What makes an offer lowball?

Lowball offer - baseball with the word LOWBALL imposed over it - what makes an offer lowball?Silicon Valley real estate offers few simple answers but many recurring questions. One of them is whether or not you should write a “lowball offer“. So the first question is this: what makes an offer lowball?

What makes an offer lowball?

In general, contracts with prices more than 10% lower than list price will be considered low at best, and insulting at worst, but there are many nuances, and this may not always be the case.

  • What is typical for the area? If most properties are being sold at 10% lower than list price, then 11% or 12% won’t be viewed too dimly if the home has been on the market for a while.
  • How long has this piece of real estate been listed for sale? What might seem low in the first week might look OK after 3 weeks.

What’s the immediate market climate like there?

What makes an offer lowball is above all related to what is happening in that precise micro market. It’s entirely relative to how the market in that area (not the county, not the state, but that particular area) is selling.

If houses in one area of San Jose are selling within plus or minus 1% of list price and you come in 5% under, the seller may feel that your offer was not in good faith, that the offer is insulting, or you are not a serious buyer who takes the opportunity to buy seriously.

What are typical buyer closing costs in Silicon Valley?

Typical buyer closing costs - home buyer costs to close escrowWhat are typical buyer closing costs in San Jose? How much extra money will it take, beyond the down payment, get into that new home in Silicon Valley? The cash needed at the closing table varies depending on many factors.

Today we will offer some general information on home buyer‘s closing costs in Silicon Valley. Different jurisdictions and situations may have additional closing fees.

Typical buyer closing costs – rough estimate

Just need a rule of thumb on the costs? The average closing costs percentage is between one half and two percent of the purchase price, but your actual figure could be substantially more or less, depending on many factors. Most of our buyers pay between .5% and 1%. 

 Recurring versus non-recurring closing costs

Please note that some fees will be recurring (meaning they will be things you’ll pay again, like property taxes or HOA bills) and others non-recurring (which are one-time fees like title insurance). Where you are in the calendar year can impact fees like property taxes due at closing, too.

Some of the main factors that cause the fees due at closing to rise or fall include:

  • loans and related required fees are generally a home buyer’s steepest fee after the down payment
  • home buyers who buy down the interest rate with points will see their cash needed to close escrow rise significantly
  • whether or not you pay for inspections
  • what city you’re buying in
  • what type of home, or if it’s in an HOA or not
  • and many other smaller escrow related fees, such as if you both fund the loan and close on the same day
  • any pest work or other repairs that you pay for on the home prior to the completion of the sale (this is uncommon, but I’ve seen it happen)
  • when the next property tax bill is due (you won’t pay more or less, but it’s whether that amount is due at closing or a few months later)

There are online tools that can bring clarity to the typical buyer closing costs, but again only roughly. You will find a closing costs calculator for buyer at ORTC.com, the Old Republic Title Company’s site, and then click on the link for the online netsheets. Or use this link for their online netsheets.

Next we’ll go over what these various typical buyer closing costs can run.


Silicon Valley real estate sales to “all cash” buyers: how prevalent are they?

Ten dollar bill (shown in part) with the words "Cash Is King" - all cash offers are preferred by home sellersHow common are “all cash” transactions for Silicon Valley real estate right now?  During the first couple of years after the downturn ended and the recovery cycle began, we had a large percentage of all cash buyers in Santa Clara County and nearby. In recent years, though, that ratio has been declining. Where are we now?

Some areas and some types of sales are more frequently all cash than others.  Here are a few quick stats for the last 60 days  (numbers from MLSListings, crunched by me – disclaimer on good intentions but no guarantee) for single family homes, townhouses, and condominiums (not included are multi-family homes, apartment buildings, mobile homes, farms / ranches etc.). Also, please note that this is for closed sales, not pending sales.

What percentage of sales are all cash?

  • Santa Clara County: 12% all cash
  • San Mateo County: 20% all cash
  • Santa Cruz County: 18% all cash

Few areas in Santa Clara County

  • San Jose (entire city): 10% all cash
  • Los Gatos: 12% all cash
  • Cupertino: 11%
  • Milpitas: 4%
  • Morgan Hill: 13%
  • Campbell: 10%

All cash sales close escrow without a loan. In higher priced homes, some new owners will put financing on the property after close of escrow.  Particularly in lower priced homes, though, these are investor buyers who will be renting out the property.  This is often the case with the lower priced distressed properties in particular.

With the crazy new demands that keep coming at us from banks and new requirements being imposed on appraisers, now more than ever, cash is king.  That doesn’t mean that the cash buyer will get a deep discount, but there will be a slight one in most cases and certainly preferential treatment that will create a great advantage in multiple offer situations.

Learn more about buying and selling Silicon Valley real estate with cash offers:

Cash offers: what do you need to know if buying “all cash”?

Finding Your Next Home

What’s My Silicon Valley Home Worth? Estimating the Probable Buyer’s Value  (financing impacts market value)




Mistakes that buyers’ agents make which damage their clients’ chances of winning in multiple offers

Lightbulb This year I have seen lots of multiple offers, both when working with buyers and also working with sellers here in Silicon Valley. It’s not rocket science to write a strong offer and to get the terms and the “personal stuff” right.  But so many real estate agents don’t get it.  Unfortunately, when that’s the case, they seriously hurt their clients’ odds of success.  So let’s talk about it.

The basics for writing strong real estate offers in the San Jose – Silicon Valley area:

  1. Agents need to READ the MLS carefully as sometimes there are offer instructions, such as “call listing agent before writing deposit receipt”. That means that the buyers’ agent should email, phone, or otherwise make contact with the listing agent before writing an offer.   Why? It doesn’t matter, do it!  But usually there are a lot of good reasons, such as making sure that the buyers know ahead of time if  there’s a need for a rent back, that their agent knows about online disclosures, or any other condition.    This is missed probably 10% of the time.  Remember, drafting and presenting the offer are part of the courtship – if it goes badly, the escrow will be worse, so it’s crucial to make a good first impression.
  2. If there are online disclosures, reports and inspections, GET THEM. The listing agent can tell if you pulled them or not.  Write an offer without even looking at them and the listing agent may think your agent is unprofessional or a flake.  That may halt the deal right there. (Bonus points: the BEST agents will have their buyers sign all disclosures and submit them with the offer, at least if it’s multiples.)
  3. Don’t submit your offer too early or too late.  Listing agents do not want to see offers long before the deadline, because the response time may expire before the contract can even be presented to the seller.  Likewise, if the deadline is 10am Friday, don’t send it at 2pm Friday – you will be a pain in the rump and it will seem that you will “be difficult” in escrow.  Submit your offer within 12 hours prior to the deadline.
  4. Don’t be a secret.  If you like the property, make sure that the listing agent knows who you and your agent are.  If there are 20 offers, it will help if you stand out as people. Often when I have a listing which gets multiple offers, there will be some agent who comes out of nowhere with an offer – he or she never called or emailed, did not leave a card, did not appear to show the property, did not pull disclosures but wow – out of nowhere they submit an offer.  I got one like that today!  It is so not good!
  5. Have a complete offer package!  Include the agency, offer, copy of check, proof of funds and any other documentation.  Letters are nice.  Offer summaries from your agent are nice too.  Make sure that your agent and you look “easy to work with”.

Those are things your Santa Clara County buyers’ agent should do. But what about you as a home buyer?  Here are some a related articles with more food for thought:

How To Increase The Odds That Your Purchase Offer Will Be Rejected

5 things your Silicon Valley buyer’s agent can do to help improve the odds that your offer will be accepted

Preparing to buy your first home in Silicon Valley

There are more than 30 articles on this site relating to multiple offers. Find all of them here:






What is a reverse offer?

A year or so ago, I attended a 2 day negotiation class in Los Gatos. It was quite good! At one point, we discussed negotiating offers in a buyer’s market and how challenging it can be to get showings and offers at all. The topic of a “reverse offer” came up next.

A reverse offer is when a home seller initiates negotiations with a buyer by drafting a purchase agreement. Yes, this is backwards!  The seller may not know the buyer’s ability to pay, what type of loan it could be, or even the prospective buyer’s name! The idea is that if buyers are on the fence, this may get the ball rolling. Only seldom does it result in an immediate agreement. More often, it’s either rejected outright or countered. Or perhaps the buyer and the buyer’s agent will draft a whole new contract. But it may be a useful strategy if a property is not selling and there seems to be interest from buyers who aren’t going to the next step of putting an offer in writing.

Related reading:

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

What is a sharp offer or relative bid?

What is a blind real estate offer?

Q & A on making an offer (on my popehandy.com website)





How Old Are Homes in San Jose & Silicon Valley?

white horse fenceMany newcomers to the San Jose & Silicon Valley areas want to buy new homes (or newer ones).  Santa Clara County, though, had a big “building boom” after World War II ranging from the 1940s through the 70s.  At the end of the building frenzy, most of the land was taken.  More importantly, most of the really good land was built up.

How old is the “average” San Jose home for sale?  Probably about 45 – 50 years old, on average.  Depending on where you’re looking, precisely, the homes could be younger or older on average.

There are some nice communities of new and younger homes in Silicon Valley, but there aren’t a lot of them.  Most of the new home communities have houses on small lots.  Some are near high voltage power lines (homes on Taft in San Jose’s Cambrian Park area) or next to freeways (Summerhill development off Samaritan Drive in San Jose).


Silicon Valley real estate compromises

Real Estate CompromisesBoth buyers and sellers in Silicon Valley find themselves having to compromise in order to purchase or sell homes in today’s market. In a red hot seller’s market, the buyer usually makes most of the concessions. In a deep buyer’s market, that can be said of the sellers. Right now, though, it is fairly balanced in the sense that homes are selling fast – but only if they are priced aggressively. In some areas, such as the Cambrian Park area of San Jose, prices continue to inch downward.  Sellers often feel as though they are compromising left and right before they even get their property on the market! What kind of compromises might you expect when buying or selling a home in Santa Clara County now?

Silicon Valley Home Seller Compromises

Most sellers want to sell for full price and to not have to do any repairs – that is, they want to sell “As Is”.  Unless they get multiple offers, though, often that’s not the case.  Often sellers must compromise on both price and terms, and may find themselves providing a pest clearance or do other repairs in order for the property to sell.  In some cases, though, the compromises are larger still: they may need to pay points for the buyer’s loan, provide credits, re-roof or do other work to make the transaction work. A suggestion for most sellers is to do pre-sale inspections. One of my clients this last year objected, asking why they needed to spend money (the cost of the inspections) to find out that they needed to spend money (the cost of the repairs)?  But in truth, by doing this, the seller can take care of some items up front, create a more secure feeling for the buyers and then maximize the sales price in most cases. It is a compromise, though, to do these inspections upfront. That said, it’s a worthwhile one because normally it will net the sellers more money in the end! A word to the wise: selling As Is often means not getting top dollar for the property (most sellers want Top Dollar with NO WORK – it doesn’t work that way).  To get the most money out of the sale, usually a hoe owner will need to make the property worry proof: do repairs upfront, before a buyer ever even sees it.

Silicon Valley Home Buyer Compromises

Most San Jose area home buyers want to purchase a home for 10-20% less than what the sellers think it’s worth.  The main compromise is on price!  It’s sticker shock every time, but especially for real estate purchasers who are coming from out of the area. Additionally, buyers tend to want homes in turnkey, perfect condition.  That is, they don’t want issues with permits, repairs, health and safety hazards, termites, and so on. They want to move in and “not have to worry” for a few years. So moving from this position to a purchase where they take on some responsibility for repairs or updating is a major concession or compromise right there. A word to the wise for buyers: demanding every little repair and home perfection will not usually work UNLESS you pay “top dollar” for a property. If you want the best price, be prepared to take on some of the responsibility upfront. For buyers and sellers to agree on price and terms it’s going to involve compromises on both sides. With proper planning, though, these compromises will result in a win-win for all.

Real estate negotiations: it’s not just business

Although most of the time, a home seller’s main concern is with getting the highest price (or net), that’s usually not the only concern – and sometimes it’s not even the most important one.  Selling one’s house, townhome or condo is highly personal and not just a business decision.  The relationship with the buyer and their agent is extremely important. It can literally make or break the deal!

So let’s talk about the things which can help or hurt the relationship between the buyer and the seller.

Selling relationships

With multiple offer situations, many home buyers in Silicon Valley know that it’s in their best interest to write a nice letter, perhaps with a photo, discussing why they love this property.  A lot of garbage clauses go out the window when there are multiples.  But now, in the San Jose area we are seeing a return to normalcy and many bids are not multiple offer situations.  Some buyers think that it’s no longer necessary to try so hard.    I’d advise against acting on this impulse, because the little things, or lack of them, can cause a transaction to succeed or fail.

In recent weeks I’ve seen home buyers shoot undermine their own best interests by dragging their feet on negotiation response times, asking for unreasonable things in the purchase offer, or having a buyer’s agent who appeared incompetent.  Think of the offer process as a courtship and ratifying the sale as a marriage.  If the courtship is rocky, why would the marriage be any more promising?  The market remains a seller’s market, if a calmer one, but home owners don’t want to be mistreated.

The old adage that “you only get one chance to make a first impression” is still true with real estate contracts and negotiations.  If you don’t present yourself well, with your Realtor’s help, then the seller is not going to want to sign an agreement that ties them to you for the next month or two.  And he or she certainly won’t want to see you in their beloved home.

Why write a personal letter to the sellers when submitting a purchase offer?

Dear SellerWhat is the benefit to you, as a Silicon Valley home buyer, in writing a personal letter to the sellers to accompany your purchase offer?  Why do so many real estate professionals ask their buyers to take a few moments and jot a personal note to the seller.  Does it really help?

A nice letter of introduction by a home buyer can do a few things.  First, it personalizes your offer so that the sellers have a sense of who you are – that is, more than just numbers on a contract, but a real person (or people) who may be quite likeable.  Second, it may help to demonstrate that you are trying harder and are going the extra mile from the beginning, hence you might be better to deal with in contract. With the sense of you as an individual and as someone who tries a little harder, it may just make the seller warm up to you – and that’s a help.

A letter, or even a letter with a photo, won’t usually make much difference if there’s an offer with more money and fewer contingencies on the table, but a nicely done, sincere effort in writing by a buyer can certainly make the difference if it’s a situation where your bid is tied with one or two others.  Sometimes several offers come in together with many falling into a “pack” of sorts. In those cases, little things can make one offer stand out in the crowd.




The Challenge of Being an FHA Home Buyer in a Seller’s Market

fha-home-buyer-woes2Being an FHA home buyer in Silicon Valley is a challenge right now, especially if you want what everyone else wants: a nicely updated and remodeled home in a good area with no “issues”.  (Issues meaning things like high voltage lines, busy roads, flood plains, or being too close to stores or spots not everyone wants to be near.)

How many FHA buyers are successful in purchasing a house right now?  The percentages are very small.  Just now I ran the MLS for sales of single family homes (houses and duet homes) in San Jose over the last 30 days.  Here are the figures:

All closed sales = 368

What kind of financing was used for these 386 closed sales?

Conventional financing = 268
All cash purchases = 77
FHA purchases = 10
Conventional 1st & 2nd loans = 6
VA Loan = 1
Owner financing = 0

The odds of success for FHA buyers is less than 3%.  Why is it so tough?  Condos are even more challenging than houses, so let’s look at those issues first.