Homebuying in Silicon Valley Today

Bidding Wars in Silicon Valley real estate salesWhat do you need to know if you are shopping for a home in Silicon Valley right now?

First, you need to understand that possibly more than in any other time, it’s a deep seller’s market, meaning you most likely will be competing against multiple offers. Homes for sale are not as abundant as normal, and there are a lot of buyers trying to purchase a house or condo in the San Jose area.  Not enough supply, too much demand equals multiple offers and rising prices.  (You can check the current Santa Clara County real estate market statistics at popehandy.rereport.com.)

Secondly,if you want a chance at buying a property in Santa Clara or San Mateo Counties, you must have a great “offer package”.  It is imperative that you have a solid down payment, 20% is a minimum but most often it takes 25% or more to convince sellers that they should take your offer over the others.  Cash is king and you may get out bid by an all cash offer, especially if it’s also a non contingent offer.

If you include any contingencies for inspections, loan and appraisal, they will have to be fairly short to compete in multiple offers.  A 17 day loan contingency is a pretty sure fire way to get eliminated from multiple bids. When there are 10 or more offers, frequently at least 1 or 2 will be “all cash” and just as many have no contingencies.  Biggest obstacle to overcome is the appraisal contingency.  Because prices are rising so fast, many homes won’t appraise – and sellers know it, and therefore won’t take your offer if you have an appraisal contingency in place. (more…)

Tips for Writing a Competitive Offer: Part One

Right now in San Jose (and Silicon Valley generally), entry level single family homes are selling very briskly. In many cases, sellers are getting multiple offers when they put their clean, updated home on the market with an appropriate price & good marketing.

I work with both buyers and sellers, and can show you what will help your position and what will hurt it if you are writing an offer in a “multiple offer” situation. This will be the first in a series (I can’t put it all into one post) of tips on how to write a more compelling offer when you’re up against other buyers.

Purchase agreements are all about price & terms. Usually price is the main factor, but sometimes the terms can really throw the balance one way or the other. Often by providing better terms, you can nose out the competition.  Or conversely, if a couple of offers are close to each other generally, but your terms are worse, your “position” will suffer for it.

What are “terms”?  They’re the “everything else” of the offer. Things like:

  • initial deposit (amount/percent of offer price)
  • as is (or do you ask for repairs?)
  • number & length of contingencies
  • documentation  (preapproval letter at a minimum)
  • length of escrow, seller move-out timeframe
  • who pays for what

Once I heard of  buyers who wrote in as a term of the offer that the sellers’ dog would stay with the property.  The sellers were so outraged that they refused to sell their house to those buyers at any price.

These are just a few of the terms found in an offer – aside from price, these may be the most important terms for your offer. If you mess up on some or all of these, your contract will be given less consideration by the seller.

Got great terms? That’s awesome. But don’t get too cocky – at the end of the day, the seller does still want fair market value. So for instance, if you have “all cash” and can close fast, that is great and most sellers will want to work with you. But they won’t take an enormous discount for it. If a home’s worth a million dollars and there are several offers at one million dollars (or close to it), that seller will probably not take an offer of $900,000, even if it is “all cash”. If the seller is in a big hurry, he or she might take $950,000 or $980,000. Most of all, it will make your bid the preferred one. But in most cases, the seller won’t take a 10 or 20% discount for all cash.  So get an appropriate understanding of the power of good terms, neither underestimating nor overestimating them.  Often, truly excellent terms may be “worth” 1 – 5% to a seller, depending on what kind of terms are involved. Each situation varies, of course.

Next post on this topic: a list of financing terms (questions I ask my buyers prior to drafting an offer with them) and a discussion of the initial deposit, increase of deposit, and related concepts of liquidated damages and defaults.