This month I’ve celebrated my 20th year in real estate. When I began, in Feb 1993, it was a slow time, a buyer’s market. Realtors used to say “keep it alive until ’95“, when they expected it to recover. And recover it did – by the end of the decade, we saw another extremely limited inventory with intense buyer interest and once again (just like the late 80s), a price run up. It was crazy. Some homes were getting lots of offers – 5 or 6 at a time, sometimes even more! In 2000 and 2002 it was crazy. I remember getting 15 offers on one house in Cupertino.
Huge numbers of multiple offers in Silicon Valley real estate sales today
Last year, though, was another one of those wild markets but much worse. One of my listings in Santa Clara last year got 20 offers, and another one in Blossom Valley got 22 – and they were not under priced!
In the last week, I’ve heard of more than 70 disclosure packages going out on one Cambrian house (it got 32 offers), and another one in South San Jose / Santa Teresa selling 55% over list price. Not to mention the fact that many offers are all cash and a whole lot of them, whether cash or financed, are without contingencies of any kind – no inspection, loan or appraisal contingencies included.
These numbers are mind boggling. We used to have rules of thumb – 1% per offer or $10,000 per offer over list price. But when you’re talking about dozens of offers, those old rules of thumb don’t work so well. (They work better in single digits.)
In many cases, approximately half of the number of disclosures pulled will become offers. That ratio is higher, perhaps 2/3, when the property is turn key, and it’s lower if it’s a fixer. A property that has scary repairs needed (foundation, drainage, big structural items) may get 25% or fewer offers per disclosures reviewed. If a house has 100 disclosure packages taken out, we might think of it as 50 offers – but it could be 25 or it could be 75 offers. No one knows until they are turned in. (Back in the days of small numbers of multiples, there were times when 4 agents said they were going to bring offers and I got zero, and others were 4 said they were writing and I got 8.)
Home prices are rising, so don’t rely only on the comps
But we do know that right now, prices are going up, and in general it’s STEEP price increases that we are seeing. The comps are yesterday’s news. Many homes, maybe most, will not appraise in this overheated market. If you want to buy or sell a house, it’s important to also project forward where prices are going.
Below, please find a chart of the annual average price per square foot for a neighborhood along the Los Gatos and San Jose (Cambrian Park) border near Alta Vista School where many of the street names begin with “Blossom”. Some homes are in Los Gatos 95032 but most in San Jose 95124. In recent years there were a few short sales or REOs which pulled prices down. But overall, from the late 90s to today, there’s a general upward thrust in pricing. It looks to meas though 2013 will very likely bring sales prices back to the peak of the market. In fact, things are coming up faster now that the red line would indicate because the Silicon Valley real estate market is so overheated and we are seeing not just multiple offers, but crazy high numbers of them. Anyway, as a buyer, you need to see where that red line is going – not just where it’s been. Where it’s been (the comps) is yesterday’s news. The market is a good 30-45 days ahead of that.
This is a tough time for buyers. Many homes won’t appraise, so to be successful you need more than 20% down to buy a home and be able to close on it in most cases. It’s not a happy thought that the appraisal value is going to be less than the purchase price. And it’s maddening to know that if you are to be the successful bidder on a condo, townhouse or house, you have to practically give away all of your rights to be selected by the sellers as the buyers who can purchase the home.
If you want to buy and sell a couple of years later, this is not the market for you. A lot of people are paying too much, but that’s the only way to buy at all right now. The market is cyclical, though. Will we have another downturn in the market? You better believe it. Let’s hope it’s not too soon.