The real estate market in Silicon Valley is a hot seller’s market, and that means that often there are multiple offers, overbids, and sales with no contingencies. (I would say it’s the most overheated market I’ve seen in my 28 year career.) Some buyers may get it on the first attempt, but many are bidding over and over – why do they keep losing out on multiple offers?
Over the course of my career, I have noticed that often there is a consistent “spread” of offers. Most of the time, there’s a pack or band of offers at about the same level, sometimes 10% or more over list price, then a couple higher that that, and maybe one or two (once in awhile 3) at the top of the heap in terms of both price and terms which are attractive to the seller.
Not everyone is losing out on multiple offers: what are the winners doing?
- The top offer frequently has the highest price and best terms. It is 10-20% over list price or more, 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). But that’s not all. The winning offer’s buyers and agent followed directions. Normally that means that they 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 (all needed) which prove that the buyer can absorb any appraisal shortfall and is prepared to do so. ( Right now, many homes are not appraising to sale price, so this is awfully important for sellers.) Sometimes the listing agent asks for a particular contract to be used or a particular summary sheet to be filled out. The best agents do all of that. The 2nd tier offers often are incomplete – the listing agents may or may not circle back and ask about missing items, so it’s important to remember that you only get one chance to make a first impression.
- The best offer is also someone who’s been SURE that he or she or they wanted the home from the very beginning and looks ROCK SOLID. NO WAVERING, not a “last minute” offer. Any hesitation on your side will cause the seller to not feel good about your odds of closing the sale. Be consistently interested if you want the sale. A shaky looking buyer may not include their proof of funds. They don’t come across as certain about buying this property and need a few days to see the property again, or show it to their parents, or otherwise confirm the decision to buy. Their agent is not so thorough. If the TDS is not fully signed off, is the buyers’ agent trying to sneak a 3 day right of cancellation into the contract? The best buyer’s offer doesn’t look shaky – it looks dead set on buying the home and has done everything possible to convince the seller of their conviction and competence.
- The second best or next runner up is usually strong on terms (at least 25% down, few or 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 something is not quite as solid – they didn’t offer to put the deposit into the escrow account the next day, they didn’t check all the needed boxes in the offer, they have a contingency when all the competing bids have none.. If the offers are tied but one buyer has no contingencies and the other has any, that will be the tie-breaker.
- Middle of the pack is usually a combination of a price where the home should appraise, a solid down payment, and few or no contingencies. It may be a price that seems “reasonable”. Buyers may feel that it is “a fair offer” or a win-win. Often the fair offers aren’t good enough to take the prize in multiple offers. If you can project what most buyers think a home will be worth, maybe you might want to consider getting ahead of that pack and seeing where the pricing trajectory will take you. The folks in the middle of the pack are usually the ones, together at the bottom, who keep losing out on multiple offers. (They will say things like “we are cautious…)
- Bottom offers are under, at, or barely over list price, and include an appraisal contingency as well as others (one for loan or one for property condition). If there’s a rent back, they want their PITI covered.
If you repeatedly find yourself losing out on multiple offers, 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
Looking to purchase real estate this year? Most interested home buyers are doing their house hunting online. Today I’d like to share a couple of tips with you that I think may be helpful.
- The local MLS is MLSListings.com. That is the most complete database of information for house hunting online. (Some listing agents will not permit their listings to syndicate to Zillow, Redfin, or Realtor.com.)
- Not everything is seen by the public on the MLS. MLSListings has 2 databases: most of it can be seen by the public, but there are some which may never show up on Realtor.com or other portals. These are homes which are either “coming soon” (but could sell before hitting the open market) and some which are “members only” and by design won’t be seen by the public, only by paying members of the MLS. To get access to all data, make sure that you are working with a real estate professional who is a member of the MLS. (He or she may also be able to tell you about disclosures online or offer due dates if they are published – or can reach out to the listing agent for that info.)Listing
- Redfin features the “hot home” label which lets you, the consumer, know that a property is likely to sell fast and over list price. Once in awhile a house or condo is “hot” and then it’s not. Sometimes the delisted from the hot list homes still do sell for more than list price, though.
- Syndication errors can happen. With syndication, some listing info that you see on one of the large portals, or perhaps through another MLS organization (not MLS Listings) may have old or outdated information. Best to always check the MLS local to the market where you want to buy.
- The status may not be updated immediately. Listing agents are allowed a couple of business days to change the status from active to pending once an offer is accepted. Many will wait for the buyer’s initial deposit to go to the title company. Typically that happens the next business day. If a property still shows active after a due date, it doesn’t necessarily mean that no one bid on it. For the same reason, the “days on market” on sold or pending properties could be a a little longer than what actually happened, particularly if the sale ratified on a Friday or a day before a holiday weekend and the check or wire could not go to title until the next business day.
If you are working with a local Realtor who knows the market and is partnering with you in your house hunting online, you are less likely to be surprised either when a home goes pending or closes if it’s your target.
The Cambrian or Cambrian Park district is a popular residential market with good “bang for your buck.” It remains a strong seller’s market with signs of spring warming in the air. This article provides a detailed look at the residential real estate markets of Cambrian with live and monthly updates. Here are some points of note from the latest monthly update for Cambrian Park single family homes:
- The sales to list price ratio shot up 6.1% from January to February, reaching a red hot 110.5%!
- Sales are happening quickly with an average 12 days on market.
- Average and median sales prices rose month-over-month and year-over-year.
The Cambrian Park Real Estate Market
One of the best ways to get a pulse on the Cambrian Park real estate market is to see what’s selling fast. Sometimes a few low sales will make the market look more sluggish than it is. For the Cambrian housing market, though, most single family homes are selling well, with multiple offers, and overbids right now. But not all. So let’s separate them out by time and see how it looks.
Before we begin, it’s important to recognize how much has changed since last March. With almost a year behind us we can clearly see some the pandemic’s affect on the real estate market, but it will still take time to see the full picture. For more on the impact of the pandemic on the market, check out my post titled Coronavirus impact on real estate sales.
Early on in the lockdown, the Multiple Listing Service (MLS) stopped the timer on all Days on Market (DOM). Therefore these numbers will be off beginning from March 17th through around May 17th, 2020. In the data below, this will affect any numbers related to the days on market, the absorption rate, and the days of inventory for the months involved. Current numbers are accurate.
Fast sales are stronger sales: under 14 days is best for Cambrian Park realty sales
Just now (as of March 15th) I pulled the single family home sales for Cambrian (MLS area 14) for the last 30 days and saw a huge difference between the homes that sell fast and those that do not. The turning point seems to be 14 days on the market between overbids and underbids.
Out of 41 properties sold in the last 30 days, 37 of them or just over 90% sold in 14 days or less, with the average days on market (DOM) for this quick group a lighting speed 6 days! For these fast selling homes the average list price $1,428,750 and average sale price $1,605,205 (averaging an overbid of $176,455 or approximately 112% of list price)! In total, none in that group sold below list price, 1 sold at list price, and the remaining 36 properties sold over asking.
The 4 slower sales, just shy of 10% of all sales, were on the market between 15 and 80 days. Three sold above list price and 1 sold below, which is strong for the slower sales.
In the current hot seller’s market here in Silicon Valley, most real estate agents representing the seller set an “offer date” for would be buyers and their Realtors to submit their offer packages, also known as their bids, for the property. How long does it take to write an offer? You may be tempted to do it on short notice.
The time commitment it varies – I would say you want to give yourself 2 days for a reasonably comfortable amount of time to read and absorb everything and to write your offer. It is difficult if you only have 24 hours between when you see and like a home and when the offer is due. It is possible, but only if you (and your Realtor) drop everything and only focus on this for the next 24 hours. And let me tell you, that is not fun – in fact, it’s miserable! Much better is to have several days.
Last week, though, I showed a home at 9 a.m. and turned in an offer before the 4 p.m. deadline. Never again. It was incredibly stressful and there was no way that we could all review everything as much as we should have done. The stress of it was sickening (literally) for me – I take my fiduciary obligations seriously and felt like I was cutting corners left and right to make a deadline. And I had to ignore all my other clients for a few hours to make it happen. (And no, my clients did not get it. Their offer was far too low, unfortunately.)
Most of the time, right now offers in the San Jose – Los Gatos – Saratoga – Campbell area are due on Tuesday. Once in awhile they are due on Monday and rarely on Wednesday. Seeing a potential target on Sunday is possible but it is still really hard (and about impossible if the due date is Monday). Much better is seeing it on Saturday, or, if possible, before the weekend even begins. If you can do that, it will be immensely easier and less stressful!
Why does it take so long to write an offer?
The deep sellers’ market continues to frustrate Silicon Valley home buyers. With scant inventory and sales, sometimes there’s very little to pick from, and many, many buyers all vying for the same property. A common question from Realtors and buyers alike to listing agents is this: “how many offers are you expecting?”
- when showings change from 30 minute windows to 15 or 20 minute viewing times, you know that there’s a lot of interest
- online, look to see if Redfin calls it a “hot home” – those are more likely to attract multiple offers (also, watch the Redfin price estimate, it changes with its website traffic)
- the ratio of disclosure packages out to offers written is about 1 in 3 for most homes (a near perfect house will have a higher ratio – perhaps 50% or a little more, a home with issues will have a lower ratio)
- it’s not an exact science – some buyers will drop out even after writing an offer, and some buyers will swoop in at the last minute
- the overbids are often proportional to the number of contracts received, but not always (an old rule of thumb is 1% per offer)
- listing agents may play down the number of offers expected since they don’t want to discourage anyone from writing
It can be hard to know. While some real estate agents advise their sellers to market the home with an unrealistically low price in an effort to obtain an avalanche of bids, most do not, but instead caution that it’s better to list on the lower end of the probable buyer’s value than the high end. If it’s a little low, the market will correct it (at least in a sellers’ market) but if it’s too high you may see no contracts on it at all.
How many offers? Communication is key
With multiple offer situations in Silicon Valley real estate bids, sometimes buyers write an offer and later decide that it’s too much or too little, or that some other change is warranted (before it’s submitted). Can you change your purchase offer after it’s written, or is it a “done deal” once you’ve signed it?
The good news is that you can change your offer before it has been given to the listing agent / sellers. Many buyers do, either because they changed their mind or strategy, or because they just got new information. What is key is circling back to your buyer agent quickly, before the email is sent.
Why would you change your purchase offer?
Awhile back, some of my buyers were bidding on a San Jose home. As I asked the listing agent more questions and we got a little more information from that agent on the numbers of offers being received, my clients wanted to improve their offer. We redid page 1 of the contract, which is where all the financial basics are listed. Their improved offer went to the listing agent and it was seamless.
At other times, even after the offer is submitted, I have had buyers ask to improve their offer. The pages of the contract which were involved in the change were redone, signed and resubmitted. This is a bit like going through the counter offer process yourself. (more…)
Are you getting priced out of the market? If so, you’re not alone. In Silicon Valley, the prices of houses are rising dramatically right now. In some cases, homes are selling for 20% or more than list price. In the last week I’ve heard of at least 2-3 homes which sold $400,000 or more over the asking price. This is happening in prices up to $3 million especially, but I’m also hearing it in the luxury tier.
With rapid housing price appreciation in Silicon Valley, home buyers who are “patiently waiting” for more inventory and just the right house to come on the market can end up finding themselves “priced out of the market“.
What does it mean to be “priced out of the market”?
In a nutshell, it means that while a few months before, you could afford the type of house you wanted (more or less), but prices have risen so fast that now you feel that you cannot buy anything at all.
If that’s the case, you feel that it’s no longer worth it to buy – so you continue to rent (or not purchase that investment property).
The waiting strategy may backfire
Have you been patiently waiting for just the right house to come on the market? Let me suggest to you that it may not be forthcoming. What you could afford a year ago is no longer possible today, and we do not see that situation changing anytime soon. In fact, appreciation would appear to be steeper now than it was 12 months ago. Waiting can be very expensive in a market like this one.
Why do buyers wait when they might do better to jump in?
Want to be a home owner in the San Jose area? Hire a great agent, but then LISTEN to him or her! (more…)
Every region of the country has some unique real estate vocabulary and phrases. Here, in Silicon Valley, when we say “you’re out of contract“, it’s another way of saying “you are not doing what you promised to do in the purchase agreement that you signed” (meaning the real estate contract). In other words, there is a seller or buyer default happening.
“Out of contract” is not a legal term. I remember hearing a local real estate educator say “there’s no such thing”. It’s not an official status. But it is a way of describing behavior that’s not in alignment with the contract’s express promises.
Both sellers and buyers make promises to do certain things and most of these promises are tied to time frames or dates. Here are a few of these time-sensitive promises or contractual obligations:
- sellers agree to leave the utilities on until close of escrow
- sellers promise to maintain the home until close of escrow as it was on the day the property went into contract (so mow the lawn, water it etc.)
- buyers assert that they will get their initial deposit to title within a set number of days (the California Association of Realtor’s form states 3 business days or provides a blank to fill in an alternate number – it’s often 1 business day here)
- buyers promise to remove contingencies within the times they stipulated in the offer
- sellers will move out in according to the date set out in the contract
- indecision over material facts or between buyers may make it hard to decide whether or not to remove any contingencies
- buyers agree to take possession (move in) per the time/day agreed to in the purchase agreement (not before)
- sellers bind themselves to having repairs done in a certain manner (depends on contract and clauses, if promised)
At one time or another, I have seen all of these items not adhered to by the parties who were supposed to make good on their word, and stranger violations that I don’t want to write about here lest I give someone a bad idea. I have seen sellers not move out on time (in some cases, elderly sellers who grossly misjudged the effort required to vacate.) The failure to do so causes stress and anxiety, and sometimes worse: fear and anger. (more…)
Is this the year you want to buy a home in Silicon Valley? There’s more to think about than what you can afford and how much home you can get for your budget. It is imperative that you research the neighborhood before taking the plunge. More times than I can count, I’ve heard home owners tell me that they walked into an open house, fell in love with the property, and bought it as soon as they could. That is really not ideal, but we know that home buyers sometimes make decisions emotionally, and then rationalize the purchase.
In addition to studying the disclosure packet – including the HOA docs, if there are any – it’s also important to research the neighborhood, since that is the one thing you cannot change after you have completed the purchase.
The disclosure package will include (99% of the time) seller’s completed disclosure forms, generic state and county advisories and disclosures, a natural hazard report, an environmental hazard report, buyer and seller “agent visual inspection disclosure” forms (AVIDs), real estate brokerage advisories and disclosures, a preliminary title report (often with CCRs – covenants, codes, and restrictions). Even without HOA documents, the stack can be several hundred pages long. What else could you possibly need to know?
The onus is on the home buyer to research the property and anything else impacting value or desirability – objectively, or to that buyer particularly. That should include, as a top priority, the neighborhood. You might include these items in your study of the area:
- Local crime. It may be true that this or that zip code has a safe reputation, but what about your home’s corner of it? Go to a site such as CityProtect.com and tweak the time frames to cover as many months as possible to get a feeling for the safety issues. Los Gatos and Monte Sereno’s police are not reporting the crime stats to CityProtect. If you want to see that data, you’ll need to visit https://lgpd.crimegraphics.com/ I’m not a fan of that site as you can only view 1 week at a time, but it’s what we have. Ask friends who live in that area what they see on NextDoor (they are not allowed to copy and paste out of that site, but may have input). There are no crime-free zones in Silicon Valley, but some areas are worse than others.
- Local schools. You may not have kids, but the schools are often a leading driver of home values, so be sure to research the neighborhood schools. If the market turns south, having something with enduring value such as good public schools will help to bolster values. There are a variety of websites that cover test scores, parent and student feedback, college readiness at the high school level, and other indicators. I like the SchoolAndHousing.com website, but would not limit my recon to that alone. You can also ask to meet with school officials or perhaps get a tour to make sure any questions are answered.
- Traffic and commute. It seems like the farther out you go, the more home you get for the money. But how brutal will your commute be in a post-Covid world? My suggestion is to try the commute before you buy. Don’t do it on “Friday light”, but give it a go mid-week, and aim to do it at your normal driving hour. You might want to assume that it will be much heavier in a couple of years when the coronavirus is but a bad memory. Google maps has a tool that allows you to plug in your starting and stopping points, and when you want to be there, but I’ve found it’s a little optimistic. It’s just not the same as doing it. I would advise trying it twice. (You may end up preferring a smaller home with a better commute.)
- Natural Hazards. There’s a lot of great info online at the MyHazards site. Disclosure packages normally include a Natural Hazard Report. The report is dozens of pages long, but do take the time to get past page 1, which only reveals the state mapped zones. A little deeper into the document, you’ll find additional data on the county mapped zones, such as earthquake faults, that you do want to know about. The county mapped faults supposedly have not moved in 11,000 years, but it does not make it impossible for them do act up should a large quake drop on the San Andreas or Hayward fault. Not sure what to make of the zones? One of the geological companies which provides the NHD reports has a series of videos on what the major state mapped zones means. I highly recommend viewing them. You can also learn about environmental hazards in that report as well.
- Neighbors. Are the neighbors neighborly, or are the difficult people in close proximity? Some years back, I showed a home in which the next door neighbor broke through the fence and installed a new fence across part of the seller’s yard – hoping to claim it as his own. It was a strange legal situation as that part of the yard used to be an alley, so there was some legal limbo involved. There can be unkempt homes, too many cars on the street (suggests crowding), yards that need some TLC, tagging, litter…. I have sometimes had buyers knock on the doors of immediate and nearby neighbors to say hello and ask about the area. That’s gone well and it might be something for home buyers to consider doing. You might be surprised at what you learn. One buyer of mine found that several of the neighbors worked at Cisco, as he did at the time. you may also hear of nuisances that sellers omit, though, such as barking dogs or loud neighbors.
- Web searches. You may want to go to the Megan’s Law website, or google the street address, or do any number of other searches online to make sure you understand the area which interests you.
- Topography. Hills are beautiful but living on or near them sometimes means dealing with water related issues. Is the crawl space damp in the middle of summer or when it hasn’t been raining? Learn about drainage and foundation work – right away.
Got more ideas for neighborhood research that I’ve missed? I’ve had to turn off comments due to overwhelming spam (1,000 spam to 1 real comment), but shoot me an email and I’ll update this piece if I agree that it’s a good tip.
It’s a little funny that when Silicon Valley home sellers and their listing agents get contracts or offers, many do not want to deal with issuing or negotiating counter offers. In many cases, it can go like this fictional bidding scenario:
Offer due date set, and let’s say there are 5 offers. Of the five, perhaps one is all cash, one is half cash, and the rest are 20-25% down. Most offers will be in a tight cluster of pricing (this is probably “true market value”). One may be far higher than the rest. Or perhaps two a little higher than the others.
- The seller wants the highest price, no contingencies, and preferably, all cash.
- If the all cash offer is non-contingent (no contingencies for inspection, loan or appraisal) and is the highest price, there will be a straight acceptance in almost all cases. No counters.
- If the best combination of cash and contingencies and pricing is the half-cash offer, most likely the listing agent will phone that buyers’ agent and ask if those buyers would match the highest price. If those buyers say yes, one counter offer will be issued and it will have a short deadline for response.
- If the “best combination” buyers say no, the listing agent and sellers will move to the next best offer, however they decide “best” looks, and phone them, giving them the opportunity to come up.
- In these scenarios, meanwhile, the rest of the buyers and their agents wait – and hear nothing in the meantime.
Once in awhile, there are a few good offers that are all neck-and-neck, and perhaps there’s one flaky looking offer at a higher price. If that happens, the listing agent and sellers may issue a multiple counter offer to most or all bidders. That used to be really common, but today, I’m finding the most typical scenario is the “one phone call” approach instead. (more…)