News flash: San Jose is the hottest real estate market in the country right now. Yesterday, the San Jose Mercury News ran another front page story about local residential real estate being off-the-charts-hot. That isn’t much of a surprise, as skyrocketing home prices has created a gripping drama here, and thus frequently appears as a page 1 story, whether it’s for renters, buyers, investors, or folks just priced out of the market and moving away.
What is interesting, though, is that San Jose is now said to be the #1 hottest real estate market in the U.S., according to Zillow. The whole San Francisco Bay Area is a strong seller’s market, of course, particularly the South Bay, Peninsula, East Bay, and San Francisco.
What does that mean for you that San Jose is the hottest real estate market in the country?
What can you expect in the hottest realty market in the country? Here are a few things that we are likely to experience in the next few months because of these extreme conditions:
- continued excessively low inventory that will rise, but not enough for demand (just 387 single family homes for sale in Santa Clara County two days ago, and 397 this moment)
- multiple offers on homes which:
- are moderately priced for its area (not the top tier of pricing, but mid to low ) – esp $800,000 to about $1,300,000 in most areas
- offer a good commute, good public schools, or both without being necessarily in the luxury tier – having both will be “red hot” market (Cupertino is a good example)
- provide a full battery of pre-sale inspections and disclosures from quality inspectors
- provide thorough seller disclosures
- are nicely staged and presented
- include quality professional photography
- are offered with an appropriate list price – not higher than the likely sale price, and usually lower to attract more buyers
- get strong marketing, including being on the open MLS and having the listing syndicated for maximum exposure
- with those offers, many will come with no contingencies of any kind, may include free rent backs, and of course will be As Is sales
- move down buyers and those armed with stock money will be competing in the mix and will have all cash (about 20% seem to be all cash, no loans now)
In other words, for most home owners, it will be relatively easy to sell since San Jose is the hottest real estate market. Many are inclined not to do so right now because they are afraid that if they do sell, they will not be able to purchase something else!
Winners in this market
For those wishing to relocate out of the San Jose or Silicon Valley area, this is an ideal real estate climate, since no where else is quite as overheated as Santa Clara County at the moment.
For those “moving up” into a cooler pricing tier, this is also a great market! In some cases, you may even be able to list your home in the lower, hotter market segment and write a contingent offer for the more expensive property and get your bid accepted.
Hurting in this market
The biggest challenge is for first time home buyers who are shy on cash and / or who insist on purchasing conservatively (which would work fine in a balanced market).
I’m seeing some offers with less than 20% down financing get accepted, but only when there is more money available to pick up any appraisal shortfall. With my listings, virtually every sale this year has had either no contingencies of any kind or a short contingency for just 1 item.
Understandably, many home buyers are not comfortable writing contracts without contingencies. We real estate professionals are not supposed to recommend that buyers waive their contingencies. because it is risky to do so. At the same time, though, I know that if there are 10 offers, most will have zero contingencies – so writing offers with contingencies (or all of them, at “normal” time frames) is unlikely to be successful. The buyer with the highest price and who is most likely to close escrow (not back out with a contingency) will be the one who gets the home.
What can you do if you want to buy, but you don’t want to be caught in a multiple offer situation?
There are a few things that buyers can do to try to buy a home without all of the frenzy that most buyers are experiencing.
- Look at listings that have been on the market for more than a month – they are far less likely to have multiple offers after 3 weeks or so.
- Ask your agent to try to help you find “off market” properties by networking with the other agents in their office and by checking the “coming soon” listings on the MLS (agent area only).
- Consider homes with fixable problems that other buyers won’t be drawn to so much – you can always remodel, change cosmetics, etc. Read: Buying in a seller’s market? Do not expect a perfect house or condo!
- Be sure to work with a good buyer’s agent who’s experienced, well known, well liked, and assertive – do not just shop for homes on your own and without professional guidance! (Common mistake!)
Want to sell? Beware these mistakes!
When you hear that the market is overheated and in your favor as a Silicon Valley home seller, it can be tempting to cut corners and tell your self that it will make no difference.
While it’s true that your home will still sell if you cut corners, the odds are that it won’t sell for nearly as much money if you do. For most of us, our real property is our largest financial asset – so treating it that way can make a big difference in your outcome!
Each house, condo, or town home will be a little different, but in general there are some basics that are key to your maximizing your return on investment:
- Depersonalize. Buyers need to be able to “mentally move in”, and that’s hard to do if they see a giant wedding portrait of you or other memorabilia. Further, when visitors to the home see your photos, degrees, awards, and so on, they tend to focus on you, the seller – not the real estate you are trying to sell. (They will look and try to figure out if they know you, etc.)
- Declutter. Most people have to remove about 25-35% of what’s in their home to get it looking just right if selling while living in the home.
- Do clean your home and yard to a fare thee well! Gross window sills, sticky refrigerator doors, and moldy bathrooms will work against your selling for top dollar.
- You don’t want to over improve your home, but fresh paint and new floor coverings are often a good return on investment. So are newer light fixtures.
- Make sure to hire a great Realtor early in the process so that you get guidance on what to improve and what to skip. This does not cost you any more, but will improve the value of the commission dollars spent!
- Pre-sale inspections will be hugely helpful. First, you can find out if there’s anything worthwhile to fix before a buyer sees it, and have that discussion with your Realtor when there’s far less time pressure. Second, if you do repair something larger, such as a bathroom that has dry rot, you can now market it as a remodeled bath – a plus! Third, buyers who know what they are buying and aren’t worried about it will pay more – so you will sell for a higher price. And finally, buyers who know what they are getting tend to purchase without contingencies and without renegotiating later. The battery of inspections may run $1,000 and are worth every penny. Just be careful to hire great inspectors. (Some inspection companies have a bad reputation in the industry. It won’t be very helpful if the buyer’s agent says “oh they used blah blah blah company – they are terrible, you cannot trust them to report everything!” because there will be worry there and will want to hire their own inspections later – which could lead to disagreement on the true condition of the property. Providing the inspections should remove worry and boost the sale price and closing odds.)
- Make sure that the home is professionally photographed and marketed thoroughly. You need to review everything yourself, too – check the MLS comments, the photos, the flier description. Ask your real estate agent to please show you everything, preferably before publication. You are better as a team!
- When it’s time for open houses or viewings, please leave the home so that buyers can view it and speak openly.
There are many more strategies for maximizing your net proceeds when selling a Bay Area or Silicon Valley home, of course – each property is unique, and so will be the details on marketing, negotiating, and navigating the escrow. The main thing to keep in mind is that there’s a lot of planning and strategizing and work behind those sales with huge numbers of multiple offers and overbids. They don’t just happen – you work for them, and then you reap the reward.
What about the correction? Isn’t there a correction coming?
Ah, yes, the correction. Usually we have them between run ups in pricing. Given that home priced are up about 78% in the last few years in many areas, and double in others, it would seem that perhaps there’s a little too much exuberance. Are we lining up for another bubble? Hasn’t appreciation gone too far?
I’ve learned not to double guess the market as I felt that 2013-2015 saw too much appreciation and I was sure that a correction had to just … be … around … the … corner.
Well, I was wrong. It did not happen, though we had a few soft months here and there. No correction so far.
And last year, I was thinking it would happen in 2018. That was before Google announced it was going to multiply office space and jobs like rabbits in downtown San Jose, before Cambrian and Willow Glen began selling as if they were Cupertino. The Google effect seems to be in full swing, even though the campus or urban center may not be in place for many more years. Commercial developers seem to be taking a very long view of growth and buying up land and buildings which can be removed for crazy high prices. They seem to have a plan.
So humility in my prognostication has set in, particularly where corrections are involved.
I can say that the National Association of Realtors expects home prices nationwide to drop about 10% due to the new Trump tax plan. The California Association of Realtors anticipates less of a sting in California – just 5%.
Here in San Jose, the hottest market in the country? I am suspecting no impact that’s palpable. Oh sure, we might see the sale price to list price ratio go down a little, but it is likely to stay over 100%. Maybe instead of 10 offers on homes there will be 5. Perhaps the rate of appreciation will slow again. But I do not see prices falling. I do, however, see interest rates nudging up this year. Not all the way to 5%, but interest rates will be in the 4s instead of the high 3s.
Right now, San Jose is the hottest real estate market in the United States. Maybe next year it will be San Francisco and San Jose will be in 2nd place. The Bay Area is turning into an ever-larger mega metropolitan area which is slowly sending its tentacles toward Sacramento, Salinas, Monterey, the Central Valley, Half Moon Bay, and anywhere within a 2 hour commute. The hotter the market gets here, the bigger the sprawl will become as home buyers scurry to find a place they can afford to call home and keep the jobs that are here. As long as people want to live and work here, and the tech economy which drives the heartbeat of the valley stays well, I expect the hot market conditions to continue – no matter what the ranking may be.