Silicon Valley Real Estate Info
Yesterday I met with some seller prospects – actually, I consider them clients since I’ve been assisting them, updating them, and giving them staging advice for about six months now. Their Blossom Valley home has been sliding in value and I have been concerned about the situation and trying to get them on the market sooner rather than later since they do want to sell. A couple of months ago, I told one of them that they’d now have to bring money to closing; I asked if they knew this and if they planned to do it. “I think we’ll be OK” I was told.
But now it’s the middle of March and prices have slid about 10% over the six months we have been chatting about their home sale. They’d told me that they were ready to list so I had spent hours getting comps and stats and trends pulled together as well as the listing paperwork. But I knew the issue of “bringing cash to closing” was the major hurdle.
So that’s where we started. One of them was clear that this was an issue, but one appeared surprised. Before I said the amount, I heard “well we might be a short sale”.
“A short sale?” I was just surprised to hear that idea even floated.
Both of them are very gainfully employed. They want to move, but I don’t see a “have to move” situation. It was clear to me that the short sale concept was not well understood, nor the punishment it brings appreciated.
I guess it sounded like an easy answer. After all, wasn’t everyone else doing it?
Certainly, in this particular area of San Jose, and in this particular price point, a good 80% to 90% of the homes appear to be short sales – and they are dragging values down for everyone else.
Let me briefly explain what a short sale is and isn’t:
(1) What is a short sale?
- it is usually a pre-foreclosure situation
- the buyer cannot continue to make the payments and will go into foreclosure if the short sale doesn’t happen (or this will happen in the near future)
- there is a significant “hardship” (job loss, sickness, death, divorce) causing financial problems
- the owner wants to sell the home but cannot pay off the lender in full because the home has declined in value – there’s not enough equity
- it is going to hurt one’s credit badly, but only half as badly as a foreclosure
- short sales often do not go through – most of the time, they end up becoming full blown foreclosures
(2) What a short sale isn’t:
- it isn’t a help to people who simply want to upgrade and don’t want to pay off the bank
- it is seldom an option if you have other assets (like other properties or money in the bank) – the bank will want your money!
- it isn’t a “get out of jail free” card – there are built in punishments for those who must resort to doing a short sale (trashed credit AND paying taxes on any amount “forgiven”)
- a short sale is never a happy thing – it is always the lesser of two evils (vs foreclosure)
I explained to these nice folks that it didn’t appear that they would qualify for a short sale (no hardship, no inability to pay the loan etc.).
What options exist for Silicon Valley folks who want to move but have no equity?
Here are a few thoughts:
- A promise was made to repay the loan, so the obvious first answer is to wait out the market or come up with the cash to buy out of the situation.
- Walking away: In some parts of the country, we are again hearing about “jingle mail“, in which owners simply turn in their keys to the bank and walk away. I remember decades ago that happened in Alaska when the market there tanked. Now it’s happening here too.In Sacramento, where some owners bought a home at 50% more than the identical house is selling for now, some folks are first purchasing the new home (same floorplan as current one) at the cheaper rate, then walking away from their old home. In effect, they get a home with half as much mortgage. No, it’s not very nice. It’s defaulting (a strategic default) on their promise to repay a loan. The lenders could potentially persue them for losses. Will they? I don’t know – this is a crisis of epic proportions!
- Renting it out: another possibility is to simply rent out the house (rents are rising due to increasing demand) and to move to the next house.
I don’t think anyone now doubts that we are in a recession which is fueled by the housing crisis. For every person who just “walks away” from a house, that’s the recession deepening for everyone. I’m not going to encourage it – it worsens the economy and trashes the borrower’s credit.
Rents are increasing with this crisis. So my suggestion: rent out your house and move on if you can. Talk to the nonprofit credit counseling agencies. Give it a few years, Then call me when you’re ahead of the market and we’ll sell it for you. Or keep it until you have kids going to college and you can then use it to pay tuition.
Eventually, the market will improve. You don’t have to sell when it’s at a low point.
Thanks for reading this article – I hope you find this Silicon Valley real estate blog to be of help to you!
Please see also these related posts:
Underwater & Considering a Short Sale or Loan Modification?
What is a “Kick Out” Clause?
How Long Does it Take to Buy a Silicon Valley Home?
Short Sales in the West Valley Areas of Almaden, Los Gatos, Saratoga, Campbell, and Nearby
Real Estate Inventory & Sales in Silicon Valley’s “West Valley” Areas of Los Gatos, Saratoga, Campbell and Cambrian Park
Interested in Buying a Los Gatos Short Sale?
All posts relating to “short sales” on this blog for real estate in Silicon Valley
Which part of the Santa Clara Valley
is seeing all of this foreclosure and pre-foreclosure activity?
Depending on where you live in Santa Clara County, you may be seeing a whole lot of distressed properties on the market – or you may be seeing none at all. This is part of our current “bifurcated market” situation.
Generally, the more expensive areas of Silicon Valley (Palo Alto, Cupertino, Saratoga, Monte Sereno, Los Gatos, Almaden Valley and Silver Creek) are not suffering from a huge number of listings in which the sellers are in financial straits. There are some, though.
It is the less wealthy areas in San Jose (including parts of downtown, the east side, south San Jose, Santa Teresa, Blossom Valley) and the south county cities of Morgan Hill and Gilroy) where there is an inundation with short sales – in the lower price ranges especially.
Generally speaking, most short sales, preforeclosures and bank owned homes are priced below $600,000.
How can you tell if a home is in pre-foreclosure?
Homes listed for sale in your neighborhood of San Jose, Saratoga or Los Gatos that are in pre-foreclosure may look like any others available. They may have granite in the kitchen, beautiful baseboard and crown molding, new dual pane windows, and on and on. The sellers may have borrowed and borrowed to improve the property, be unable to make the payments due to job loss, divorce, or other problems, and now be in default on a loan, heading toward foreclosure.
This status usually doesn’t “show” unless you have access to the county records or have a subscription to a service that lets you know the status (and those services are no where near 100% reliable, by the way). Your real estate agent, who should have a subscription to the MLS with full information, can see a report at no cost that shows the foreclosure history. (Not all pre-foreclosures are short sales.)
What’s a short sale? Being in “pre-foreclosure” means that the seller has missed payments on a loan in which the real estate owned is used as collateral, or security. Let’s say a home is worth $1 million, but the amount in default is a small loan, perhaps of $25,000. If the home is sold, it can pay off the debt in full.
Sometimes, though, a distressed seller bought higher than the home is now worth. When prices fall (and if the owner bought the home with a low down payment especially), selling the home will not be enough to pay off the loan. So again let’s imagine that a house is worth $1 million, but the owners owe $1.1 million on it (and to sell they have to worry about closing costs to boot). By selling the home, foreclosure can be averted – but to do so, the bank will have to agree to not being repaid 100%. This is a “short sale”. (Not all short sales are in preforeclosure, though, as not all home owners of these properties have missed payments on their mortgage.)
We’re seeing a lot of short sales in the entry level markets. In these cases, current owners bought their properties a year or two ago – for 10% or 20% more than those houses are now worth.
In the higher-priced regions of Silicon Valley, it’s less common to see a short sale than it is a straight pre-foreclosure because someone just can’t make the loan payment (due to some new problem like divorce or job loss, or because the adjustable loan went up and the payments are now untenable).
Recently I viewed a piece on Forbes.com that said that San Jose was on it’s “top 10” list of good places to be a landlord. Investors, take note!
Recently I had a listing in Sunnyvale where an enormous tree graced not only the front yard of my clients’ house, but stretched over a next door neighbor’s yard and even over the neighbor’s roof. We got the home I’d listed sold quickly, but prior to closing, the neighbor complained about the limbs.
The sellers, wanting to close escrow on time, agreed to trim the large bough that threatened her roof. They only wish that she had mentioned it sooner so that it could have been a “non issue” during the time of the sale. Ideal would have been a request in spring, which is the better, healthier time for trimming a tree.
And more recently, something similar happened in Los Gatos (with a home not for sale). A property manager of a tenant-occupied house showed up on the doorstep of a tree owner whose large tree arches over the fence. The property manager demanded that the tree be trimmed and that the tree owners pay for it. “It is your responsibility,” she asserted. (Interestingly, she showed up with a gardener – not a tree professional – and had no business card so that she could later be contacted about this issue. So it wasn’t the most amicable approach.)
My understanding of laws around trees and property lines was simple: the neighbors can cut the tree if they want to back to the property line, but the tree owners don’t have to pay to cut it unless it is truly damaging or about to damage the others’ property. If the neighbors harm the tree while pruning it, they can be liable for damages.
But just to be sure, I phoned the California Association of Realtors’ Legal Hotline and spoke with an attorney about it. My understanding was correct: the lawyer cited case law and verified that the tree owners can’t prevent the neighbors from trimming the tree if they want and that the neighbors cannot force the tree owners to trim it unless it is truly causing (or immediately threatening to cause) damage.
The property manager was mistaken and out of line.
A friendly phone call and inquiry about tree maintenance goes a long way toward neighborliness. Most tree owners will take good care of their trees and do pruning in spring, and will discuss the timing with their neighbors so that it is convenient for the arborist to also clean up any dropped branches in adjacent yards. Open communication is always helpful for neighbor relations. It helps when requests come in a pleasant way without rushing or pressuring. But that would be true about any issue, whether it’s trees, fences, noice, odors, junky cars or anything else.
I’m going to be blunt here: it is really hard to help when we, as agents, don’t know what is truly going on. It’s not a whole lot different than keeping important things from your doctor or lawyer. If you want help, it is imperative that you tell your hired professionals what is going on.
For that matter, if you are interviewing agents to list your home or to help you to buy your next home, expect those agents to ask you about your needs and motivation. Hiring an agent (and the agent agreeing to take you on as a client) is a two way relationship. Both sides need to be clear and honest with each other.
Let me give you an example. Years ago, I had some prospects (not yet clients) in Monte Sereno who inquired off and on for years about selling their home. At one point, it became a “hurry up” situation. Luckily, they told me the truth: one of them had been diagnosed as terminally ill. The sick one did not want to saddle the survivor with selling the home after the death.
A real estate agent is someone who’s taken a course (or more) and passed a state exam and is licensed by the state to sell real estate.
A Realtor (pronounced REEL-TOR, not real-a-tor) is an agent who’s ALSO a member of the National Association of Realtors, which is a voluntary trade group. Realtors promise to abide by and take very seriously their Code of Ethics. Ever wonder what is in it? It’s not short and is quite comprehensive. Take a look:
Please understand that not everything that is legal is also ethical – Realtors have a higher standard of practice. Often non-Realtors (at least in Siliocon Valley) are not full-time agents but dabble in real estate. Realtors are usually full-time and work as professionals.
Finally, if you have a problem with an agent who’s not a Realtor, you have to complain to the state. With a member of NAR, who is almost always also a member of the state association (CAR – the California Association of Realtors) and local (either SILVAR – the Silicon Valley Association of Realtors or SCCAOR – the Santa Clara County Association of Realtors), you can take action locally for most any issue and do not need to go all the way to the state level. Agents work hard to remain in good standing with the local, state, and national boards.
In the San Jose area, most of the large realty firms are “all Realtor” offices. Usually becoming a member of NAR, CAR and either SILVAR or SCCAOR is a requirement for joining the company. In other areas and in other states, in can be different. So it’s mostly the independents where you’ll find a real estate licensee who’s not also a Realtor. But ask!
When you interview an agent, then, the first question to ask is this: are you a Realtor?
August was a little slow, but along the west valley the expectation was that September would be robust. Normally we see a little rally after Labor Day that lasts until about Halloween. That’s our usual real estate market trend in Santa Clara County (San Jose area).
What has happened, though, is a significant slowdown. Few homes seem to be selling since the middle of September.
At this point, we are waiting for the September statistics to roll in. What I’m seeing, though, is that a lot of homes are just plain “sitting” at this time.