March 21, 2008
We read about the real estate market being a buyers market, and some folks think that means that houses, condos and townhomes will always sell for much less than the asking price.
That just isn’t the case. There’s a whole lot of “it depends” going on. Take each property on its own merits, do some homework and strategize how to get the best deal when buying a home.
Some sellers, for example, deliberately underprice their homes to attract multiple offers. This, of course, pushes the price up and the sellers are often very pleased with the results. (It is usually far more effective than “testing the market” with a high price.) So if it’s underpriced, don’t assume it’ll sell for less.
How should you evaluate Los Gatos real estate when you’re thinking of writing an offer? I go through this with my clients all the time, so let me give you a few tips here.
First, make sure you understand the current market conditions for the area and price point you’re interested in. I put out a monthly Real Estate Report (about the 10th of each month) that will help you understand the city or region – such as Los Gatos/Monte Sereno, Saratoga, or districts of San Jose like Cambrian Park. But there are lots of micro climates in real estate, even within a town or a zip code! So before writing up a purchase agreement, look at comps and ask your agent to help you understand what’s happening locally. You’ll want to know both the list price to sales price ratio and also what homes are generally selling for in that particular neighborhood. Once you know those two things, you adjust for things like improvements, condition, precise location, and other issues.
- In the Town of Los Gatos, homes are selling at an average of 97.7% of list price. How will sellers feel about offers that are at 90% of list price or worse? You’re right if you guessed that they’d be insulted and upset.
- Upset sellers don’t tend to be cheerful in negotiating; trying to get a “killer deal” may prevent you from getting the house at all!
- When a lowball offer comes in, most often, sellers give a high counter offer. (What constitutes a lowball offer varies, but 10% below list is usually taken badly by the seller.)
Second, learn as much as you can, before writing an offer, about the home’s condition. Find out if there are disclosures, inspections and reports online. If so, read them first to get a true picture of the property’s condition. If it’s in great shape, it will be worth more, and if there are a lot of repairs, it will be worth less. No resale (or used) home is perfect, so do not expect a 45 year old home to be flawless. (I often see this mistake: buyers will view homes at the top of their price range and when they find flaws in the home, start subtracting based on their budget rather than based on market value.) Do consider how it compares to others like it on the market, that are pending sales or recently sold in terms of condition. The best agents do all this upfront, or at least as much as possible. If you happen to be viewing a home that is a short sale, it is highly unlikely that the seller will have any inspections…because there just isn’t any money with which to do them.
Third, ask upfront, through your agent, what the seller wants or needs to be happy. It could be price, it could be terms. (Terms are the other important aspects of the offer such as required repairs, length of escrow, things included or not included.) You may or may not be able to give it to the seller, but knowledge is power and often the price may be lower if the terms are more favorable. If the seller needs a quick close, you may be able to buy the home for less if you can move fast. Same with “as is” or other clauses that make the seller’s life easier. Seniors often have a difficult time clearing out their property, so if you, as a buyer, offer to take on the seller’s old cans of paint or other “headache” items, you may create a sense of ease and goodwill that may result in a better price for you. I have seen this happen many times!
With this third point, I should stress that some agents will not want to take the extra step and pick up the phone to talk with the listing agent. There are some agents out there who never call, but simply fax over an offer. To the better, more professional agents, this is really annoying and smaks of laziness and non-professionalism. Listing agents want to know when an offer is coming in. They may tell your agent important information that enables you to write a cleaner offer (that perhaps will not need a counter offer if it’s right the first time.) Please make sure that your agent will phone ahead, do a basic inquiry and make a good impression of you to the listing agent and seller. Transactions are about people as well as business and this is an important aspect you should not ignore.
In today’s market, which varies wildly from one zip code and price point to the next here in Silicon Valley, goodwill still goes a long way. So let me add a few closing tips:
- If you happen to meet the seller, try to be friendly and respectful – sometimes if the seller simply likes you, it can go really far in making the transaction together (remember, buying and selling is emotional and not just a business deal!).
- Make sure you hire an agent who will also try to put a best foot forward for you. If there are multiple offers (which does still happen!), it may come down to whom the listing agent feels best about working with. Reputation matters, and so does the agent’s professionalism.
- If it is multiple offers, and there are disclosures online, read them, sign them, and turn them in with your offer if at all possible. The seller and listing agent will know you are not going to be surprised later and back out. Even if it’s not multiple offers, the seller will feel more confident if he or she knows you have read the inspections and truly understand what you are trying to purchase.
- Most Realtors in Los Gatos will be looking for a 3% initial deposit and a pre-approval letter from a reputable source (not an online entity). In some parts of Santa Clara Valley, smaller deposits are the norm. In Los Gatos, 3% is strongly preferred and at the least will be expected when contingencies are removed.
- Write a letter. Make nice. Tell the seller why you like their house.
- Is the house really overpriced? If so, have your agent politely explain the reason behind your offer price.
- Is the house not overpriced, but not selling and you can only afford so much? That kind of honesty can work too. Just tell it like it is. Talk to your Realtor, but something like “Mr. and Mrs. Seller, I realize that your home is worth XYX amount, but unfortunately I don’t qualify for that much. I would like to buy you
r home, but the most I can afford is XY amount. In turn, we’ll take it as-is and do a three week close, and give you a one week free rent back, and we sincerely hope you will consider our offer….”
Stories float around Los Gatos, Monte Sereno, and Saratoga of transactions that never came together because the buyer insulted the seller. About 10 years ago, I had a listing and an offer got faxed in (no phone call) and it was just an awful, lowball offer. The purchase agreement was 10% below list price and had a ton of bad terms in them. My seller ripped the offer into quarters and took the house off the market. And there was one story I heard, a few years back, of a buyer who asked the seller to leave the family’s dog too. The seller was angry and would not sell the home at any price!
The average and median prices are helpful to understand what’s happening overall. Any home, though, may be different from the average or median, and the sellers may have different circumstances. If you’d like to get a great price on a Los Gatos home, follow the above guidelines (and begin by hiring your buyer’s agent carefully!) and you will greatly improve your odds for success!
Call or email me for assistance in buying your next home in Los Gatos!
Mary Pope-Handy, Realtor, CRS, ABR, e-PRO, SRES, ASP, RECS, CNHS, ACRE
Helping Nice Folks to Buy & Sell Homes Since 1993 – 15 Years Experience!
Co-Author: “Get The Best Deal When Selling Your Home In Silicon Valley”
408 204-7673 (Cell)
email: Mary (at) PopeHandy.com