Getting A Good Deal — in this Market?!

Finding a Good Deal?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.

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Will buyer’s agents become obsolete?

Buyer agent and clients viewing a home - Will buyer's agents become obsoleteReal estate is always shifting, and now that is more true than ever. Will buyer’s agents become obsolete with the cataclysmic transitions we’re facing? Today we’ll touch on:

  1. The role of expertise in real estate transactions
  2. What do buyer’s agents do?
  3. The impact of the recent NAR settlement and industry changes coming

Do consumers value expertise? If so, don’t expect that buyer’s agents become obsolete.

After all, a lot of data is online. The thinking goes, travel agents are mostly gone and journalists are being replaced by bloggers.  It’s possible that this will be the case for buyer’s agents in the future, as there is a trend in thinking that there are no real experts if everyone has access to information.

A few years back, I heard about a book that takes on this concept regarding expertise and it really resonated with me. The title is “The Death of Expertise: The Campaign against Established Knowledge and Why it Matters“. Confession: I have not yet read it, but want to do so. I did hear it discussed on KGO Radio by Pat Thurston, who was one of the radio personalities there, and her take on it was that it presents the concept that everyone’s opinion is as good as everyone else’s opinion.

That certainly does happen in real estate, along with the persistent idea among some consumers that buyer’s agents don’t really add any value other than unlocking doors. (I wrote about this idea that “it’s all on the web” so buyer’s agents aren’t perceived to be needed back in 2013.) Even this morning I had someone email to ask me if I would split my commission if they bought a home with me and would “do all the research”.  The answer, by the way, is no.

You can have a 20 or 30 year veteran Realtor with oodles of transactions, but a home buyer armed with a real estate app may not always know what he or she doesn’t know. And that’s dangerous. Information does not equal knowledge or skill.

Will buyer’s agents become obsolete? Before thinking that they will, learn what they do and what they know and why their clients appreciate them.

What do buyer’s agents do that consumers don’t do as well for themselves?

A good buyer’s agent will be able to help with these items (and many more, depending): (more…)

Valuation: Price Per Square Foot is only Part of the Answer

Additons and price per square foot values - house being added onto in Silicon Valley - price per SF with add onsThe “price per square foot” data point can be useful between uniform or very similar homes, but using it with dissimilar properties (size, lot size, school districts, and other elements) will result in a wrong valuation and upset home sellers and listing agents.

An important real estate principle to know is that smaller homes nearly always sell for more on a per square footage basis than 10-15% larger houses in the same area. The reason why is that kitchens and bathrooms are the most expensive rooms, but often there is just 1 kitchen and a similar number of baths with smaller vs larger homes.

Even if the properties are comparable in many ways, more than 10 or 15% difference in square footage can make the price per SF very wrong.

When to use the price per square foot data set

If evaluating condos in the same complex, such as a 2 bed, 2 bath with 1,000 SF, it makes sense to compare units in the same complex with 900-1100 SF (plus or minus 10%). If nothing is available, going to 15% may work, but the data won’t be as reliable – 850 – 1150 SF.

In a subdivision of houses that are all about the same age and with similar lot sizes, the target would again be 10% of the home size. In a 2,000 SF house, that means plus or minus 200 SF, ideally, but not more than 300 SF.

If a 1500 SF house is included in the analysis of a 2,000 SF house, it will mislead the home owner because the 1500 SF house will sell for more on a per SF basis than the much larger 2,000 SF house. The seller will overprice the home if doing that.

As one factor among many, it’s completely fair to include the price per SF when trying to determine what a home’s probable market value ought to be, as long as it’s within that 10% range, ort 15% at the very outside.

 

Other factors that influence valuation – beyond the price per square foot

Remember, too, that a house, condo or townhouse isn’t worth one exact number, but a range – because the terms involved also impact the sales price. Although price per square foot is one way of finding approximate value, often is not the best, especially if you use it alone, because there are other factors besides the square footage of the house.  Here are some of the other factors that can mess up that valuation based on price per square foot alone:

Location and lot / land differences and price per square foot

  • precise location (view, proximity to something undesirable)
    • for example, one house is next to tidy homes, but another has a junky neighbor or two
    • one house is internal to a neighborhood, and another is on a busier road
    • one residence backs to commercial property or a tall apartment building, which another backs to a single story house
    • whether the street is a good one or full of parked cars & RVs
    • whether the house is below or above grade/street level (most people don’t prefer being down from the street)
  • lot size and usability (flat vs sloped)
  • lot shape & access (flag lots may sell for less than homes directly on the street)
  • back yard size

Home changes and condition
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Price mirage

Price MirageA price mirage happens when the list price of a home for sale is far below what the sale price will be. Right now this is a very common strategy from listing agents and sellers, and buyers need to know about it.

Those homes are not really available to many of the home buyers who are excited about them and think that it will sell at or only 10% or so above list price. The gap is much higher than that, particularly if a property sells in the first two weeks. We sometimes hear of homes selling 20% or more over list price.

What is a price mirage?

Sometimes the listing agent and sellers very intentionally deeply underprice a property by 25% or more (to see how far the market will bid it up). I can think of a few local Realtors who are well aware that most of the buyers they attract with artificially low prices cannot truly afford their listings. But those buyers will crowd the open house and make offers which are low (a waste of many people’s time).

The articles about homes selling for $1 million or more over list price are becoming more common. Recently we were working on an offer along those lines, but the house sold for far more than that, about 49% over list price. It’s staggering.

Often the home is priced a a little low, but so many buyers pounce that the price gets driven up and out of reach, and that can surprise everyone. In these cases, let’s say a house looks like it should be worth $1,035,000, but the home goes on the market at $1 mil even, but buyers are so desperate that it gets many offers and sells for a little over $1.1 mil. That is common and has been for years. That’s not a price mirage because the list price wasn’t tremendously less than what appeared to be the probable sale price.

What we are seeing now is along the same lines, but with lower list prices and higher sale prices. Buyers cannot look at the list price and know if they can afford the property or not. They wonder if it’s underpriced by 10%, 30%, or even 50%?

What should home buyers do about cheap looking homes that might be a price mirage?

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Preparing to buy your first home in Silicon Valley

Preparing to buy your first home - couple looking at computer at their dining room tableIf you’re mulling around a home purchase, it’s a good idea to formulate a plan. Preparing to buy your first home will take some time, even before you see any homes. Just thinking about it can be a little overwhelming!

In this article we’ll share tips for folks interested in buying how to get started:

  • video discussion of the first three steps
    • online research (various areas of interest to you)
    • talk to folks you know who have recently purchased about their experience so that you can learn what to anticipate
    • talk with a Realtor (or a few of them) and learn how they work
  • a list of things to consider researching when considering home buying
  • a list of other resources at the end

Preparing to buy your first home: 3 steps

 

When preparing to buy your home, slow down, make a plan, do some research online, talk with recent home buyers, and then speak with a Realtor (or two or three).

Once you select a Realtor, he or she can help you to create a path forward. Often they’ll ask you about setting priorities (and as much as possible, for you to rank them), your budget, your tolerance for doing repairs, your desired timing, and a few other things.

The folks who get into the most trouble with a real estate purchase are those who do it spontaneously.

What kind of research should be done when preparing to buy a home?

There are many areas you’ll want to investigate:

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How do additions impact resale value and appraisal value?

Change for the betterMany times, homeowners look at the size of their home and assume that all living space is equally valuable on a price per square footage basis. That’s not always the case.

Expansions: Distinguishing Square Footage

In Silicon Valley, we frequently see tract neighborhoods of smaller houses, say 1,000 to 1,500 SF, in which additions have been made. Sometimes it’s an unattractive “pop-up” or “box on the top” which doesn’t match the home’s design or the look of the neighborhood. Other times it’s a tasteful expansion which blends seamlessly into the home. So how differently will these be priced?

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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…)

Silicon Valley homeowner associations: they’re not all alike

Read the HOA Documents for your Silicon Valley homeowner asssociationSilicon Valley homeowner associations vary widely, depending on a number of factors.

What do you think about living in a neighborhood with an HOA, a homeowner’s association?  For many, living within an HOA means a nice, tidy community.  For others, it’s like signing up for Big Brother telling you way too much about what you can and cannot do.

Silicon Valley homeowner associations – the scope

  • Some Silicon Valley  homeowner associations are small, have limited authority, and are self-managed
    • this could be a tiny group of townhouses with Planned Unit Development ownership, not condo ownership, on a public street
    • some HOAs only cover a shared pool and recreation facility and have no jurisdiction over landscaping, home paint choices, etc.
  • Some HOAs here are large, have a tremendous amount of authority, and have professional management
    • this could be for a condominium complex, for houses or townhouses in a gated community such as The Villages, or anything in between
    • the more the HOA controls, the larger the dues and larger the chance of the HOA financially impacting your property when you sell (not so much if the HOA only covers a shared pool)

Silicon Valley homeowner associations area vary tremendously in what they can and cannot do, and also in the types of rules which are enforced.

In Silver Creek, in the Evergreen area of San Jose, you can look around and see a vast collection of stuccoed houses with tiled roofing.  So it would not surprise you if your roof needed to be tile there. (more…)

Post-Tension Slab Foundations

Post-Tension Slab FoundationPost-tension slab foundations are found in newer homes. Here in the Bay Area, a structure’s foundation needs to withstand not only the load of the building, but expansive soils, and the ubiquitous earthquake. Certain foundations are better at handling these conditions, and are seen more frequently here. One of these which is gaining popularity in new construction is the post-tension slab foundation.

What is a Post Tension Foundation?

Post-tensioning is a technique that was developed and first put to regular use in the 1970s, and approved methods have been published by the Post-Tensioning Institute (PTI), a nonprofit organization, since 1976. Sometimes called post tensioning, or simply PT, this is a type of slab foundation with added reinforcement.

In essence, a slab foundation, aka a slab on grade foundation, is a concrete base only a few inches deep, sitting directly on earth. You might see this for a small shed or playhouse, but larger structures are almost always reinforced, usually with rebar, and a fabric water barrier is lain out before the concrete is poured.

A post-tension slab is reinforced with grids of steel cables cased in plastic sheathes instead of rebar. After the concrete has hardened around them, the cables are pulled taut with hydraulic stressing jacks. This pre-stressing of the concrete creates added compressive strength to the foundation.

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Want to buy a Silicon Valley home?

money faucet graphic If you are tired of paying $3,000 per month in rent for a 1 or 2 bedroom apartment and have decided that you want to buy a Silicon Valley home, you may find that it’s complicated and scary as the San Jose area is in a very deep seller’s market. Let’s take a quick look at the major challenges and decisions you’ll face as a potential Silicon Valley home buyer.

Major obstacles include:

  1. lack of affordability
  2. saving the down payment (and other costs)
  3. wanting what you can afford
  4. market conditions (homes selling with few or no contingencies & well over list price)

We’ll take these one at a time.

Want to buy a Silicon Valley home? Challenges in getting it done

Affordability – or the lack of it

The cash challenge - the Lincoln 5 dollar bill as a jigsaw puzzleChallenge # 1: the cost of housing is staggering, whether you are renting or buying, whether you are a first time home buyer or you’ve just relocated from somewhere else less expensive (meaning almost anywhere). Homes under a million dollars are few and far between, as the newspapers and media have recently announced, and the median price of houses in Santa Clara County is about $1.665 million, with the average price more than $2 million.

Of course, condos and townhomes are less pricey, but they will have Home Owner Association or HOA dues to factor in.

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