Silicon Valley is mired in an extraordinarily deep seller’s market, and has been for a couple of years now. Want to buy a home? No one who understands the market at all will tell you that it’s going to be easy. If you are serious about becoming a home owner rather than a shopper, it’s time to get serious about what it will take for that to happen.
In a deep seller’s market, it’s very helpful to have a game plan or strategy for purchasing a home. The best place to begin is with an understanding of your competition and the inherent risks of buying in this climate.
- Approximately 30% of all sales in this area are “all cash”. Not all cash buyers are savvy and may make mistakes (such as vastly overestimating the value of a cash offer – sometimes the lowest price comes from a buyer without financing). All cash buyers need to be educated, too.
- When homes sell in under 2 weeks and with multiple offers, there’s a very good chance that the winning bid came in with no contingencies for inspection, loan, or appraisal. Sometimes it’s all cash and non-contingent on the normal items.
- Most home buyers will have done a lot of research on how to compete in multiple offer situations. A few years ago I wrote a series of tips and they are still good today. Major hint: it’s not always only about price or even primarily about price. The terms matter, and so do a few things which are harder to measure (and can include all sorts of things – even whom you hire to work with you on the purchase). https://sanjoserealestatelosgatoshomes.com/summary-of-tips-for-multiple-offer-situations-silicon-valley-real-estate-contracts/
- If you dawdle, you risk being priced out of the market. Sometimes when beginning to shop, home buyers who are new to the game feel that they have power and can “wait until the market improves”. The problem is when there is deep scarcity of inventory and a ton of amply able buyers, the prices are going to go up steeply. If you take a year to buy, most of the time – unless you are extraordinarily lucky – it will cost you dearly. I have seen buyers wait so long that they basically used up their entire down payment. Since 2 years ago, prices are up about 25% to 30% in most of Santa Clara County and the San Jose area. If you have been looking for 2 years, your down payment has been spent. This is a real case of time versus money.
- The greatest fear that buyers have when purchasing in a raging seller’s market is that there will be a correction or crash, and they’ll be left with an over-investment in real estate. Put another way, they don’t want to overpay and they really do not want to be upside down in their home. No one wants to overpay. But right now, many homes that sell will not appraise (many do, but quite a few don’t).
So that’s the starting point – steep competition, a lot of “all cash” and a lot of “no contingencies” – when it comes to homes newly listed and gleaning multiple offers right away.
Getting ahead of the Silicon Valley home buying competition
A realistic assessment of where things are likely to go is important. Often we can get a good sense of where the price will end up on a home based on the comps, the recent level of overbids, and the perceived numbers of offers coming in on a particular property. Recently I was working with some nice folks on a potential offer in Saratoga. From all that I could see based on the comps and the overbids typical for that segment of the market and the level of interest, I thought the purchase price would be 10% or more over the list price. The buyers decided not to write an offer but had been planning to come in only at list price. As it turns out, the 6 anticipated offers turned into 12, and the price went even higher than the 10% over that I had told them to expect. Although I had given them all of the data and explained how the market worked, they remained perplexed as to what had happened, feeling it didn’t make any sense, no rhyme or reason. They felt quite strongly that it was only worth list price.
Well, there was a rhyme and reason which I could see and did my best to convey. More demand usually equals a stronger, higher priced offer. At the end, you will not have a home that “comps out”. In a rising market, you will have the most expensive home that has ever sold in that area for that condition. It takes a very strong stomach to buy under these circumstances.
What works that is not so scary?
A strategy I have used very successfully (in addition to the tips listed in the series of articles linked above) is to look at properties which have been on the market a month or longer. Some are there because of nothing more than the wrong list price. There’s no guarantee that the seller of that property will be realistic, but it’s worth a shot and often a month into marketing time and that seller is ready to take a lower price, even if he or she isn’t ready to accept a price reduction. At other times, there is a problem with the property but it’s fixable. Perhaps it is a tenant occupied home and it’s a bit of a train wreck. The condition can be fixed! If it’s been for sale awhile, try a lower offer. You may be surprised to get it!
Another strategy which has helped many times is to work on making the terms and entire package of the offer so attractive that the price becomes far less important. I have seen buyers with a loan beat out those without one many times because they put together a better complete package (see that list of tips for multiple offers to get an idea of what goes into that). It also can help a great deal if the buyer’s agent is well known, well trusted, and well liked, and has made an effort to set the stage properly ahead of time. This may not always work, but often it does.
What about asking the listing agent to write up your offer? That may bring success of the time, but many of the best agents want you to come in with your own agent, for many, many reasons. If you come alone, you will appear to be a buyer with no loyalty. If you don’t buy the listing agent’s listing, you’re on to the next, right? It’s not very flattering if a buyer only wants to work with you because it’s your listing. Most successful Realtors are not transaction based, but relationship based. They don’t feel that you must buy any one house because they know you will buy some house with them. At least, that’s the case if you are a loyal buyer (and not a transactional one).
Hire a good buyer’s agent who can guide you. By that I mean someone you will trust and rely upon. If I have buyers and crunch data for them and help to analyze the market to give them good research upon which to rely, it can be really frustrating if they simply ignore it. I also know that if they won’t use good data, we probably cannot work together. (I don’t like to “sell”. I like to educate. Most of the time, good information and statistics etc. will speak for themselves.) If you don’t trust your agent, move along and find someone you can trust. It is key to your success!
There is no magic bullet to buying a home in a deep seller’s market. Most of the time it is a combination of persistence, working with a great agent and accepting his or her insight and guidance, and having a firm sense of how far out of your comfort zone you are willing to go.
Want to chat about home buying? Give me a call and we can set up a confidential, no obligation appointment to chat for an hour or so.