As previously reported, it is an extraordinarily deep seller’s market in Silicon Valley today.  Some buyers are able to purchase a home – but it isn’t easy and it sure isn’t pretty, especially if the property has only been on the market for a week or two. The toughest home buying challenges really boil down to just one or two main things, which we’ll explore here.

There are two particularly enormous challenges which face most San Jose area home buyers in today’s market. This is in addition to price overbids (sale price to list price ratio often in excess of 10%, sometimes much more, as well as things like free rent backs for sellers).   The crazy low level of available inventory has home buyers competing in ways seldom expected.

Competition challenges: cash and zero contingencies

  1. Cash competition – buyers with a large down payment or all cash.   Depending on the location and price point, about 15% of all offers are “all cash, no loans”.  These are not all $200k 1 bedroom condos being bought for investment purposes, either.  Many of them are well in excess of $1 million and the intention is to live in them, not rent them out.  While some cash buyers still try to low-ball the price, we’re not seeing as much of that now, those days of being successful with a low price are pretty much over.  Many times the cash buyers also offer the strongest terms – a winning combination that sellers cannot resist. To read more on that topic, please see “Why do sellers care if the offer has a loan or is all cash?
  2. Offers with no contingencies of any kind – not for inspection, appraisal, or loan – even when there is a loan! For Silicon Valley home owners trying to sell, the best combination is the all cash, no contingencies offer because it’s the least amount of risk to them. But for home buyers, it’s a nightmare – often both not possible and far too risky. (I do not recommend writing an offer with no contingencies. At the same time, if there are a few offers on a home, the odds are good that some or all of them will be written that way, and that’s the competition.)

Not every buyer is drafting contracts without contingencies, but enough are doing it that if you are going to bid in a multiple offer situation, you want to be aware that competing bids may be all cash, or without any contingencies, or both.   If the offer is a tie, many times the seller will elect to work with the one which is less risky for the sale to fall apart, and that means shorter contingency periods.

This puts a lot of pressure on lenders.  Normally they want 2-3 weeks for full loan approval, but if they tell their buyers to request 21 days for the loan contingency, it’s likely to get those buyers eliminated from potential winners.

Cash is king, so if you’re able to put down more cash, the better your odds are of success. If the listing agent has a full complement of presale inspections, it would be wise to read them and the disclosures thoroughly and understand them prior to making an offer with short contingencies for property condition/inspections.  This includes HOA docs.  There could be information in those papers which reveal an upcoming special assessment or rise in monthly dues, so you want to know about it before giving it your stamp of approval.

 

For more reading on all cash, non-contingent offers in Silicon Valley:

Why do sellers care if the offer has a loan or is all cash?

Cash offers: what do you need to know if buying “all cash”?

Should you write an offer with no contingencies? What is the risk with a non-contingent offer?

 

ArabicChinese (Simplified)DutchEnglishFilipinoFrenchGermanGreekItalianKoreanLatinPersianPortugueseRussianSerbianSpanishUkrainianVietnamese

Join our monthly newsletter

* indicates required

Click to view the Privacy Policy

Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


Selling homes in
Silicon Valley:
Santa Clara County,
San Mateo County, and
Santa Cruz County.
:
Special focus on:
San Jose, Los Gatos,
Saratoga, Campbell,
Almaden Valley,
Cambrian Park.
Mary’s other resources
Silicon Valley real estate report
Real estate statistics and trends for Santa Clara County, San Mateo County, and Santa Cruz County

Live in Los Gatos blog
Los Gatos neighborhoods, history, businessses, parks, restaurant reviews, and more

Valley Of Heart's Delight
Santa Clara County Real Estate,
with an interest in history

Move2SiliconValley.com
Silicon Valley relocation info

popehandy.com
Silicon Valley real estate,
focus on home selling
Categories