Why are lease options to buy so unpopular?

Kitchen scene with the words Lease options to buy - the good, bad, ugly - why are they unpopularSometimes I’ll get an inquiry from someone interested in lease options to buy property in the San Jose area.  It’s been a while, but I remember that phone call pretty vividly.  “I’m tired of wasting money on the rent”, she explained.  Hoping to locate one, she was phoning the agents of San Jose houses for sale – maybe one of them would do a lease option?  Not likely.

Why are lease options hard to find in Silicon Valley?

It is a challenge to find a lease option in the greater San Jose area for a number of reasons, most of them related to the extra risks involved as opposed to simply renting or selling the real estate outright.

1 – Cash needed at close of escrow: An overwhelming majority of the home sellers here want their cash at close of escrow, so the buyers can be all cash or part cash and part loan (20% down, for instance).  Most real estate sellers want to take the cash from the property being sold and do something with it immediately – and the majority of the time that means putting it into another home in which to live.

2 – Don’t want to be a landlord: Doing a lease option means that not only will the owners of the property not get their cash right away, but they also have to become landlords in the meantime.  If they pay a professional property manager, that may cost 8% per month in overhead, too, so it cuts into any profit.

3 – Lease options are risky: With lease options, there is far more risk for the seller, of course, but also for the buyer!  (And by extension, real estate licensees who get involved with lease options.)

  • The seller risks a default by the buyer/tenant and then having to go through the trouble of evicting him/her/them.
  • Pricing risks for both seller and buyer:  the purchase price is decided upfront, but the sale isn’t finalized for a year or more.  During that time, the real estate market could appreciate like crazy (leaving the seller to feel that the house is sold for too little, less than market value) or the prices could fall (with the buyer unable to complete the sale since the property wouldn’t appraise – thus losing all of the down payment in the process).  Either way, buyer or seller could feel unhappy and cheated. (more…)

When a parent, spouse or loved one dies – what do you need to know or do about the house?

Death and Real Estate - Dealing with a Property after A Loved One DiesWhen a parent, spouse or loved one dies and he or she owned a home, there’s a lot for the survivors to do in addition to the very real and painful process of mourning. I have been through this with my own parents (and their house in Saratoga), a great aunt in Willow Glen, and many clients in San Jose, Los Gatos, Palo Alto, and elsewhere in Silicon Valley.

Quick summary of what to do regarding the home first and soon when a loved one dies:

  1. Engage the help of of an attorney and tax professional within the first 30 days or so. Sometimes there are deadlines or goal dates that will help the beneficiaries, and if people take too long to connect with these professionals, some opportunities may close.
  2. Some attorneys are also tax professionals, but most likely these will be different people.
  3. A professional valuation of the home will be needed, usually done by a licensed appraiser, but sometimes a real estate professional can do a market analysis that is acceptable. The home does not have to be empty or cleaned out to have this done.
  4. If you need the names of good tax and legal professionals, feel free to reach out to your real estate agent (or to me, if you are local). Most of us have worked with trust situations and can provide names. Or ask friends and family who’ve recently gone through the same situation and were happy with the people that they hired.
  5. You will need several copies of the certified death certificate. Discuss how many with your tax and legal professional. If you sell or transfer the home, the title company will need it and it will be recorded with the county.

Death, dying, & real estate: where to begin when a loved one dies?

In terms of settling the estate, it is wise to first speak with an attorney and tax professional about the property to find out what is required and advisable.

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How long does it take to buy a home in Silicon Valley?

How long does it take to buy a home - calendar with target, house, moving truck, keys, bubblyHow 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.
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Can a real estate agent help you to buy a foreclosure?

San Francisco Victorian Homes - Can a real estate agent help you to buy a foreclosure?Can a real estate professional help you to buy a foreclosure? There are some nuances to this answer, but in short, it depends. We haven’t had many foreclosures in recent years, but once in awhile we find them popping up here and there.

There are several stages in the foreclosure related sales in California.  Often, homes somewhere in this quagmire are listed on our Silicon Valley area MLS or multiple listing service.  If a property is listed in the MLS, then yes, we Realtors can help home buyers with a distressed sale purchase.

The stages of foreclosure

  1. Pre-foreclosure (where payments have been missed and a Notice of Default or NOD has been filed – sometimes these homes are on the market and included in the MLS.

    If they’re in the MLS, I can help.

    If these properties are for sale, often these are short sales (but short sales are not always in pre-foreclosure – they may not have missed any payments).

  2. Trustee’s sale, or actual foreclosure on the courthouse steps. This does not involve the MLS or Realtors at all. There is literally no role for the real estate agent here unless you, as the buyer, want to pay the commission (most buyers don’t in this circumstance).

    There are some big caveats and warnings!

    First,  often what’s owed against the home is more than it’s worth and the only way to purchase a home here is to pay off all the debts (so it may not be much of a deal!). Some buyers who “bought” a home actually have only purchased the second deed of trust, not the first, and are left empty handed.

    Second, if you buy here, you get NO inspection contingency and must pay cash for the house.  End of story – no backing out.  Worse, you cannot inspect it ahead of time!

    Third, you are likely to be bidding against flippers and builders who can more affordably rehab the home than you or I could do.

    There are a lot of risks, so buyer beware!

  3. Bank owned or REO. REO means Real Estate Owned (by the bank).

    These are usually listed on the MLS and if so, I can help you with it.  Sometimes banks hold onto them between the trustee’s sale and prior to listing them with a broker.  Often this is only for a month or two but sometimes it’s longer.  If it’s not on the MLS, it’s very very hard, or maybe impossible, to buy it.

Want to buy a foreclosure? Want professional help to do so?

While it’s not hard to locate homes where owners have missed some payments, it should not be assumed that these houses are either for sale or that the owners have any intention of selling them.  In my opinion, it would be harassment if consumers showed up on their doorsteps trying to purchase a house where a payment has been missed.

Most, maybe all, of the residents there would be offended.  They may be trying to get a loan modification (it does happen, I’ve known people to work through it that way) or have family & friends helping them to get back on track. If it is not listed in the MLS (which you can find at MLSListings.com – the public portal of our agent multiple listing service), the odds are overwhelmingly against it being available to you.

The short answer to the question “Can a real estate agent help you to buy a foreclosure?” is that the answer is generally NO if it’s an auction on the courthouse steps.

Related reading:

What’s the difference between short sales and foreclosures? What is an auction?

See also these much older articles from the downturn:

So you think you want to buy a Silicon Valley short sale?

Short sales sell but often don’t close: why?

Browse Short Sale Listings & Bank Owned Properties for Sale in Los Gatos

Short sale and REO articles on the Live in Los Gatos blog (old articles)

 

Did you take take care of needed repairs when you bought you home?

Photo of drywood termite pellets - Home in need of termite repairsDid you do the repairs outlined when you bought your home?

Recently I showed a home where the owners had been there 7 or 8 years but never did any of the suggested repairs from their pre-sale inspections when they purchased the home “As Is“. The As Is part means that no repairs were provided by the sellers, with the idea that buyers would do whatever was needed later.  Desperate to get in when prices were appreciating fast, it seemed that most home buyers said “we’ll take care of it after we own it“.

But many of them forgot.

Today, with the whitest hot market I’ve ever seen in my career, most sellers fix the major items because they understand that it will net them a higher sale price. They fix the foundation, electrical, plumbing, waste lines, roof leaks, pest items, safety issues, and do whatever other repairs would make a buyer pause.

Some, though, don’t do any repairs at all – none! Often they are the same sellers who won’t stage their homes, or for whom scheduling a showing is a big effort, and maybe the disclosures aren’t so thoughtfully done. (In recent weeks I saw a disclosure package in which the sellers wrote on every page, “AS IS SALE” and refused to answer each question.) It’s a giant red flag that these may be difficult sellers.

If you want to maximize your profits, don’t let that seller be you. As Is certainly is the norm, but it’s As Disclosed. Wouldn’t buyers pay more if they weren’t worried about needing to do a lot of expensive and time consuming repairs? You bet. Confident buyers pay more. Let that be your mantra, home sellers.

Pull out your old file, find your inspection reports and review them, especially if you are preparing to sell your home

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Why Isn’t My Silicon Valley Townhouse Selling?

why is my Silicon Valley townhouse not selling?Why isn’t my Silicon Valley townhouse selling?” wonders the home owner. Even in a seller’s market some properties struggle. Real estate agents know why the home (or townhome, or condo) isn’t getting any offers, or worse yet, any traffic at all. In fact, local Realtors who’ve seen it might wonder if the owner of the property has seen the MLS printout at all!

Why isn’t it selling?

Whether your home has been on the market for a while or you’re just about to list it, here are some of the most common culprits to look out for:

  1. Terrible photos (or not enough of them): in our San Jose area MLS we are allowed 9 photos. How many are in your listing?
  2. More on photos: Would it be so hard to turn the lights on in the home when photographing the property? Real estate looks much better when well lit than when dark. Even beautifully remodeled kitchens can look so-so if the lights are not all on! A bright room will make you money…a dark room will cost you!
  3. Is there a video or virtual tour? **
  4. Is the listing syndicated so that buyers can find it on multiple websites?
  5. How is the pricing? Did you price a 2 bedroom townhouse as if it’s a 3 bedroom? That’s a very common but huge mistake! Compare apples to apples – the buyers are doing that, and when you bought your home, you did too!  Did you price the home using comps from 6 months ago, or comps from 3 miles away, or a different school district? Huge mistake!
  6. What’s your competition? Luxury homes will almost always take longer than a mid-priced home nearby – they’re in entirely different markets with entirely different demands. You’ve got to know what market you’re in and what buyers will be comparing your home against! If you’re a short sale, you need to be competitive against other short sales. Don’t be satisfied that your home is less expensive than a “regular sale”. They are two entirely different things!
  7. MLS description and comments: Don’t waste this valuable space! What kind of comments are in the precious few words allowed to describe your home in the multiple listing service? I have seen inane things use up that space. It is imperative that the descriptions be strong. For example, not “nice kitchen” (that could mean almost anything), but instead “slab granite countertops” – specifics that buyers want to hear about!
  8. Commission rate: if your townhome is a “regular sale” and everything in your area is selling with a buyer’s agent commission rate offered at 2.5% or 3% but you’re offering 2%, guess what happens? Little or no traffic, that’s what! Remember that agents are selling homes as their livelihood, and while many will overlook a low commission, many others will not. (When I list homes I run the CR of similar homes so that my sellers can make an informed decision on this point.)

**This is more important than ever right now with restrictions on showings and open homes during the pandemic. Read more about how covid-19 is impacting the real estate market in Silicon Valley and how to sell a home during the quarantine in my articles on this blog.

There are many reasons why a Silicon Valley townhouse might not sell, but marketing correctly will give you the best odds for success and, in a sellers market as we are in, may bring you a higher sales price. If yours isn’t selling, have a look at the price, the photos, and the description and see if anything is amiss, and check what’s happening with comparable properties in the market. These are the most important areas to consider. Other issues may be at play, but if these are correct your home should sell despite other challenges.
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Historic Homes, Willow Glen, Foundations and Red Flags

“Red flags” are clues that something is wrong or potentially wrong. They’re the hints that we need to investigate something further, the sign that we should be on alert.

Some parts of San Jose, and Silicon Valley generally, enjoy beautiful older homes with classic styling and beautiful finishing work.  These properties and neighborhoods are prized because they are not cookie cutter, not ranch, not too new.  They may be Victorian, Craftsman, Spanish, or any number of other interesting architectural styles.

One area of Santa Clara County that is well known for both charming historic homes and unfortunately also some structural issues among those older houses is the Willow Glen district of San Jose.

Willow Glen Crumbling Foundation Red FlagsBack in 2015 I showed some clients about a half dozen homes, all in Willow Glen, and we saw a lot of “red flags” which hinted of foundation problems, among others.  I thought I’d share a few pics I snapped at one of them with my old treo camera here.  All of these were taken on the front porch of this house – all visible structural  “red flags” before we ever set foot into the house.
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Selling a home when the owner has a serious or terminal illness

Tough PathSelling a home is always stressful, no matter the reason.  But some circumstances are tougher than others, and perhaps the worst is selling a house or home after the death of a loved one or in the face of declining health, particularly with serious or terminal illness, specifically if the sick individual is living at the home which must be sold.  Today we’ll discuss that situation.

How can you sell a property if the owner usually cannot leave for buyer showings and cannot really keep the home in top condition?

It is of course not ideal to have the property being listed, marketed and sold not show well and if the seller cannot step out when home buyers visit.  But there are strategies which may help.  The goal is to sell the home quickly, which normally will also cause the price to be as high as possible (given everything).

First, before the home is ever actively marketed: (more…)

What is a “Kick Out” Clause?

What is a kick out clause?A kick out clause refers to language in the contract which permits the seller, in some cases, to cancel the contract with the current buyer.  The current buyer is “kicked out” of contract.  Another expression for the same idea is a “release clause” – the seller can release the buyer under some situations.

This is a bit of a surprise to most Silicon Valley home buyers, who tend to think that they can walk away from a property during their contingency time frames, but a seller is stuck with them, no matter what.  That’s simply not true!

In the last few years, both the CAR and PRDS contract forms have been updated.  Both now include language that specifies the seller’s right to cancel the contract.  Both parties have rights and responsibilities. Failing to do what one has promised to do in the purchase agreement could potentially find that home buyer out of contract and without that home to buy.  There are many shades of gray, and few things are automatic.  If a seller is going to give a buyer the boot, there will be a “notice to perform” tendered first.

Let’s talk specifics.  When can the seller kick out or release the buyer? (more…)

Ratio of closed sales versus new listings in Santa Clara County underlines the inventory crisis

Many of the statistics quoted by news agencies and real estate information analysts refer to the “active” inventory as not just the homes which are truly available, but also those which are sale pending but with contingencies still in place (whether huge contingencies, such as bank approval on a short sale or the normal ones, such as property inspection and loan approval).  This often results in a more bloated look at what’s available than what is really the case, and it gives buyers the sense that it’s easier to purchase than it truly is. Let’s look at some statistics to see what’s happening over the last year, when it shifted from being a buyer’s market to a severe seller’s market for houses in Santa Clara County.

Normally there are more homes available (for sale, without a “sale pending” status attached) than there are closed sales each month.  But right now, the available properties are being gobbled up much faster than new ones are getting put onto the multiple listing.  Let’s view the graph to see the relationship between these two figures for houses listed and sold in Santa Clara County in 2012.

 

New listings vs sold throughout 2012 in Santa Clara County CA

 

At the beginning of 2012, please note that the new listings (the red line) outpaced the sold and closed properties (green line).   The delta between them shrinks over the course of the year, until in the fall they are nearly equal until closed sales far outstrip new listings.   That is a complete flip in the market, and it represents a shift in power from the buyer to the seller, too.  For those who prefer just the numbers, here they are: (more…)