Today I was chatting with my lender friend, Shashank Shekhar, who’s also a very active blogger and social media maven. We discussed a variety of topics, including how to price a home for sale and establishing the real estate market value of Silicon Valley homes.

Sometimes it can be tricky to estimate what a home might sell for or its market value.  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).
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The post below was published in November of 2009. For a more current look at the Monte Sereno real estate market, please see:

The Monte Sereno Real Estate Market

The Monte Sereno real estate market is trickier than most Silicon Valley markets to gauge because it’s so tiny.  With just four thousand residents, there simply aren’t that many homes for sale in Monte Sereno at any given time and there are even fewer solds.

Monte Sereno Real Estate Trends at a Glance

The info below is from my Silicon Valley REReport, which comes out monthly. Click on the link to see the full report on October’s home sales activity in Monte Sereno.

Home Values in Monte Sereno

Sellers often want to know, perhaps more than anything, what is happening to home values. “What’s my house worth?” is a perennial question because the answer can change from month to month.  Buyers want to know what any particular property should be worth – and often do not see eye to eye with sellers on this point.  Hence, few homes go into escrow (or under contract) each month. (The months supply of inventory has averaged 19 months in MS this year – more on that below – which indicates that there’s a bit of a standoff between buyers and sellers. Buyers aren’t buying in the vast majority of cases.)

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In addition to the financial part of your offer and your contingencies and timeframes, there are other terms that may help you to be more competitive when writing an offer in a multiple offer bidding situation in Silicon Valley.

What other terms could matter, beyond price and contingencies? Lots – they will matter to the seller and they’ll matter to you. 

As Is Offers

Sellers always want to sell “As Is” if possible. They don’t want to have to do repairs, to spend the time or the money to fix what may not be perfect.  This is an extremely important area to research, weigh, and understand prior to drafing your real estate purchase agreement, particularly if you are not the only one trying to buy that real estate.  When it’s a seller’s marker (and with multiple offers, it IS a seller’s market), the seller can request and will usually be able to sell As Is.

Buyers always want every imaginable repair done, if at all possible.  Buyers don’t want to have to do termite, roof, electrical or other work on the home. They want a “red ribbon deal” where the home’s been or will be in very good to excellent shape.  They want a section one clearance from the termite & pest company.  They want a leak free roof warranty. When it’s a buyer’s market, and you’re the only one attempting to buy the house or condo, you can usually request and get the seller to do all the basic repairs.

The important point is to understand which of these two markets you’re dealing with – buyer’s or seller’s - if it’s a seller’s market and you’re behaving as though it’s a buyer’s market, you will hurt your odds of getting the property if you request repairs or if your contract provides a seller’s warantee.
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In the first four posts in this series on writing an offer when competing against multiple offers to purchase a Silicon Valley home, we focused on the financial terms.  In the next few posts, we’ll address the non-financial terms that can “sweeten the pot” to help you succeed – without giving away all your rights!

Price & terms work together like the scales of justice.  When they are “level” to each other, you have a normal sale with a good reflection of market value (normal terms, normal price).  If one is low (poor), the other will need to be high (good) to “even out” the balance.  If the terms are fantastic, the seller may sell the home for a little less or may pick that offer if there are multiple bidders.  If the terms are terrible, the seller may only sell the home if it sells for a bit more to compensate for the terms.    With multiple offers, sometimes you can only go just so far with price.  But often you can improve your offer with the right terms.

Today we’ll focus on contingencies specifically.  Contingencies are not the only terms, but they’re among the most important terms in your offer to buy a home.  We’ll look at both which contingencies may be involved in your offer and potential transaction, and how much time (how many days) to allow for each.  In my opinion, you should never write an offer with NO contingencies. It is just too risky!

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San Jose is a hot seller’s market in entry level prices of many neighborhoods (Alum Rock, Evergreen, Blossom Valley, South San Jose, Willow Glen, Cambrian and more), and because of that, we are finding that in many cases, homebuyers are having to compete in multiple offers. (Offer writing generally tends to produce a lot of anxiety for buyers, and there are a lot of questions you may have about the whole real estate purchase offer process. Please also see my Q & A on Making an Offer on my other website.)

This post is part of a series on how to write a competitive offer when bidding in a multiple offer situation in Silicon Valley. We’ve looked at what terms are and why terms matter generally, and then we drilled down to particular financing terms: the deposit (and related issue of liquidated damages & default), loan type, downpayment amount & percentage,  and loan terms.

Today we’ll finish up the section on offer finance terms and will cover a couple of “easier” financing items:

• presenting a pre-approval letter for your loan
• having  a copy of the check when presenting the offer
• providing “proof of funds” with your offer

This will be the last post on financing terms for your Silicon Valley real estate purchase agreement. After these we’ll move into a discussion of other terms in the contract.

The Importance of a Pre-Approval Letter

Why be pre-approved? Why not just be pre-qualified? A “pre-qual” is not very helpful to you in negotiating for the best price with any offer, so even if you are not in a multiple offer situation, I would encourage you to go to the trouble of getting your loan pre-approved.   Getting pre-approved is either no cost or low cost (I know one B of A lender who charges $50 to do a pre-approval, but many will not charge you for this service).  It does take time because you must gather together your financial documentation, but it is in your best interest to do it for a variety of reasons.  You do not want to find the perfect home only to find that you really don’t want to get the only loan that will help you to purchase that property, for instance. Know what your budget is before you shop and you will save yourself time, energy, and disappointment.  And when you are ready to make a bid, you will be far stronger.
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