San Jose’s Cambrian, or Cambrian Park, area is a very hot seller’s market.  Multiple offers are not uncommon, especially in the Union School District, where schools are trending upward.  My Cambrian Park Real Estate Report has just been published with the updated numbers from the closed sales in April. Please click on the link to see much more information there.

Prices are up nicely year over year! Inventory is crazy low – just 35 homes for sale in April compared to 57 in March and 84 in April 2011. Days on market is far lower too. All around, it is a deepening seller’s market.

Even stronger is the Cambrian condo market, which is skyrocketing!!!  Please see the Cambrian Condominium & Townhouse Real Estate Report for all of the numbers, but I’ll include a quick summary below.

Here again, notice the ratio of active to pending homes, the sale vs list price (over 100%), and most of all, the tremendous rise in both the average and median sales price.  Few homes closed escrow in February, so it is possible that these numbers are a little exaggerated.  We will know more in a month – if it’s a trend or if this is a fluke.

Now let’s work with Altos Research’s graphs and get a feel for the Cambrian realty market in “real time”.  These use list prices, whereas my REReport uses sold data.

First, the statistics by quartile for houses in San Jose 95118:

Next, the stats and trends by price quartile for houses in San Jose 95124: (more…)

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 a rapidly 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  By the time a San Jose area home is on record as a newly closed sale, it may already be out of date information.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 cash offers.

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 are 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 guage.

What to do, then?

Your best knowledge will come from or be supplemented by information from pending sales; the most recent ones and closest ones are going to be the best, of course.  This is where your agent may be of great help to you either from the networking he or she does naturally, from direct experience on sales made or lost, or from proactively reaching out to listing agents to see if they can glean some information.

Addionally, you will want to factor in the number of offers a property is getting before deciding the price you will offer.  It is another very common home buyer mistake to look at the price of sold homes nearby, determine what seems fair, and then plough ahead without considering the level of interest that the house or condo is generating.  If there are multiple offers, you can reasonably expect that most of the time (if not all, in today’s market)  the sales price will be above the list price.  It will be unproductive for you to lowball (writing an offer more than 5% or 10% under list price).  Even if your offer is all cash, remember that sellers want the most possible for their property – they are not going to give you a huge discount on pricing.  Some, yes – in my experience usually around 2-3% – but not a huge amount off. They would rather wait a month and get a lot more money!

Factoring in the absorption rate (months, weeks or days of inventory) may be helpful to you also, especially if you cannot get info on the homes which are sale pending. (My Santa Clara County REReport includes this information, btw.)

In summary, don’t just look at the comps – they are a backward and incomplete view of what happened when the sale was negotiated.  Consider what’s under contract or pending now, and perhaps above all, take into account the current competition for the property you want.

Multiple offers continue to be a common occurance in the Silicon Valley real estate scene right now.  When there are an abundance of home buyers for one property, it can be overwhelming for the seller.  Some home owners may want to issue a multiple counter offer to the best qualified, most serious bidders.  But not all do.  You should never count on it.

Sometimes property owners in the San Jose area simply accept the best offer.  If so, that’s the end of the story. It does happen.

Often, the highest price is not the offer with the best terms, even in a bidding war.  Home sellers want both, of course – the least risk with the most cash. (Sometimes there are other factors, too, such as a rent back, escrow length, or other issues beyond cash and risk.)  In those cases, frequently the Realtor or real estate sales person (the listing agent) will coach the seller to counter one or more of the better buyers (best prices and terms) to improve the final sale on both counts.   Some sellers don’t want to do this, though – it’s stressful, they are afraid that everyone will say no and they’ll be left with the property unsold.  Alternatively, then, they may counter only one offer – and tell the buyer’s agent that they are the only one, at least for now. If negotiations don’t work with the first buyer, the listing agent may go back to the others.

Meanwhile, everyone waits, everyone wonders what’s going on.  The longer it takes to hear back, usually the lower the odds are that their contract will be the successful one, or even one getting a counter offer.

Why didn’t I get a counter offer?  Why didn’t the seller at least give me a second chance? Buyers wonder this all the time.  Some buyers submit 5 or 10 offers, all unsuccessful, and they still wonder.  The harsh reality is simple: your offer wasn’t good enough.  Either your price or your terms (or supporting documents) didn’t cut it. Write your contract as if you only have one chance, because that’s the reality most of the time.

Home buyers in Silicon Valley are getting frustrated, discouraged and disheartened as they write offer after offer, only to lose out in multiple bid situations. It’s not just the poor FHA home buyer either – this is happening to those with 20% down and more too.

What can be done to improve the odds of success?

Sometimes the buyer’s agent either does or doesn’t do certain things which can impact how your real estate purchase offer is viewed by the listing agent and seller(s).  Here are 5 important things that the buyer’s Realtor or sales person can do which will help the odds of success:

1. The agent should read the MLS printout carefully to see if there are any instructions regarding offers.  This one may seem obvious. but too many buyer’s agents just draft the offer and send it in, ignoring information that will probably be useful (such as offer deadline, preferred form - CAR or PRDS contracts, availability of disclosures, the request to call before writing the contract etc.).
2. The buyer’s agent should call or email the listing agent before writing the offer (and after reading the MLS!).  Sometimes there are requirements or just preferences that won’t be known unless contact is made.  Additionally, though, the listing agent will simply want to know about the level of interest and not have any surprises – it’s a courtesy call.
3. The agent should ask if it is possible to present the offer in person…and be willing to do it, of course.  Many seller’s agents won’t want a live presentation (most would email), however the fact that your agent is willing to spend the time and make the effort to present in person usually speaks volumes about his or her professionalism. It’s also a hint that the agent is a cut above most.  In my real estate practice, several times I beat out other offers by asking if I could meet with the listing agent and sellers to discuss my clients’ offer, and then doing it.
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Buyers who are getting slammed out of the Silicon Valley real estate market due to low inventory and multiple offers are extremely frustrated. In many cases, they write offer after offer, and each time not only are their bids rejected, but they never even get a counter offer.

You should not depend on getting a 2nd chance, of course.  Just because you write a contract on a San Jose area home does not mean that the seller needs to give you a counter offer.  Some agents and sellers don’t respond at all – not nice, but if you get dozens of offers, sometimes that does happen.  Sometimes they just take the best offer and run. Othertimes they only counter the best offer and forget the rest.

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?

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, 25% of all 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. With all cash, there is no appraisal at all – it’s a slam dunk on that front. (more…)

What is a real estate bidding war, and why is it back in Silicon Valley?

It is a supply and demand issue.  When there’s not enough supply for the demand, prices get pushed up.  The way that this happens is often through 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). But when the realty market is an overheated sellers market, inventory is too low for the demand, prices rise with those multiple bids.  Then you have bidding wars.

This can happen intentionally, as when home sellers knowingly under price the property to attract multiple buyers, or it can happen unintentionally, when the owner and agent priced the home in line with the comps and the market, but there’s an unexpected avalanche of interest. (The latter just happened to me when I priced a listing to be exactly in line with the market, but got 20 offers and a lot of overbidding.)   Either way, the result is similar.  Buyers up their price and sweeten their terms to win the deal.  Here’s what can happen:

• offers come in over list price
• usually the escrow period is short, to assure the seller it’s a “done deal”
• if owner occupied, often there’s a free rent back of a month or two
• some buyers may offer to pay costs that customarily are paid by the seller, such as an owner’s policy of title insurance, the escrow fee, transfer taxes, and in some cases, even the commission
• most of the time, “cash is king”, and the all cash offers will win the deal (or large down payments) – very hard for 20% down or less to compete against cash offers because they usually include an appraisal contingency (with prices escalating, many homes won’t appraise)
• many offers with no contingencies for inspections, loan, and appraisal – non-contingent offers can be dangerous, most of all if there are no presale disclosures or inspections
• most offers will come with proof of funds
• some will have the disclosures already signed too
• some will include a letter from the Realtor, the buyer or both – buyers may also include a photo

But let’s focus on the bidding part in particular for a moment.  How is all of this a bidding war? Is it just that offers come in over the asking price?  Yes, but sometimes even more is going on too. Let’s look at that now. (more…)

It’s a red hot seller’s market in Silicon Valley right now, meaning that there are more buyers hunting for just the right property than there are listings available.  The end result is multiple offers, bidding wars, pre-emptive offers and rapidly escalating real estate prices in many areas and segments of the market.

When there are lots and lots of bids on a San Jose area home for sale, what do home sellers do?  Most of the time, sellers begin with an “elimination list”.  That is, they start by deciding what they do not want to deal with. The more offers there are, the more critical this becomes since sellers normally don’t love the idea of reading 10 or more stacks of offers.  (Remember, the confused mind says no!) 

Sellers need to simplify their choices, and one of them is by eliminating the worst offers first.  A question for you to consider, if you’re a home buyer in Los Gatos, Saratoga, Campbell or anywhere in Silicon Valley is this: is your lender keeping your offer from getting accepted?  Does your lender make your offer worse to the seller? Sometimes that is exactly the case.

In some cases, certain banks or even credit unions are falling into the “elimination” list for some sellers as their agents may have advised them those lending institutions are slow or difficult.  Most of the time, these are the big banks – the ones that REO or short sale listing agents are demanding that consumers use for a pre-approval for submitting offers: (more…)