What do you need to know if you are shopping for a home in Silicon Valley right now?
First, you need to understand that possibly more than in any other time, it’s a deep seller’s market, meaning you most likely will be competing against multiple offers. Homes for sale are not as abundant as normal, and there are a lot of buyers trying to purchase a house or condo in the San Jose area. Not enough supply, too much demand equals multiple offers and rising prices. (You can check the current Santa Clara County real estate market statistics at popehandy.rereport.com.)
Secondly,if you want a chance at buying a property in Santa Clara or San Mateo Counties, you must have a great “offer package”. It is imperative that you have a solid down payment, 20% is a minimum but most often it takes 25% or more to convince sellers that they should take your offer over the others. Cash is king and you may get out bid by an all cash offer, especially if it’s also a non contingent offer.
If you include any contingencies for inspections, loan and appraisal, they will have to be fairly short to compete in multiple offers. A 17 day loan contingency is a pretty sure fire way to get eliminated from multiple bids. When there are 10 or more offers, frequently at least 1 or 2 will be “all cash” and just as many have no contingencies. Biggest obstacle to overcome is the appraisal contingency. Because prices are rising so fast, many homes won’t appraise – and sellers know it, and therefore won’t take your offer if you have an appraisal contingency in place.
Third, once you select your home, before writing the offer, do a lot of homework. Check out the school district scores (schools drive the long term value of the neighborhood). Read any pre-sale inspections (better listing agents will have a termite and home inspection on a single family home) and make sure you understand what is in the reports. Learn about any natural hazard zones (earthquake fault zones, flood plains, liquifaction areas) and whether you would be required to carry special insurance. Investigate the neighborhood by revisiting the street several times, at different times of the day and days of the week. Check on things like too many cars on the street, noise levels, graffitti too.
Remember that there are things you can change (color of paint, carpeting) and things you cannot change (neighborhood conditions, school scores, natural hazard issues). High voltage lines will always be there, as will a freeway or train tracks – so think long and hard before deciding on purchasing a home with an adverse condition that you can’t fix.
Also, on the short list of things to do (not an exhaustive list!) when home buying in Silicon Valley, see a lot of homes if possible. Do not just buy the first home you see. In my experience, most buyers need to see about 10 homes, sometimes 20 or 30, before they feel ready to purchase. Open houses are a good way to get in and out of a lot of homes quickly and easily. Take note of things like the layout, the light, noise, potential, and things you might be needing in a home.
Study the comps with your agent’s help, but realize that in an appreciating market such as we now have, the comps are yesterday’s prices and homes are selling for more than what similar properties went for a month or two ago. If you only bid based on prices from the past, you are likely to be low – consistently – and miss out while prices continue to go up.
Finally, understand the pros and cons of the two available purchase agreements, CAR and PRDS. In our area, when you purchase a home you might use the California Association of Realtors purchase agreement. Or, you might use the Peninsula Regional Data Service contract.
Why does it matter which one you use?
One is an “as is” agreement. The other stipulates that at closing the home must be in a certain kind of condition (a few of them include: no leaks in the roof or other places, no cracked glass, all systems operating).
One says that all repairs must be done by a licensed contractor (as opposed to “in workman like manner”).
One form lays out penalties for defaults (which can mean delays in closing). The other doesn’t.
Some agents will just put either of these forms in front of you – but you may want to be familiar with both so that you can make an informed decision about which one to use. Or perhaps you might want to incorporate some of the concepts from one into the other (e.g., what happens if the seller isn’t out on time?).
If you are working with a good agent, he or she will educate you as you go through the homes, and will point out things that might not jump out at you if you go it alone. So lastly, I would add, “hire a good agent”. Choose someone knowledgeable, experienced, attentive, and insightful. If you tell your agent that running or mountain biking is your hobby, that professional may suggest seeing a particular neighborhood that has an extensive network of trails nearby. Find a good agent, tell her or him what is important to you, and then learn from your Realtor as you go through neighborhoods and homes.
For more information on home buying, please see the chapter on my website about purchasing a home. There you will find a lot of information, plus access to links and free reports:
http://www.popehandy.com/buying/index.cfm
Happy house-hunting!
