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…)

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)

Buying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA). (more…)

Silicon Valley real estate offers few simple answers but many recurring questions. One of them is whether or not you should write a “lowball offer“. So the first question is this: what makes an offer a lowball one?

It’s entirely relative to how the market in that area (not the county, not the state, but that particular area) is selling.  If houses in one area of San Jose are selling within 1% of list price and you come in 5% under, the seller may feel insulted.  But if properties are routinely selling at 10% under list price and your offer is at 13% under, that’s not such a big deal. So keep an eye on that.

Most of all, you need to run the comps and pinpoint the pricing.  Sometimes the list price is LOWER than market value and in that case, the seller is probably expecting overbids. In other cases, the seller may be way high just to “test the market“.  At other times, the Santa Clara County area home is priced exactly at what the market can bear.  So you and your agent must absolutely crunch the numbers to establish the probable buyer’s value or probable market value for that particular piece of San Jose area real estate.

If you do submit a lowfall offer realize that the risk is that the seller will be insulted and then won’t be amenable to negotiation.  What I see most often is that a low initial offer results in a very high counter offer.  (E.G., house is listed for $1 million, offer comes in at $800,000 and seller counters to $995,000.) Throwing a lowball offer out on a home you REALLY want is probably not a very wise idea as the net result will probably not be favorable to your own interests.

Good negotiation is to be expected but if done poorly or overly aggressively, it can really backfire! So crunch the numbers, be sensitive to the local situation, and put a good foot forward.

If you are purchasing your Silicon Valley home “all cash”, you will be in a stronger negotiating position.  Most of the time, you will get a slight discount on the price and the escrow period should be smoother as there will be fewer hurdles with no financing contingency.  Sellers always welcome cash offers, especially now.

What do you need to know if writing an all-cash real estate offer?

First, make sure you really do have your funds available or “liquid”.  Sometimes buyers think that because they have stock worth a certain amount of money, funds in an overseas bank account or equity in another property they will have access to that cash almost immediately.  It often doesn’t work that way.

Large sums of money coming from out of the United States may have to sit in a bank account for some time, possibly 30 days.  Domestic wire transfers usually have little or no hold time. Is your money overseas? You may want to consider moving it well in advance of the close of escrow. Speak with your escrow officer and Realtor about the details. (more…)

In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA).  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).  Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate.  And too many real estate sales people do not understand the difference between them.

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller.  Here are a few examples:

- Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

- Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

- Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing.  So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed.  Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.

(more…)

Silicon Valley home buyers sit on pins & needles once they have written their contract to purchase property.  They wait and wonder and may have trouble sleeping while they expect a response. This is normal, of course. It’s hard to wait.

What happens after the Silicon Valley real estate contract is signed?

Sometimes, offers are presented in person by your buyer’s agent directly to the listing agent and sellers and there may be a nearly immediate response, or at least something soon after – within a few hours.  More often, though, now offers are presented by email to the listing agent, who in turn gets it to the seller either at a personal meeting or also by email.  Most of the time there is a counter offer, but sometimes there was enough communication ahead of time between the agents that in fact an offer is written in an acceptable fashion and is simply accepted by the sellers without any counter (or there were multiple offers and one was good enough to accept without a counter).

Some real estate trainers insist that every offer should get a counter offer – sellers should never simply accept the contract presented by the buyers

Some real estate trainers (who are teaching Silicon Valley real estate agents what to do) insist that every offer should always be countered so that buyers do not later worry that they overpaid. “Make them work for it” so they don’t have buyer’s remorse is the theory.  The bigger the fear of “buyer’s remorse”, the more likely that the agent will further negotiate the offer – at least a little. (more…)