One of the most frustrating experiences for Silicon Valley home buyers is to spend time and energy looking at homes that they simply cannot afford. It happens all the time. I’ll be the first to admit it’s not always easy. In fact, take a look at a couple of my posts (or at least their titles) and you can see the dilemma up front:
What’s a consumer to do?
YES, you should look at the comps. NO you should not only look at the comps!
Here are a few questions to consider:
- How hot is the market? Are the open houses packed? Are many homes getting multiple offers?
- What’s the list price to sales price ratio for homes in that area?
- Is there too much or not enough inventory of available homes?
- How many offers will there be? Multiples change everything!
If homes are often selling for over list price, it would be silly to assume that a property that’s only been on the market for a few days will sell for much under list price. That’s even more true of the open house is packed – more interest usually means more competition!
In today’s sellers market, sellers frequently choose to list below the expected sales price. Knowing the true market value is more important than the asking price.
Finding the sales price to list price ratio is easy – you can check it for various areas in Santa Clara County by visiting my Real Estate Report. Right now, here are the ratios for single family homes in a few Silicon Valley locations (as of November 2019):
All of Santa Clara County 100.0%
All of San Jose 102.1%
Los Gatos 100.1%
You get the idea. Coming in at or under list price in this kind of climate will not make you, the buyer, look serious or knowledgeable if the listing is new and the property is in good shape. The same would be true in a calmer, balanced market if an offer came in at 95% or less. If you don’t want the seller’s to dismiss your offer, seriously consider where it will fall in the current market.
Finally, understand the basics of “supply and demand”. If inventory is high, you are more likely to get away with writing a low offer and possibly seeing it work. But if inventory is chronically low, as it has been the past year, this won’t go over so well. The number of anticipated offers will tell you what you need to know here!
A good real estate agent will assist you in understanding the probable market value for any home you’re thinking about buying. Although it’s an art as much as a science, it’s possible to get at least the right ballpark if you can measure all of these variables correctly.
Looking to buy in the current market? Check out some of my other articles through the links below.
Is buying a home in late fall or winter a good idea, or is it better to wait until spring? (Hint: there’s no right or wrong answer)
And stay informed on the markets by following my Market Reports, many updated monthly.
Check out the sales and listings in Santa Clara County through the interactive map below.