Are you a Move Up Buyer in Silicon Valley? Then you know how hard it is to take that goal and realize it. It is much harder to sell and buy today than ever before!
If you’re a Buyer in the Silicon Valley – then you are well aware of how competitive it is to get a house in this market. A Buyer may have started off with big dreams, the want list, the wish list and then quickly condensed the list to one thing – I want a house – any house in the Bay Area.
It’s that nuts.
The Bay Area has limited space to build. Land is the gold of Real Estate, without land you cannot build more homes. So if you want to own a home around here – get ready for the bidding wars.
But if you’re a Buyer with a home to Sell first – then you’re really up for a challenge.
If you’re a Seller these days – you have some expectations. With multiple Buyers for each home – a Buyer pretty much has to do the following to be a candidate:
- OFFER OVER LIST PRICE – sometimes even more than the Comparative Market Analysis (CMA) warrants. This can be frightening and can setup a Buyer for some surprises*. The Caton Team always prepares a CMA and gauges market activity to help a Buyer determine their right price.
- WAIVE ALL CONTINGENCIES – These days a Buyer cannot ask for repairs, or request time to sell their current home . If a Buyer wants to be a contender – they must come in Non-Contingent and ready to close. Let me re-phrase that. A Buyer must write THIER best offer and if that includes a contingency – the Buyer must do what is best for them. Just know – if there is a contingency – generally that offer goes to the bottom of the stack because in this market, the Seller has plenty of offers to choose from and does NOT have to accept a Contingent Offer – no matter how cute the letter is. (Note, in cooler markets Buyers have more leverage and will have the opportunity for Sellers to accept contingencies. It’s just not that market today.)
- PROOF OF FUNDS – A Buyer MUST HAVE ALL their down payment, closing costs and reserve monies ready from DAY 1! Not only for their bank loan approval – Buyers need proof of funds just to write a contending offer! To be frank, sometimes a great offer is beat out by an offer with “better” proof of funds – IE – money in the bank.
- Each Seller and their Realtor will REQUIRE Proof of Funds to be submitted WITH the Offer. Meaning your Realtor needs recent copies of all your bank statements to be provided in your Offer Package to show money for the downpayment, closing costs and reserves. You would too if you were in the Seller seat. Our job as Realtors is to protect OUR Clients best interests. Meaning, while reviewing offers, not only does The Caton Team call each lender to verify loan strength – we also want to see Proof of Funds totaling at minimum the monies for said deal AND reserve funds which are healthy and liquid to ensure – if things go awry – there are funds to close on time. In other words, the strongest reserves has an impact on what is considered the “Best” offer. It is not always price that equates as “Best”. (Curious why? – Ask us anytime – it is another blog post.)
- An example of a Buyer surprise* is when the appraised value is lower than the offer price. The Buyer may need to pay the difference between the appraised value and offer price because there are NO Contingencies – a Buyer must perform or quit. Quitting on a Non-Contingent Offer means the Buyer could forge all or a portion of their good faith deposit – which is 3% of the total purchase price. Note – each case is different and this is just an example. Bottom line – selling Real Estate is serious business and being prepared is the first step.
There are several more items that make the perfect Offer Package – so if you’re curious – contact The Caton Team.
Ok, so now you have an idea of what it takes to buy a home around here. Now what do you do if you have a home to sell first? Bear with me on this – it is the hottest topic in Real Estate today.
HOW TO SELL THEN BUY
If you’re lucky enough to already be a Silicon Valley homeowner – congratulations! You’re ahead of the game. Right? Unless you need more space and want to move up. The Caton Team has met many clients who opted to add onto their existing homes. Great! Unless that is not an option. Then we are back to square one – How does a Buyer sell then buy in this market?
As I stated above in Seller Expectations, the “requirements” for contention can feel like a tall order. If your down payment funds are tied up in the equity of your home – you have several options but only a few are viable in this market.
Rich Aunt Sally gifts you the money you need for the purchase of the home. Thank you Aunt Sally. But what if we don’t have rich relatives?
SELL FIRST OPTION
This is the cut and dry option. Sell the home. Close Escrow. Move out and into a short term rental or with relatives. Bank the proceeds of the sale – aka: the downpayment and enjoy the Home Buying Experience at your own pace knowing you can A) Prove your Funds and B) Go in Non Contingent.
Oh – Did I mention this option is also terrifying? A Seller feels as if they are loosing their only piece of California – the “what if we don’t get the next one” can be frightening. That’s why this option that is often chosen last. Next up…
SELL FIRST WITH RENT-BACK OPTION
Similar to the first scenario – except instead of moving out at Close of Escrow – the Seller is granted Rent Back to live in the home for an agreed timeframe and cost, then move out – whether or not the Seller has acquired their next purchase. The advantage to this is the Closing – the Seller has the proceeds in the bank and can write a non-contingent offer on their next home. The down side – it is a short term solution – if the Seller doesn’t find their next home within the time frame – they will have to move out when the tenancy is over no matter what.
OBTAIN AN OFFER TO PURCHASE
This option is often the first step – the proverbial toe in the water. We, as your Realtors will try to find a Buyer willing to do the following:
- Offer to Purchase the home with an Extended Close of Escrow, giving the Seller time to acquire their next property then quickly close on one then the other – a Domino closing effect. The downside, their proceeds are not in the bank; therefore the Proof of Funds will be short AND even if the Seller writes a Non-Contingent Offer – we as Realtors know – it isn’t over until it’s over. In other words, when comparing offers – the one with less strings attached wins. Even Non-Contingent Offers in this scenario are not as strong as Buyers ready, willing and able to close on time. IE: Don’t have to close one house before they can close on the other. Confusing right?
That’s why inevitably, if a Client truly needs more space and cannot add on – they often are forced to sell first, rent then buy because this market is too competitive to request contingencies from the seller. – Please don’t shoot the messenger –
THE LONG ROAD
Now here’s my idea – but it takes a few years and you truly need to ask your CPA. The idea is – the Seller moves out into. (Where? That is not part of my scenario.) The Seller then converts their personal residence into a rental – renting it out for a minimum of 2 years. (I cannot give tax advice, so please verify with your CPA). After those two years, the Seller sells their home as a 1031 exchange, then buys their next home – as another investment. The caveat – the Seller cannot move into their new home until it’s been rented for at least 2 years. Again run this by your CPA as tax laws change and I am not a CPA. Anyway, this is the long term approach. The good news, especially if you’re buying in the same community, even if prices rise – hopefully so will the value of your current investment. Anyway, can you tell I have several clients in the same boat? This blog post was really just me organizing my thoughts then I figured – why don’t I just share this – if I can help someone make a better decision for their future – then I did my job today.
THINGS TO CONSIDER
Right now – the forecast is Interest Rates will rise. This can diminish a Buyer’s buying power. As the interest rates rise the amount of the loan reduces. To remedy this – a Buyer will need to bring in more monies towards the downpayment. Easy, if we have Aunt Sally on speed dial.
The Caton Team cannot forecast the future but we have endured all sorts of markets. We always worry about our Buyers waiting themselves out of the market and in this still inclining market – that can happen faster than you think. Ask us anytime – we’re in the trenches, we know what homes are selling for before the internet gets wind. It’s wild out there but we’ve got you covered. Susan and I have over 35 years combined, local real estate experience. We represent our clients with integrity. Our offer packages stand out and often times just the edge a Buyer needs in this market. Our Seller Package is successful, our negotiating is skilled, kind and focused. We pride ourselves in being effective, efficient and responsive.
Real Estate is multi faceted and this blog is just the tip of the iceberg. Each family has a unique set of needs. We value the sit down time to get to know what you need whether buying or selling a home in the Bay Area.
What Can The Caton Team Do For You?
Thank you for reading and forgiving my typos,
I wrote this…
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