Did you do the repairs outlined when you bought your home?
Recently I showed a home where the owners had been there 7 or 8 years but never did any of the suggested repairs from their pre-sale inspections when they purchased the home “As Is“. The As Is part means that no repairs were provided by the sellers, with the idea that buyers would do whatever was needed later. Desperate to get in when prices were appreciating fast, it seemed that most home buyers said “we’ll take care of it after we own it“.
But many of them forgot.
Today, with the whitest hot market I’ve ever seen in my career, most sellers fix the major items because they understand that it will net them a higher sale price. They fix the foundation, electrical, plumbing, waste lines, roof leaks, pest items, safety issues, and do whatever other repairs would make a buyer pause.
Some, though, don’t do any repairs at all – none! Often they are the same sellers who won’t stage their homes, or for whom scheduling a showing is a big effort, and maybe the disclosures aren’t so thoughtfully done. (In recent weeks I saw a disclosure package in which the sellers wrote on every page, “AS IS SALE” and refused to answer each question.) It’s a giant red flag that these may be difficult sellers.
If you want to maximize your profits, don’t let that seller be you. As Is certainly is the norm, but it’s As Disclosed. Wouldn’t buyers pay more if they weren’t worried about needing to do a lot of expensive and time consuming repairs? You bet. Confident buyers pay more. Let that be your mantra, home sellers.
Pull out your old file, find your inspection reports and review them, especially if you are preparing to sell your home
When Silicon Valley home owners prepare their property for the competitive real estate market, they want to get a good return on their investment of time and money. Often the best staging work is a matter of decluttering, updating or improving floor coverings, wall coverings fixtures and countertops. It’s what I call “lipstick and rouge” rather than cosmetic surgery. Please remember that the shift is from this being “your home” and a reflection of you to a product you wish to sell. So it’s got to be appealing to the market more than anything else – and that means taking your own personal taste out of the equation.
Today let’s talk staging color.
Years ago, the conventional wisdom was that all San Jose, Los Gatos or Santa Clara County home buyers wanted white walls “because it makes a home look bigger”. It is true that lighter colors tend to help with the light, bright and airy look, but all white is also all boring. All white homes can be difficult to sell and too frequently those homes sell for much less or do not sell at all!
Do you find that the all-white look is the most appealing? Most buyers would say not – that a splash of color makes the room “pop” and more interesting and desirable. At the same time, you don’t want to overwhelm them with it!
Are you house-hunting in Silicon Valley? If so, you may be viewing homes which were last sold just a few years ago. This is especially true among distressed properties which were purchased, renovated and now are being flipped (foreclosures, REOs, short sales). Most sales are reported on the multiple listing service, so it’s easy for your agent to find this information for you. If there’s nothing on the MLS, a quick look at the county records online will reveal the last sale date.
Why does it matter if the home sold just a couple of years ago? Because it may be possible, when you are buying such a property, to request the old inspections and disclosures. If the current sellers are using the same agent who helped them to buy the home (which is also learnable from the MLS), he or she should have a copy of the old file. State law requires that brokers keep transaction records for 3 years. Sellers and agents tend to keep them for longer, though. (When agents change brokerages, though, sometimes it’s harder to get ahold of old files.)
So back to your Silicon Valley real estate issue. You’ve located a home that you would like to buy, and there has been some recent remodeling done, “permits unknown”. By requesting the old inspections, reports, and disclosures, you may learn the true status of that repair work. Perhaps the current owner doesn’t remember, and doesn’t think to look at the old paperwork, but by going through it yourself, you may gain a clearer understanding of the nature of those improvements. Or you may find out that an addition or remodel was done without permits.
Knowledge is power, and by requesting the information on a home where it was sold in recent history, you gain some of each.
You have cleaned your house, de-cluttered it and cleared out so that potential home buyers could see the house alone. You have followed your agent’s advice on pricing and staging. You are exhausted, and at the end of it all, your house doesn’t sell.
This is a difficult situation for Silicon Valley homeowners, especially as they read that it’s a “seller’s market“, as it is today. That would lead you to believe that prices are strong and sellers are in control. But that’s not always the case. In every market, no matter how “strong”, some houses, condominiums and townhouses simply don’t sell. In fact they may never even get an offer. What’s going on?
Let’s first talk pricing. (We’ll address more issues at the end of this topic.)
Most of the time, Realtors and other real estate licensees can give you the “probable buyer’s value“. But figuring out what a buyer will want is not like a perfect mathematical equation. We know what the odds are, most of the time, and for the most part, real estate licensees will do their best to give you correct info. Sometimes, though, Silicon Valley sellers don’t want to hear it. They may have their own number in mind, no matter what the comps indicate.
So some home owners in the San Jose area are literally the highest bidders on their own homes. The market analysis might indicate a probable value of $1,200,000, but the homeowner is sure it’s worth $1,300,000. Or more. Then what? (more…)
If you are planning to purchase a home in Silicon Valley, most likely you’ll be working with a real estate professional and together you will use either the California Association of Realtors (CAR) purchase agreement form or the Peninsula Regional Data Source contract (PRDS). Both of them begin with the same basics: who is making the offer, what property is involved, how much is being offered to the home owner and how much is being put down or put into escrow as an initial deposit or good faith deposit.
What is the initial deposit in real estate contracts?
The initial deposit, or good faith deposit, is the amount of money which the buyer puts into the escrow account at the beginning of the transaction. It is usually given in a personal check, which is cashed within a day or two of being brought to the escrow holder (in our area, that’s a title company – in southern California, they tend to use escrow companies or even one of the real estate brokers). Some home buyers wire in the funds. Either way, unless the boilerplate is changed, the money is due within 3 business days of contract acceptance. (more…)
A kick out clause refers to language in the contract which permits the seller, in some cases, to cancel the contract with the current buyer. The current buyer is “kicked out” of contract. Another expression for the same idea is a “release clause” – the seller can release the buyer under some situations.
This is a bit of a surprise to most Silicon Valley home buyers, who tend to think that they can walk away from a property during their contingency time frames, but a seller is stuck with them, no matter what. That’s simply not true!
In the last few years, both the CAR and PRDS contract forms have been updated. Both now include language that specifies the seller’s right to cancel the contract. Both parties have rights and responsibilities. Failing to do what one has promised to do in the purchase agreement could potentially find that home buyer out of contract and without that home to buy. There are many shades of gray, and few things are automatic. If a seller is going to give a buyer the boot, there will be a “notice to perform” tendered first.
Let’s talk specifics. When can the seller kick out or release the buyer? (more…)
Mini update for Santa Clara County as a whole as of September 17, 2012 for houses in SCC:
Actives = 1295
Regular sales for sale = 1157 (89%
Short sales for sale = 95 (7%)
Bank owned houses for sale = 43 (3%)
Sold in the last 30 days = 859
Regular sales closed in last 30 days = 675 (79%)
Short sales closed in last 30 days = 151 (18%)
Bank owned houses sold in last 30 days = 33 (4%)
It seems that although short sales are in increasingly smaller part of the inventory of available homes, they are highly desirable and are showing up in the solds at twice their ratio of actives. Put another way, the absorption rate looks to be higher. Let’s check the math on the moths of inventory:
All houses in SCC: 1295/859 = 1.51 months of inventory
Regular sales in the county: 1157/675 = 1.71
Short sales in SCC: 95/151 = .63 moi (63% of one month!)
Bank owned homes: 43/33 = 1.3
All of these numbers are low, low, low – but the short sales are the lowest of all!
POST FROM APRIL 22, 2011:
Yesterday we looked at the types of home sales around Silicon Valley by price point. Not terribly surprising, most of the short sales and bank owned homes were in the lowest price ranges. Today we’ll look at this type of information not by pricing tier but instead by geography – in other words, by either town, city or district of San Jose (area). This post will not cover every area but will be a sampling a few communities, mostly on the west side of the valley (since that’s primarily where I work).
By way of reminder, the small image to the left reflects Santa Clara County’s houses for sale as a whole – all areas and all price points. (You can see the full sized image by clicking on it.) The green area represents “regular home sales” and the brick red and light orange signify distressed properties listed on the MLS for sale (red is short sales and orange is bank owned or REOs). Next let’s see a few regions within the county to see how things are faring geographically.
1. Almaden Valley area of San Jose – homes listed for sale by type – very few distressed properties on the market!
Almaden is a lovely southwest San Jose suburban community (zip code 95120) that grew up initially with the cinnabar or mercury mining activity. Today it’s an upscale area of more expensive homes than most of the county, it enjoys really good schools and scenic views of the coastal range as well as the Santa Teresa Foothills. Housing here is costly but residents love the quality of life. Since the cost of homes for sale here is high, it’s not super surprising, after seeing yesterday’s post, that there are very few distressed homes on the market here. Next we’ll check the other extreme…. (more…)
This week I was emailed about a home mentioned on Trulia which seemed “too good to be true”. It was a distressed property and the reader thought it was for sale for about $650,000 but it is in an extremely upscale suburb on the Peninsula and she could not find the home for sale on our MLS. She didn’t want to pay to find out if this was a hoax or what, so she asked me to please have a look.
I clicked on her link and saw that it was a feed into Trulia from one of the companies which provides foreclosure information to consumers by paid subscription. No where did it say the home was for sale, but instead it indicated that $650,000 was the home owner’s loan amount – and that the property had a Notice of Default filed against it. The house wasn’t worth anywhere near $650,000, of course – instead it’s valued at more than $2,000,000. (So this would NOT be a short sale – there’s tons of equity in this property.)
Some consumers think that if a home has a NOD, it is for sale. That is simply not true. Many homeowners (including some of my clients) have at times missed a payment and then found themselves scrambling a little to get caught up. It’s not easy but it can and does happen sometimes. (more…)
A real estate contingency is a provision that something must be overcome or approved to consummate a transaction. In other words, it’s a condition, such as “I will buy this house IF (fill in the blank)”.
Silicon Valley real estate consumers are well aware that home buyers normally have a few contingencies during escrow. The major ones are for property condition or inspection and loan or finance (to include appraisal). But there are others too, such as approving the preliminary title report, obtaining and accepting disclosures etc. (On rare occasions, such as some tenant occupied properties, the buyer may have to make an offer first and then, after it’s accepted, view the home or apartment building. In that case it’s “write offer subject to inspection” – a contingency that you’ll accept it after you get into escrow! This is how apartment buildings and some multi-family dwellings are sold.)
What about seller contingencies?
Sellers, too, may be able to back out of the contract if certain conditions are not met. The two we see most common are these:
- In the case of a short sale, the sellers have a contingency for bank approval and for their acceptance of the bank’s terms. If the bank doesn’t approve the short payoff, the seller does not have to sell the house to the buyer.
- Sometimes sellers only want to sell their home if they can find another one which they wish to purchase. This can be a contingency also: “sale subject to sellers’ finding a replacement property within X number of days“.
Some homes are part of a co-op (cooperative) and in a few areas around the country, I think mainly in New York City, a board must approve whomever wants to purchase the home or unit. In those cases, there would be a seller contingency for board approval. I have never run into it in the San Jose, Los Gatos, or Saratoga area but it is possible that you could see it somewhere in California.
How does a seller’s contingency impact value and desirability?
Seller contingencies usually make it difficult to attract buyers since there is a giant unknown in terms of the ability to close escrow and it’s not in the buyer’s control to fix it. With short sales, that contingency must be in place for the seller, but not so for the “replacement property” clause. When sellers invoke that contingency (which must be listed in the MLS), it will usually cut down on showings, offers, and ultimately the probable buyer’s value for the home – so normally this is not advisable.
Normally I don’t publish press releases, but this one is important – and has some consequences that I think should be mentioned lest weary, distressed home owners think that they are now out of the woods with short sales in California.
First, though, the press release from the California Association of Realtors (a trade group to which I belong). Afterward, I’ll mention (some of) the negative impact and discuss why I see short sale lawsuits looming on the horizon in Silicon Valley and why this change may add one more reason for litigation.
CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law
LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. (more…)