Home buyers who feel confident about the market generally may buy, but when they have a lack of confidence that properties are holding their value, they don’t – even though a “buyer’s market” is often a great time to purchase real estate!
Silicon Valley home buyers who are confident about a particular property are more likely to pay more and to go into the bidding process with fewer contingencies and shorter contingencies, if any at all. When they lack confidence in a property, the seller’s truthfulness, the listing agent’s professionalism, in the neighborhood or in the real estate market itself, they either don’t bid or they bid low.
Home sellers who feel confident about a buyer and that buyer’s financial abilities are more likely to choose him or her over others. They want to feel that the buyer can perform, that the sale will close and there will be no “re-negotiation” are more likely to accept that offer than one which is riskier. Sellers know that when a home falls out of contract, it often sells for less the 2nd time – so they do not want the sale to fall apart. For that reason, most of them now want offers which are without any contingencies (or perhaps very short ones).
They also want the most money possible, of course, but if it’s neck and neck between the higher price with worse terms or slightly lower price with stronger terms, they will either counter the lower price up a little or they will outright accept the offer with more security of closing.
Often with multiiple offers, there will be a solid “band of pricing” where most home buyers seem to think the value lies. Then there will be one or two who are higher. Maybe one will “spike” the price. But if the spiked price comes with an appraisal contingency, it is really a mirage, an illusion, since the price will likely be renegotiated later. When listing agents see that kind of spread in prices offered, most of the time they’ll try to get the people with the best terms to move up in price. It may not go all the way to the spiked price which is laiden with contingencies, but it will probably move in that direction.
What can San Jose area buyers and sellers do to improve their odds of success? I would say the number one thing is to improve the sense of confidence on the other side of the bargaining table.
What can Silicon Valley home sellers to do enable buyers to feel confident (and to pay top dollar)?
Home sellers can increase the confidence levels of buyers by doing the following:
- Offer a reasonable or attractive list price (a high price will scare them off).
- Include a complete pre-sale disclosure package with good, quality inspections. Some inspection companies are not trusted by the real estate community and that will cause a loss of confidence that the disclosure is accurate. (I’ve seen companies miss $10,000 items. It matters.)
- Answer questions thoughtfully. Provide documentation. Be thorough in disclosing defects, repairs, and the home’s remodeling history. Sloppy, incomplete disclosures worry buyers and some will not write offer or they will write but “build in” imaginary repair costs because they aren’t sure about the info they’ve been given.
- Hire a good listing agent who will represent you and your property well. Read the MLS description and correct any errors.
- Your agent should provide quality photographs that bespeak a beautiful home – this is not a place to skimp or take cell phone photos: hire a professional photographer. This is EXTREMELY important.
- If you are doing work to sell your home, get permits and finals: they provide peace of mind to the buyers.
What can home buyers do to help sellers to feel confident in their ability to close without drama?
- Be pre-approved with a quality lending institution or lender your agent knows and trusts (not a pre-qual!). If you pick certain banks or leners with a bad reputation, your offer won’t have a chance no matter what else you do right.
- Write a “love letter” about why you want to purchase this home.
- Include your “proof of funds” even if they don’t ask for it. That means that you should hand over your bank statement to answer the question of “show me the money”. DO white out or black out your account number, though.
- Sign off on everything in the disclosure package. Ask any important questions before you write the offer.
- Make sure that your initial deposit is 3%. Offer to wire it to title faster than 3 business days, if possible. (They won’t really feel like it’s sold until the money is in the bank.) Some buyes will put down a much bigger initial deposit, though I’m not sure that really helps.
- Ask your Realtor to talk to the listing agent before writing the offer to see if there’s anything that would make the seller’s life easier. Sometimes allowing the seller to leave debris behind may be an enormous relief to the seller, for instance.
- Does the listing agent want the purchase agreement or contract on the CAR or PRDS forms? It matters – so make sure you ask.
- Contingencies are a way out of the escrow. Sellers and listing agents want them minimized. If there are pre-sale inspections, especially if they inspected everything, they may be expecting 0 days for inspections and if you ask for time to inspect, it will cause them to lose confidence in your determinimation to close. (By the way, I hate this market! It is way too far in the seller’s direction. But it IS the market.)
- If you go to the open house, introduce yourself to the listing agent. Be pleasant. If you criticize the house, it won’t help your cause!
- Have a good agent: it matters! You agent must also give the sense of competance that all will be well and that will give the listing agent confidence. Some Realtors are either super new or too aggressive or perhaps just have a bad reputation. Hire well for both your Realtor and lender and it will help a lot.
- Put down more than 20% if at all possible. If the home doesn’t appraise, the seller wants to know that you can make up the appraisal deficit.
In sum, put yourself in the shoes of the other side. Sellers want to know that if the home sells, it will stay sold. Buyers want to look “rock solid” so that it appears they will not or cannot back out of the deal or have it fail due to poor finances or a low appraisal. Buyers pay top dollar when they are confident of what they are buying – so do work with permits and finals, disclose thoroughly, and do everything possible to make the buyers feel comfortable that they truly understand the condtion of what they are buying. Sellers choose which buyer based on price but also on terms (everything other than price) – they want to feel confident, too.
Holiday Inn used to say “the best surprise is no surprise”. That is 100% true in real estate sales too, whether for buyers or sellers. Give the other side of the table confidence and you will minimize the risk of unpleasant surprises later.
You can read more tips for competing in multiple offers here: A summary of tips for multiple-offer situations in Silicon Valley real estate contracts