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

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.

Real Estate Relationships are Key in a Hot Market

Buyers experiencing a HOT market in our area continue to deal with one frustration after another as they wage a bidding war on the low inventory we are currently experiencing.

Within all of this chaos I have developed a relationship building approach both as a listing agent and with other listing agents. I have to know that the other REALTOR is willing to work as hard as I am prior to reviewing or submitting an offer.

For example; say you want to make an offer and there are multiple offers involved. The strategy I tend to take is to make sure I package the offer in such a way that the listing agent can see that I understand the way a Bank Asset manager or a Short Sale Negotiator prefers to see an offer.

The key is to understand the inner workings of the submission process to a Bank and as such covey to the decision maker that I am well versed in this process. Its not surprising to have a listing agent pass on a offer because of the way it was presented.

I have had more success by focusing on how I have package an offer and communicated with the other agent.

Over the weekend I was out in the East Valley showing homes to my clients and was astonished by the level of activity in an area that was hard hit by the subprime market. A year ago time on the market for this area was in upwards of 300+ Days and is has now diminished to a mere 38 days.

Bank owned properties are quickly moving into pending status, some in just 24 hours. Yesterday I took my video camera to one of the homes that we previewed and videotaped to give perspective buyers a glimpse of the types of properties available but most importantly to show you the conditions you may find in a bank owned home in our market place.

This particular property was on the market for a week and had 20 offers. We are also seeing cash offers playing a pivotal role in the winning bid for many of these properties. California Association of REALTORS has pointed to the bay area as one of the leading market indicators and historically speaking the bay area has always led by six months when recovering from a down real estate market.

Newlywed Couple's Journey to Home Ownership

I recently posted a story of the challenges some of our first time home buyers are experiencing and wanted to give you an update on a young newlywed couples journey to home ownership.

“19 offers and counting” was the comment one of my agents made as her client rushed in to our office, signed several documents and ran out all in less than 5 minutes.

Normally we take the time to cover the terms of the contract but no need at this juncture in the process because the terms haven’t changed, only the names of the sellers and the property address.

The general criteria is the same,

• Homes listed between $250,000 and $300,000
• FHA loan product with 3.5% down payment
• 3 bedroom 2 bath in good condition
• Anything in San Jose

The challenge is the lack of available loan products and as such FHA, USDA, and Conventional loans are the name of the game. With that comes the bottle neck of underwriting guidelines choking the loan approval system to the point that it can take anywhere from 45 to 60 days in most cases to close a transaction.

Far too long of a wait for some sellers and riskier for some bank owned properties (REO) who have sustained multiple levels of losses in the process of recovering their investment and who can blame them?

Perseverance, expectation, and faith are the driving forces that will eventually get this couple into their home. A dream of homeownership that will be rewarded to those willing to keep their feet grounded and emotions in check in an ever changing market environment such as the one we are experiencing now.

To complicate the situation investor buyers are dropping cash as a means of wiping out the competition and further complicating the process of finding a home.

More to come in future posts about this newlywed couple’s journey to home ownership.