What is a real estate bidding war, and why is it back in Silicon Valley?

It is a supply and demand issue.  When there’s not enough supply for the demand, prices get pushed up.  The way that this happens is often through bidding wars.

When a lot of home buyers want the same property and write purchase offers for it, we have multiple offers.  In some markets, multiple offers come in at or under list price (I have seen this in cooler markets). But when the realty market is an overheated sellers market, inventory is too low for the demand, prices rise with those multiple bids.  Then you have bidding wars.

This can happen intentionally, as when home sellers knowingly under price the property to attract multiple buyers, or it can happen unintentionally, when the owner and agent priced the home in line with the comps and the market, but there’s an unexpected avalanche of interest. (The latter just happened to me when I priced a listing to be exactly in line with the market, but got 20 offers and a lot of overbidding.)   Either way, the result is similar.  Buyers up their price and sweeten their terms to win the deal.  Here’s what can happen:

• offers come in over list price
• usually the escrow period is short, to assure the seller it’s a “done deal”
• if owner occupied, often there’s a free rent back of a month or two
• some buyers may offer to pay costs that customarily are paid by the seller, such as an owner’s policy of title insurance, the escrow fee, transfer taxes, and in some cases, even the commission
• most of the time, “cash is king”, and the all cash offers will win the deal (or large down payments) – very hard for 20% down or less to compete against cash offers because they usually include an appraisal contingency (with prices escalating, many homes won’t appraise)
• many offers with no contingencies for inspections, loan, and appraisal – non-contingent offers can be dangerous, most of all if there are no presale disclosures or inspections
• most offers will come with proof of funds
• some will have the disclosures already signed too
• some will include a letter from the Realtor, the buyer or both – buyers may also include a photo

But let’s focus on the bidding part in particular for a moment.  How is all of this a bidding war? Is it just that offers come in over the asking price?  Yes, but sometimes even more is going on too. Let’s look at that now. (more…)

Silicon Valley real estate’s market madness is back -in case you weren’t looking, this is what we are seeing in places like Cupertino, Palo Alto, Los Altos, and Saratoga – or anywhere in which there are great schools (especially with a shorter commute) or some other reason why a neighborhood is very highly desirable:

• multiple offers, bidding wars and sky high overbids
• non-contingent offers
• buyers willingly paying costs that the seller normally would cover
• pre-emptive offers

If this all sounds vaguely familiar to you, then you were here in the South Bay or San Francisco Peninsula and involved in real estate in 2000 (and to a lesser extent in 2005).  Whether you’re a Realtor, lender, or consumer trying to sell or buy a house or townhouse/condo in a great area, you knew it was happening.

One of the elements for this madness is the pre-emptive offer.  What is it?

When the real estate market in Santa Clara & San Mateo Counties runs red hot – in the seller’s favor – often the listing agents will direct that there is an offer date or deadline. Most of the time it’s about a week after the property is listed for sale on the MLS.  The reason for the wait time, of course, is to provide enough exposure so that all interested parties have a chance to tour the home, review presale inspections and to write up a purchase contract for it.  Otherwise, you have a foot race and only the swift have a chance. The lack of multiples will limit the sales price, so savvy Silicon Valley home sellers will usually set an offer date if multiples appear to be likely.

A pre-emptive offer is one in which the home buyer doesn’t wait for the offer deadline, but submits a purchase agreement ahead of time. Sometimes it’s even “sight unseen”! Obviously the latter will be considered shaky since the buyer could easily get a bad case of buyer’s remorse.

Smart listing agents will warn their home sellers about the temptation to accept a pre-emptive offer.  That Siren Song can be tempting!  But those would-be home buyers are unlikely to disappear if made to wait a week, so in many cases, it’s best to stick to the plan.

Real estate market conditions advisory

This week I’m having a deja vu from 2000.  If you were here in Silicon Valley then, during the “dot com boom”, you remember a frenzy with the hot sellers market, of home buying with multiple offers, and prices rising rapidly.

In some parts of the market, it’s back.

One of the ugly parts of that market is back too, the “non-contingent offer“.  I’m not talking about offers subject to the sale of another home (aka “contingent offers”). I’m talking about home buyers waiving their inspection contingency and their loan & appraisal contingencies.  (Not clear on home buyer contingencies? Please see my article: “Competing against multiple offers: contingencies and timeframes“.)

Listing agents know better than to give a counter offer demanding a non-contingent offer; that’s a lawsuit waiting to happen if the buyer feels coerced and later gets some sort of nasty surprise. But boy oh boy, do they know how to hint that it’s what they want.  And that’s not a lot different from demanding it.

Silicon Valley home buyers are given many disclosure and contract papers to sign when submitting their bids to purchase residential real estate.  It is important to read and understand them and the risks about which they warn.  One disclosure which is used – or should be used – on most every transaction is the “market conditions advisory“, which warns of risks in multiple offers and some of the ways that buyers may try to have the winning bid that may not really be a good idea in the long run.  The full name of the form is this: (more…)

Today we’ll have a look at the most recent closed residential realty sales numbers and then also view “live charts” which are updated weekly for Los Gatos real estate.  This segment of Silicon Valley real estate can be viewed from many angles: zip code, school district, sale type, view or no view, acreage, luxury home or basic home type…. This post will serve as a brief overview only. For information on YOUR Los Gatos subdivision or neighborhood, please contact me!

February 2012 sales numbers for Los Gatos real estate are in via my Real Estate Report.  Have a look:

(1) Houses and Duet Homes

Prices are going way, way up!  And yet the market is cooler – more homes are on the market, the list price to sales price ratio shrank a little.  The rest of the west valley areas are seeing multiple offers, overbids and rising prices – and we are hearing of them here, also.  That may not be reflected in the stats for another 30 days or so.

(2) Condos and Townhouses

More skyrocketing prices!  The LG condo market has been very challenged – but now there seems to be a great turnaround. Have a look at the chart below! (more…)

Likeability is a subjective term.  Who’s likeable? How important is it? Most of all, how relevant is your Realtor or agent’s likeability to your home buying or selling success in Silicon Valley?

At times I’ve been shocked at what I’ve heard from consumers and industry insiders alike:

“You don’t need your clients to like you.  You need them to respect you.” (As if these were diametrically opposed.) – a real estate trainer & coach

“I didn’t want to hire someone I’d like or who’d be my best friend. I wanted to hire a tough negotiator.” (Again, seeing these as juxtaposed.) – a real estate home seller

Why do some people think that being a good negotiator means that you have to be rough around the edges, a difficult person with whom to get along?  Strong negotiating doesn’t mean being a jerk, or even being aloof.

In many cases, it’s the exact opposite.

Many of the top agents in the San Jose, Los Gatos and Saratoga markets are indeed quite gracious and pleasant.  They are smart and they are driven.  Most are genuinely nice people, while a few have learned that good manners is part of good business.  Yes, there are a few successful ones who don’t match this description – but they are the exception, not the rule.   And in truth, their lack of likeability is inhibiting at least some of their success. If you hire one of them, it may impact yours, too.

An arrogant, rude and nasty agent may find that his or her colleagues are less excited to show his/her listings.  Or that they will be less enthusiastic if he/she brings an offer in on one of theirs.  Conversely, if that agent is well liked (and, of course, well respected) by the real estate community, it’s far more likely that agents will want to have him or her on the other side of a transaction. (more…)

Seen on Realtors board tour: Pull out wine rack for under the staircase

Many of our houses in Santa Clara County are ranch style, tract homes which were built from the 1950s to the 1970s (or ’80s). Often they include one coat closet, normally near the entry area of the home, and one linen closet, usually found close to the hall bathroom.  To the surprise of folks relocating to Silicon Valley from colder climates, we don’t have basements in the majority of houses here.

Where does all of our “stuff” go? That’s what these home buyers are wondering. It is really a critical question in smaller homes with fewer, and tinier, closets.

It is not uncommon to see garages in the San Jose area acting as a catch-all for seasonal decorations, old financial documents that can’t yet be shredded, business files, boxes from the last move which haven’t been opened yet, keepsakes and things that the residents haven’t had time to handle yet…for years at a time.  Guilty here also!  We will not be featured on an episode of “Hoarders”, but our garage also needs thinning out.  In this case, I have real estate files going back until 1993.  Rather, I did.  I have been scanning them, saving to both an external hard drive and to CDs, and shredding them.  So far about 10 boxes are gone.  Only a few more to go (I wish!).

Clutter increases stress for most of us.  Home buyers love built ins and see a future with less clutter when viewing cabinetry in home offices, family rooms, hallways, etc.  It’s a great surprise that assures them of better organization and less clutter in that home.

Most houses, townhouses and condos have places where a little more storage can be squeaked out, or even where wasted space was planned in!  This is especially true for structures with attics (sorry, Eichler and mid-century modern home owners). Here are some possibilities to consider in your own home:

• A furnace in a closet inside the home may be able to be relocated to the attic, providing another inside closet
• Water heaters hogging interior closet space could be moved to the garage or a different type of water heater could be installed in the attic. (more…)

A Silicon Valley home seller’s joy and buyer’s nightmare, multiple offers are back and exceedingly common in San Jose and nearby areas right now.  It has been true for many months that the most affordable houses in Santa Clara County, especially those under $450,000, are often selling with several purchase contracts on them (about 25% of which are investors, and many of those are “all cash“).  One Sereno Group real estate agent shared that their client was up against a whopping 37 other offers last week for a house in the entry level pricing tier!

What’s new, then? The price points.  Today we are experiencing the same situation in homes between $1 million and $2 million (though fewer offers) and sometimes higher still.  A few days ago I was involved with bids on a Saratoga house priced a little under $2,000,000 and it ended up getting 5 offers.  This wasn’t a turnkey property with a Section 1 pest clearance, but rather a nice house with “good bones” that needed work.

Why are we seeing so many multiple offers, and in such a broad range of pricing, in Silicon Valley?

Feeding the frenzy are the low, rock bottom interest rates (for most real estate consumers in lower or mid range pricing), lower home prices than a year ago – resulting in increased demand – combined with a dire shortage of inventory, or lack of supply. (Some sellers are waiting until later this year, when they think that they can make more from the sale of their home, too.)  If that weren’t enough, we have money pouring into the valley due to the initial public offerings of companies like Zynga in Los Gatos and LinkedIn and Google in Mountain View plus Facebook in Menlo Park.  And don’t forget Apple, in Cupertino, which is now trading at over $500 per share!  Even for companies which are either not yet public or there’s a waiting period for selling stock, there are means of cashing out some value via private exchanges or borrowing on options.  Some tell me that this has been the case for a year! (more…)