Estimating the Probable Buyer’s Value

The probable buyer’s value for a home is very similar to market value, as a home is only worth what a buyer will pay. If the seller wants more than that, it won’t sell. If it’s unlikely that their ranges overlap at all, we’ll have a listing that is difficult or impossible to sell.

Quick summary on the probable buyer’s value:

  • The probable buyer’s value is a range of what most buyers would pay for a particular property if there was no undue pressure on the buyer or seller.
  • The probable buyer’s value will be impacted by many factors, such as the timing (if there are other houses which are more competitively priced or no other inventory), the property condition, the presentation of the property, the accessibility of the property (how hard is it to see – is it vacant or occupied?), the marketing (photos, floor plans, etc.), and many other things.
  • The buyer’s terms weigh heavily on what the buyer can or will pay for any home.

Sometimes it can be tricky to estimate what a home might sell for. I usually talk with my seller clients about trying to find the probable buyer’s value.

In a balanced market, the seller may have a range of prices that he or she anticipates and would accept. So too with the buyer, whose range will likely be lower than the seller’s. The key is finding where the buyer and seller price ranges overlap.

In an overheated market, which we have now, it’s fairly simple to figure out the floor of pricing, a price point that is supported by past sales, but it’s harder to ascertain the ceiling, which is where very capable and driven bidders may take the price. Next, please find a long-ish (12:36 minute) video on price and terms, mostly regarding overheated markets, but some info on balanced markets, too. 

 

 

Balanced Market

In the balanced or more neutral market, buyers and sellers often have some common ground on valuation of the real estate. This chart below was used in the video above (for those of you who will skip the video):

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What is an exclusion in a real estate contract? What is an inclusion?

What is an exclusion in a real estate contract? What is an inclusion? Both of these refer to fixtures at the property which is for sale. If you want to sell your home, it’s very important to understand the “law of fixtures” as it relates to what you leave and what you take with you – unless the inclusion or exclusion is specified in the contract.

In brief, built in or affixed items become real property and transfer with the sale (or as Realtors say, “conveys”). If something is built in, like a light fixture, but the seller and buyer agree in the contract that the seller can remove it, then it becomes an exclusion, as it is excluded or omitted from the sale.

If something not built in is allowed to remain behind, such as a garden hose, pool table, or curtains, then it’s an inclusion, as it’s included even though it is not real property.

Curtain rods are built in, so they are fixtures and therefore real property. But the curtains that hang on them are not built in, so they are personal property.

 

2 minute video explanation

What is a fixture?

Generally speaking, a fixture is any item affixed or attached to the house, townhouse, condo or property which is installed with the intention that it be there permanently. The only exception is if something is bolted for earthquake safety.

Examples of fixtures (items which stay or are included):

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What can you learn when you lose out in multiple offers?

Target with keys to a house in the center - What can you learn when you lose out in multiple offers?If you lose out in multiple offers over and over, you’re not alone, but as prices rise, this isn’t a good pattern to be in. What can you learn from it?

Silicon Valley home buyers can have vastly different reasons for getting their offers rejected.

  • For many, the challenge is having a small down payment.
  • Others are very indecisive (and can’t decide fast enough, or cannot really commit enough to write a strong enough offer).
  • Some may have unrealistic expectations.
  • Some pride themselves on “being conservative” and routinely under price their offers.

Below we’ll go over the main issues, what you can learn from losing, and finally, a strategy to pull you out of multiple offers.

Small down payments and the competitive disadvantage

Having a less than 20% down payment may get an offer eliminated off the bat when there are multiple bids. The reasoning has to do with confidence that the bank will fund the loan and not get cold feet. The larger the down, the more secure the loan appears. When there’s more than 20% down available, the buyer appears more able to manage an appraisal shortfall, too.

FHA home buyers have the biggest challenge, for reasons explained previously. Those with 20% down payment have a really reasonable loan situation, but the trouble is that many other competitors do, too.  With rising prices, appraisals are often a problem – and 20% down usually won’t solve it.  So the more cash, the better, and cash is still king.

All cash offers

Having 30% or more will usually overcome appraisal hurdles.  But those ubiquitous “all cash offers”, which comprise about 15% of all Santa Clara County home sales right now, will usually trump any other bid IF the price is attractive.  Don’t be discouraged, though, as sometimes the all cash offers are the lowest offers with multiple bid situations in the San Jose area.

If you lose out in multiple offers for any other reason besides the down payment

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Doesn’t the listing agent have to show it to me?

Telephone Photo with dialogue between a caller and listing agent - Doesn't the listing agent have to show it to meIf a buyer wants to view a property, does the listing agent have to show it to him or her outside of regular open houses? The answer might surprise you!  Here’s a quick overview:

  • The listing agent and seller decide about showings that the listing agent is expected to do. Does the listing agent have to show it privately, or during open houses, or only on one weekend before offers are reviewed?
  • The listing agent will make showings possible for buyer’s agents with instructions on scheduling in the comments that members of the MLS can read.
  • In many cases, the real estate licensee working with the home seller will hold the property open for the public on the weekend and sometimes mid-week as well. It may or may not be the listing agent holding it open.
    • For safety reasons, many listing agents will not have private showings with buyers whom they don’t know and who aren’t clients of theirs. Realtors are harmed every year in the line of duty.
    • For agency reasons, a listing agent who plans to only represent the seller may not want to have an appointment with a buyer who plans to write the offer with someone else.
    • There are many other reasons why the listing agent will not personally show the home for sale outside of open house times, but may be able to arrange for the buyers to see it with another agent.

When does the listing agent have to show it?

The most important thing for buyers to understand is that the accessibility of the home for viewings depends upon the agreement, verbally or in writing, between the owner of the property and the agent/brokerage hired to market, negotiate, and sell the real estate as to whether or not the seller’s agent is obligated to show it privately.

It’s not an “on demand” situation where an interested buyer can insist on seeing the property as desired. To make an absurd point, no one would say “doesn’t the listing agent have to show it to me at 10 p.m.?” Without any thought, we know that’s unreasonable.
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Can you change your purchase offer after it’s signed?

Pen and edited text with the words - Can you change your offer? With multiple offer situations in Silicon Valley real estate bids, sometimes buyers write an offer and later decide that it’s too much or too little, or that some other change is warranted (before it’s submitted).  Can you change your purchase offer after it’s written, or is it a “done deal” once you’ve signed it?

The good news is that you can change your offer before it has been given to the listing agent / sellers. Many buyers do, either because they changed their mind or strategy, or because they just got new information. What is key is circling back to your buyer agent quickly, before the email is sent.

Why would you change your purchase offer?

Awhile back, some of my buyers were bidding on a San Jose home. As I asked the listing agent more questions and we got a little more information from that agent on the numbers of offers being received, my clients wanted to improve their offer. We redid page 1 of the contract, which is where all the financial basics are listed. Their improved offer went to the listing agent and it was seamless.

At other times, even after the offer is submitted, I have had buyers ask to improve their offer. The pages of the contract which were involved in the change were redone, signed and resubmitted. This is a bit like going through the counter offer process yourself. (more…)

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

5 things your buyers agent can doHome buyers in Silicon Valley are getting frustrated, discouraged and disheartened as they write offer after offer, only to lose out in multiple bid situations. It’s not just the poor small down payment home buyer either – this is happening to those with 20% down and more too.

What can be done to improve the odds of success?

Usually losing out is a simple case of the best price and terms winning out.  (I wrote a series of articles on how to compete in multiple offers that you can find here.)  At times, though, there’s a bit more nuance, especially if there are two or more bids which are “neck and neck” or nearly tied.  Sometimes the buyer’s agent either does or doesn’t do certain things which can impact how your real estate purchase offer is viewed by the listing agent and seller(s).  Here are 5 important things that the buyer’s Realtor or sales person can do which will help the odds of success:

    1. The agent should read the MLS printout carefully to see if there are any instructions regarding offers.  This one may seem obvious. but too many buyer’s agents just draft the offer and send it in, ignoring information that will probably be useful (such as offer deadline, preferred form – CAR or PRDS contracts, availability of disclosures, the request to call before writing the contract etc.).  Ignoring clear instructions will usually result in creating bad feelings between the parties or their agents, and lessen the odds of success.
    2. The buyer’s agent should call or email the listing agent before writing the offer (and after reading the MLS!).  Sometimes there are requirements or just preferences that won’t be known unless contact is made.  Additionally, though, the listing agent will simply want to know about the level of interest and not have any surprises – it’s a courtesy call.  If the relationship between real estate agents is improved, so are the odds of success.
    3. The agent should ask if it is possible to present the offer in person… and be willing to do it, of course.  Many seller’s agents won’t want a live presentation (most would email), however the fact that your agent is willing to spend the time and make the effort to present in person usually speaks volumes about his or her professionalism. It’s also a hint that the agent is a cut above most.  In my real estate practice, several times I beat out other offers by asking if I could meet with the listing agent and sellers to discuss my clients’ offer, and then doing it.   (With my multiple offer situation yesterday, only 3 agents requested to present to me live.  One of them had the winning contract.  Of course, the rest of the package was also super strong – but this one step is a clue to the whole offer strength and commitment.)
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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:

https://sanjoserealestatelosgatoshomes.com/category/buying-tips/multiple-offers-buying-tips/

 

 

 

 

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)

 

 

 

 

Home sellers wonder: can I leave debris behind when I move out?

Silicon Valley home sellers may find themselves exhausted by their move and wonder if they can leave trash or other debris behind when they move out.  Most of the time, San Jose area home buyers aren’t thrilled with this idea (though there are exceptions).  The main thing is this: what does the contract say?

Both the PRDS and CAR contracts do address this issue of what can be left behind.  First, here’s the CAR paragraph on this topic:

 

CAR on removal of debris at close of escrow

 

And here’s what the PRDS purchase agreement says:

 

PRDS on removal of debris at possession

 

Both of them say that debris must be removed either at the close of escrow, or if there’s a rentback, when the buyer takes possession.

That said, sometimes buyers will write into the contract that the seller is allowed to leave behind debris.  Why would they do this?  If it’s multiple offers, making the move easier on the seller may increase the odds of getting the offer accepted.  Or perhaps the buyers just really want the ‘stuff’ in the garage.  I’ve seen it happen.

Either way, if you are buying or selling a home, it’s important to read and understand your obligations and rights.  The final walk through can be an opportunity to point out debris that may be a concern, among other things.  Best to not wait until after closing, if possible, to find things for the seller to do.

 

 

 

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.