San Jose Real Estate * Santa Clara County * Richard Gonzalez * Real Estate Silicon Valley Broker Blog – News, Views, and Opinions

Santa Clara County sales are down but so is the inventory reported DQNews.com. The article published today states that January 2010 sales are down from December 2009 but those are normal levels for this time of year.

Limited inventory equals less sales activity

The article also attributes this to various factors including tax credit, financing and lack of inventory. I know this already but in our case  our clients are experiencing very limited inventory as the main factor.

Trend should continue in 2010

While sales have fallen in recent months we are going to continue to see this trend in the Silicon Valley mostly because of HAFA and as the demand for housing continues to remain high. Another contributing factor is that sellers not in foreclosure who would normally consider selling are staying put as the economy continues to recover.

The chart below shows in increase in sales volume for Santa Clara County and an improvement in the Median sales price.

source dqnews.com

Click here to read the DQNews article

Buying a Silicon Valley home in 2010 can be a challenge but if it’s on your list of resolutions then here are a few tips that you should know to prevent you from falling off the wagon during the process.

Short Sales

The buzz of the 2010 real estate industry is Short Sales. I attended a hand full of conferences last year and short sales were the topic of discussion on everyone’s mind including all the major banks and asset managers of REO properties.

In November Bank of America / Countrywide for instance partnered with equator.com a REO management tool used by REALTORS and asset managers to handle the sales of foreclosed properties. The management system is a task based system that helps to speed the processing of REO’s and now short sales beginning with Bank of America.

Equator.com has now begun to reduce B of A’s timeline for short sale approvals from six months to 45 days. Lightning fast by our experience negotiating short sales with Bank of America over the past two years. This trend will continue as investors look for ways to streamline the slow daunting process we have grown accustomed to in a short sale.

TIP: Short sale buyers should always investigate who the note holder is before making an offer. Knowing who the note holder is will help set your expected timeline for a successful close of escrow. Wachovia short sales are lightning fast because they own the loans and have decision makers in every county. Others like WAMU can be a challenge to say the least and are currently taking up to 5 months for a short sale approval once you are in contract.

REO

Inventory levels are very low but there may be a significant influx of REO properties from shadow inventory that banks are apparently holding. Some even continue to speculate that we will have a tsunami of inventory hit the market based on data from the Royal Bank of Scotland that shows over 3 million home owners 90 days past due and half of them are in foreclosure.

The reality is that the Silicon Valley will not likely see a large influx as a result of this inventory. Most of it is centered around the conforming $417,000 and lower price range. Waiting for REO’s to fill the void in Silicon Valley may keep a buyer on the sidelines for most of if not all of 2010.

TIP: A FHA 203k loan is an excellent loan that includes the cost to repair and remodel a REO home. It really is a great product and should be your primary loan option if you are intent on purchasing an REO home. 203k loans are great negotiation tools because the seller only has to repair health and safety issues leaving you room to negotiate while most other buyers are unable to participate.

Presentation of your offer

I recently listed and sold a home in Gilroy and received 40 offers on the home. During the process of evaluating the offers with the sellers I did my best to help the buyers agents in presenting their offers in hopes of giving every buyer an opportunity . What I realized is that merly making an offer is not enough and helped me make important adjustments in the way I submit offers.

Your offer should always have the following additional information:

• Pre-Approval letter – Preferably from a well known financial institution or an approval from your mortgage broker with the lenders name that you intend to use. If possible a conditional approval would be better but some lenders will not provide that unless you are in contract.
• Proof of funds to close – It’s critical to show the seller and the listing agent that you have the financial means to close escrow.
• A cover letter to the sellers – A letter with a picture of your family introducing yourself and telling them how much you love their home and will continue to give it the love they did. Provide details about your appreciation of the sellers upgrades and if possible any similarities that you may have with the sellers(kids, job industry, neighbor relationships, ect.)
• Comparable sales - Have  your REALTOR provide a list of three sold and pending comparables to make your case why your offer should be considered. Firing off low ball or high offers to a seller will most likely put your offer on the rejected pile because you submitted an offer with a purchase price that will not appraise.

TIP: Communication between your REALTOR and the listing agent is essential. Establishing a relationship with the listing agent is critical and can increase your chances of successfully negotiating with a seller.

Most buyers are taking up to a year to get into a home. Don’t be discouraged if you are still looking in September, the persistent buyer always finds a home.

Happy New Year and happy hunting for your home in 2010.

I continue to have more luck getting buyers into Short Sales than REO properties and have now come up with a strategy to increase our buyer’s chances of getting a home in this inventory drought.

One of the key factors of our success rate is due to the packaging of our offers. Buyers who have been at this for months will tell you that frustration begins to set in ultimately creating a routine of hit and run. Make an offer and run to the next listing if your offer was not accepted.

Follow up is everything

Short Sales in past months were challenging to say the least because of the lack of communication with banks and investors who own the loans. The secret is in the follow up.  Our chances of getting our clients into a home increase dramatically if we simply follow up with the listing agent every couple of weeks though the Short Sale process.

You wouldn’t believe how many times Short Sale negotiations fall apart between buyer and seller just when a transaction is at the point of approval from the bank to proceed with a sale. This is where we have to be ready to jump in with our buyers. Having a backup offer can be just as successful as being in first position.

REO Nightmares

REO (Bank Owned) is an attractive option to a buyer especially in the affordable areas but it’s an arena filled with cash buyers and aggressive overbids. I caution buyers who tread into this environment.

There are good deals out there but there is also a huge unknown when buying REO properties. Banks have no knowledge of the property and as such are exempt from providing Transfer Disclosure Statement (TDS). TDS information can make or break a purchase; it discloses anything affecting the desirability of the property including its surroundings. Do you want to buy a property blindly? In REO most people are doing just that.

Short Sale vs. REO

I will always ask our buyers to consider Short Sales over REO simple because there is a higher probability of success when making offers in a highly competitive market.

I had a buyer call me to check on status of an offer on one of my Short Sale listings and in the conversation the subject of all cash offers came up. The buyer who had made an offer was under the impression that an all cash offer would be looked upon by an investor/bank as the best offer.

The offer was under asking price, I informed the buyer that at the current pace of submitted offers he would be no where near the highest offer I had received. One of the biggest misconceptions of most cash buyers is that this gives them an advantage, the truth is that most investors have already taken huge losses on these homes and ultimately any investor is looking for highest net to mitigate their losses.

Some buyers even use cash offers as a tactic to get their foot in the door in a multiple offer situations. I have seen this bait and switch offer plenty of times with the intent of coming back to the negotiating table and asking the negotiator to accept a lower price or additional repairs on a home. Bank negotiators and asset mangers are under so much pressure to move the inventory that in some cases it works.

Banks are now doing everything they can to defend against these practices by setting very short time lines and having backup offers ready to go just in case.

As a listing agent I now use my own process to qualify cash buyers and their agents to make sure they are committed to the purchase and the time lines required to successfully complete the transaction.

So what do you do if you are a cash buyer?

1) Adjust your search criteria by looking for homes that are under your maximum purchase price. If $300,000 is your limit then look for homes under $250,000. This will give you buffer to allow you to be an aggressive negotiator.

2) Inventory is low, make your best offer the first time. Most bank negotiators and asset managers will pick from the first group of offers that come in. The likelihood of being able to come back to the negotiating table is very low.

3) AS/IS offers are always favorable and will be considered first. Understand that affordable homes in many cases are priced to move because they need to be updated or repaired. Negotiator are always looking at the bottom line for the investor.

Cash used to be king but it has lost it’s luster with the low levels of inventory and high volume of buyers competing for the few homes in this hot market.

Santa Clara County has programs to put first time home buyers into homes specifically in the unincorporated areas including the Burbank area near Santana Row. The program is run by the Housing Trust and relies on grants and is available at various times of the year depending on the availability of government funds.

Timing is Everything

Programs like these are available until the pot of money runs out making it a challenge for some and perfect timing for others. Buyers considering this type of program should check with the Housing Trust before counting on it’s assistance.

Housing Trust Programs for First Time Home buyers

The three programs comprise of the following:

Closing cost assistance – $6,500 to help with buyers closing costs

Down Payment Assistance - $15,000 low interest loan deferred for 60 months

Mortgage Assistance – Applications available September 8th 2009

Income Limits are the Catch

Generally any government funded programs like this are meant for buyers who need that extra help to get the over the top and into a home. Here are the income limit requirements for 2009.

Broker’s Advice

Use this resource of funds to help structure your offer, this will help you write a stronger offer.  Especially if you are not having to ask a seller to credit you for closing costs and if you can show that you have a larger pool of  funds to close because you qualify for one or more of these programs.

For more information click on the following:

Housing Trust Website link here