The San Jose, Silicon Valley real estate market has once again taken a swing toward the positive upswing on average sales prices. In some areas, like Palo Alto, the residential real estate market has already recovered the loss of the 2006 real estate bust and has even gained in average sales price. More diverse neighborhoods market places like San Jose are predicted to regain complete equity loss by 2014. The driving force this time, as it was before, is a high demand for homes and a low amount of homes available on the market for sale. Contrary to some media reports, the foreclosure market has nearly dried up and the homes listed as short sales are not the deals they were in 2009 and 2010. Although the short sale process does appear to be improving, the waiting period remains unpredictable and without a deal on sales price, many buyers are moving away from short sale offers.
A low amount of homes for sale and 30-year interest rates below 4% for most qualified home buyers, the demand is causing multiple offers and “bidding frenzies” similar to the market between 2003 or 2005. Buyers are once again amazed and frustrated about how difficult it is to get their offer accepted by sellers. For the last 9 months, I have not placed a single offer on behalf of a buying client that was not a part of a multiple offer situation. Sellers, having their pick, are favoring all cash, then 20% down or more, with FHA (3-5% down) and VA (no required down payment) being pushed out of the acceptable pile.
If you are a buyer looking for a home, here are some tips to help your offer get accepted by the seller:
1.) JUMP! With inventory low, keep your requirements for neighborhood, size, schools etc flexible. You do not have to compromise on everything but know your ideal, your acceptable and your absolute “no way”. Once you have neighborhoods, schools, and home characteristics down to a list, make sure your agent is acutely aware of your “best” and “acceptable” features in a home. Then, keep a twice a day check on new homes coming to market. Your agent can set up auto list for your desires to be delivered to your inbox every morning and evening. Do not depend on sites like Zillow, Redfin, and Trulia as the information is not held to the standards of local MLS (Multiple Listing Service) to keep data up to date or accurate. With you and your agent watching the new listings, be prepared to see the home within the first 3 days of the listing coming on the market. The sooner the better. Your agent can find out how the offers will be reviewed and any requirements specific to the listing. Most listing agents will review offers after the open house weekend. But every situation is different and behooves your agent to find out details as soon as possible.
2.) Your agent. If you don’t have your own agent working on your behalf, get one! Don’t rely on getting a deal from the listing agent as a double-ended deal (It is legal in California for listing broker to represent both seller and buyer). In this market in particular, the seller’s and listing broker’s job is to get the highest price and with multiple offers common, if the seller is going to save on commission they are most likely not going to pass it on to the buyer. Now, more than ever, you need an agent that is on top of the market, new listings, pending and sold homes in your area of interest. These are common requirements for any market situation but with a low, fast moving inventory of homes to buy, the real estate agent professional does not have a lot of time to do home work. Preparation and the ability to rattle off market statistics and activity is critical to a successful value for the offer to be presented on the buyer’s behalf. In general, we are seeing anywhere from 2-10% over last comparable sale. Discuss the neighborhoods with your agent and understand the current trends.
3.) Solid Financing. When a buyer is competing with upwards of 10, 20, and even 40 offers, it is important to have the strongest financing available. Choosing a loan officer and loan product that allows you to place the most down payment while obtaining the lowest interest rate is the goal. No doubt, not all buyers can afford to pay all cash or even place 20% down but recognize the seller’s position and understand an all cash offer reduces risk that financing brings to a deal and assume all cash offers will always be on top of the acceptance pile. There are ways to make any non-cash offer appealing. Your loan officer should have a complete file with loan application, documentation, and credit reports complete. This allows a strong pre-approval letter to be presented with your offer. The loan officer should be working in tandem with your real estate agent to support your offer when it is presented. A phone call from the loan officer to the listing agent within hours of the offer being presented can address any questions the agent may have and provide the opportunity to support the buyer’s qualifications and the loan officer’s timelines, experience, and confidence in the loan. The stronger financed offer will have the shortest, realistic contingency and closing periods. The lower the down payment percentage, the higher the potential for appraisal issues. Discuss this challenge with your agent and your loan officer and understand what “no appraisal” contingency means and what risk come with that offer strategy.
4.) Get physical! During the house hunting process, learn as much as you can about the homes you are interested in. Ask for any inspection reports, disclosure reports, or school reports that are available from the seller, agent, or internet in order to make the most informed offer possible. It is not uncommon the seller has not completed any reports or inspections before offers are due. In this case, it may be worthwhile having a knowledgeable contractor in your cue to review a home before the offer. This is limited view but can help recognize big warning signs on construction, permits, and general condition of a home. You do presumably have a contingency period available to these investigations after offer acceptance. However, the more information you can collect in front of the offer, the more aggressive you can be regarding the contingency time periods. Pre-scheduling inspections a buyer will want prior to offer acceptance can save time during an aggressive contingency period. Of course, most real estate agents have a good eye for warning signs but recognize, they are not inspectors and time to completely evaluate a home is extremely important.
5.) Tenacity is key! Patience, patience, patience. As much as I advise buyer’s to be ready to jump, I also advise the process can be overwhelming if the sense of urgency to have an offer accepted outweighs the comfortable feeling of consideration and value. The real estate process almost always has some stress involved for new and experienced buyers. The more knowledge you and your agent have about a particular neighborhood market and home, the better the offer strategy will be and the more likely it will gain the seller’s nod of approval. It may take several attempts, but the right home, the right deal will come along.
If you would like to talk about strategies to find the right home for you, contact me. I pride myself on going above and beyond to meet your real estate goals and look forward to the opportunity to work for you!