Homeowners insurance

Homeowners insurance in the high fire zones - house in the woodsHomeowners insurance is once again in the news, and home owners (as well as those actively wanting to buy or sell a home) need to know how this may impact real estate transactions. This type of coverage is also called Fire Insurance, though it does cover losses beyond just those caused by fire.

  • Several major insurance carriers have either stopped writing new homeowners insurance policies in California or are severely limiting the number of policies that they’ll write.
  • For property owners in the Very High Fire Hazard Severity Zone, this limitation of conventional coverage is causing insurance premiums to skyrocket, especially if the insurer or last resort has to be used, the California Fair Plan. We’ve heard of insurance costs going up 10 times the previous rate or more in some cases!
  • There are some other options, listed below, that may provide some possible relief.
  • Insurance companies use their own maps, which are not published and in some cases have more expanded zones that they consider too risky for coverage.
  • Buying a home in an area with a higher fire risk? Find out about the insurability of the property BEFORE writing the offer.
  • My insurance agent recently told me that as a rule of thumb, “homes that are within 1000 feet of natural hillside brush or trees on any side of the home will have trouble getting insurance with many carriers.”

Major Homeowners Insurance Carriers Pull Back

Allstate, State Farm, and now Farmers have all pulled back from writing new policies in the Golden State, either completely or partially, due to the fires of recent years and the financial liability that they have caused those companies.

We’re not really in new territory here. Over the last 35 years, we’ve had several cycles of difficulty with obtaining homeowners insurance. In California. In years gone by it was challenging to get it after the Loma Prieta and Northridge earthquakes in 1989 and 1994, respectively. When a spate of mold cases came up in California and Texas in the late 1990s and early 2000s there was also a pullback by insurance companies.
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Why is inventory so low, and when will it get better?

Why is inventory so low? As of today, October 26, 2023, there are 796 single family homes for sale in Santa Clara County (population appx 2 million people). A year ago it was about 1165 and the end of October. Where have all the listings gone? And when will it get better for home buyers? (You can check Santa Clara County inventory and other real estate stats on this blog.)

Why is inventory so low: historical perspective, how low IS it?

Here’s a look at our houses for sale from Jan 1999 to today. Please note that the MLS has a problem with its data sharing feeds, and if I pull this same info in a month, some of the numbers (not just this month) will likely change.

Inventory 1999 - Oct 2023 for single family homes in Santa Clara County

 

Inventory Averages:

  • Inventory Oct 1999 through October 2022 (only Octobers, 24 months) = 2640.  Inventory was bloated during the Great Recession, so that’s not representative of “normal”.
  • If we consider just 2013 – Oct 2022 (10 Octobers), which I think is much more typical, the average inventory is 1403.5
  • The current inventory level is 57% of the last 10 years and 30% of the last 24 years (not including 2023 in the averages).

The lack of inventory is causing a lack of sales, layoffs in various real estate related industries, and pretty much economically challenging for Realtors, lenders, title and escrow people, inspectors, stagers, photographers, and anyone else involved in the buying and selling of homes.

We have a supply and demand imbalance, with demand outpacing supply but available homes for sale low.

Why is inventory so low?  What is causing the shortage?

Next, let’s consider the root causes of the problem, and which ones may not be ongoing.
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Listing syndication matters to buyers and sellers

Listing syndication - you may be missing 15 percent or more if that is all you're seeingListing syndication matters to buyers and sellers, even if they don’t know it!

What is listing syndication?

Listing syndication refers to the distribution of listings of homes for sale to other websites from the multiple listing service or MLS. The information about the home is input into the MLS for members online, and also for those visiting the MLS directly as guests or those receiving email updates from that system. When it’s sent further, say to Realtor.com for example, that’s syndication.

Put more simply, listing syndication is distributing and displaying listings online.

Today most listings can be found on real estate web portals large and small, including real estate agents’ own websites (we have it, too). On real estate agent websites, that is accomplished through either an IDX feed (Internet Data Exchange) or VOW (Virtual Office Website). The main difference between IDX and VOW is that with the VOW more can be displayed, but it’s behind a login / password wall. The IDX feed shows information without having to register.

 

 

Why it matters for home sellers

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How to buy and sell homes at once without losing your mind

Buy and sell homes at once - what comes first - people with moving boxesIt can be a little nerve-wracking to sell one home and purchase another at the same time. How do you buy and sell homes at once – without losing your mind?

Talk to a lender first

It is a very good idea to talk to a great lender upfront and to be pre-approved. That way, you’ll be more certain of what you can truly afford, and no matter which order you plan to do the two house juggle, you’ll be ready.

The main options when you want to buy and sell homes at once

These are the most commonly used strategies to buy and sell homes at once:

  1. If you have equity, pulling money out of the current house may be an option, or perhaps you can use a bridge loan, you may be able to buy the next home first.
    • In that case, you can move to the new home, then stage and sell the current one. For most people, this is less stressful.
  2. Or will you only purchase after you have cash in hand?
    • With this approach, you could move out and stay in a rental, stage and sell the home and then buy the next residence with cash in hand.
    • Or you could live in the home while it is marketed, sold, and closed.
      • You may be able to stay on after the close of escrow as a renter in your home for up to 60 days. That is often enough time to buy and close on the replacement property.
      • You might be able to have a longer close of escrow and be able to purchase the home “subject to the successful close of escrow” of the current place. This is not the most viable way to buy in our current, inventory starved market, though.
  3. Another option is to move out, rent a temporary residence, sell, and then buy. Depending on the rental, your own belongings could furnish it, or you could have your things in storage.

Possible option 1 – buying first & moving out to sell

If possible, many people doing these two major transactions at once prefer to purchase first. the advantages include not having to move twice and not having to live in a home that is being shown, inspected, and requiring a pristine condition at all times.  For people working from home and families with young kids, this is often the way to go, as it is too disruptive to live there during the marketing and sale process.
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Real estate FAQs

Real Estate FAQs - street scene from the Santa Teresa area of San JoseThere are common or frequently asked questions read estate questions, or real estate FAQs, that arise for people buying or selling property here in Silicon Valley or the Central Coast, so I’ve assembled a list of real estate FAQs that I have written about here. Each link goes to an article on this website with more information.

Real estate FAQs relating to offers, contracts, etc.

What is a blind real estate offer?  It’s an offer on a property “sight unseen”

What is a sharp offer or relative bid?  This is when a purchase contract states that the buyer will pay more than competing bids.

Does the contract count calendar days or business days? Most of the time, it’s calendar days. But there are some nuances.

What is a “kick out” clause? This applies to sales contingent on the sale of another property

What Is A Default in a Real Estate Transaction or Contract? Defaults occur when a party to the contract does not perform on something promised in the contract.

What makes an offer lowball?  It’s one thing to be aggressive, it’s another to make a seller so mad that they don’t want to sell to you at all.

What is a backup offer? If the first offer that’s in escrow falls through, a backup offer can go into first position quickly

Seller rent back after close of escrow: what do you need to know? If a seller stays on after close of escrow as a renter (even at no cost), that’a a rent back

 

Real estate FAQs pertaining to ownership and HOAs

What Is the Difference Between CID Ownership in a Condo, Townhouse or PUD? In some cases, you own the land, and in others, air space

What is the difference between a duplex and a duet home? – they might look similar, but ownership is different!

What are CCRs? Covenants, Conditions, Restrictions – they impact what you can and cannot do at your property

If you buy without an agent, can you get a reduction on the sales price of a Silicon Valley home? Short answer: commissions are for licensees who are members of the MLS

Patio Homes or Zero Lot Line Houses in Silicon Valley – properties with the house up against one of the property boundaries

Tools you can use when relocating to the San Jose area (on our relocation site, Move2SiliconValley.com)

 

Real estate FAQs on disclosures and other misc things

Why do real estate agents do a visual inspection of the properties they sell?  It goes back to a lawsuit when agents failed to disclose a landslide on a property.

What is implied agency in real estate? It’s all of the liability and none of the pay, so scary for Realtors!

How to fix incorrect property records in Santa Clara County? Often it’s a matter of reaching out to the tax assessor’s office

Where are the easements? Request a color coded easement map from your title company!  Easements give someone else the right to use your property, or you the right to use someone else’s

What is a preliminary title report? Why does it matter?  The title company provides this to give info on ownership and liens

What is a plat map, and what can you learn from it? This map displays relevant info. Learn how to decipher it in this post.

What Is Cellulose Debris (in a pest or termite report)? Wood and paper where it does not belong, which is a problem because it’s a buffet for pests

 

Do you have a real estate FAQ that isn’t listed here? Please google the question with my last name, Pope-Handy, and there’s a good chance that I’ve addressed it here or on one of my other sites. Still no luck? Please shoot me an email and we can discuss it (and perhaps I’ll write about it).

 

 

Doesn’t the listing agent have to show it to me?

Telephone Photo with dialogue between a caller and listing agent - Doesn't the listing agent have to show it to meIf a buyer wants to view a property, does the listing agent have to show it to him or her outside of regular open houses? The answer might surprise you!  Here’s a quick overview:

  • The listing agent and seller decide about showings that the listing agent is expected to do. Does the listing agent have to show it privately, or during open houses, or only on one weekend before offers are reviewed?
  • The listing agent will make showings possible for buyer’s agents with instructions on scheduling in the comments that members of the MLS can read.
  • In many cases, the real estate licensee working with the home seller will hold the property open for the public on the weekend and sometimes mid-week as well. It may or may not be the listing agent holding it open.
    • For safety reasons, many listing agents will not have private showings with buyers whom they don’t know and who aren’t clients of theirs. Realtors are harmed every year in the line of duty.
    • For agency reasons, a listing agent who plans to only represent the seller may not want to have an appointment with a buyer who plans to write the offer with someone else.
    • There are many other reasons why the listing agent will not personally show the home for sale outside of open house times, but may be able to arrange for the buyers to see it with another agent.

When does the listing agent have to show it?

The most important thing for buyers to understand is that the accessibility of the home for viewings depends upon the agreement, verbally or in writing, between the owner of the property and the agent/brokerage hired to market, negotiate, and sell the real estate as to whether or not the seller’s agent is obligated to show it privately.

It’s not an “on demand” situation where an interested buyer can insist on seeing the property as desired. To make an absurd point, no one would say “doesn’t the listing agent have to show it to me at 10 p.m.?” Without any thought, we know that’s unreasonable.
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Online home valuation programs and why they are usually inaccurate

The online home valuation websites are in high demand for spot checking a price. They are fast, easy, and free. 
Online home valuation graphic: same House Different ValuationsEveryone wants an easy answer, but often the easy answers aren’t all that accurate.

Online home valuation confusion

Sometimes our clients present us with “THE VALUE” of property per one of these free online home valuation websites sites and in some cases, they challenge us to disprove it (Zillow says it, or some other site, so it must be right, goes the thinking).  If they want to buy a house which is listed for more than the auto-comped value, it may cause some emotional anguish.  And if they want to buy one which is listed for less, they may feel a little giddy – unless multiple offers are looming.

The same is true with home sellers.  They agonize when Zillow, Trulia or some other big name site places a worth on their property which is less than what they feel it should be.

Often the best way to respond is to show many of the online valuations and not just the one the client is focused on (often that’s either Zillow or Redfin, but some are attached so some other site’s numbers.

What might surprise a lot of people is the huge discrepancy in values given.

Sample auto comp values online

A good exercise is picking a home that you know fairly well and then seeing what the online home valuation tools say for each one. I picked a home that I know and ran the address through several websites that provide automatic pricing info. Here are the results, from low to high:

Not included in online home valuation study:
Eppraisal $2,072,000 (too high)

Included in the online home valuation study:
Chase $1,721,800
Collateral Analytics (via Realtor.com)  $1,671,000
Redfin $1,644,906
CoreLogic (via Realtor.com) $1,631,300
NAR RPR $1,617,440 (subscription only for Realtors)
Zillow $1,580,300
Quantarium (via Realtor.com) $1,566,759
Bank of America $1,504,391

(Please note: the Trulia home value estimator is the same as Zillow’s Zestimate because Zillow owns Trulia.)

From top to bottom, the amount varies by $217,409! That’s a 14% gap between top and bottom. Had we included Eppraisal, it would have been even crazier.

How can the online home valuations disagree so much?

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What Are CCRs?

CCRs are the Covenants, Conditions, and Restrictions  (sometimes “Covenants, Codes & Restrictions”) for a neighborhood, subdivision, condo or townhouse community.  They are drawn up by the builder or by a board comprised of the builder and a few others who want to set the neighborhood standards. Sometimes you’ll hear them called CC and Rs or CC&Rs.

The CCRs  are put in place, usually for a set number of years such as for 30 or 35 years, with automatic extensions of a prescribed number of years (such as 5 or 10) unless the homeowners in that tract or area vote t hem out.

The weirdest time line I ever saw in CCRs referenced something like “until the death of the last living great grandchild of…” and it mentioned one of the Kennedys. Odd, but apparently legit.

What are the CCRs about?

Ordinarily the CCRs tell us that homes cannot be too small, that livestock cannot be raised at the property, that home owners may not drill for oil or water, and many other kind of common sense things.  The older ones will also state that the house must have a minimum value – often so small it might make us chuckle.

 

CCRs sample one

 

Additionally, the covenants, conditions, and restrictions will state what kind of signage may appear (only for sale and for rent signs, for instance, no billboards), and normally there’s a admonishment against noxious or offensive materials such as rubbish piling up on the property.

Newer CCRs, especially in condo communities or townhouse complexes, may have restrictions on things like what color the curtains or blinds must be if facing the street (white or off white or beige only). Often they state that garage doors must be fully down except when vehicles are entering or exiting. Some communities, like Rinconada Hills in Los Gatos, do not permit you to park your vehicle in the driveway overnight – it needs to be in the garage.

CCRs only one car on the street allowed

Many disallow washing vehicles in the complex. Right now that’s moot since the drought has the water company prohibiting all of us from doing that.

Condo and townhome CCRs

In condominium and townhome complexes, the CCRs are crucially important! Some of them have rules like:

  • no more than 2 pets
  • dogs may not be of these breeds (list)
  • dogs may not weigh more than 20 pounds (or some other number)
  • laundry may not be dried on balconies
  • storage may not be left on balconies
  • laundry and dishwashers may not run after 10 pm
  • only people over the age of 55 (or some other age) may live at the complex

And MANY other clauses. Always always read the CCRs !

Illegal restrictions in the CCRs

Many years ago, some CCRs also had restrictions on who might buy or live in a neighborhood (racial, religious, and other restrictions).  This is illegal today, of course, and so the first page of any CC&R document you see now will have a large disclaimer stating that any fair housing violations are illegal and are null & void. (At least it should be there.)

Click on the following link to download the PDF of the typical CCRs cover sheet.

Since the C C & Rs “run with the property”, until recently we were told that they cannot be amended. Want to see the cover sheet itself? Now, though, thanks to recent legislation, those offensive restrictions can be stricken from the CCRs.  (more…)

Rental property down payment

How's The MarketInterested in buying a rental property?  The first question to ask is if you want to buy it for cash flow or for appreciation.

Here in Silicon Valley, most investment buyers are looking for long term appreciation rather than to get a monthly source of income. In some areas of the country, you can put a small down payment on a property and break even each month. In other areas, that would create a negative cash flow situation.

Here in Santa Clara County, and the greater San Francisco Bay Area, rental values are relatively low when compared to purchase prices. That translates to a much larger down payment being needed to break even each month, let alone have a positive cash flow.

Rental property down payment needed in Silicon Valley

Some consumers believe that a 20% rental property down payment would do the trick to get them started as a real estate investor since that’s the most common amount for owner occupied homes.

While 20% down may work in some places. In most of the U.S.  you’ll need 30% down to be “cash flow neutral”, meaning that you aren’t losing money each month.  In pricey Silicon Valley, though, often it takes more than a 40% down payment on an investment property just to break even.

A few years back, a friend and past client asked me exactly this question. At that time I did the math and it looked like she would need to put more than 52% down just to have a neutral cash flow. Today I’ve updated it.

Depending on where and what you buy for the $1 million budget ,I suspect that the amount of rent collected each month would probably run between $3,000 and $4,000.

Side note:  with a condo or townhouse,  insurance coverage is probably going to be a lot less costly than with a single family home.  The estimates below are for a townhome.

 

Monthly condo costs - estimate

 

If my calculations are correct, you really need to put more than 50% down to buy this particular Santa Clara County townhome and have it support itself.

Is that a good deal?  Not really. At least not if your main focus is cash flow.

There are other places in the country where you can put a lot less down and break even or have a positive cash flow.

Of course, cash flow is one motivator.  Another, though, is appreciation.  Depending on your own goals, you may be far more interested in appreciation than cash flow.  If that’s the case,  Silicon Valley may be exactly what  you’re looking for as an investment buyer.  Those places where the down payment can be smaller may not have the same upside potential with appreciation as we have here in the San Jose area, or the San Francisco Bay Area as a whole.

Interested in becoming a real estate investor? Have a good down payment saved?  Please call or email me and we can chat.  If Silicon Valley isn’t the right place for you to make your real estate investment, I can introduce you to wonderful Realtors in other areas where the numbers may be more favorable.

 

See also: Buy a Los Gatos home or real estate investment property

 

 

 

Should You Buy or Sell Your Silicon Valley Home “As Is”?

For Sale As-IsWhat is an As Is Sale?

Many Silicon Valley home sellers want to sell their homes “as is” (or “as-is”). And most homes in today’s market are. But what does that mean, exactly?

Does it mean that the seller has made no repairs or renovations before listing the home? Or that they do not have to disclose if something is broken to a potential buyer? No.

As is means that the home will be conveyed to the buyer at the end of the transaction in the same general condition it was in on the day that the buyers wrote the offer. If the roof has leaks, the crawl space is full of termites, and the appliances do not work, that is how it will be on the day escrow closes.

What it means is that the seller cannot let the property condition deteriorate during the course of the escrow.

The seller must continue to maintain the home and land in the same general condition. So if the lawn was green and well trimmed, the seller cannot suddenly let the grass die and neglect to mow it. If a baseball breaks a window after the buyer and seller have entered into contract, the seller must repair it. The condition will not have to be better, but it should not be worse than it was on the day the buyer and seller agreed on the price and terms of the sale.

While the contracts most agents use in Santa Clara County and nearby today have “as is” as the default sales agreement, that doesn’t mean all sales are as is.

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