Silicon Valley real estate
If you’ve been trying to sell your home in Los Gatos, Saratoga, Almaden Valley, Cambrian, or anywhere in the greater San Jose area but haven’t received an offer yet, don’t despair! With our mild winters, you really can sell real estate any time of year. And inventory is extremely tight right now, increasing your odds of success.
In late November and December a lot of folks DO pull their property off the market, and the result is a, even further tightening of inventory across Silicon Valley from the months immediately prior. The ratio between listed and sale pending homes improves dramatically. (The “absorption rate” tends to get better with fewer houses, condos and townhouses listed on the MLS.)
But you’re thinking: it’s a hassle. It’s the holidays. Is this any time to sell Silicon Valley real estate?
And you’re right about that. So do it differently.
Every day, I seem to get an email or have a conversation on what “the market” is doing. Trouble is, we like easy answers and that doesn’t work here. We don’t have ONE Silicon Valley real estate market. We have a whole bunch – or maybe myriad – of smaller markets.
The market for historic homes in Willow Glen is very different from the market for condos at Santana Row. The market for luxury properties in Almaden is extremely different from that of starter houses in Cupertino or Palo Alto. The condo market in Saratoga with Saratoga schools is not the same as the townhouse market in Cambrian with Union Schools.
You get the idea.
And yet, there are anecdotal stories of things calming down.
Last week I closed a buyer sale in Evergreen where there were 14 offers. That seems to be increasingly unusual. Word among real estate agents seems to be that while traffic is decent at open houses, it’s not what it was in early spring. Hint: this may be seasonally normal! June is almost always slower than the Feb – April window!
I’m hearing agents talk about great listings that get one or two offers rather than many multiples.
I’m hearing that in some segments of the market, one home in four now needs a price reduction.
All of that said, to know what’s happening, it is absolutely imperative to drill down to YOUR market, whatever it may be. It could be Los Gatos betwen $1.5 and $2 million. It could be entry level Saratoga with Saratoga schools. It could be Almaden with whichever high school (Leland, Pioneer, Leigh, Los Gatos). Or some other configuration. What is certainly true is that the relevant market for you, whether buying or selling, is the hyper local market.
Hyper local is usually more than just a zip code, as within the zip code there are different pricing tiers and frequently different school districts or other highly important factors. To drill down to the relevant comparables, please work with a local real estate professional who knows how to crunch the numbers. “Easy answers” may make good sound bites, but they don’t make a good basis for an informed real estate perspective for buying or selling. It’s way too important to get this wrong.
There are clever, but ultimately unsubstantial, things that real estate consumers might experience in the process of buying or selling a home – or just researching Silicon Valley real estate on the web. Here are a few of the doozies that some people fall for, in no particular order:
(1) Quoting the contract paragraph by number is meant to impress you with the agent’s grasp of the contract, which must be thorough if the thing is memorized like chapter and verse. You might hear something like this: “as it says in paragraph 14 of the purchase agreement”. Perhaps better is not so much the paragraph number, but the nuance, how it matters and perhaps how the alternative contract or paperwork reads on the same subject. I like this better: “The PRDS contract says that any repairs must be done by a licensed contractor. The CAR contract says that anyone may do repairs, even the home owner, as long as it is done in ‘workmanlike fashion’ with comparable quality materials.”
A similar twist may be quoting statistics that aren’t real. “There are 2.3 months of inventory in Campbell right now” may be a made up number. Realtors know that sounding precise makes them sound credible. But is it true? Check it out. (As for me, I am not a walking statistics machine. I have to look it up, or crunch it, to tell an answer. Yesterday a total stranger texted me and asked what the cheapest townhouse or condo in Mountain View is right now. I am not the MLS! I don’t know off the top of my head – and I’m not going to fake it.)
(2) Focusing on less relevant marketing approaches to selling your home may be a way for the potential listing agent to appear better, to seem to “do more”. The most important is price, because a grossly overpriced house will not sell for top dollar even if the print and web marketing are over the top wonderful. The second most important is photos, because they are your first open house – albeit virtual. If the photos are poor, or if every major area or room isn’t shown, whatever is not represented is deemed as bad. Photos of a cluttered, mismatched home will cause buyers to skip your property. That said, some agents will say that they will advertise your home in China, so you should list with them. Well, Chinese buyers are real, but they either come over to buy or they have close family and friends here who will help them buy. And whoever is here can see the listing on the regular channels. Similarly, things like drone photography do not usually improve either the odds of a home selling or the price for which it will sell in most cases. For a luxury property with a lot of land, ok, yes, of course a drone video or photo series would be great. But some agents push the drone angle only because it differentiates them – they’ll provide what other agents don’t want to provide. (Because it doesn’t make sense for most tract homes.) Beware marketing gimmicks.
(3) Combined experience – if you have a team with 4 agents and they each have 2 years’ experience, you might hear this: “we have 8 years combined experience”. Nonsense. You have 4 people with 2 years each.
Alternatively, there may be things which sound like trickery but aren’t. One friend of mine, on the east coast, bemoaned that every time he wanted to buy a house, the listing agent told him that another offer was coming in. “Do they teach you to say that at real estate school?” he complained. No, they don’t teach us to say that. In fact, if it’s not true that another offer is coming in, we may not say so if we are Realtors – it’s against the Realtor Code of Ethics to lie. (Not all real estate agents are Realtors. The state issues the real estate license, but membership in the National Association of Realtors is voluntary.)
Another thing which make some sellers skeptical feeling is the need for staging. “Why should I fill my empty rental house with someone else’s stuff? Buyers can see that it’s a kitchen!” But let me tell you, there are statistics proving that staged homes do sell for more. A good Realtor wants your home to sell for top dollar, wants you to become a raving, lifelong fan, and hopes like crazy you’ll be so happy that you’ll refer your best family and friends to that same Realtor.
As a Silicon Valley home buyer or seller, the best thing you can do for yourself is to hire a great Realltor. Don’t do it because they use slick “closing techniques”, but because they are experienced, knowledgable, capable, honest, and not afraid of hard work. Right now 20% of all real estate licensees have less than 2 years’ experience selling homes in the US. (Source for that statistic: CNBC article.) It doesn’t cost more to hire a great Realtor, so please do your due dilligence and don’t fall for stupid tricks. Go for substance.
Silicon Valley real estate offers few simple answers but many recurring questions. One of them is whether or not you should write a “lowball offer“. So the first question is this: what makes an offer a lowball one?
It’s entirely relative to how the market in that area (not the county, not the state, but that particular area) is selling. If houses in one area of San Jose are selling within 1% of list price and you come in 5% under, the seller may feel insulted. But if properties are routinely selling at 10% under list price and your offer is at 13% under, that’s not such a big deal. So keep an eye on that.
As a reality check, though – right now, and for the last year or so (as in this glance back to March, 2015), most homes in the Bay Area are selling OVER list price. Houses in Santa Clara County in March 2016 (San Jose, Los Gatos, Saratoga, Santa Clara, Sunnyvale, Cupertino etc.) sold, on average, at 105.3% of list price and condos at 105.5% (these numbers come from my ReReport, updated monthly at popehandy.rereport.com/). If homes are routinely coming in at or over list price, and you bid 3-5% under, and ask for a Section 1 pest clearance, or other contingencies, etc., this could be viewed as “lowball” given the current real estate market conditions in Silicon Valley.
Click through for the rest of the article.
Many Silicon Valley home sellers receive multiple offers on a set day, often 7 to 9 days after the house or condo is first on the market. What happens if they like a few offers and want to counter them? One option is to issue a Multiple Counter Offer. How does that work?
With the multiple counter offer process, the seller decides after one or more of the buyers accepts (or if they counter back and forth, or if one buyer improves his or her offer). No matter the exact path, the seller ultimately must pick one offer and sign off on it to ratify the sale. In other words, when a buyer agrees to the multiple counter offer terms, it’s not a done deal. The owner must sign again to accept and select that buyer. Only then is the contract ratified.
CAR and PRDS multiple counter offer paperwork
We have two sets of contarcts, addsenda, etc. in use in Silicon Valley – the PRDS and the CAR. The California Association of Realtors (CAR) set is used throughout the state. The PRDS is employed from about Los Gatos to somewhere south of San Francisco on the Peninsula. Many areas such as Almaden or Campbell may work with either.
The CAR forms library has a separate document for multiple counter offers. Near the bottom of the page, there’s a place for the seller to sign when selecting a buyer for the sale. Unless this is signed, the buyer doesn’t have the deal.
The Peninsula Regional Data Service (PRDS) form is not separate – it’s the same document used for just a single, binding counter offer. However, at the bottom, there’s a place to indicate if it is a multiple counter offer. Here’s how it looks:
Obviously, it is extremely important to notice whether you’re receiving a regular counter offer or a multiple counter offer. But either way, it’s clear that the seller must agree to choose one of the willing buyers. Just pay attention to the details!
Are the price and terms of multiple counter offers all the same?
When a seller responds with a multiple counter offer, the price and terms could be the same for all of the bidders. Most of the time, though, that’s not the case – the price and terms are not identical between one bidder and the next. There are many possible reasons for this.
- There may be an offer with great terms (
- all cash , no contingencies, or?) but a price that’s not quite right. That buyer may only get a counter based on price.
- Another potential buyer may have a strong price but not so hot terms (long contingencies, too many contingencies, less than ideal downpayment or financing). A good example might be a sky high price with 5% down and FHA backed financing and an appraisal contingency (but money available that the buyer just doesn’t want to put in the down payment). The seller may only counter out the appraisal contingency. Other times the offer may be great but the contingencies are just too long, so the seller asks for them to be shortened.
- Sometimes all the issues are relatively small, such as whether or not the washer, dryer and fridge stay, or how much to pay for a rent back.
- Some sellers approach multiple counter offers the way some high school seniors approach college applications and target a “safety” price, a probably attainable price, and a “reach” price – and put three different numbers out there.
- I have seen sellers who were annoyed by rude buyers (or their agents) give the unpleasant people a sky high counter. (The period before the offer deadline is the courtship, and buyers really need to be on their best behavior with both the seller and the listing agent.)
Anything else to know about multiple counter offers?
Two more things to know: first, some buyers, when given a multiple counter offer, won’t just say yes or no. Truly motivated and capable buyers sometimes instead just submit a better offer (redoing page 1 with a larger offer price, for instance). Don’t assume that you won’t get uprooted, even if the listing agent tells you something leading like “it’s looking good for you” (which shouldn’t happen but sometimes may). As long as the counter is in play, someone else can come in and get it.
And lastly, a good attitude and looking “rock solid” and sure can sometimes win the bid. Not every seller does this, but it’s not uncommon for a home owner to take the first multiple counter offer returned with an acceptance. The reason is that they want to sell to someone who is so sure that there’s no hesitation.
You may have heard that the Silicon Valley real estate market is softer now than it was a year ago. That’s true – at least for most of Santa Clara and San Mateo Counties and nearby. In many cases there are now half as many offers as there were then. But it’s still a hot seller’s market, and that means that often there are multiple offers, overbids, and sales with no contingencies.
For my last few listings – which have been in Saratoga, Los Gatos, the Cambrian area of San Jose and the Campbell area of San Jose – there’s been a consistent “spread” of offers. If there were 6 offers, it might look like this:
- Best offer is 5-15% over list price, 25-30% down at least, and has no contingencies for inspection, loan, and most of all, appraisal (the percentage over has to do with whether the home was priced spot on the value or strategically under). These offers come with all disclosures signed, and the buyer’s agent has even done her or his Agent Visual Inspection Disclosure. They include the proof of funds and usually also write a nice letter to the sellers about why they want to purchase that home.
- Next runner up is usually strong on terms (at least 25% down, no contingencies) but perhaps made an offer price a little under the top value. Sometimes the next runner up has a good price and mostly good terms, but seems “shaky”. Maybe they would not include their proof of funds. Perhaps they would not sign the disclosures yet or otherwise submit an incomplete package. They don’t come across as certain about buying this property.
- Middle of the pack is usually a combination of a price where the home should appraise, at least 20% down, and few or no contingencies.
- Bottom offers are barely over list price, have exactly 20% down, and include an appraisal contingency as well as others (one for loan or one for property condition).
If you’ve been writing offers and not succeeding, try to see your own pattern in this spread. Is there one thing, or perhaps are there two or more things, you’re just not ready to do?
Why it is so hard
Home sellers want to know when they agree to your purchase contract that you won’t back out and that you won’t renegotiate the terms later. If they have paid for all the presale inspections, they aren’t going to want you to have 7+ days to decide if the condition is to your liking. They want to know you have read everything and are cool with it. Likewise with the appraisal. In overheated markets like this one, many times there’s an appraisal shortfall. Sellers want to sell to buyers who can absorb any deficit, so you need more than 20% down to do that.
We Realtors generally don’t like the kind of market in which buyers get stuck writing offers with no contingencies in order to win the house, but the truth is, that someone in every pack will do it. And you need to know that if you’re trying to buy a home. (In my recent Belwood of Los Gatos sale I had 11 offers and 7 had no contingencies, as an example.)
A few years ago, I did a series of articles on multiple offers – everything from financing tips to the value of presenting an offer in person, and much more. If you’ve been unsuccessful in buying a home and bid more than 2-3 times, please have a read. It may help you a lot:
By the way, in even the hottest market, there are homes that don’t sell. (Some sellers fall for popular home selling myths that everything sells at every price, but it’s not true.) If you have feelings of aversion to these bidding wars, do yourself a favor and ONLY look at homes that have been on the market 3 weeks or more. Often the main thing wrong is an inflated price. Some sellers won’t do an official price reduction, but may take a lower offer than you may think. Some homes have just been hit with the Ugly Stick. Ugly you can fix. Often the Ugly Home will sell for a lot less because yes, it is not that heart warming and it is a lot of time, money, and effort to fix it up. But guess what – it can be a great price and you won’t have to deal with competing bids in many cases.
Happy home hunting!
A question I’m getting a lot lately has to do with when the Silicon Valley real estate market will peak. We’ve had 4 straight years of very strong appreciaion. In east Los Gatos, houses that were selling in early 2012 for about $1,000,000 may now sell for $1,500,000. Consumers have to ask: where will it end? When do people simply refuse to pay, and move elsewhere?
I don’t have a crystal ball, but I have experienced downturns, and on average they seem to happen about every 10 years in the San Jose – Santa Clara County area. Usually the “runup” between the downturns is a ton more than the correction. Often the price rollback is about 10%, while the 10 year period between price corrections might be 30-50%.
Yes, a correction is probably coming. Yes, our prices are out of control due to a lot of hiring locally and fantastic interest rates combined with a terribly tight inventory.
When? When will prices come back down to earth?
My best guess – and that’s all that it is – is that it will be sometime in the next 2 years or so. Probably not this year because Apple and Google seem to be hiring like crazy (and they are not alone). Maybe it’ll be in 2017. Maybe 2018. But I think before spring 2019. That said – I could be wrong.
Should you wait to buy, then?
Nope. In my opinion, if you want to make a life for yourself here and plan to stay put 5-10 years, go for it. Interest rates are good now and may not be in 2 years. Prices are still climbing. And heck, if you can stay put for 5-10 years, even if you do buy at the beginnig of a correction (which I did in 1989), you’ll be ok if you can buy and hold. And the bonus is that in the meantime, if it’s an owner-occupied property, you get a nice tax benefit (talk to your CPA or tax professional about that.)
Often I have clients who are interested in purchasing a 4 bedroom, 2 bath home in a good school district in Silicon Valley, particularly in the South Bay and West Valley areas. Tonight I did a study on the MLS of homes that have sold and closed escrow in the last 4 months with these characteristics:
- single family home (house)
- 4 bedrooms
- 2 bathrooms
- 1800 to 2200 square feet of living space
- 6000 to 10,000 sf lot
Disclaimers aside, here are the numbers for select West Valley Communities in the West/South Bay area with good schools. The first number is the average sales price per square foot, the second number is the average sales price:
And a look at the chart from all the way back in 2011. What’s changed? A lot! The order has shifted some, showing where demand has increased or decreased. Most noticeably, the prices are significantly lower in 2011 than they are now.
The home prices tend to run with the school district API scores. You can check the 2013, three year average, API scores in Santa Clara County for both the districts and the individual schools online here. Continue reading
It remains a strong seller’s real estate market in Silicon Valley, with many properties selling with multiple offers, but there’s an undercurrent of concern that we are the near the peak of pricing. That has some buyers nervous (though most will quip that Apple and Google and others are still hiring, and the local economy is strong – so they are not too worried). For those who are a little nervous, sometimes it turns into cold feet – and it’s costing them.
What we are seeing in terms of cold feet with Silicon Valley home buying:
This undercurrent is not being widely reported but we are experiencing it in our real estate practices as a few things have been taking place.
First, a larger than usual number of transactions have been falling through. Many of these, though, are not recorded on the multiple listing service, as they take place right after an offer is accepted, so the listing agent and sellers turn to one of the other bidders and put them into contract within hours. Because they aren’t recorded, it’s impossible to track – but the stories are out there of this happening more now than a year or two ago.
In other cases, offers are written and submitted but withdrawn before they could be countered or accepted.
And in others, buyer agents say that they will be submitting an offer, but on the day of offer presentation, the home buyers back out and the offer is never submitted.
In my experience, all of these things are happening “more than normal” right now. A lot of it is not easily measurable.
Symptoms of cold feet to come
Home sellers want to feel confident when they accept a contract that it will stick, both because they don’t want the work or emotional upheaval associated with a transaction that falls through, but also because often the best price is the first price. When a home ‘resells’, most of the time it is for less than the origanlly accepted bid.
For that reason, smart listing agents are looking for the symptoms of cold feet. They’d rather not get their sellers into contract with nervous buyers who will change their mind about buying the house or condo.
Symptoms of nervousness about the property at an open house:
- Dominating the listing agent’s time with incessant and low-level questions – best to give most of your questions to your own buyer’s agent, who will help you with them. It’s good to ask about the home, the reports and so on, but you don’t want to take so much of the Realtor’s time that he or she cannot talk with others there. Think balance both in terms of the time and the nature of the questions. You want to present yourself as reasonable and easy to work with.
- We often say that the longer a buyer stays, the more likely he or she is to write an offer. This is true, up to a point. Buyers who come to an open house and stay for 2 hours, or who make 4 or 5 trips to see the house go from looking interested to appearing unsure.
Symptoms of nervousness about the property (your potentially cold feet) when your offer is submitted:
- Sending in an incomplete offer and supporting documents. If the listing agent requires proof of funds, provide it. If the disclosures are to be signed, do all of them – not just the cover sheet. Aim to be thorough, it will present you as serious. It will also show that you are not a pain to work with, that you and your Realtor can follow directions and that the listing agent won’t have to chase down the paperwork later. Go the extra mile, it helps!
- Submitting an offer package “last minute”, without the buyer’s agent giving advance notice that it’s coming. Related to this is seeing the property and reviewing everything well in advance, but only deciding a few hours before the deadline to actually write, sign, and submit the bid. The serious buyers who are rock solid are the ones who know early on that they want the property and are committed to it early on. Their buyer’s agent will let the listing agent know long before offers are due that these home buyers are going to bid on it. One agent recently told me “my buyers are madly in love with the house” many days before the offer due date. This makes a big impression on sellers and their agents.
- If the buyer’s agent needs to call every few days to see how things are looking, it usually hints that the buyers are not too sure or that they will only write an offer if there’s limited competition. The truly sure buyers plunge ahead despite competing bids or the lack of them.
Want to buy a home? Try not to come across as skiddish to the listing agent! Your cold feet may cost you the home, even if your offer’s got the highest price. Home sellers and their agents want to feel confident that you will close on the sale if your offer is accepted. Present yourself as serious, capable, reliable, and easy to work with and your odds of success will be increased. At the end of the day, it is always “price and terms”, but never underestimate the influence that your behavior and your real estate agent’s behavior play into the overall package, because shaky buyers may not close the sale, but home buyers who are rock solid and madly in love with the house will.
Lastly, in an appreciating market, as we have right now, it should be noted that often the next house or townhouse or condo will be more costly or in worse shape than the one you could not decide to get serious about. Stay nervous too long, and you could ultimately really impact how much home you can buy at all. Worse yet, take too long and you may price yourself out of the market entirely.
Buyers who are getting slammed out of the Silicon Valley real estate market due to low inventory and multiple offers are extremely frustrated. In many cases, they write offer after offer, and each time not only are their bids rejected, but they never even get a counter offer.
You should not depend on getting a 2nd chance, of course. Just because you write a contract on a San Jose area home does not mean that the seller needs to give you a counter offer. Some agents and sellers don’t respond at all – not nice, but if you get dozens of offers, sometimes that does happen. Sometimes they just take the best offer and run. Othertimes they only counter the best offer and forget the rest.
The question arises all the time: why isn’t my 20% down offer just as good as the 50% down or the All Cash offer? Isn’t 20% down good enough? Or for that matter, why wouldn’t a 3.5% FHA backed loan be suitable?
Cash is better because there’s less risk
Twenty percent down is “good enough” if there are no other offers. If it’s multiple offers, though, it’s probably not sufficient for most sellers provided that the all cash offers are written with realistic pricing. Right now, 25% of all sales in Santa Clara County are all cash, and sellers would far rather deal with an offer that includes no finance or appraisal contingencies. For sellers, the fewer contingencies the better and no contingencies is ideal. Particularly now, when we are seeing a very sudden and dramatic upswing in pricing, appraisal contingencies can kill an offer’s chances of success. With all cash, there is no appraisal at all – it’s a slam dunk on that front. Continue reading