never simply accept the contract presented by the buyers

Some real estate trainers (who are teaching Silicon Valley real estate agents what to do) insist that every offer should always be countered so that buyers do not later worry that they overpaid. “Make them work for it” so they don’t have buyer’s remorse is the theory.  The bigger the fear of “buyer’s remorse”, the more likely that the agent will further negotiate the offer – at least a little.
A few real estate trainers, luckily not many (but one in particular who’s popular in the San Francisco Bay Area), insist that every offer should result in not just one counter, but instead a prolonged series of counter offers.  The theory is that this is how we agents should “show our value”.  There will be not one or two but many counters going back and forth, preferably over several days, according to this philosophy. Personally, I can’t stand this type of thing because more than really fighting for the client’s dollar, it’s a show to impress clients of how hard agents are fighting for their dollar. It’s an exercise. More than a few times I have see this behavior serve to alienate buyers.  They end up feeling like they put their best foot forward, working in good faith to simply buy a home, but it wasn’t good enough.  They get countered something crazy (often these counters also contain too many changes) and respond with something fair, only to get yet another counter. At this point, they are miffed or even angry.  Do you really want to alienate someone who’s trying to purchase your house or condo? I don’t think so. It’s unnecessary and it’s counter productive. I submit that it’s never wise to make buyers and sellers detest each other, but that’s exactly what can happen if you get more than a couple of counter offers.  It might be a game to the agent(s), but for the clients, for whom buying and selling is very emotional, it creates prolonged anxiety and smacks of game-playing.  So beware: agents may or may not reveal that this series of counters is part of their strategy, but you should know that it could happen to you.

What can you do if you think the other side is out for a long battle of negotiating?

The answer really depends on how much you want to buy or sell the property in question, and whether or not there’s any competition.  For buyers and sellers, tell your agent you do not want to play games, you want to be expedient about this.  You can set your terms and draw a line in the sand – that may or may not be the best thing to do but it is always a possibility. Straight talk, agent to agent, about the damage being done to the relationship can help to curtail it.  A phrase I have used in this situation is this: “I am having to do damage control with my clients because of these prolonged negotiations”.  That’s a polite way of saying that my clients are getting mad and the nickle and diming is about to backfire. Get serious or we’re done talking.

What can you do to avoid getting a counter offer and to ensure that your offer is accepted right away?

Perhaps this is a multiple offer situation, or you’re concerned that if you get a counter offer, it will allow another buyer to step in with a higher purchase agreement and get the home. Or maybe you have some sort of time deadline (such as a 1031 exchange time frame or some other personal reason) and you want to just get your offer accepted. How can you increase the odds that it will be? First, do your homework and know the market values.  If you want the property, offer fair market value. If you don’t, they’re most likely going to counter you back up to what they think is fair market value (or they won’t counter you at all – they will simply reject your offer if they find it insultingly low). Buyers don’t want to over pay and sellers don’t want to sell for too little, but if you worry about “getting a good deal” you may end up not getting the house or condo at all. Second, have your buyer’s agent speak with the listing agent prior to drafting the contract.  This is a good policy for many reasons, but a very practical one is to find out what the seller wants or needs.  Sometimes that info is in the MLS printout but just as often it isn’t.  Does the seller need a longer escrow? A shorter one? A rentback? Is any fixture excluded?  Is a pre-sale escrow opened, and if so, with which title company?  There are lots of questions to ask, including the very open ended one of “is there anything I should know when writing this offer?”  In our San Jose, Los Gatos, Silicon Valley area there are 2 sets of real estate forms in use – the CAR and the PRDS.  Some listing agents insist on one or the other. (If not, talk with your Realtor about the pro’s and con’s of each.)

Sometimes, a counter offer is unavoidable: distressed sales almost require them

If your contract is for an REO or bank owned property, you will get a counter offer and lots of addenda.  Just expect it.  Read it all carefully and consider having a lawyer review it too. With a short sale, the odds are that you will get a counter offer as well. Sometimes it’s a matter of precise pricing – if there’s a pre-approval for a particular sale amount, you will be countered to that.  (In 2009 I got one like that which surprised me as the price was lower than what we had offered.) With distressed properties for sale, it’s very difficult to avoid being countered.  Not so with a “regular sale”, though, if the Realtors or agents communicate ahead of time, the buyers make a fair offer and the sellers are reasonable. Finally, just remember that if your offer is accepted without a counter, it’s a win, not a signal that you overpaid! Want to increase the odds of buying or selling without game-playing? Talk to your agent ahead of time, prior to the drafting or reviewing of offers, and discuss the strategy and how to make it work so that you are comfortable and get what you want at a price to which you’ll agree.

Many Silicon Valley home buyers prefer to purchase a brand new home, or at least a younger one.  (Through my web tools, I that see a lot of people search online for “New San Jose Homes” or “New Los Gatos Houses for sale” or “new construction in Silicon Valley”.)

Often this is partly because real estate consumers believe that a more contemporary home will be better structurally and have nicer amenities – those are often true. (New home construction may include better materials, a more open floor plan, walk in closets and other features that are not so commonly found in resale properties.)  

Just as frequently, though, a priority for these home buyers is that they expect that a new home will require little or no maintenance.  Further, some buyers are so confident in the perfection of a new home that they decline the chance to have the new home professionally and independently inspected.

Finally, some consumers are so blinded by the love of new (or remodeled) housing that they aren’t very selective and sometimes view all contractors or builders as equal.

All of these are mistakes and today I want to discuss each one.

Myth 1: New Homes Don’t Require Much Maintance

Perhaps the worst and most prevalent misconception regarding new homes is that that pmany roud owners of new homes believe that don’t have to “do” anything but live there.  This is terribly misguided and often causes a well built home to fall into disrepair in just a few years.

Whether you buy a brand new house or one which is 50 years old, there are certain things you must do on a regular, ongoing basis. These are maintenance items which cannot be skipped even with new construction. Things like:

• cleaning out the gutters & downspouts so that leaves and debris don’t cause the water to back up into the roof
• changing furnace filters
• washing the carpets
• sealing the granite countertops
• painting periodically (outside wood should be done every 5 years or so)
• correcting leaks as soon as they are discovered
• sealing any cracks
• reapplying caulking around tubs, showers, faucets
• keeping an eye on the grading so water falls away from the house

If you let these sorts of things go and live with deferred maintenance, it will be far more expensive to fix it when you do the repairs. Additionally, when you go to sell, buyers will perceive that the home has not been taken care of.

Just recently I showed a home for sale in the Almaden Winery area; it is only about 15 years old and should have been in great shape.  As my buyers and I walked through it, though, we noticed a myriad of little things that were wrong – chipped paint, stained carpet, all kinds of indicators that the home had been lived in but not well loved.  Although my clients liked the neighborhood and the floorplan, they (and I) wondered what else was wrong with that home. Too many doubts and they did not move ahead with an offer on that property.

Buyers: if you are purchasing a home that is 8 -20 years old, try to learn about the level of care that’s been given to the home.  Do the sellers have records of getting the furnace maintained, for instance?  Ask!  Neglected homes, even newer ones, will cost more in the long run.

Myth 2: New Homes Don’t Need to be Inspected

“It’s new, there can’t be anything wrong with it” is the belief that some consumers have about new construction.  Builders, contractors and other professionals can all make mistakes, though, just like the rest of us.  Wood may arrive on site already carrying termites.  Shortcuts may have been taken or something misassembled.

Some builders will let you have a professional, independent inspection before closing escrow, but some won’t. Since many builders use a proprietary purchase agreement form (not one used in resales such as the CAR or PRDS contract), you may or may not have the right to bring in a good ASHI or CREIA home inspector.  Read the purchase agreement before you sign and know what you can or cannot do.

For those which do not allow it, many times they have a warantee for a set period of time and if you have gripes that are covered, you may not have a problem if you get it inspected after close of escrow. 

Myth 3: All builders & contractors make equally good homes – if it’s new, it’s good

Just like there are better restaurants, hotels, attorneys, doctors and even Realtors, there are better and worse builders and contractors, too.  Don’t assume that just because a property is newly constructed – or for that matter, newly “flipped” – it’s perfect.  New does not always translate to good!

How can you find out if the builder is any good?  Thanks to Yelp, it’s easy to find online reviews.  Google the name, the company name.  If it’s a subdivision that’s underway, consider talking to some of the residents. Ask for references!  Realtors and other real estate licensees often do know of good builders and contractors. Ask around.

If it’s a flipped house – which we are seeing a lot of now because of investors buying up distressed homes – it is very important to check into permits and finals and also to learn how long the home’s flipper has been doing it.

Some clients of mine purchased a newly flipped home a few years ago.  They knew that the owner/contractor was somewhat new at the trade of flipping residential real estate, but it wasn’t until they moved in that they discovered that the refrigerator niche was too small to accomodate a normal sized fridge.

One final note and that’s that even with gret builders, new homes often come with hidden costs: the need to landscape, fence, add window coverings, etc.  Always consider that you may need to pay more for what you want than what it may seem upfront.

Newly constructed homes can be a dream come true for many house-hunters. It’s important to be careful in the selection & purchase of a new home just as with a resale home.  And it’s extremely important to keep that new home well maintained once you’ve bought it!

Related posts here on this Silicon Valley real estate blog:
Introducing a Beautiful Willow Glen Neighborhood, “The Willows”
The Almaden Winery Neighborhood of San Jose