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, it won’t sell.
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. If it’s unlikely that their ranges overlap at all, we’ll have a listing that is difficult or impossible to sell.
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 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 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).
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 quickly, with multiple offers, and overbids right now. But not all. So let’s separate them out by time and see how it looks.
Fast sales are stronger sales: under 14 days is best for Cambrian Park realty sales
Just now (as of Jan 7th) I pulled the single family home sales for Cambrian (mls area 14) for the last 30 days (mostly Dec but some Jan) 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, 24 sold in 14 days or less, and only one in that group sold below list with 4 selling at list price and most selling over asking. Of the 17 remaining, which sold between 17 and 134 days, only 3 sold above list price, none at list price, and 14 sold below asking.
Of the 41 houses sold in these 30 days, 24 of them or about 59% sold in 14 days or less, with the average days on market (DOM) a lighting speed 7 days. For these fast selling homes the average list price $1,248,282 and average sale price $1,296,840 (averaging an overbid of $48,557 or approximately 103.9% of list price). Within the time frame of 14 days or less, only one of the 24 listings sold below asking price.
One of the most frustrating experiences for Silicon Valley home buyers is to spend time and energy looking at homes that they simply cannot afford. It happens all the time. I’ll be the first to admit it’s not always easy. In fact, take a look at a couple of my posts (or at least their titles) and you can see the dilemma up front:
What’s a consumer to do?
YES, you should look at the comps. NO you should not only look at the comps!
Here are a few questions to consider:
- How hot is the market? Are the open houses packed? Are many homes getting multiple offers?
- What’s the list price to sales price ratio for homes in that area?
- Is there too much or not enough inventory of available homes?
- How many offers will there be? Multiples change everything!
If homes are often selling for over list price, it would be silly to assume that a property that’s only been on the market for a few days will sell for much under list price. That’s even more true of the open house is packed – more interest usually means more competition!
In today’s sellers market, sellers frequently choose to list below the expected sales price. Knowing the true market value is more important than the asking price.
Finding the sales price to list price ratio is easy – you can check it for various areas in Santa Clara County by visiting my Real Estate Report. Right now, here are the ratios for single family homes in a few Silicon Valley locations (as of November 2019):
All of Santa Clara County 100.0%
All of San Jose 102.1%
Los Gatos 100.1%
You get the idea. Coming in at or under list price in this kind of climate will not make you, the buyer, look serious or knowledgeable if the listing is new and the property is in good shape. The same would be true in a calmer, balanced market if an offer came in at 95% or less. If you don’t want the seller’s to dismiss your offer, seriously consider where it will fall in the current market.
Finally, understand the basics of “supply and demand”. If inventory is high, you are more likely to get away with writing a low offer and possibly seeing it work. But if inventory is chronically low, as it has been the past year, this won’t go over so well. The number of anticipated offers will tell you what you need to know here!
A good real estate agent will assist you in understanding the probable market value for any home you’re thinking about buying. Although it’s an art as much as a science, it’s possible to get at least the right ballpark if you can measure all of these variables correctly.
Looking to buy in the current market? Check out some of my other articles through the links below.
Is buying a home in late fall or winter a good idea, or is it better to wait until spring? (Hint: there’s no right or wrong answer)
And stay informed on the markets by following my Market Reports, many updated monthly.
Check out the sales and listings in Santa Clara County through the interactive map below.
Home buyers (and sellers too) here in Silicon Valley like to “see the comps” when trying to determine fair market value or the probable buyer’s value for real estate. Usually that translates into seeing what sold & closed escrow recently and for how much.
In an appreciating market and a strong seller’s market, though, the comps are not so much help as you might hope. They are yesterday’s news! What closed escrow last week was negotiated 30 or 35 days prior, in most cases. By the time a San Jose area home is on record as a newly closed sale, it may already be out of date information. Not only that, but the MLS won’t tell us, at least not in most cases, how many offers there were or details about them – such has how many of them were all cash offers.
I see this mistake a lot in my real estate practice across Santa Clara County. Clients want to view sales around a property they’re interested in. With our terribly severe inventory shortage, there may not be enough recently closed sales – so we look further out in location, futher back in time. If prices are going up fast (as they can do in Cupertino, Palo Alto and elsewhere), the only way you will be in step with the market is if you also factor in the appreciation that has likely taken place since each comparable property has closed escrow, whether that was 2 weeks ago or 3 months ago. And that’s hard to gauge.
What to do, then? Continue reading
The percentage of homes receiving multiple offers has been shrinking considerably since the market peak in spring of 2018. Some properties are under-priced and attract multiple offers. How does a multiple counter offer work?
If Silicon Valley home sellers expect to receive multiple offers, most of the time there will be a deadline on a set day, often 7 to 9 days after the house or condo is first on the market. If they like two or more offers and want to counter them, they have an option to issue a Multiple Counter Offer.
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.
When it’s a hot seller’s market, like it often is in Silicon Valley, it is challenging to be a home buyer. That means it’s also hard to be a buyer’s agent, since it may require writing several offers (and a lot of time and energy) before the clients get into contract. Since Realtors are usually only paid when a property closes, that means it’s not too hard to go broke if a real estate professional focuses a lot of time with buyers. In other words, in a market like this, most agents would prefer to work with sellers rather than buyers, because it’s more likely that they’ll make a living.
What can you do to increase the odds of finding a great Realtor who will take you seriously, work with you and for you, and give it a good effort even if it’s an uphill battle? First, let’s understand what a real estate licensee is looking for a client – at least in most cases.
Usually, the savvy agent doesn’t want to waste time with people who are not serious, not ready, or who will not be loyal. The smart Realtor knows that without these three things, it’s unlikely that they will be able to sell that person a home, or at least not in a reasonable period of time.
Serious home buyers:
Only about half of all home buyers will likely buy in the year they think they might, so it’s important for real estate professionals to try to make sure that they don’t spend months on someone only to have him or her remain a permanent renter. The agent must qualify the client to make sure it’s worth the risk of spending time with him or her.
Clues that the buyer isn’t serious include these:
(1) Comments like “I may have to look at homes for a year or two” or “I may need to write a hundred offers to get the right deal” or “I’m in no rush” indicate that this isn’t a big priority for the buyer (so maybe it shouldn’t be for the agent, either). This buyer is able, ready and probably also loyal – but not serious. Some, though, will clarify with a time frame and this is a game changer. “My lease is up in July, so ideally, I’d like to get into contract in March, close in April and move in May. But if I find the right house sooner, I’ll buy sooner.” That works!
(2) If there are two decision makers, having only one do most of the house hunting and the other showing up at distant intervals often indicates that it’s a priority for one but not both. Sometimes that’s not the case, but it is a red flag. Both need to be serious. Continue reading
Multiple offers continue to be a common occurrence in Silicon Valley right now, at least among well priced, well presented homes that are reasonably accessible. When facing multiple bids on a property, some sellers will just take the one they like best, or do a verbal negotiation to get the sale price and terms where they want it. This leaves those on the outside wondering “Why didn’t I get a counter offer?”
When there are an abundance of home buyers for one property, it can be overwhelming for the seller. Some home owners may want to issue a multiple counter offer to the best qualified, most serious bidders. (It is unlikely that every buyer will get one if there are a lot of bidders, as some may be too low or have terms that are too cumbersome.) Some sellers will issue just one, regular counter to the top buyer – but that is increasingly less popular, since if that buyer rejects the counter, the seller may then be back to Square One.
How to sellers choose which offer to counter?
Often, the highest price is not the offer with the best terms, even in a bidding war. Home sellers want both, of course – the least risk with the most cash. (Sometimes there are other factors, too, such as a rent back, escrow length, or other issues beyond cash and risk.) In those cases, frequently the Realtor or real estate sales person (the listing agent) will coach the seller to counter one or more of the better buyers (best prices and terms) to improve the final sale on both counts. Some sellers don’t want to do this, though – it’s stressful, they are afraid that everyone will say no and they’ll be left with the property unsold. Alternatively, then, they may counter only one offer – and tell the buyer’s agent that they are the only one, at least for now. If negotiations don’t work with the first buyer, the listing agent may go back to the others.
When you are waiting for a response to your purchase offer…
Meanwhile, everyone waits, everyone wonders what’s going on. The longer it takes to hear back, usually the lower the odds are that their contract will be the successful one, or even one getting a counter offer. Sometimes, though, the seller just wants to sleep on it.
If you heard that you didn’t get it, it’s helpful to ask for some feedback. Some listing agents will tell your buyer’s agent “you were close, but the other offers had no contingencies” or “we got 10 offers, and yours was in the bottom third”. This is a great opportunity to learn so that your next offer attempt has a better chance.
Without that information, you will be left wondering, again, “Why didn’t I get a counter offer?” “Why didn’t the seller at least give me a second chance?” Buyers wonder this all the time. Some buyers submit 5 or 10 offers, all unsuccessful, and they still wonder. The harsh reality is simple: your offer wasn’t good enough. Either your price or your terms (or supporting documents) didn’t cut it. Write your contract as if you only have one chance, because that’s the reality most of the time.