One of the mental traps I see that can foul up real estate expectations across Silicon Valley is the over emphasis placed on “price per square foot“. Here’s where the internet can seriously mislead people into thinking they understand home values more than they do, resulting in botched negotiations, frustration and disappointment. So let’s talk about it.

As one factor among many, it’s completely fair to include the price per SF when trying to determine what a home’s probable market value ought to be. (Remember, too, that a house, condo or townhouse isn’t worth one exact number, but a range – because the terms involved also impact the sales price.)  Although price per square foot is one way of finding approximate value, often is not the best, especially if you use it alone, because there are other factors besides the square footage of the house.  Here are some of the other factors that can mess up that valuation based on price per SF alone:

• precise location (view, proximity to something undesireable)
• lot size
• lot shape & access (flag lots may sell for less than homes directly on the street)
• whether the house is below or above grade/street level (most people don’t prefer being down from the street)
• back yard size
• amount of remodeling (and how recently it happened, whether with permits/finals)
• care for the home
• additons vs original square footage (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…)

If you’ve ever had the experience of selling your car, perhaps you’ve also had someone phone you who’s never even looked at your vehicle and ask you “what’s the lowest price you’ll take?”  Most of the time, auto sellers aren’t too happy with that question: the caller is low balling without even looking at what’s for sale.

That happens in real estate sometimes, too.

Today I got a phone call from a Silicon Valley condo buyer who asked me, without having seen my listing, “will the seller take less?”

Not a great question, for a whole lot of reasons.

First of all, part of a real estate agent’s duty is to protect the seller – and that means not telling consumers the lowest amount that a seller would take, or even if a seller would take less at all (unless, of course, the seller gave express directions to do so, which is very rare indeed).

Secondly, it is a little insulting to call on a property you’ve never viewed and start to verbally bargain down the price, or fish for the lowest possible price. What that does is make the listing agent feel “on guard” from the very beginning. Guess how that impacts your position if there are multiple offers?  You will have made an impression – but not a good one!

Most of the time, a home buyer is better served to not call the listing agent directly at all, but instead to have his or her buyer’s agent place the call to get some information.  There are better ways to figure out if the seller is motivated,  how the pricing looks, whether there will be multiple offers etc. – and Realtors and other real estate licensees are usually pretty practiced at getting the information without damaging the buyer’s position for offers or even potential multiple offers later.

Most of us wouldn’t try to represent ourselves in court, but sometimes don’t appreciate that these same principles apply with real estate; that is, the value of having a fiduciary, an agent, helping us not just when the offer is presented but every step of the way.   Let your agent represent you from earlier stages, and you will likely find that you are presented in a better light than you could do yourself.  Think before you pick up that phone and call the listing agent directly!

How common are “all cash” transactions for Silicon Valley real estate right now?  Throughout Santa Clara County, they were 25% of all sales, up from 20% in October 2011,  among houses, duet homes, condominiums and townhouses (class 1 and class 2, does not include mobile homes, 2-4plex or apartment buildings or raw land).   What’s trending? Lots, including more cash offers.

Some areas and some types of sales are more frequently all cash than others.  Here are a few quick stats for the last month (last 30 days from today – numbers from MLSListings, crunched by me – disclaimer on good intentions but no guarantee). Also, please note that this is for CLOSED SALES. As of this writing, we are seeing a huge uptick in multiple offers in all price ranges in many parts of the valley, and it seems that many are all cash or very large cash downpayments.

• Santa Clara County: 25% all cash
• San Jose (entire city): 27% all cash
• San Jose short sales: 27% all cash (down from 33% in Oct 2011)
• San Jose bank owned or REO sales: 39% all cash (38% Oct 2011)
• Short sales & REOs were 52% of all sales in San Jose in last 30 days (was 48% Oct 2011)
• Of SJ homes listed at $300,000 or less: 44% all cash (was 48% Oct 2011)
• Of SJ homes listed at/under $500,000: 33% were all cash (didn’t track in October 2011)
• Los Gatos: 9% all cash
• Saratoga: 8% all cash
• Almaden Valley area of San Jose: 10% all cash

Some of these sales will have no financing and the new owners will occupy the home.  Particularly in lower priced homes, though, these are investor buyers who will be renting out the property.  This is often the case with the lower price distressed properties in particular.  In higher priced homes, some new owners will put financing on the property after close of escrow.

With the crazy new demands that keep coming at us from banks and new requirements being imposed on appraisers, now more than ever, cash is king.  That doesn’t mean that the cash buyer will get a deep discount, but there will be a slight one in most cases and certainly preferential treatment that will create a great advantage in multiple offer situations.

Learn more about buying and selling Silicon Valley real estate with cash offers:

Cash offers: what do you need to know if buying “all cash”?

Q & A: Making an Offer

What’s My Silicon Valley Home Worth? Estimating the Probable Buyer’s Value  (financing impacts market value)

Both buyers and sellers in Silicon Valley find themselves having to compromise in order to purchase or sell homes in today’s market. In a red hot seller’s market, the buyer usually makes most of the concessions. In a deep buyer’s market, that can be said of the sellers. Right now, though, it is fairly balanced in the sense that homes are selling fast – but only if they are priced aggressively. In some areas, such as the Cambrian Park area of San Jose, prices continue to inch downward.  Sellers often feel as though they are compromising left and right before they even get their property on the market! What kind of compromises might you expect when buying or selling a home in Santa Clara County now?

Silicon Valley Home Seller Compromises

Most sellers want to sell for full price and to not have to do any repairs – that is, they want to sell “As Is”.  Unless they get multiple offers, though, often that’s not the case.  Often sellers must compromise on both price and terms, and may find themselves providing a pest clearance or do other repairs in order for the property to sell.  In some cases, though, the compromises are larger still: they may need to pay points for the buyer’s loan, provide credits, re-roof or do other work to make the transaction work. A suggestion for most sellers is to do pre-sale inspections. One of my clients this last year objected, asking why they needed to spend money (the cost of the inspections) to find out that they needed to spend money (the cost of the repairs)?  But in truth, by doing this, the seller can take care of some items up front, create a more secure feeling for the buyers and then maximize the sales price in most cases. It is a compromise, though, to do these inspections upfront. That said, it’s a worthwhile one because normally it will net the sellers more money in the end! A word to the wise: selling As Is often means not getting top dollar for the property (most sellers want Top Dollar with NO WORK – it doesn’t work that way).  To get the most money out of the sale, usually a hoe owner will need to make the property worry proof: do repairs upfront, before a buyer ever even sees it.

Silicon Valley Home Buyer Compromises

Most San Jose area home buyers want to purchase a home for 10-20% less than what the sellers think it’s worth.  The main compromise is on price!  It’s sticker shock every time, but especially for real estate purchasers who are coming from out of the area. Additionally, buyers tend to want homes in turnkey, perfect condition.  That is, they don’t want issues with permits, repairs, health and safety hazards, termites, and so on. They want to move in and “not have to worry” for a few years. So moving from this position to a purchase where they take on some responsibility for repairs or updating is a major concession or compromise right there. A word to the wise for buyers: demanding every little repair and home perfection will not usually work UNLESS you pay “top dollar” for a property. If you want the best price, be prepared to take on some of the responsibility upfront. For buyers and sellers to agree on price and terms it’s going to involve compromises on both sides. With proper planning, though, these compromises will result in a win-win for all.

Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.

Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).

So how does this impact you, the Silicon Valley real estate home buyer or seller?

Imagine you’re on the board of any of these institutions.  What do you do to protect your shareholders when something like this happens?  Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future.  You hand down new policies and get them implemented immediately.  No exceptions.

Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none.  Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine).  We will still close escrow, but late.  This never makes anyone happy.

Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines.  Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale.  But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise.  In escrow, no one likes surprises, especially if they cause any sort of default.

This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans.  Got a great bank that performs fast and is free of legal battles? Please share it here!

Many newcomers to the San Jose & Silicon Valley areas want to buy new homes (or newer ones).  Santa Clara County, though, had a big “building boom” after World War II ranging from the 1940s through the 70s.  At the end of the building frenzy, most of the land was taken.  More importantly, most of the really good land was built up.

How old is the “average” San Jose home for sale?  Probably about 45 – 50 years old, on average.  Depending on where you’re looking, precisely, the homes could be younger or older on average. 

There are some nice communities of new and younger homes in Silicon Valley, but there aren’t a lot of them.  Most of the new home communities have houses on small lots.  Some are near high voltage power lines (homes on Taft in San Jose’s Cambrian Park area) or next to freeways (Summerhill development off Samaritan Drive in San Jose). 

(more…)