Valley of Heart's Delight Blog

Silicon Valley Homebuyer Tip

Buying Silicon Valley home? Get the sales history!

Looking to buy a Silicon Valley home? If so, you may be seeing properties which were last sold just a few years ago. This often the case with distressed properties (short sales, foreclosures, short sales, and banked owned properties) . If you are working with a Realtor, this is easy information for him or her to obtain for you.

What is the benefit to a homebuyer in knowing that the home sold recently? There are really two advantages: first, if it's a normal sale (not distress), you can get an idea of the sellers' equity.  More importantlyly, though, if the current owners bought the home not too long ago, you may be able to read the prior inspections and disclosures.

Sometimes sellers are reluctant to admit that they saved this type of information. But if they hired the same  Realtor who assisted them in purchasing this property (also reported on the MLS), that agent would have access to all of the disclosures and reports. California state law demands that brokers save all transaction records for three years. Homeowners and their agents usually save them for many more years than that, though. (Sometimes agents move brokerages and this can make it more challenging to get full and complete records.)

So back to your Silicon Valley real estate issue. Let's say you have found a nice bit of real estate in San Jose (a house, condo, townhouse) which you want to buy, and perhaps there are recent improvements, updating or remodeling, “permits unknown".  The best way to get clarity on the situation is to then ask for the prior disclosures, inspections and reports. It is imperative to get everything because clues may turn up in any of these documents. Often the current owner will not recall the story if the work was done by prior owners, and will not think to check the original paperwork. But by reading through it, you may learn what the status really is - whether there are permits and finals or not, for instance.

Particularly when buying a home that sold in recent years, you can leverage your knowledge to improve your ability to purchase wisely.

Please call or email me if you'd like to discuss buying (or selling) a home in Los Gatos, Campbell, Saratoga, Cambrian Park, Almaden Valley, or anywhere in San Jose Santa Clara County.

    

Trying to Buy a First Home in Silicon Valley Amidst the Mortgage Meltdown, Credit Crunch and Financial Crisis

Things have been rough for first time home buyers in Silicon Valley. Lenders have been tightening requirements for months, demanding larger downpayments and more perfect credit than at any time in the last 10 years.  This is true all across Santa Clara County, from Evergreen to Saratoga to Cambrian Park and South San Jose. Money is tight.

For those hoping to get into a single family home for under $500,000, which is possible in some parts of San Jose, there's real improvement in affordability over the prices we saw a year ago. But that's only true if you can buy! Don't be discouraged - if you want to buy, now's the time to begin planning. 

What do you need to do to be able to take advantage of the soft Silicon Valley real estate prices?

• Cash is king, especially now - so save for that downpayment

• If necessary, consider buying your first home with your parents' help. They can put down some of the downpayment and be on title with you and you can pay them back over time. Of course, consult a real estate attorney to set this up!

• Check into the first time homebuyer programs available in your city or town

• Meet with a good lender (who comes to you by referral) to work out a plan to buy, clean up any credit issues, and investigate any other opportunities for assistance (such as programs for teachers, firefighters, police officers, and other city or county employees)

Call or email me if you'd like to talk about the possibilities of buying a home in today's Silicon Valley real estate market!

        

What Are The Pros and Cons of Buying Your First Silicon Valley Home Now?

Opinions are strong about homebuying in San Jose or anywhere in Silicon Valley right now. Should you buy or should you wait?

It's a little different for first time homebuyers than it is for those wanting to do a "move up" in Santa Clara County. First time homebuyers do not need to worry about having to sell something to buy something else - that is a freedom that current homeowners don't enjoy!

Let's look at the reasons why you should wait and the reasons why you should move forward now. You decide.

Plusses of waiting to buy a home in Silicon Valley:

• it is less scary to wait than to buy
• the purchase price could be less in the future
• selection could be greater in the future
• more time may allow you to save more money for closing costs, downpayment, remodeling
• 10% down loans are not easy to get anymore

Plusses of buying now in Silicon Valley:

• in 2008 we have higher conforming loan rates, which will expire at the end of the year - so it is very likely that the loan you get will be more affordable this year than later
• rents in the San Jose area are up about 7% and continuing to rise
• there are big tax advantages to purchasing a home that aren't available to renters
• buyers have the upper hand in this market and can get good prices in many areas, the repairs they want and need done, and their terms met far more easily than in a sellers market

It's only in retrospect that we'll know when was the "best time to buy" (or the best time to sell). Timing the bottom of the market is as difficult for buyers as is timing the top of the market for sellers. We only know when we've missed it that it happened!

Additionally, home buyers need to consider not just the price of the home, but ALSO the price of the loan. If your home price goes down but the loan rate goes up, what will be the net impact on your homebuying? In many ways, it comes down to what the monthly payment will look like - principal, interest, taxes and insurance. The relationship between interest rates and home prices is interesting. Often when there's little demand (buyers market), interest rates go down. When there's high demand (sellers market), loan rates go up, because loan products are like everything else - it's a matter of supply and demand. We see this seasonally, too, reflecting market activity.

Each year is a little different from every other year, but August tends to be a slow month in Silicon Valley (the Campbell, Los Gatos, Saratoga, Almaden, Cambrian Park areas as well as the rest of San Jose and Santa Clara County). Same from about Halloween to just after the Super Bowl. Those times often have lower prices of homes and lower interest rates, but also less buyer demand and less inventory. There's more inventory and more demand  beginning around Valentines Day - but we tend to see interest rates rising then, too.

Your own situation is unique from everyone else's, but if you are able to buy your first home now, I would encourage you to seriously consider it. Speak with a highly reputable, experienced lender to see what your options are financially. Call or email me if you'd like to discuss the market or your plans.

With my best regards,
Mary

Is A Silicon Valley Short Sale For You?

Yesterday I met with some seller prospects - actually, I consider them clients since I've been assisting them, updating them, and giving them staging advice for about six months now. Their Blossom Valley home has been sliding in value and I have been concerned about the situation and trying to get them on the market sooner rather than later since they do want to sell.  A couple of months ago, I told one of them that they'd now have to bring money to closing; I asked if they knew this and if they planned to do it. "I think we'll be OK" I was told.

But now it's the middle of March and prices have slid about 10% over the six months we have been chatting about their home sale. They'd told me that they were ready to list so I had spent hours getting comps and stats and trends pulled together as well as the listing paperwork. But I knew the issue of "bringing cash to closing" was the major hurdle.

So that's where we started. One of them was clear that this was an issue, but one appeared surprised. Before I said the amount, I heard "well we might be a short sale".

"A short sale?" I was just surprised to hear that idea even floated.

Both of them are very gainfully employed. They want to move, but I don't see a "have to move" situation. It was clear to me that the short sale concept was not well understood, nor the punishment it brings appreciated.

I guess it sounded like an easy answer. After all, wasn't everyone else doing it?

Certainly, in this particular area of San Jose, and in this particular price point, a good 80% to 90% of the homes appear to be short sales - and they are dragging values down for everyone else.

Let me briefly explain what a short sale is and isn't:

(1) What it is:

• it is a pre-foreclosure situation
• the buyer cannot continue to make the payments and will go into foreclosure if the short sale doesn't happen
• there is a "hardship" (job loss, sickness, death, divorce) causing financial problems
• the owner wants to sell the home but cannot pay off the lender in full because the home has declined in value - there's not enough equity
• it is going to hurt one's credit badly, but only half as badly as a foreclosure
• short sales often do not go through - most of the time, they end up becoming full blown foreclosures

(2) what it isn't:

• it isn't a help to people who simply want to upgrade and don't want to pay off the bank
• it isn't an option if you have other assets (like other properties or money in the bank)
• it isn't a "get out of jail free" card - there are built in punishments for those who must resort to doing a short sale (trashed credit AND paying taxes on any amount "forgiven")
• a short sale is never a happy thing - it is always the lesser of two evils (vs foreclosure)

I explained to these nice folks that it didn't appear that they would qualify for a short sale (no hardship, no inability to pay the loan etc.).

What options exist for Silicon Valley folks who want to move but have no equity?

Here are a few thoughts:

• A promise was made to repay the loan, so the obvious first answer is to wait out the market or come up with the cash to buy out of the situation.
• Walking away:  In some parts of the country, we are again hearing about "jingle mail", in which owners simply turn in their keys to the bank and walk away. I remember decades ago that happened in Alaska when the market there tanked. Now it's happening here too.
  
  In Sacramento, where some owners bought a home at 50% more than the identical house is selling for now, some folks are first purchasing the new home (same floorplan as current one) at the cheaper rate, then walking away from their old home. In effect, they get a home with half as much mortgage.   No, it's not very nice. It's defaulting on their promise to repay a loan. The lenders could potentially persue them for losses. Will they? I don't know - this is a crisis of epic proportions!
• Renting it out: another possibility is to simply rent out the house (rents are rising due to increasing demand) and to move to the next house. 

I don't think anyone now doubts that we are in a recession which is fueled by the housing crisis. For every person who just "walks away" from a house, that's the recession deepening for everyone. I'm not going to encourage it - it worsens the economy and trashes the borrower's credit.

Rents are increasing with this crisis. So my suggestion: rent out your house and move on. Give it a few years, Then call me when you're ahead of the market and we'll sell it for you. Or keep it until you have kids going to college and you can then use it to pay tuition.

Eventually, the market will improve. You don't have to sell when it's at a low point.

Buying Your First Home: Will It Be A Short Sale?

Are you thinking of buying your first home now? If so, you're wise. It's as if there were a "20% Off Sale" in some areas of San Jose. As long as you are planning to stay in your home awhile (3 or 5 years or more), yes, you should buy!

I'm showing a lot of houses in Silicon Valley that are listed close to $500,000. These same homes sold a year or two ago for perhaps $625,000 to $650,000 or more. Some of them have been nicely improved with granite kitchens, a new roof, dual paned windows, and so on.

Some sellers just have to unload their homes due to divorce, job loss, illness, or other problems. A very common issue is simply the readjusting of the loan to a now un-affordable rate. Payments become difficult or impossible to make. Foreclosure looms. If payments are missed, and the owner doesn't contact the lender to get a loan modification (the lender would really rather change your loan, or put current payments at the end of your loan - called a forbearance - than foreclose), then a short sale may be attempted.

A short sale occurs when a lending institution agrees to take less than what is owed on the property to enable the owner to sell the home before going through foreclosure. Foreclosure is costly to the bank, often much worse than a short sale. (And while a short sale is bad for the borrowers credit, it's only half as bad as a foreclosure in that regard.)

So with a lot of folks in financial distress, there are a lot of homes for sale as short sales here in Santa Clara County. This is primarily true in the lower priced areas of the valley.

One San Jose house sold in 2005 for $655,000. When it didn't garner a buyer recently at the offering price of $595,000, the agent and homeowner lowered the price. Often we "reposition" the home by "adjusting" the price downward by 3-5% in a normal market. But this home was reduced to $429,000 yesterday. That is a drop of 25%! 

Even in this market, that's not typical. But we are seeing bigger price changes than ever before as inventory stays on the market longer in east San Jose, Blossom Valley, Santa Teresa, South San Jose, and other areas.

So the numbers should get your attention.

But what's it like to buy a short sale?

Truthfully, it's no bed of roses. Most short sales do not sell and close escrow, but instead go through the full foreclosure process. Recently I heard a talk on these in which an expert asserted that about 7-8% of all short sales will actually sell to a buyer before the home goes through foreclosure, and that even if the lending institution accepts the offer presented by the buyer (and accepts the short payoff), only 40% close escrow.

What's the matter?

It's a deluge of applications for short sales. The lenders can't cope, files are ignored or dropped. They are overworked and understaffed. Additionally, there are different departments involved, and they may or may not be communicating with each other: the loan modification department, the short sale department, and the department persuing the foreclosure may all not know what each other is doing.

Recently an agent friend of mine told me that she had a property in San Jose listed at about $550,000 and she got a great offer that was very close to list price. The sellers signed it and the agent forwarded it to the bank for short sale approval. The bank sat on the file for three long months. In that time, prices in the neighborhood dropped about ten percent. The buyers got an acceptance after three months and were not prepared to overpay, so wrote a new contract with a far lower price. The bank is thinking about it.  That home is now listed at under $500,000. The bank lost $55,000 + by screwing around.

Banks can't afford these kinds of losses.

So - you are wondering a few things. First, can I buy a short sale or foreclosure in San Jose for a good price? How far down can I negotiate on a short sale?

The answer is as murky as the process: it depends.

When sellers drop their prices below market value, they get multiple offers. When multiple offers occur, prices are pushed up - most of the time. Recently I was involved in one of these situations off of Monterey Highway in the Santa Teresa district. The house was in good shape, generally, with nice remodeling (if messy presentation). The agents received six offers in that case. It's been 2.5 weeks and we still don't know if the bank will counter any or all of the offers. Often agents negotiate just the one best offer between buyer and seller and send it on to the lender. But some institutions ask the seller to sign ALL offers and send them to the bank (which I think is insane since clearly they don't have more than one house to sell). In those cases, the lender is acting as if it were the seller or the one on title - which it isn't. The homeowner is at the mercy of the process. And so are the buyers.

So first, you may or may not be able to get the home for less than list price. Often you can, but no one is giving the house away. Banks expect at least 80% of market value, but usually more than that. I've heard a range of 85-95% of market value. So if you come in with an offer 20% or more off list price, don't expect anyone to be happy to see your contract. Just like regular sellers get offended, banks do too. If yours is the only offer in a long while, that's one thing. It's another is the owner just dropped the price 10 or 20% and now has three or four offers.

Second, there are no guarantees you can close escrow on a short sale. You can make an offer. The seller might accept. The seller's lender might accept your offer (with a lot of legalese). And, just before closing, it might still happen that a better offer will show up and boot you out of contract.

With short sales, you almost don't know until closing - which is often a very, very long time from when you put pen to paper and signed the purchase agreement - if you will really get the house.

It often comes down to "time vs. money". If you are patient, you may get a great Silicon Valley property for far less than it sold for a year or two ago. Want real estate at a good price? This is your opportunity. Just realize that it's going to be a lot of work, there will be frustration at the lack of control, and there may be surprises, from the time you go looking at these homes to the time you take possession.

May all your surprises be pleasant ones.

Santa Clara County Online Home Buyer Kit

Is this the year for buying your first home?  If so, you're in luck!  Interest rates are great (and may improve before you close on that new condo or house!) and here in Silicon Valley,for the most part, there is no shortage of inventory.

The housing supply varies from one price point and location to another, but in most of Santa Clara Valley (San Jose, Campbell, Blossom Valley, South San Jose, Willow Glen and more), it truly is a buyer's market.  Sunnyvale, Saratoga, Los Gatos, and the area close to the San Mateo County line are another story - there the inventory is restricted and it's not so much in the buyer's favor. (Forget finding a lot of foreclosure real estate there.) You can read about the market by visiting my San Jose and Santa Clara Real Estate Report. It covers both December 2007 and all of 2007 by area and city. Understanding the market conditions is an important part of getting started as a first-time homebuyer.

Also to help you get started, let me offer you my free, online Buyer Kit. Just click and browse - there are lots of articles to help you get your toes wet on buying your first home! (Similarly, you may also view my online Seller Kit.)

Call or email me if you'd like help in establishing a strategy. I offer a no-cost, one hour consultation to prospective clients and it would be my pleasure to discuss your wants, needs, budget, and timeline with you.

Best regards,

Mary Pope-Handy
Los Gatos, CA

First Time Homebuyer in Silicon Valley for 2008?

It's the middle of December and homebuying may not be the top item on your priority list right now. Perhaps you're attending Christmas concerts in San Jose or Santa Clara, or shopping, or visiting Christmas In The Park in Downtown San Jose or enjoying an evening Carriage Ride in downtown Los Gatos. There's plenty going on in Silicon Valley right now.

But planning ahead for 2008 is a good idea nonetheless.

What can you do NOW, that will help in 2-3 months, that won't take a ton of focus? Plenty!

• order a free credit report NOW and have a good look at it
• almost invariably, there will be surprises (some things that you forgot about and other things that are simply wrong)
• contact the credit bureaus to correct the mistakes
• take steps to repair any "real" credit issues now!
• and then ask a few trusted individuals (smart and saavy friends, Realtors, or other real estate professionals) for the names of a few lenders. For now, just collect the names and contact info, nothing else.

You can order your credit report online (go to Google or another search engine and type in Free Credit Report and you will see tons of options) and it doesn't take but a minute or two to do it. Reviewing your report should not take a really long time either. So set aside 30 minutes at most to do this now. The sooner your credit is tidied up, the better for you. Mistakes and forgotten problems can really cost you money, so fix it now and be ready later!

And if you have a quiet hour sometime next week, email your handful of lenders. Look for a reasonable response time, willingness to help, and knowledge. Tell them you already have a credit report and don't need it run again (multiple runs of your report will hurt your credit!)

If you're a first time homebuyer, let the lender know that. If you want to live in San Jose, Cupertino, or other cities, there may be first time homebuyer programs that can assist you - but the lender will need to know where you want to live, if you are an employee of that city, town, or school district, etc.

Also... at a party this week I heard that Wachovia Bank has a special first time homebuyer program too. You may have to contact them directly for access to the program, but ask your few lenders about it too.

Now give the lenders a couple of weeks to find all the info you need. You're not in a hurry, and they may have deals that need attention immediately as some folks will be urgent to close within this tax year.

Now relax and enjoy all that Santa Clara County has to offer for the holidays. You can reconnect with the lenders in early January.

Want to read more? Read on!

Can You Name Buyer’s Typical Closing Costs?
Do You Know The Importance Of Title Insurance Coverage?

Watching for Neighborhood Red Flags

Hints that the area isn't a good one may be just in front of you, but you need to know what you're looking for.  If you're serious about buying (or even renting) a Silicon Valley home, visit the neighborhood at several different times over the course of a few days. It may be "OK" on a weekday and horrible on a Saturday night - so check it out!

These are some things I teach my San Jose area buyers to watch out for:

• too many cars on the street (the more, the worse) - sense of crowding
• junky cars
• neglected landscaping
• homes in need of paint
• "bars on the windows" and "security doors" in more than one home on the street
• loud music
• trash and trash cans out when it isn't garbage pick up day
• graffitti

Conversely, indicators that a street or area may be better include these:

• people out walking dogs
• people pushing strollers or exercising in the neighborhood
• tidy homes and yards
• cars that are well maintained
• most cars either in garages or in driveways - street mostly clear of cars
• tree-lined streets
• quiet areas (you don't hear TVs, stereos blaring)
• "pride of ownership" evident - evidence of home improvement projects, for instance

Coming soon: red flags in homes.

What Should You Worry AboutWhen Buying A Condo or Townhome?

If you are purchasing a condominum or townhouse in Silicon Valley, you will need to consider a few things more than if you were buying a single family, detached home.

Like what?

Most of all, with a condo, townhome or planned unit development (PUD) in Santa Clara County or anywhere else in the state of California, you are buying a fraction of the entire complex. You own your unit, but you also own a percentage of the community. So if the roof for your unit, and all the rest of the units, is an issue of community responsibility, you'd want to know how well it's being maintained. Ditto that with the pool, parking lot, any private roads, etc.

Additionally, there are a lot of "docs" or documents to read and understand when buying into one of these complexes. You will need to be able to accept the rules, bylaws, financial statements, articles of incorporation and a whole lot of legalese sounding stuff. Think two to three inch stack of papers.

But you will also be accepting the community's ability to saddle you with an assesment if the reserves are not good enough. That's a biggie. We'll do a whole post later about assessments and Special Assessments.

When you go into an area with an HOA (Home Owner's Association) that has the right to enforce rules or demand payment, you also must consider what those rules may be. Some of the rules are just sort of eye-rolling material, such as "you may not wash your car on the premesis". But other rules. . . .

Got a pet? It might be an issue! What do the rules say? The pet question is actually quite controversial now. Some HOA's say "no pets". That may not be legal in California!

Want to smoke? The city of Belmont has just banned smoking in many places, including apartments and condos.

All of this is to say, simply: if you are buying a condo, townhouse, or PUD in the San Jose area, realize you will need to read and understand and accept a large mound of paperwork. Do not just "assume it's boilerplate" and skip it. Do your "due dilligence". Read it and understand it before you buy it!

Choosing A Neighborhood for Your First Home

"Location, Location, Location" is the law of real estate. Even children have heard it!

Of course you want to live in "a good location". But how do you settle on one? As a first-time homebuyer, most likely you are looking at a modest condo, townhome or house in Silicon Valley.

In every home purchase, there are compromises. Even when buying multi-million dollar homes, buyers compromise. If your list of things you want in a home has 10 items, there's a good chance you can get many or most of them. But few people are able to get 100% of what they want for the budget they have. (We all seem to want whatever costs about 20% more than we can afford. And that's true all over Santa Clara County, and it's true in all price ranges.)

There are things you must have, things that are important to have, and things you'd like to have. A good starting point for you is to jot down everything - brainstorm your list of what your ideal home in the San Jose area would have - and then move these items into one of the three columns of must, important, and would like.

Let's go through an example together.

In this fictitious scenario, we'll say a young couple is buying a first home in the Santa Clara Valley and they are hoping to have children in the next few years. They are thinking of safety first (low crime area), but also schools. They have a busy social life so really prefer a newer home, or one that is 100% remodeled.  They don't want to spend the time or money to rehab a forty year old home.  They both work in Cupertino and want a short commute. Their budget is approximately $700,000. They could go higher but are nervous about the risks involved and are not sure they'll always have two incomes.  They have read that buying a single family home is more adviseable than buying a townhouse. But they also want to live in Saratoga with Saratoga Schools.

This type of example is actually not all that uncommon.

Something's gotta give!

If you have ever looked at the cost of homebuying in Silicon Valley, you know that a house in Saratoga with Saratoga Schools is nowhere near being as cheap as $700,000. You can buy a condo in Saratoga and in the school district for that amount, but not a single family home.

If this couple were to make their budget the top priority, then the first choice is to decide which is more important, the single family home or the location?

Given that there are no children on the scene yet, most couples would say that they'll buy a house in the best school district they can afford now, and try to upgrade the location later.

Their $700,000 budget will likely put them in West San Jose, Campbell, Santa Clara (in the section that offers Cupertino schools) or Cambrian Park. All of these areas do have good schools (they range from good to very very good) and low crime and are fairly close to Cupertino.

Then it's a tradeoff between condition and location. For the money, there's a ratio between the best locations and the condition of the home. A lesser location will provide the buyer with a nicer home for the money.

This is a very normal dilemma: how important IS condition vs location? You can't have both the best location and the best condition. Where will you compromise?

That's a personal decision, but I will tell you this: most Realtors will tell you "buy the most house in the best neighborhood you can afford". This age-old advice is good advice. You can always improve your home, but you cannot improve your neighborhood - at least not easily!

Think of it this way: there are things you can change and things you cannot change.

Buy a brand new house right next to the freeway? Some will do it because they are so enamored with the "newness" of the house. But some day...that same house will no longer be new. Then you will have an old house by the freeway. See the problem?

Buy with selling in mind!

It's easy to tell yourself, "I don't mind the xyz problem" (freeway, busy road, high voltage power lines), "I am going to live here forever". Truth is, we never know what may happen. Sometimes people end up having to sell a home they expected to be in forever. And if they have to sell in a down market, the results can be financially disastrous.

We have many excellent communities and neighborhoods in Silicon Valley. San Jose actually enjoys the lowest crime rate of any big city in the US!  Sunnyvale is one of the lowest crime rates of a mid-sized city anywhere in the US too. 

My general advice regarding location is this:

(1) Pick an area that is fairly safe
(2) Pick an area where the schools are in the upper half (ideally upper third) of the county for scores - poor schools will impact your sale, especially in a bad year
(3) If you can afford a house instead of a condo or townhome, buy it (and a TH over a condo if possible)

Would you like specific information on Santa Clara County and other nearby communities? I have descriptions on my website. Please visit PopeHandy.com and have a look!

And if you'd like help sludging through your priorities list, give me a call. I will help you to sort through things so you get the most for your money (with the least risk).

Happy househunting!