Do you have a strategy for buying a home in Silicon Valley, where it’s a deep seller’s market?
No one who understands the market at all will tell you that it’s going to be easy. If you are serious about becoming a home owner rather than a shopper, it’s time to get serious about what it will take for that to happen.
Creating a strategy for buying a home
In a deep seller’s market, it’s very helpful to have a game plan or strategy for buying a home. The best place to begin is with an understanding of your competition and the inherent risks of buying in this climate.
Approximately 30% of all sales in this area are “all cash”. Not all cash buyers are savvy and may make mistakes (such as vastly overestimating the value of a cash offer – sometimes the lowest price comes from a buyer without financing). All cash buyers need to be educated, too.
When homes sell in under 2 weeks and with multiple offers, it is highly likely that the winning bid came in with no contingencies for inspection, loan, or appraisal. Sometimes it’s both all cash and non-contingent on the normal items. Most of the time, at least half of the bids in multiple offer situations are non-contingent.
A key strategy for buying a home in an overheated market is to have the strongest financial position possible. If a mortgage is needed, get the strongest pre-approval possible (pre-qualification is weak, pre-approval is typical, and pre-underwritten pre-approval is the strongest).
Use a reputable, known lender, or at a minimum one known to your agents so that she or he can truthfully tell the listing agent that the lender has an excellent track record. Reputation matters. (Ditto that for your buyer’s agent.)
Do your research:
Try to understand WHY it’s such a scarcity of listings and if there’s any reason to anticipate a change. In 2024, we see pent up seller demand, but those folks aren’t moving because (1) they have a low interest rate loan and (2) capital gains taxes take a big chunk of money that many of them would want to retire on. In other times, it could be different reasons. But these are the drivers now.
Understand that some homes are priced FAR below what they are worth. This may create a feeding frenzy with dozens of home buyers, and with that many bidders, it’s likely to sell higher than where it “should” (if we expect it to sell similar to recently closed sales).
Some buyers will have lost out so many times that their strategy for buying a home is to spike the price to be done with it. If the home ought to be worth $1.6 million, they may pay $1.85 million since that’s totally unreasonable and they should nail it this time. You don’t want to compete with that, and you cannot predict when it will happen.
Many won’t spike the price, but they may say “well if it should sell for $1 million, I’ll offer $1.1 million to clear it”. Get a bunch of those and the sale price will rise.
An old rule of thumb is 1% per offer over list price – so if there are 30 offers, it may sell 30% over list price. But sometimes that isn’t the case and it could be much higher or lower.
A few years ago I wrote a series of multiple offer tips and they are still good today. Major hint: it’s not always only about price or even primarily about price. The terms matter, and so do a few things which are harder to measure (and can include all sorts of things – even whom you hire to work with you on the purchase).
If you dawdle, you risk being priced out of the market. Sometimes when beginning to shop, home buyers who are new to the game feel that they have power and can “wait until the market improves”. The problem is when there is deep scarcity of inventory and a ton of amply able buyers, the prices are going to go up steeply.
If you take a year to buy, most of the time – unless you are extraordinarily lucky – it will cost you dearly. I have seen buyers wait so long that they basically used up their entire down payment.
The greatest fear that buyers have when purchasing in a raging seller’s market is that there will be a correction or crash, and they’ll be left with an over-investment in real estate. Put another way, they don’t want to overpay and they really do not want to be upside down in their home. No one wants to overpay. But right now, some homes that sell will not appraise (many do, but quite a few don’t).
So that’s the starting point for a good strategy for home buying: get a realistic idea of what’s happening and what to expect as your starting point. (more…)
A great buyer’s agent can be hard to find and keep. Here’s what to do to enlist the help of one and how to make sure you stick together as a team and get you into your new home.
Summary:
Only a fraction of all interested home buyers actually buy in the year they say that they plan to do so. For various reasons they decide to keep renting, or move away, or give up, or simply don’t write offers that are selected (they may chronically low-ball)
Some home buyers are very serious but also very time consuming, and if it takes them a long time to buy, it can be draining for their real estate agent, and if prices are rising, it can shrink the odds of success.
Many Realtors prefer to work with sellers when the market is hot – which it nearly always is in Silicon Valley, since most homes do sell (while far fewer buyers buy).
Buyers who want to enlist a strong Realtor will need to be serious about home buying, able and ready (have the money and a pre-approval in place), and loyal as the starting point. Your real estate licensee may ask you to sign a buyer representation agreement, just as home sellers sign a listing contract. This will be required by law by mid-July 2024.
To be taken seriously, when you first contact your agent, DO:
share your full name
share your real contact info (including an email address that you actually check)
specifically what you are targeting
how you got their name
your timing and anything else important
Understand that we agents get many scammers approaching us. Do your best to look authentic. Scammers say “I want to buy a house in your area. Contact me on WhatsApp”. If you sound like a scammer, your initial approach may backfire so badly that your message gets you blocked in the future. (I get several scammers texting me each week.)
If for any reason you haven’t done all of the above upfront, please correct it if needed over time. For instance, if you provided a “junk” email account and never check it, your agent may find your perfect home but not be able to inform you of it if you never look at those emails.
To keep your great buyer’s agent on your team, it’s imperative that you allow that Realtor to guide you, whether it’s getting preapproved with a strong lender, deciding on priorities (must have versus nice-to-have list), or moving quickly to view houses, or taking the paperwork seriously – or any other major step. You need to be as motivated as your agent! And communicate openly if there’s an issue. I’ve had clients tell me that the pre-approval needs to wait until they’ve been at their new job until a certain date. Whatever it is, ignoring requests given to help you without explaining the backstory won’t be good for your teamwork and could get you fired as a client. (Yes, Realtors sometimes fire their clients.)
If you fail to do these things, your agent may not feel like your odds of buying a house are good, or that the stress associated with doing so will be higher than necessary if you stall on taking the proper steps.
Put another way, if you hire an agent because of her or his knowledge and track record, but then don’t heed that agent’s professional advice, the relationship may not do well over the long run. Think of it like a sack race: both people have to be going in the same direction, carefully working together, or it’s not possible to move well (if at all).
Below, we will go over in more detail how to get and keep a great buyer’s agent in a seller’s market or in any market, for that matter.
Are you losing out on multiple offers? If it’s happened repeatedly, you may be hoping for a lucky break. But luck usually has nothing to do with success.
The real estate market in Silicon Valley is a hot seller’s market, and that means that often there are multiple offers, overbids, and sales with no contingencies. This is often the case with homes that sell in 2 weeks or less. Some buyers may get it on the first attempt, but many are bidding over and over – why do they keep losing out on multiple offers?
Over the course of my career, I have noticed that often there is a consistent “spread” of offers. Most of the time, there’s a pack or band of offers at about the same level, sometimes 10% or more over list price, then a couple higher that that, and maybe one or two (once in awhile 3) at the top of the heap in terms of both price and terms which are attractive to the seller.
(There’s a video with my commentary on this below.)
Not everyone is losing out on multiple offers: what are the winners doing?
The top offer frequently has the highest price and best terms. They aren’t losing out on multiple offers because no one else was willing or able to write such a high, strong contract.
It is 10-20% over list price or more, 25-30% down at least, and has no contingencies for inspection, loan, and most of all, appraisal (the percentage over has to do with whether the home was priced spot on the value or strategically under). Please see the video below for more on these items.
The winning offer’s buyers and agent followed directions. Normally that means that they come with all disclosures signed, and the buyer’s agent has even done her or his Agent Visual Inspection Disclosure. They include the proof of funds (all needed) which prove that the buyer can absorb any appraisal shortfall and is prepared to do so. Sometimes the listing agent asks for a particular contract to be used or a particular summary sheet to be filled out. The best agents do all of that. The 2nd tier offers often are incomplete – the listing agents may or may not circle back and ask about missing items, so it’s important to remember that you only get one chance to make a first impression.
The best offer is also someone who’s been SURE that he or she or they wanted the home from the very beginning and looks ROCK SOLID. NO WAVERING, not a “last minute” offer. Any hesitation on your side will cause the seller to not feel good about your odds of closing the sale. Be consistently interested if you want the sale. A shaky looking buyer may not include their proof of funds. They don’t come across as certain about buying this property and need a few days to see the property again, or show it to their parents, or otherwise confirm the decision to buy. Their agent is not so thorough. If the TDS is not fully signed off, is the buyers’ agent trying to sneak a 3 day right of cancellation into the contract? The best buyer’s offer doesn’t look shaky – it looks dead set on buying the home and has done everything possible to convince the seller of their conviction and competence.
The second best or next runner up is usually strong on terms (at least 25% down, few or no contingencies) but perhaps made an offer price a little under the top value. Sometimes the next runner up has a good price and mostly good terms, but something is not quite as solid – they didn’t offer to put the deposit into the escrow account the next day, they didn’t check all the needed boxes in the offer, they have a contingency when all the competing bids have none.. If the offers are tied but one buyer has no contingencies and the other has any, that will be the tie-breaker.
Middle of the pack is usually a combination of a price where the home should appraise, a solid down payment, and few or no contingencies. It may be a price that seems “reasonable”. Buyers may feel that it is “a fair offer” or a win-win. Often the fair offers aren’t good enough to take the prize in multiple offers. If you can project what most buyers think a home will be worth, maybe you might want to consider getting ahead of that pack and seeing where the pricing trajectory will take you. The folks in the middle of the pack are usually the ones, together at the bottom, who keep losing out on multiple offers. (They will say things like “we are cautious…)
Bottom offers are under, at, orbarely over list price, and include an appraisal contingency as well as others (one for loan or one for property condition). If there’s a rent back, they want their PITI covered.
If you repeatedly find yourself losing out on multiple offers, try to see your own pattern in this spread. Is there one thing, or perhaps are there two or more things, you’re just not ready to do?
What do multiple offers look like to the sellers when receiving an offer? Click to view our post on popehandy.com and take a look at a side by side offer comparison sample.
Buyers who are getting slammed out of the Silicon Valley real estate market due to low inventory and multiple offers are extremely frustrated. Part of the problem may be the amount of cash in their offer. It can be hard to compete with bids with smaller loan amounts or which are “all cash, no loans”.
The question arises all the time: why isn’t my 20% down offer just as good as the 50% down or the all cash offer? Isn’t 20% down good enough? Or for that matter, why wouldn’t a lower interest rate FHA backed loan be suitable?
All cash is better because there’s less risk
Twenty percent down is “good enough” if there are no other offers. If it’s multiple offers, though, it’s probably not sufficient for most sellers provided that the all cash offers are written with realistic pricing. Right now, about 15% of home sales in Santa Clara County are all cash, and sellers would far rather deal with an offer that includes no finance or appraisal contingencies. For sellers, the fewer contingencies the better and no contingencies is ideal. Particularly now, when we are seeing a very sudden and dramatic upswing in pricing, appraisal contingencies can kill an offer’s chances of success due to the fear of a low appraisal. With all cash, there is no appraisal at all – it’s a slam dunk on that front. (more…)
Home owners wanting to sell will be asking how to price a home in a correcting market – if they understand that things are shifting right now.
When real estate values are rising, homes that are well priced, well staged, well marketed, well photographed, and easy to sell tend to sell quickly and for top dollar. In that situation, it’s almost impossible to price a property too low, because buyers will rush in and bid it up. If it’s priced extremely aggressively, it may create a larger crowd of willing buyers and the ultimate effect may be a higher than expected sale price. That’s a strategy that often works well in a hot market.
That’s less effective now, as conditions have mellowed significantly due to dramatic changes in inflation, the stock market values plummeting, and interest rates rising sharply. The question, then is how to price a home in a correcting market? Or one that is flattening or generally cooler?
There are tips at the bottom of this post, but if you want to sell your home now, when the market is cooling rapidly, here are some basic concepts on how to price a home in a correcting market:
understand that the odds of selling have decreased, and to get yours sold it will need to be the most appealing in terms of price and condition
serious sellers will want to position their home as the best value available today and appeal to both the buyers and to their agents
consider the trajectory of the market and if it continues as we see today, where the values will be a month from now – that is likely your pricing target
A decade ago, it was the norm for Silicon Valley homeowners to occupy the home they were selling – today a majority of homes are being sold unoccupied or vacant. Why is that? And should you move out before you sell?
A few years ago, around the mid- to late-2010s, we began to see an increasing number of vacant and professionally staged properties for sale. Last year, most sellers simply felt safer moving out before selling due to the pandemic. Today that continues to be the case.
Over time, the reasons for homeowners to move out before marketing a primary residence have increased. While sellers can certainly still occupy a home on the market and sell it successfully, it’s not our recommendation for most people and here’s why.
Seller Stress
First things first, if you are able to move out before you sell it can reduce a lot of stress. And this has almost always been the case.
Home buyers (and sellers too) here in Silicon Valley like to “see the comps” when trying to determine fair market value or the probable buyer’s value for real estate. Usually that translates into seeing what sold & closed escrow recently and for how much.
In an appreciating market and a strong seller’s market, though, the comps are not so much help as you might hope. They are yesterday’s news! What closed escrow last week was negotiated 30 or 35 days prior, in most cases. By the time a San Jose area home is on record as a newly closed sale, it may already be out of date information. Not only that, but the MLS won’t tell us, at least not in most cases, how many offers there were or details about them – such has how many of them were all cashoffers.
I see this mistake a lot in my real estate practice across Santa Clara County. Clients want to view sales around a property they’re interested in. With our terribly severe inventory shortage, there may not be enough recently closed sales – so we look further out in location, futher back in time. If prices are going up fast (as they can do in Cupertino, Palo Alto and elsewhere), the only way you will be in step with the market is if you also factor in the appreciation that has likely taken place since each comparable property has closed escrow, whether that was 2 weeks ago or 3 months ago. And that’s hard to gauge.
What are real estate bidding wars, and why have they been happening in Silicon Valley?
First, let’s explain what it is. Bidding wars happen when multiple home buyers overbid a property that’s on the market and make increasingly stronger offers (improving price and terms) until one of them is accepted by the home owner and the bidding is over. Sometimes home buyers get a counter offer, but return their response with even more than the seller requested. At other times, they may not even wait for a counter offer – but up their contract’s purchase price or adjust the terms to make it more desirable to the seller.
Why does this happen? It is a supply and demand issue. When there’s not enough supply for the demand, buyers feel desperate – especially if they have offered on many homes and been rejected each time. With multiple offers, prices get pushed up – and sometimes up and up while the sellers are still reviewing the contracts in front of them. The process is accelerated (or exacerbated) when multiple offers also become bidding wars.
Digging deeper with bidding wars
When a lot of home buyers want the same property and write purchase offers for it, we have multiple offers. In some markets, multiple offers come in at or under list price (I have seen this in cooler markets, though not for many years). But when the realty market is an overheated seller’s market, inventory is too low for the demand, prices rise with those multiple bids. Additionally, the terms get so aggressive that buyers often have few, if any, rights. Remember, it’s always price AND terms – so things like cash versus a loan, larger downpayments, shorter or no contingencies, and things like free rent backs will also impact the outcome. It is not only price! When the offer process escalates, we have bidding wars. (more…)
Hearing the real estate market “war stories” about dozens of offers on Silicon Valley properties and overbids ranging from 20 – 55% had convinced me that we were in a Silicon Valley real estate market bubble back in early 2013. At least, this is what a bubble looks like, sounds like, feels like, and acts like. At the time I thought, “how much longer could this continue?” Four years and counting – that is the answer.
I tell my family and friends that we are in “crazyland” as buyers purchase homes with no contingencies of any kind, houses sell in 10 days or less (if everything is right, which seems to be the case 75% of the time), and those same properties are selling at well over list price and with much more than 20% down.
The absorption rate, or months of inventory: it is a Silicon Valley real estate market bubble?
What do the numbers say? I just logged into MLSListings.com and see that right now, in all of Santa Clara County there are 817 single family homes (houses + duet or attached single family homes). The pending and contingent homes measure 1074, far more! That ratio alone suggests that the market is in overdrive. In the last 30 days, 950 single family homes have sold & closed escrow. So the months of inventory is 817 divided by 950 = .86 of a month of inventory, so about 3.5 weeks of inventory. (When I originally blogged about the potential bubble, it was 1.8 months of inventory.)
In other words, things are flying off the shelves. And they have been, with only a few minor blips here and there, since early 2012. Does that sound like a Silicon Valley real estate market bubble to you – a crazy strong seller’s market lasting 4.5 years? I could be wrong, but I think of bubbles as being something fairly swift, not a multi year trend.
Homes are selling faster than new ones are coming onto the market!
It’s one thing to say that one city, town, or school district has a very low months of inventory (or high absorption rate). It is another altogether to say an entire county is that low. This is a major trend, not a tiny blip in the statistics.
How soon we forget that after the outrageously deep seller’s market in 2000, we had a steep drop in 2001. Or that all the crazy buying in the San Jose area (and other places) in 2005-06, combined with bad financial regulations, lead to the crash of 2007-2009. But perhaps that enormous “correction”, in which Santa Clara County lost about 50% of its value on average, had more room to recover than we initially realized. Jobs keep flowing in, and housing starts are not keeping up. Supply and demand – the age old equation. That would seem to refute the idea that this is a Silicon Valley real estate market bubble. Perhaps low inventory and strong demand are what we should be expecting going forward. (more…)
Why is it so hard to buy a home in Silicon Valley? Most of it has to do with our ongoing and severe inventory shortage.
I initially wrote the article below on Feb 9, 2012. I thought it was bad then – and I suppose that relatively speaking, it was. But it’s much worse now!
Today is May 1, 2017, and I ran the numbers of available single family homes in Santa Clara County in a chart comparing since January of 2012. Have a look, and please note the year over year numbers:
The situation has only intensified since I first wrote this article in early 2012. There are many reasons for the problem: older people won’t sell for tax reasons (mostly capital gains). move up buyers who elect to stay and add on rather than deal with hugely increased property taxes. In general, home owners are opting to “buy and hold”.
Is it hard to buy a house in the San Jose area? You bet. And unfortunately, I don’t see an end in sight anytime soon.
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Original article: Feb 9, 2012
Right now I’m working with a number of very frustrated home buyers. Silicon Valley real estate inventory is painfully low, and in the lower price ranges especially, that means multiple offers are fairly common. FHA home buyers, in particular, are getting out bid and out negotiated by all cash buyers, many of whom are investors.
How low is the inventory? Let’s have a look at January’s inventory for houses & duet homes (“class 1” or single family homes) over the last ten years in Santa Clara County (San Jose, Los Gatos, Campbell, etc.):
The average January inventory of available houses over the last 10 years is 2,636. At 1,382, January 2012’s available inventory of houses for sale in the San Jose area was just 52% of normal. (more…)
Helping nice folks to buy and sell homes in Silicon Valley
Mary Pope-Handy, Realtor ABR, CIPS, CRS, SRES
Christie's International Real Estate Sereno, Los Gatos, CA 95030 408 204-7673 Mary@PopeHandy.com License# 01153805
Clair Handy, Realtor
GREEN
Christie's International Real Estate Sereno 214 Los Gatos-Saratoga Rd Los Gatos, CA 95030 ClairHandy@sereno.com License# 02153633
Mary & Clair sell homes throughout Silicon Valley: Santa Clara County, San Mateo County, and Santa Cruz County. with a special focus on: San Jose, Los Gatos, Saratoga, Campbell, Almaden Valley, Cambrian Park.
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Use this link to browse properties which are for sale, under contract (pending) or sold. Want to view only homes which are available now?
Mary Pope-Handy, Realtor ABR, AHWD, CIPS, CRS, SRES Christie's International Real Estate Sereno DRE License #01153805 408-204-7673 mary@popehandy.com “Helping nice folks to buy and sell homes in Silicon Valley since 1993”
Clair Handy, Realtor, GREEN Christie's International Real Estate Sereno DRE License #02153633 408-721-6160 clairhandy@sereno.com “Helping nice folks to buy and sell homes in Silicon Valley”
This is the Valley of Heart's Delight blog , covering Silicon Valley real estate - Santa Clara County, San Jose, Los Gatos, Cupertino, and nearby communities in the South Bay Area and lower Peninsula. Find info on neighborhoods, disclosure issues, buyer and seller tips, and housing market conditions in the west valley and most of the county.Please also see my other websites and real estate market statistics site, which are listed in the sidebar, above.
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Mary Pope-Handy, Realtor ABR, CIPS, CRS, SRES Sereno DRE License #01153805 408-204-7673 mary@popehandy.com
“Helping nice folks to buy and sell homes in Silicon Valley since 1993”
Do you have a strategy for buying a home in Silicon Valley, where it’s a deep seller’s market?
