Tips for Silicon Valley Home Buyers
Once in awhile, properties listed for sale on the MLS instruct real estate professionals that the home cannot be seen until and unless there’s an accepted purchase offer on it. The way it reads in the multiple listing is this: “make offer subject to inspection“.
What does “make offer subject to inspection” mean?
This clause means that first a buyer must write an offer and get it accepted by the seller, and then – and only then – can the buyer check out the property in person. The “subject to” part means that the buyer will have a contingency for approving the home’s condition. If it is terrible or unacceptable inside, the buyer will have the right to back out. (Those terms, such as the number of days for inspection and investigation, will be spelled out in the contract.)
The idea that an contract would be written without seeing the house, townhouse, condo, duplex etc. or that someone should plunk down hundreds of thousands of dollars on a home “sight unseen” is absolutely shocking to most Silicon Valley home buyers. But “make offer subject to inspection” is the way that apartment buildings and many investment properties (duplexes, triplexes and fourplexes) are sold.
Think of it this way: if one is buying a tenant occupied property that is being sold as investment property, whether it’s 1 unit or 2o, the main thing is not so much how it looks physically, but how it looks on the books. How’s the cash flow? How good is the return on investment? What is the upside potential with renovations? Continue reading
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 the beginning of March. With summer and a good deal of autumn behind us we can clearly see some the pandemic’s affect on the real estate market, but it will 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.
During the shutdown so far, 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. 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 November 13th) I pulled the single family home sales for Cambrian (mls area 14) for the last 30 days (mostly October but possibly some November) 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 73 properties sold in the last 30 days, 52 of them or about 71% sold in 14 days or less, with the average days on market (DOM) for this group a lighting speed 7 days! For these fast selling homes the average list price $1,286,777 and average sale price $1,345,338 (averaging an overbid of $58,561 or approximately 104.5% of list price). Only 6 in that group sold below list price and 2 sold at list price (and 2 more sold for only $1 over, so practically at list price). The majority, 44 properties, sold over asking.
Of the 21 slower sales, roughly 29% of all sales, were on the market between 15 and 63 days. Ten sold above list price (only 4 of these took more than a month to sell), 1 sold at asking, and the remaining 10 sold below (only 4 of these took less than a month to sell).
In 2012 and 2013, Santa Clara County saw many single family homes selling for all cash, no loans. The peak may have been in March 2012, when the percentage of all cash sales was a whopping 25%. That was the beginning of a long housing boom, and today the percentage of all cash sales in Santa Clara County has settled down significantly, though it is still in double digits in most months.
Today I crunched the numbers on MLSListings.com (first pulling the number of sales per month, then the number of cash sales, and after exporting the data to excel, did the math to get the percentages). The chart below reflects the sales of homes sold with all cash, no loans in Santa Clara County among houses and duet homes, which combined are known as single family homes. (Duet homes are not the same as duplexes.)
All cash sales, month by month, in Santa Clara County (single family homes)
The data from one month alone does not make a trend. Please note that in the percentage of all cash sales, above, we had under 9% in April 2020, but then it did bounce back up into double digits until October. It may well do that in November, too, once we have cleared the election jitters period.
What does the lower percentage of cash sales mean? In Santa Clara County, we saw a declining number of pending sales in October. I believe that together, these point to less buyer confidence, or perhaps more buyer fatigue.
Here’s that chart (posted recently in my newsletter and also in the Santa Clara County market post on this site):
What is an exclusion in a real estate contract? What is an inclusion? Both of these refer to fixtures at the property which is for sale.
What is a fixture?
Generally speaking, a fixture is any item affixed or attached to the house, townhouse, condo or property which is installed with the intention that it be there permanently.
Examples of fixtures (items which stay or are included):
- built in in cabinets (in the bathroom, kitchen, or anywhere else)
- lights mounted from the ceiling
- built-in ovens or other appliances which are built-in
- in-ground (not potted) rose bushes.
- built in fire screens
- a fireplace insert
- window coverings
- wall air conditioning unit
- built in speakers
- built in wine fridge
- hot tub (unless it is a portable model, which most aren’t)
The exception to the rule is anything attached solely for earthquake safety. This would be the case if you have a large hutch which you have bolted to the wall so that it doesn’t topple in the case of a big quake. In Silicon Valley, fixtures are normally included with the sale of the home.
What is an exclusion?
Exclusions refer to fixtures which the seller does not want to include with the sale of the real property (real estate) but which otherwise would or should stay.
- there may be a light fixture in the dining room which is a family heirloom and the seller does not want to leave it with the house
- an in-ground plant, bush, or small tree that the seller wants to take when moving out
- curtains which match a bedspread or other decor
- stereo speakers that are built in
- surveillance equipment, such as a Ring doorbell or camera (I saw this recently where the seller wanted to keep it)
What kind of residential lots and land will hold value the best in Silicon Valley? Your choices may include a corner lot, flag lot, cul-de-sac lot, a zero lot line parcel, oddly shaped land boundaries, and standard lots. If you are concerned about resale value and appreciation, it’s helpful to know what most buyers ordinarily prefer.
Corner and Standard Lots
While some San Jose area home buyers want a corner lot (more light, fewer adjacent neighbors), for most, the extra traffic and noise outweighs the pluses. An issue that home buyers often raise with corner lots involves headlights hitting bedroom or other windows as cars turn. There is some concern about drivers missing the turn and hitting the house, too. (This is also a worry for buyers looking to purchase a home on a busy road.)
The most-desired lot for home buyers, generally, is a normal, interior, standard (rectangularly shaped) lot.
Cul-de-sac lots are also highly valued among many buyers, though not all. With the court location comes a lack of street parking, especially at the end, and a lack of exit routes. A while back I held a listing open in Los Gatos that was on a cul-de-sac and the idea of only one way in or out spooked one buyer who otherwise really liked the location, which was close to Los Gatos schools. Homes at the end of the court also have irregularly shaped lots, and they tend to be harder to utilize as well but offer large backyards. So there are plusses and minuses, especially at the end of the court.
I’d like to add that pie shaped lots, or those with many angles, often seem to have the lot size misrepresented on county records. Many times I’ve found that a large parcel on a cul-de-sac will be ascribed the same size as nearby plots even if clearly it’s far bigger. The geometry is a headache, but you can use Google Earth to do an approximation of the actual square footage and then check the perimeter against the perimeter found in the Preliminary Title Report. The odds are good that if you get the correct size of the boundary (perimeter measurements added together) on Google Earth, you’ve got the correct lot size. Own a house with such a situation? Bring it to the county tax assessor’s office and get your property’s record updated. Continue reading
Silicon Valley has a bad case of “urban sprawl”, unfortunately, but there are places in San Jose and nearby where creeks meander through neighborhoods, offering a little extra space between back neighbors. This extra breathing room is valued by homeowners with a creek behind the house. They often cite the pleasantly rural sounds of frogs and birds as an added bonus.
But some home buyers are a little spooked. Are there risks with buying real estate next to a waterway? Would the home flood in heavy rains? Is there an excess of unpleasant wildlife to worry about? One of my buyer clients was concerned that burglers would use the creek’s access path to steal things and get away unseen. Another was afraid of cougars or bobcats or other unwelcome visitors coming in from a creek or tributary.
When Jim and I were newlyweds, we lived in a townhouse on Neary’s Lagoon in Santa Cruz (a bird sanctuary) and I have sold several homes along creeks or ponds, so will make some comments based on my experience.
Creek behind the house: scenic or not?
In general, I would say that being next to or near a creek most often will improve the value of the home because creeks are scenic and also provide a space buffer between rear neighbors. They frequently have beautiful old trees framing their banks and are slightly curved, too, so these are usually quite pretty. I won’t say that living next to a waterway which looks like a Los Angeles flood control channel would be beautiful or enhance a home’s value much, though the space between neighbors would still be appreciated. Each case must be judged on its own merits.
Wildlife at the water’s edge
It is true that there will be more wildlife near water, whether it’s a creek, river, reservoir, pond, or percolation pond. Birds, reptiles and animals need water and will seek it out. If you love nature, you may welcome the sound of frogs and geese, and perhaps secretly hope to see a wayward deer! If you decide to live near water, it is very important to make sure that wildlife cannot enter your home (chimney, attic and crawlspace included) and it will require some ongoing diligence to keep them out because they will be drawn to the water over and over again. I’ve known people adjacent to water to have some challenges with birds, bats, mice, rats, and other creatures trying to make their way in. But that can happen anywhere. At our current home, which is not next to or near a creek, we had a squirrel try to claw its way through flashing on our roof to get into the attic. Another time we had a possum or raccoon get into the attic. Be clear that being away from the water doesn’t mean “no wildlife issues” – but if you are next to water, you will probably face them a little more often.
Floods and flood plains – what is the risk if there’s a creek behind the house?
Creekside locations do not all flood; this is perhaps the biggest misconception. When buying a home, you can check the flood plain status via the Natural Hazards Disclosure Report, which the seller provides. You can also check online at the CAL My Hazards Awareness site. And please know that there are different types and levels of flood plains – they are not all the same! The one which requires flood insurance is called a 100 Year Flood Plain and in those locations, water of up to 1 foot may be expected once every 100 years (so not that often). There are 500 year flood plains and areas which are “dam failure inundation” zones (if a dam were to break, water downhill would flood, of course).
Protected species that depend on the waterways
We have a number of protected species in California, including certain frogs and salamanders. If your home (or the one you want to buy) is in the habitat area of those animals, birds, or reptiles, you may have some constraints on landscaping near the creek or water. Most of the time it involves not placing a fence within so many feet of the creek and using only native landscaping in that area close to the creek too. Just know that having a creek behind the house may carry extra responsibilities and restrictions.
As for crime, I would have to say that you want to always check a site like CityProtect.com or similar sources to know what’s happening. We do have crime everywhere, and all kinds, to varying degrees. Most creeks do not have easy access to people’s homes or yards, and often the service road along the creek is a rough gravel, so I have a hard time picturing burglers trying to get in and walk their stolen loot a ways down that path. But check the reports. Realtors are not crime experts and we cannot make promises about any area or location.
A common mistake among real estate agents and consumers both is estimating a home’s probable value using only the living space’s square footage. But what about the total number of rooms? Specifically, what is a bedroom worth?
Clearly other factors have a significant impact, such as remodeling done (or deferred maintenance that’s taken place), whether or not there are special features such as pools or tennis courts, the quality of the landscaping, or the presence of a view. Some of these are challenging for pinning down a value since they may be unique to a particular property and there may be no similar comparable properties or “comps”.
All homes, though, have bedrooms. We know (almost intuitively) that it will be challenging to sell a 1 bedroom home and that 6 or more bedrooms may sound like a boarding house and have diminishing value for most consumers. (I’ve known 6 bedroom homes to be presented as 5 bedrooms plus a den or home office.)
Recently I ran into this issue again, where some lovely people I was discussing the market with appeared to be looking at their house’s likely sales price based only on square footage and not seeing the highly likely limitation of having fewer bedrooms than most home buyers want. I decided it would be a good study to pull up two and three bedroom sales in San Jose over recent years and check on the average sale price of each – keeping the properties within a fairly close band of square footage and lot size so that it would be a level playing field. (Most accurate would be in a very small area with a very tight range of square footage, but going that narrow likely leaves us with too few homes for a decent pool of data.)
I did a spot check of smaller, older houses in San Jose 95126 (roughly the Rose Garden, Shasta Hanchett, and St. Leo’s areas) and used square footage of 1000 SF to 1500 SF and small lot sizes of up to 6000 SF. Also I removed sales on busy roads, such as Hedding. Bottom line: the 3 bedroom houses were selling for an average of $897.72 per square foot, while the 2 bedroom houses were purchased at an average of $837.04 per square foot.
What if we looked at a broader area, and not just older houses? The next section covers all of San Jose and also from 2017 to the present.