Buyers who are getting slammed out of the Silicon Valley real estate market due to low inventory and multiple offers are extremely frustrated. Part of the problem may be the amount of cash in their offer. It can be hard to compete with bids with smaller loan amounts or which are “all cash, no loans”.
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 lower interest rate FHA backed loan be suitable?
All 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, about 15% of home 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 due to the fear of a low appraisal. With all cash, there is no appraisal at all – it’s a slam dunk on that front. (more…)
How long does it take to buy a home in Silicon Valley? There are really three questions within that one:
how much time will be required before you’re ready to choose a home to purchase (or how many homes will you need to see)
how many offers will you have to write
and finally, how much time is involved in getting the transaction closed
We are presuming that our readers know that a pre-approval, not a pre-qualification, is absolutely necessary. Being pre-underwritten is better still. The lender decision needs to be made early on, before house hunting.
The short answer: if you are pre-approved, have cash in the bank, are decisive, are on the same page (if buying with someone else), and committed, you could go from getting the pre-approval letter to owning a home in 6 weeks – if everything lines up perfectly. For most people, it’s 2- 4 months.
What could go wrong? What could slow things down? Please read on!
How long does it take to buy a home in Silicon Valley: first step, selecting a home to bid on
Often our clients need to see 10 homes, sometimes a little more, in person before they feel like they know the market and the choices well enough to select a home they want to write an offer on. This is after a highly refined search, usually, with a lot of info provided upfront and online. Many properties are eliminated before we ever see them.
How long does it take? Depending on how broad of an area they’re considering, and how much of a hurry they’re in, this varies, but normally is 4 – 6 weeks for most of our home buyer clients. Some are faster, some slower.
Clients relocating to the San Jose area often want to settle in. If they’ve owned homes before, they may have a perfect idea of what will and won’t work for them. Once I sold a Los Gatos house to a couple before the wife ever saw the property! They moved every couple of years, the husband knew his wife’s requirements perfectly and they had no trouble being expedient.
If clients look for 3 or 4 months and never even write an offer, they are either not serious, not realistic, or if there are two buyers, they aren’t in agreement with each other. We see this too often. (more…)
What is a multiple counter offer, and how does it work?
Brief summary on how multiple counter offers work
Silicon Valley home sellers have an option to issue a Multiple Counter Offer form. This is not the same as a regular counter offer form.
With the standard counter offer form, if the other party accepts it, signs it, and delivers the signed copy back to the party that issued the counter offer, it’s then a ratified offer, a done deal. Not so when there are multiple counters in play.
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.
2 minute video discussion on multiple counter offers – key points
If you lose out in multiple offers over and over, you’re not alone, but as prices rise, this isn’t a good pattern to be in. What can you learn from it?
Silicon Valley home buyers can have vastly different reasons for getting their offers rejected.
For many, the challenge is having a small down payment.
Others are very indecisive (and can’t decide fast enough, or cannot really commit enough to write a strong enough offer).
Some may have unrealistic expectations.
Some pride themselves on “being conservative” and routinely under price their offers.
Below we’ll go over the main issues, what you can learn from losing, and finally, a strategy to pull you out of multiple offers.
Small down payments and the competitive disadvantage
Having a less than 20% down payment may get an offer eliminated off the bat when there are multiple bids. The reasoning has to do with confidence that the bank will fund the loan and not get cold feet. The larger the down, the more secure the loan appears. When there’s more than 20% down available, the buyer appears more able to manage an appraisal shortfall, too.
FHA home buyers have the biggest challenge, for reasons explained previously. Those with 20% down payment have a really reasonable loan situation, but the trouble is that many other competitors do, too. With rising prices, appraisals are often a problem – and 20% down usually won’t solve it. So the more cash, the better, and cash is still king.
All cash offers
Having 30% or more will usually overcome appraisal hurdles. But those ubiquitous “all cash offers”, which comprise about 15% of all Santa Clara County home sales right now, will usually trump any other bid IF the price is attractive. Don’t be discouraged, though, as sometimes the all cash offers are the lowest offers with multiple bid situations in the San Jose area.
If you lose out in multiple offers for any other reason besides the down payment
The probable buyer’s value for a home is very similar to market value, as a home is only worth what a buyer will pay. If the seller wants more than that, it won’t sell. If it’s unlikely that their ranges overlap at all, we’ll have a listing that is difficult or impossible to sell.
Quick summary on the probable buyer’s value:
The probable buyer’s value is a range of what most buyers would pay for a particular property if there was no undue pressure on the buyer or seller.
The probable buyer’s value will be impacted by many factors, such as the timing (if there are other houses which are more competitively priced or no other inventory), the property condition, the presentation of the property, the accessibility of the property (how hard is it to see – is it vacant or occupied?), the marketing (photos, floor plans, etc.), and many other things.
The buyer’s terms weigh heavily on what the buyer can or will pay for any home.
Sometimes it can be tricky to estimate what a home might sell for. I usually talk with my seller clients about trying to find the probable buyer’s value. The seller may have a range of prices that he or she anticipates and would accept. So too with the buyer, whose range will likely be lower than the seller’s. The key is finding where the buyer and seller price ranges overlap.
Let’s take a hypothetical case of a home worth about a million dollars (see image above). The seller would love for the property to sell close to $1,040,000. The buyer would like to purchase it for $960,000. The agent’s competitive market analysis indicates that similar homes have sold or are selling at around a million dollars, give or take a percent or two. If the buyer and seller can come to a meeting of the minds, and there’s no undue pressure on either one of them, we have (hopefully) a sale and we have the fair market value.
But as we know, sometimes homes sell for much more than they would seem to be worth, and other times much less.
What causes property values to go above or below what would seem to be the probable buyer’s value? Undue pressure can certainly cause values to rise (desperate buyer who just has to get into a house, even if overpaying or desperate seller who has got to unload a property, even if selling too low). (more…)
A great buyer’s agent can be hard to find and keep. Here’s what to do to enlist the help of one and how to make sure you stick together as a team and get you into your new home.
Only a fraction of all interested home buyers actually buy in the year they attempt to do so. For various reasons they decide to keep renting, or move away, or give up, or simply don’t write offers that are selected (they may chronically low-ball)
Some home buyers are very serious but also very time consuming, and if it takes them a long time to buy, it can be draining for their real estate agent, and if prices are rising, it can shrink the odds of success.
Many Realtors prefer to work with sellers when the market is hot – which it nearly always is in Silicon Valley, since most homes do sell (while far fewer buyers buy).
Buyers who want to enlist a strong Realtor will need to be serious about home buying, able and ready (have the money and a pre-approval in place), and loyal as the starting point. Your real estate licensee may ask you to sign a buyer-broker agreement, just as home sellers sign a listing contract.
To keep your great buyer’s agent on your team, it’s imperative that you allow that Realtor to guide you, whether it’s getting preapproved with a strong lender, deciding on priorities (must have versus nice-to-have list), or moving quickly to view houses, or taking the paperwork seriously – or any other major step. You need to be as motivated as your agent!
And communicate openly if there’s an issue. I’ve had clients tell me that the pre-approval needs to wait until they’ve been at their new job until a certain date. Whatever it is, ignoring requests given to help you without explaining the backstory won’t be good for your teamwork and could get you fired as a client. (Yes, Realtors sometimes fire their clients.)
If you fail to do these things, your agent may not feel like your odds of buying a house are good, or that the stress associated with doing so will be higher than necessary if you stall on taking the proper steps.
Put another way, if you hire an agent because of her or his knowledge and track record, but then don’t heed that agent’s professional advice, the relationship may not do well over the long run. Think of it like a sack race: both people have to be going in the same direction, carefully working together, or it’s not possible to move well (if at all).
Below, we will go over in more detail how to get and keep a great buyer’s agent in a seller’s market or in any market, for that matter.
Getting a good deal starts with being the only offer.
In today’s wild seller’s market, Silicon Valley’s hottest homes are sometimes seeing 18-20 offers, sometimes more. For homeowners, it has been a fantastic year to sell real estate. Even a distressed property or one with multiple issues, when marketed appropriately, can receive multiple offers and fetch a good price.
Good listing agents will do their best to create the right conditions to encourage as many offers as possible so that their seller can get the best price and terms for their home. This high-volume competition for homes, known as a bidding war, is great news for sellers and tough on buyers.
Needless to say, it’s not a great market for deal-seekers. Most buyers are loosing out on multiple homes before they are able to buy. Some feel hopeless watching the prices rise and choose to give up the search. Even buyers who are bidding at or over where a listing comps out often loose to higher offers with no contingencies!
No one wants to overpay for a home, but in this market it can sometimes feel like the only option.
So what’s a buyer to do? Here are my tips for home-seekers looking for a good deal in Silicon Valley’s hot housing market today.
Before you Buy
The first step is to understand that a good deal today is not the same thing as a good deal 5 years ago. It’s not even the same as last month or last week! Setting expectations based on the current market is key. Our monthly market reports are a useful tool to begin tracking these trends while you house hunt!
In the kind of raging hot seller’s market we’re seeing, yesterday’s news really is yesterday’s news. While the comps from last week’s sales might give an idea about market value, it isn’t today’s market value. Pent up demand and not enough inventory is having a strong impact on activity. Think of it this way: if 15 people lost out on the last house that was available in a neighborhood, there’s a good chance many of them will be bidding on the next one and willing to offer more! This can be a hard pill to swallow. A good Realtor will help buyers understand the similar comparable sales, the trends, and the activity of a specific property to gauge where a home is likely to sell and how to make a successful offer.
The market is always fluctuating (watch the weekly updates on my Altos market report), but this year we’ve been seeing market activity like we haven’t seen since 2017 – it just keeps ramping up! Keep the trajectory of the market in mind and adjust your expectations to match it.
Finding A Good Deal Today
The #1 rule is that a good deal starts with being an only offer. Everything else comes from this rule!
The house that the bidders rejected.
Bargain buyers, avoid the hottest freshest listings! Instead, look at homes that have been on the market for longer than 14 days.
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. Recently 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?
they may be unrealistic as to what the market will bear (sometimes despite the statistics)
For years, Realtors have encouraged their home buyers to write “love letters” to go with their purchase offer on the home the buyers were trying to buy. The idea was to be more likeable so that the sellers would want to sell to them, as opposed to any competing home buyers. But as of now, the guidance from the National Association of Realtors is different: no more love letters.
What is wrong with buyer love letters?
The U.S. Fair Housing Act protects home buyers and renters from discrimination or bias under protected categories of race, color, national origin, religion, sex, familial status, and disability. (In California, there are even more protected areas.) Put another way, when a home seller looks at a buyer package, the decision should be based on the offer price and terms, not on who the buyers are.
The concern with love letters is the risk of implicit bias: that the sellers would like or dislike buyers, even unconsciously, because of non-contractual facets that are protected. While it’s not illegal for a doctor to want to sell to another doctor, it is illegal for one member of a religious group to give preferential treatment to another member of the same religious group. It’s also illegal to give preferential treatment to buyers who have children versus those who do not. Photos are especially risky as they may enable things from the protected class list to be known.
Last October the National Association of Realtors published an article for its members in Realtor Magazine on this topic, Why a Buyer Love Letter Could Turn Into a Poison Pen. This short piece admonishes that even innocuous sounding statements are problematic:
Even a mention within a letter of envisioning “children running down the stairs on Christmas morning” could stir up trouble. After all, such a statement reveals the buyer’s familial status and religion, which are both protected under fair housing laws.
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, orbarely 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?
Christie's International Real Estate Sereno, Los Gatos, CA 95030 408 204-7673 Mary@PopeHandy.com License# 01153805
Clair Handy, Realtor
Christie's International Real Estate Sereno 214 Los Gatos-Saratoga Rd Los Gatos, CA 95030 ClairHandy@sereno.com License# 02153633
Mary & Clair sell homes throughout Silicon Valley: Santa Clara County, San Mateo County, and Santa Cruz County. with a special focus on: San Jose, Los Gatos, Saratoga, Campbell, Almaden Valley, Cambrian Park.
Mary Pope-Handy, Realtor
ABR, AHWD, CIPS, CRS, SRES
Christie's International Real Estate Sereno
DRE License #01153805
“Helping nice folks to buy and sell homes in Silicon Valley since 1993”
Clair Handy, Realtor, GREEN
Christie's International Real Estate Sereno
DRE License #02153633
firstname.lastname@example.org “Helping nice folks to buy and sell homes in Silicon Valley”
This is the Valley of Heart's Delight blog , covering Silicon Valley real estate - Santa Clara County, San Jose, Los Gatos, Cupertino, and nearby communities in the South Bay Area and lower Peninsula. Find info on neighborhoods, disclosure issues, buyer and seller tips, and housing market conditions in the west valley and most of the county.Please also see my other websites and real estate market statistics site, which are listed in the sidebar, above.
Mary Pope-Handy, Realtor
ABR, CIPS, CRS, SRES
DRE License #01153805
“Helping nice folks to buy and sell homes in Silicon Valley since 1993”
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