Home owners wanting to sell will be asking how to price a home in a correcting market – if they understand that things are shifting right now.
When real estate values are rising, homes that are well priced, well staged, well marketed, well photographed, and easy to sell tend to sell quickly and for top dollar. In that situation, it’s almost impossible to price a property too low, because buyers will rush in and bid it up. If it’s priced extremely aggressively, it may create a larger crowd of willing buyers and the ultimate effect may be a higher than expected sale price. That’s a strategy that often works well in a hot market.
That’s less effective now, as conditions have mellowed significantly due to dramatic changes in inflation, the stock market values plummeting, and interest rates rising sharply. The question, then is how to price a home in a correcting market? Or one that is flattening or generally cooler?
There are tips at the bottom of this post, but if you want to sell your home now, when the market is cooling rapidly, here are some basic concepts on how to price a home in a correcting market:
- understand that the odds of selling have decreased, and to get yours sold it will need to be the most appealing in terms of price and condition
- serious sellers will want to position their home as the best value available today and appeal to both the buyers and to their agents
- consider the trajectory of the market and if it continues as we see today, where the values will be a month from now – that is likely your pricing target
In 2012 and 2013, Santa Clara County saw many single family homes selling for all cash, no loans. The peak may have been in March 2012, when the percentage of all cash sales was a whopping 25%. That was the beginning of a long housing boom, and today the percentage of all cash sales in Santa Clara County has settled down significantly, though it is still in double digits in most months.
Today I crunched the numbers on MLSListings.com (first pulling the number of sales per month, then the number of cash sales, and after exporting the data to excel, did the math to get the percentages). The chart below reflects the sales of homes sold with all cash, no loans in Santa Clara County among houses and duet homes, which combined are known as single family homes. (Duet homes are not the same as duplexes.)
All cash sales, month by month, in Santa Clara County (single family homes)
The percent is shrinking month over month, but May’s figure was higher than the year before, interestingly.
What does the lower percentage of cash sales mean? In Santa Clara County, we have had some hyper inflation of home prices since Covid began, so it would make sense if the all cash, no loans buyers receded a little bit.
When Silicon Valley home buyers purchase real estate using a mortgage or loan, the lender will require that an appraisal be done. (This is true even if you do not have an appraisal contingency.) The main reason for the appraisal is to protect the bank from the risk of its making a bad investment. The question being posed is a simple one: is the house, condo, land etc. worth the purchase price?
An appraisal isn’t just a visit to the property, but more of a process. But first, who is the person doing the appraisal?
Is an appraiser another real estate sales person?
A real estate appraiser is a professional with a license specifically targeted for performing this work. It’s not the same as a real estate salesperson’s license. In California, they are regulated by the Bureau of Real Estate Appraisers.
The appraiser must evaluate the target property and arrive at worth based on comparable sales. (There are other ways of arriving at value. In the case of income property, for example, it might be important to look at the rent, expenses, cash flow and ratios of several factors to calculate value. Another angle may be replacement cost or cost for rebuilding.) In most cases, though, comparable sales will be analyzed and this approach will be given the most weight. We often refer to these as “comps”.
In many cases, the appraiser will do some research before visiting the property (and we real estate agents may email comps or other information ahead of the visit).
Once at the site, he or she will
- measure to calculate the square footage of the house and garage (living space plus other space)
- will take photos of the inside and outside of the house or condo plus the street view
- plot out the basic floor plan of the home
- verify that there are smoke detectors, carbon monoxide detectors, and water heater strapping as required for health & safety
Please note that no people can be in the images!
Sometimes the appraiser may ask the real estate agent who is present some questions about either the property or the sale.
Often the buyer’s agent will be the access person for the appraiser, but just as frequently it’s the listing agent. Why should the listing agent take the time when it’s something for the buyer?
As I see it, a low appraisal will hurt my seller clients because it could cause the buyers to bail out or try to renegotiate the price. For that reason, when I represent the sellers, I like to meet the appraiser and bring comps (or email them ahead of time) to help defend the price. As the buyer’s agent, I also see risk that my clients may have to come up with more cash if the appraisal falls short, or have some other unhappy remedy such as cancel the same – that’s expensive, as in most cases not only does the appraisal cost a few hundred dollars, but inspections aren’t free either! For me, I like to go no matter which side of the transaction I’m working.
How long does the appraisal appointment take? When is the report done?
Willow Glen is one of the most charming areas of San Jose, consisting of many older homes which feature lovely, classic architecture. Most Silicon Valley home buyers treasure the Willow Glen charm and ambiance, but many are seeking newer homes. A fabulous option is “The Willows“.
KB Homes built “The Willows” in 1999 to 2000. It is tucked away at the southernmost tip of Willow Glen, off of Foxworthy Avenue & close to Almaden Expressway, but only about 2.5 to 3 miles from all the action on Lincoln Avenue.
The tree-lined streets are built in something of a loop shape with Rubino Circle being the main access or loop road. Situated on the inner part of the loop are homes with smaller lots that are a little more affordable. The outer part of the circle is built with slightly larger homes on larger lots (but none of the lots are “big”). Sidewalks with soft curbs at the corners accompany the streets and make for a pedestrian-friendly, bike, wheelchair or stroller friendly area. Visit in the early evenings and you will see children and adults walking, strolling, taking dogs for a walk etc. – always a good sign! Because the neighborhood is a bit like an oversized cul-de-sac (no through traffic), it is very quiet in terms of traffic. The area has large street lights, too, making for a safe feeling community.
What is an As Is Sale?
Many Silicon Valley home sellers want to sell their homes “as is” (or “as-is”). And most homes in today’s market are. But what does that mean, exactly?
Does it mean that the seller has made no repairs or renovations before listing the home? Or that they do not have to disclose if something is broken to a potential buyer? No.
As is means that the home will be conveyed to the buyer at the end of the transaction in the same general condition it was in on the day that the buyers wrote the offer. If the roof has leaks, the crawl space is full of termites, and the appliances do not work, that is how it will be on the day escrow closes.
What it means is that the seller cannot let the property condition deteriorate during the course of the escrow.
The seller must continue to maintain the home and land in the same general condition. So if the lawn was green and well trimmed, the seller cannot suddenly let the grass die and neglect to mow it. If a baseball breaks a window after the buyer and seller have entered into contract, the seller must repair it. The condition will not have to be better, but it should not be worse than it was on the day the buyer and seller agreed on the price and terms of the sale.
While the contracts most agents use in Santa Clara County and nearby today have “as is” as the default sales agreement, that doesn’t mean all sales are as is.
If you are buying or selling a home in Silicon Valley today, you may be considering including the option to have a “seller rent back” after close of escrow. What does this mean? This is often referred to as “seller in possession after close of escrow” (often shortened to SIP) or “seller occupancy after sale”, or for more than 29 days, the “residential lease after sale” (RLAS) and it’s not uncommon in the San Jose or San Francisco Bay Area now.
Most of all, a rent back means that after the sellers have been paid and the new owner is on record, the seller stays on as a tenant and the buyer takes on the role of a landlord. The buyer as the new owner will carry home owner’s insurance (mandatory if there is a mortgage – the lender will insist) and gets a set of keys.
The terns for this tenancy relationship are drawn out in a separate addendum to the purchase contract. Depending on how long the term will be (less or more than 30 days) and which purchase agreement form is used (PRDS or CAR) the paperwork varies a bit. Whichever form you use and whichever side of the rentback you are on, here are some key points to keep an eye on:
- Amount of security deposit, if any
- Amount of rent being charged, if any
- Length of the rent back or lease (most buyers have loans, and most lenders start attaching fees to rentbacks longer than 29 days and do not permit more than 60 days or they consider the property “non-owner occupied” – if you aren’t careful, you could walk into an expensive mistake here!)
- Who will pay for things like gardening, utilities, pool maintenance, and HOA fees, if any
- Who will hold the deposit (the buyer or the escrow company?)
- Under what circumstances the new owner can enter the property
When the market is super over-heated like it is today, we tend to see nominal security deposits and free, no-cost rent backs. Usually the tenant (seller) takes care of utilities, garden, pool maintenance. (more…)
Every region of the country has some unique real estate vocabulary and phrases. Here, in Silicon Valley, when we say “you’re out of contract“, it’s another way of saying “you are not doing what you promised to do in the purchase agreement that you signed” (meaning the real estate contract). In other words, there is a seller or buyer default happening.
“Out of contract” is not a legal term. I remember hearing a local real estate educator say “there’s no such thing”. It’s not an official status. But it is a way of describing behavior that’s not in alignment with the contract’s express promises.
Contractual “Save the Dates”
Both sellers and buyers make promises to do certain things and most of these promises are tied to time frames or dates. Here are a few of these time-sensitive promises or contractual obligations:
- sellers agree to leave the utilities on until close of escrow
- sellers promise to maintain the home until close of escrow as it was on the day the property went into contract (so mow the lawn, water it etc.)
- buyers assert that they will get their initial deposit to title within a set number of days (the California Association of Realtor’s form states 3 business days or provides a blank to fill in an alternate number – it’s often 1 business day here)
- buyers promise to remove contingencies within the times they stipulated in the offer
- sellers will move out in according to the date set out in the contract
- indecision over material facts or between buyers may make it hard to decide whether or not to remove any contingencies
- buyers agree to take possession (move in) per the time/day agreed to in the purchase agreement (not before)
- sellers bind themselves to having repairs done in a certain manner (depends on contract and clauses, if promised)
At one time or another, I have seen all of these items not adhered to by the parties who were supposed to make good on their word, and stranger violations that I don’t want to write about here lest I give someone a bad idea. I have seen sellers not move out on time (in some cases, elderly sellers who grossly misjudged the effort required to vacate.) The failure to do so causes stress and anxiety, and sometimes worse: fear and anger.
Out of Contract: Why the Delay?
Sometimes, when either party is consumed with worry, a kind of emotional paralysis can set in. Luckily that is rare, but I have seen it. Buying and selling a home is extremely stressful, and once in awhile it coincides with other things: the death of a family member, a diagnosis of cancer, a divorce, a relocation that one party doesn’t want. So many things can happen at the same time. You may have heard the saying that “a confused mind says no”. With real estate, the confused mind doesn’t write or accept an offer, or doesn’t move forward as planned.
As 2021 comes to a close, it’s time to start looking forward to 2022. What are your real estate related goals and resolutions for this new year? Do you plan to buy, sell, or remodel your Silicon Valley home? If so, this is a great time to sketch out your objectives and start early preparations to get the wheels in motion.
For South Bay home owners who want to make 2022 the year to sell and move, it’s wise to plan ahead so you can maximize your return on investment of time and money. A clean, well-prepared listing gives buyers greater confidence, and confident buyers tend to make higher offers! Take the time to do it right and you will reap the rewards of your effort.
Quick Tips for Planning to Sell a Home in 2022
- Hire your real estate professional early in the process so that she or he may provide additional guidance from the beginning. It won’t cost more to hire early and you get more help. You may even save money by avoiding costly mistakes. A good agent will help you prepare your listing and determine a timeline to sell, whether you plan on selling this spring, next year, or next month.
- Decluttering is one of the biggest task for home sellers and it can be where you get the most bang for your buck. Presenting a property to buyers in a way that feels like home, but not your home is a balancing act. Some homeowners choose to move out and stage their home to sell, which has been increasing in popularity and is certainly a successful way to declutter! Sellers occupying a listing should commit to depersonalizing the house and creating a marketable space. Some sellers will discover this is a much bigger undertaking than expected, and requires more time and energy than originally planned. This can be particularly challenging for long-term residents, sellers who are downsizing, and seniors. Talk to your Realtor before embarking, as some items may be helpful for staging and you don’t want to totally empty the house! Completely empty homes do not sell as well as those which are thoughtfully furnished.
- Fix everything that is broken or in disrepair. No home is perfect, and buyers will not expect it to be (unless it’s brand new, of course), but everything you can repair is one less thing the buyers will worry about when writing an offer. That lightbulb that’s burnt out? Replace it now so that it doesn’t wind up in inspections or worrying buyers about the electrical system! Low cost repairs are often an excellent investment, but so can some more expensive fixes. I have had sellers who willingly go above and beyond preparing their home, from repiping to reroofing, see a clear return on investment for their efforts! However most sellers don’t want or need to do that much work. A bid with a price for the work from a reputable company is usually enough. Speak with your listing agent before tackling any major projects.
- Clean everything: windows, window tracks, hardware, lamps, mossy patios, etc. A clean home is inviting and feels well cared for. Professional cleaning can make lightly used carpets look new again. Areas that easily show wear, like grout, caulk, and kitchen appliances, can give that “new home” feel when they are looking fresh!
- Plan to have pre-sale inspections, but hire inspectors with your real estate salesperson.
Tips for Silicon Valley Home Buyers This Year
In California, some inspectors are licensed, others are not.
Whether you’re preparing to sell a home or are in contract to purchase real estate in Silicon Valley, you likely will be faced with the prospect of hiring professionals to inspect your home. This can run hundreds of dollars, a thousand dollars or more. The potential liability, though, could be much higher than the cost of paying the professionals to inspect your home, so you’ll want to hire very carefully.
So, what must you know when selecting inspectors in the San Jose & Santa Clara County area?
The Different Types of Inspectors
There are those who focus on particular features of the property, examples being termite or pest inspectors, chimney and masonry specialists, foundation & drainage engineers, pool inspectors, heating & air conditioning and more. Generally, these are all licensed by the state of California, and they may be able to perform repairs on the items they find in need of repair. The two go together – licensing to inspect and being allowed to do repairs.
But this is not true for property or home inspectors. There is no license for doing house, condo, or townhouse inspections in California. Is that good or bad? Part of that package is that they can’t do repairs on problems they find. You can see why it’s good to separate finding problems from being paid to fix them. That’s the plus. There is another side, though.
When a parent, spouse or loved one dies and he or she owned a home, there’s a lot for the survivors to do in addition to the very real and painful process of mourning. I have been through this with my own parents (and their house in Saratoga), a great aunt in Willow Glen, and many clients in San Jose, Los Gatos, Palo Alto, and elsewhere in Silicon Valley.
Death, Dying, & Real Estate: Where to begin?
In terms of settling the estate, it is wise to first speak with an attorney and tax professional about the property to find out what is required and adviseable.
You might recieve very different guidance depending on if there was a will, or how ownership was held. They will try to help you to legally minimize capital gains and estate taxes and can advise you on topics such as when might be the best time to sell vis a vis the tax liability. This is extremely important and it can be very expensive to not seek professional council on this point, so I strongly recommend that you or other beneficiaries discuss everything with the attorney or accountant prior to electing whether (or when) the home will be sold, rented etc., even in the short term.
Try not to wait too long before speaking to a tax or legal professional, as there may be a timeline or deadlines for you to consider in regards to settling the estate. I have some wonderful people I can suggest if you would like a referral.
First Steps, and how can a real estate professional help?
Something you’ll need for the lawyer and CPA or other tax professional is a valuation of the home as of the date of death, whether or not there is a surviving spouse or co-owner. You can obtain this by hiring a licensed residential real estate appraiser who will do an appraisal for you. Alternatively, you may be able to engage a real estate licensee (salesperson) to do a competitive market analysis or comparative market analysis (CMA), which would provide the probable buyer’s value for the property. (more…)