Silicon Valley home buyers are getting emotionally beat up in the current, overheated sellers market. The less money have they to “put down”, the worse it is. 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. Having 30% or more will usually overcome appraisal hurdles. But those ubiquitous “all cash offers”, which comprise about 15-20% 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’ve been writing offers and getting out bid or simply rejected, what can you learn from it?
Lots of times, you can learn what went wrong if your agent will take the time to phone or email the listing agent to see where your offer stood relative to others. For example, you might hear that:
- most of the offers had very short contingencies or none at all (so 17 days for inspection, loan and appraisal would eliminate your offer)
- lesson learned: long contingencies will lessen the odds of your offer being accepted, and in multiple offers may quickly get you eliminated entirely
- there were X number of offers and yours was # Y (example 4th out of 8 for price)
- lesson learned: your price wasn’t high enough (if you write 5 offers and this happens each time, you will learn that you habitually underbid)
- your offer was great, but the other buyer wrote a personal letter, or signed the disclosures, or did something extra
- lesson learned: you need to go the extra mile to win out in multiples (sign the disclosures, write the letter, provide proof of funds etc.)
- perhaps the sellers did not want anything less than 20% down, but you are writing FHA or 10% down conventional
- lesson learned: this is a tough one, but often FHA or lower than 20% down cannot compete in multiples. Find a way to get a larger down (buy it with your parents, save, borrow against your retirement fund or?) or go after properties where there are not multiple offers
- perhaps you wrote the offer on a PRDS contract and didn’t make it “As Is” or you used the CAR contract but asked for a pest clearance…and none of your competitors did! (Most of the time, with multiple offers the sale will be as is.)
- lesson learned: perhaps one contract or the other is preferred by the seller or their agent, but also that in multiples the sellers usually do not have to do any improvements or repairs other that strapping water heaters and adding CO2 and Smoke Detectors per California law
If you don’t ask, or rather if your agent does not ask on your behalf, you cannot learn. Remember, information is power!
(PS – Lest anyone think I haven’t been through this personally…. My husband and I were in the same boat in 1987-1988 when we had a small down payment in a terribly overheated sellers’ market. We wrote a bunch of offers that got rejected in multiples. In 1989 we changed our strategy and were, at last, successful in buying our first home.)