When Silicon Valley home buyers purchase real estate using a mortgage or loan, the lender will require that an appraisal be done. (This is true even if you do not have an appraisal contingency.) The main reason for the appraisal is to protect the bank from the risk of its making a bad investment. The question being posed is a simple one: is the house, condo, land etc. worth the purchase price?
An appraisal isn’t just a visit to the property, but more of a process. But first, who is the person doing the appraisal?
Is an appraiser another real estate sales person?
A real estate appraiser is a professional with a license specifically targeted for performing this work. It’s not the same as a real estate salesperson’s license. In California, they are regulated by the Bureau of Real Estate Appraisers.
The appraiser must evaluate the target property and arrive at worth based on comparable sales. (There are other ways of arriving at value. In the case of income property, for example, it might be important to look at the rent, expenses, cash flow and ratios of several factors to calculate value. Another angle may be replacement cost or cost for rebuilding.) In most cases, though, comparable sales will be analyzed and this approach will be given the most weight. We often refer to these as “comps”.
In many cases, the appraiser will do some research before visiting the property (and we real estate agents may email comps or other information ahead of the visit).
Once at the site, he or she will
- measure to calculate the square footage of the house and garage (living space plus other space)
- will take photos of the inside and outside of the house or condo plus the street view
- plot out the basic floor plan of the home
- verify that there are smoke detectors, carbon monoxide detectors, and water heater strapping as required for health & safety
Please note that no people can be in the images!
Sometimes the appraiser may ask the real estate agent who is present some questions about either the property or the sale.
Often the buyer’s agent will be the access person for the appraiser, but just as frequently it’s the listing agent. Why should the listing agent take the time when it’s something for the buyer?
As I see it, a low appraisal will hurt my seller clients because it could cause the buyers to bail out or try to renegotiate the price. For that reason, when I represent the sellers, I like to meet the appraiser and bring comps (or email them ahead of time) to help defend the price. As the buyer’s agent, I also see risk that my clients may have to come up with more cash if the appraisal falls short, or have some other unhappy remedy such as cancel the same – that’s expensive, as in most cases not only does the appraisal cost a few hundred dollars, but inspections aren’t free either! For me, I like to go no matter which side of the transaction I’m working.
How long does the appraisal appointment take? When is the report done?
This is a tough market for home buyers. If you aren’t sufficiently motivated, you may write offers, but you won’t be buying a house.
I am a member of several online groups of Realtors and other real estate professionals who share ideas, give feedback, marketing, challenges, safety or tech tips, and more. Sometimes these groups are support for weary real estate agents.
Just now I read one agent in the deep south complain that her buyer won’t pay more than list price “on principle”, despite what the comparable sales indicate the value to be, despite the market conditions, 20 offers on a house, etc. She cannot get that buyer’s offer accepted because the buyer is staunch on offering exactly list price in every instance, and it’s just too low to be viable.
The real estate sales person has explained the market, the competition, the sale to list price ratio, but the buyer does not care about the data. The buyer only wants to pay list price, even if the house is under priced.
Guess what the 200+ real estate professionals advised her to do? If you guessed “fire the buyer“, you’re right. And I agree. She is not able to help him to buy a house. She is spinning her wheels. (And while doing so, she’s unable to help buyers who will buy, or to find new business so she doesn’t go broke working on something hopeless. As a business person, she either needs to help the buyer to write viable offers or she needs to let him know that she cannot assist him further. She’s not doing him or herself any favors to continue working with him under those circumstances.) (more…)
How long does it take to prepare an offer? Recently I wrote about how much time it takes buyers to put an offer together in Silicon Valley. But I didn’t go over how much of the buyer’s agent’s time is involved with drafting the bid In Silicon Valley, it’s a lot more than just typing up the contract and emailing it to the listing agent.
The first time I write an offer with a buyer, it may take me about 10 – 15 hours, sometimes 20 or more, because there’s a lot of information that will need to be explained, such as what is needed with the proof of funds, or going through the boilerplate disclosures that will be found on every sale (or most sales).
How long does it take to prepare an offer? There’s more to do than you may realize!
Here are some of the places where that time goes:
- Getting the electronic documents set up for completion and signing on ZipForms. Depending on whether or not we can import some of that info from the MLS, it may take a few minutes to hand enter everything (and to double check the seller’s name on the preliminary title report). Then we need to make sure that we load the forms required to write the offer, and required by our brokerage, into the area actively used for drafting the offer. Usually this is 10 minutes or so.
- Researching the areas (we usually pull the Realist Report, check Google Maps, check satellite and street views, and will look at online natural hazard disclosure info when the disclosure package is not yet read ).
- Pulling comps (comparable properties) could be anywhere from a half an hour (if properties are not reviewed individually and it’s simple, such as a condo with the same floorplan that just sold ) or 2-3 hours or more if your agent does a deep dive and it’s a custom home / lot / anything unusual going on or no recent solds nearby. Recently I spent about four hours on pricing alone since inventory and sales are so low. That makes it harder and more time consuming. When possible, I will phone the listing agent of pending sales and that also takes time but can be invaluable when prices are rising fast.
- Providing you market information (stats from sites I use, stats I crunch directly from the MLS, but also finding out from the listing agent how many offers may be expected, how many disclosure packages are pulled, etc.) at least 30 minutes, possibly a full hour.
- Doing an Agent Visual Inspection Disclosure (visiting the property, taking notes, photos, type up, electronic signing) at least 1 hour, probably 2. The last time I timed myself just typing up the AVID it was around 45 minutes because I am diligent and want to be thorough.
- Reading the disclosures: if skimming before deciding to see a house, just a few minutes. But when a client is serious about buying, I will spend an hour or two on a basic disclosure package. The home inspection summaries often do not mention important things like whether or not the electric panel is a brand that warrants replacing, or if there are signs of drainage issue which may be expensive to fix.
- Discussing with buyers the disclosures and inspections, pricing thoughts, terms of the offer, and questions that need investigating: at least 1 hour (usually several emails plus a phone call or video chat). In some cases I need to do further research, or the buyer does, to better understand something in the disclosures or inspections.
- Talking with the lender, if applicable, and getting the pre-approval offer included and coaching the lender to call the listing agent after the offer is submitted – a few minutes.
- Tagging the disclosures for electronic signing (seller’s disclosure package, buyer agent’s company forms, plus the Agent Visual Inspection Disclosure) 1 – 2 hours, depending on how the listing agent has put the disclosure package together. Some have a signing package, others don’t.
- Doing a contract review with the home buyer(s) – usually about 1 hour. If the buyers are first time home buyers, estimate 1.5 hours or more.
- Pulling together the proof of funds, making sure to white out what isn’t wanted or needed (bank accounts, individual transactions), combining pages and creating a summary sheet – estimate a half hour.
- Creating a cover letter / offer summary – just a few minutes.
- Combining PDFs so the listing agent doesn’t get 25 attachments – a few minutes.
- Often there are return trips to the property, either to show buyers a second time after reviewing the disclosures or do to a more thorough AVID, if we were rushed previously.
- Emails back and forth with buyers on a myriad of topics related to offers – varies, but all tolled, it is usually at least a couple of hours.
How long does it take to prepare an offer after the first or second bid fails?
If the home buyers don’t get the home they first offer on, it is a lot simpler and faster, probably half as much time with the second offer and a little less with the third. You cannot skip over the disclosures, the comps, the DocuSigning, but the contract itself will have decisions that come much faster.
The odds are good that if you are looking to hire a real estate professional, one of the criteria you seek is “responsive”. Those of us who sell real estate for a living know that consumers want to hear back from us as soon as possible when they call or email (or text, in some cases).
How responsive should your real estate agent be?
- Most real estate agents will return phone calls within a half day regularly, or at the end of the business day worst case scenario
- Some will answer the phone when it rings every time, unless they are with clients or otherwise crunching on something urgent, such as writing or reviewing offers
- For emails, the response times can be similar – often within a few hours, but not more than 24 hours
- When consumers text, the response may be faster since it seems urgent to the recipient. You’ll want to see if your agent wants texts outside of certain hours or not, or if texting should be reserved for things that demand a quick response.
- Some agents may have a dedicated day off and will not return messages until the following day. It’s good to ask ahead of time about how time off is handled.
- Be sure to ask about your agent’s schedule and communication style (when and how they’d like to hear from you). Make sure you let your preferred method be known so you can be on the same page not just for when to communicate, but how!
Responsiveness and phone calls
If not with clients or otherwise tied up, many Realtors (yours truly included) will pick up the phone when called during business hours. (Some won’t. Some do time blocking and return calls at set times, such as between 11am and noon and 4 and 5pm. Those who time block in this way will often put a message on their voice mail explaining when they will call back. Hopefully, that works for the caller!). (more…)
Open houses are returning to the California real estate scene, and private showings are also becoming more relaxed, but it won’t be a return to pre-pandemic practices just yet. The announcement that open houses would be permitted caught most of us Realtors (and our managers and brokers) by surprise a couple of days ago, and all of the details are not yet published, but I’ll share what I have learned so far.
Required protocol and open house paperwork
First, a home seller must decide whether or not to permit an open house (and a listing agent if he or she wants to do it). Naturally, there’s a form for that – an addendum to the listing agreement, LOHA (LISTING AGREEMENT OPEN HOUSE ADDENDUM OR AMENDMENT). Here’s a bit of a screenshot to give you a sense of what is required if the seller agrees to have an open house at the property:
If the seller wants the home to be held open, and the listing agent is willing to do it, there’s a bit of protocol to follow. Visitors to an open house must sign in for contract tracing purposes. If you’ve been house hunting over the last 14 months, you are probably used to signing the PEAD-V form for visitors. With that document, the listing agent got your name and saw your electronically signed signature, but that is it. Only your buyer’s agent had your contact info.
As open houses are returning in this transitional phase, the new Property Sign-In (PSI) will ask you for your name, phone number, and email address. This is not for marketing purposes, but for contact tracing purposes only. (Some agents may opt to still use the PEAD, but if so, they’ll need a way to contact you should you end up exposed to COVID-19 at the open house.)
You should expect that at an open house there will likely be a table set up before you can enter where you sign in and use hand sanitizer, which is required. The agent will make sure you are wearing a mask. Some sellers and / or listing agents may have additional requirements, such as your wearing shoe covers (usually provided) or gloves (not usually provided).
You should also expect that it’s possible you’ll need to wait to get inside. This is very important to keep in mind if there’s a heat wave. More on that below. (more…)
When listed properties get multiple offers, sometimes all or most of the bids are in a similar range or band. Sometimes, there may be one buyer who’s lost out on several multiple offers and spikes the price high to make sure that he or she “wins”. That ultra high price, far more than the other willing and able home buyers were offering to pay, is called an outlier. (We are seeing a lot of this in Silicon Valley.)
When that house closes escrow, neighbors and real estate professionals themselves see the closed price, and may be amazed at the amount the new neighbors paid, as it often sets a new high for the immediate area.
Below is a sample scenario of bids in a “band” of pricing with one outlier.
Sample list price $999,000
Offer 1 $999,999
Offer 2 $1,100,000
Offer 3 $1,250,000
Offer 4 $1,200,000
Offer 5 $1,000,000
Offer 6 $1,260,000
Offer 7 $1,275,000
Offer 8 $1,400,000
Offer 9 $1,325,000
Offer 10 $1,265,000
Offer 11 $1,215,000
Offer 12 $1,335,000
There will always be a couple of offers that come in close to list price, despite all clues that a property is under priced and the activity leel is high. Offers 1 and 5 are essentially at list price and they haven’t got a chance. Half of the offers, 6 of 12, are between 1.2 and 1.275 million. We’d call that a band of pricing. There are 2 in the 1.3s and 1 at 1.4.
The offer at 1.4 million is $65,000 higher than the next best offer, but the buyers don’t know the prices being offered. If no one had spiked the price, anything over 1.3 would have trounced the rest of the offers. But we just never know how high a very highly motivated buyer will go.
Will that one spiked sales price or outlier establish the value for the neighborhood?
Not by itself, it won’t.
Appraisers look for three comparable home sales in establishing valuation for residential real estate. Real estate agents do too. One sale in a tract could be a fluke. Several of them and you have a trend – something more dependable, indicative of rising values for the region as a whole.
Home buyers do not want to be outliers, but if they have lost a number of homes and see prices continuing to rise, they can project a likely value a few months into the future and decide it’s better to pay the “two months down the road” price today and get the house rather than continue to lose as prices go up and up and they risk getting priced out of the market. So they may pad what they think is reasonable just to make sure they get their home this time around. Of course, this is a seller’s dream. Recently I sold a home where there was this sort of buying activity with most bids in a band and one super high. My seller’s response? “Scrape me off the floor” followed by a simple “let’s take it”.
A plat map comes with your preliminary title report (provided by your title company with maps from the Santa Clara County tax assessor’s office when you purchase or sell a home in California), tucked away at the back and somewhat mysterious with lots of numbers in small print. It holds quite a bit of helpful information if you know what it is you’re seeing. Today we’ll view a sample of one of these – breaking down the plat map shown as a small thumbnail image on the right to more readable parts so that you can learn how to “read” or understand a plat map.
Quick overview of what’s on a plat map
There’s a wealth of information on the plat map. Take a look and see what you can pick out on your own first.
In many parts of the U.S., a buyer broker agreement is normally used between home buyers and their real estate agents, much like a listing agreement is used between sellers and theirs. It’s not so common in Silicon Valley, though. Often home buyers are a little spooked at the prospect of signing a contract for buyer representation & compensation.
My Realtor colleague and blogosphere friend, Elizabeth Weintraub, has a great article on this topic on About.com, Buyer’s Broker Agreements & Buyer’s Broker Contracts, in which she explains the various types of buyer contracts and agreements which are commonly found around the country. The one which is used the most, if one is used at all, is the “exclusive representation” (which again is similar to a listing agreement, which is also usually an “exclusive representation agreement”).
Why use a buyer broker agreement?
Why would anyone want to use a buyer contract? Whether you’re the consumer or the agent, the answer is pretty much the same: to have options. In my real estate practice, I do not request nor require a buyer contract as long as my buyer client is willing to purchase something from the selection available on the multiple listing service (MLS). If that isn’t enough, though, then we chat about the buyer’s options.
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, it won’t sell.
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. 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. If it’s unlikely that their ranges overlap at all, we’ll have a listing that is difficult or impossible to sell.
Let’s take a hypothetical case of a home worth about a million dollars (see image above). The seller would love for the property to sell close to $1,040,000. The buyer would like to purchase it for $960,000. The agent’s competitive market analysis indicates that similar homes have sold or are selling at around a million dollars, give or take a percent or two. If the buyer and seller can come to a meeting of the minds, and there’s no undue pressure on either one of them, we have (hopefully) a sale and we have market value.
But as we know, sometimes homes sell for much more than they would seem to be worth, and other times much less.
What causes property values to go above or below what would seem to be the probable value? Undue pressure can certainly cause values to rise (desperate buyer who just has to get into a house, even if overpaying or desperate seller who has got to unload a property, even if selling too low).
Who is present at home inspections for Silicon Valley real estate sales? The answer really depends on when the inspections are done and who is paying for them.
Timing of the home inspections
Pre-sale inspections: In Silicon Valley, many home sellers get pre-sale inspections of the home (property), roof, chimney, and a pest inspection or termite inspection too as they tend to provide an excellent return on investment. With the seller’s inspections, often the listing agent will be present for either all of the inspection, or, if the seller is there and prefers, only at the summary. Inspectors are not ordinarily left at the property alone in this area – though in some states that is the norm.
Sale pending: When the home is in contract, both the buyer’s real estate agent and the buyer or buyers will be present for the inspections. The seller and listing agent ordinarily are not there, but may be. Being present is a great way for the future owners to really learn about the property, so we Realtors strongly encourage them to attend if at all possible.
More than a written report
A lot of time, there are nuances to the home inspections which you will only get in person and not find on the written report. Some inspectors may volunteer info on how to maintain things in the future, such as tips on keeping rain gutters from rusting. If you don’t attend, you won’t get that education.
As much as possible, Realtors try to get all home inspections to happen at once (same day, same window of time) to minimize the buyer’s time away from work and inconvenience to the seller. In some cases, however, the roof or other inspection may not be able to be scheduled at the same time. Roof inspections normally are not tightly scheduled – the inspector comes during a window of time which is not precise. Since no interior access to the home is required, this is usually not a problem. Even so, it’s nice if the buyer and selling agent (buyer’s agent) can be there to hear the verbal information when the home’s seen.
(Side note: a few years back, I met some Realtors from Utah who said that their inspectors have lock box keys and that they inspect with buyers present but the real estate agents absent. “My broker discourages our being present at home inspections – too much liability”, one of them explained to me.) (more…)