You’ve probably heard that buying a home in Silicon Valley is a bit like purchasing real estate in Manhatten, London, Tokyo, Paris, or other regions where the prices are in the stratosphere. It’s true. It’s a strong seller’s market.
And yet, every day, homes are bought and sold in the San Jose – Palo Alto – Foster City area. They aren’t all cash; perhaps 20-30% are bought without any loan or mortgage, but the rest of the properties are sold with some sort of financing.
Here’s a quick summary of what is needed to buy a house, condominium, or townhouse in Silicon Valley (this list applies MOST of the time and with few exceptions):
- A large down payment is needed – usually 25% or more – to win in the multiple offer situations which are the norm right now.
- Nerves of steel: it’s scary to buy a house, but here, many homes are purchased without the normal contingencies for loan, appraisal or inspection. (But home sellers do provide a full battery of inspections that you can review before making your offer in most cases.)
- The ability to move quickly and decisively as the best homes sell very, very fast – often in a week to nine days. In the last 30 days, there were 385 houses which sold and closed in the city of San Jose. Of those, 282 went under contract and became pending sales in 14 days or less. That’s 73%. In Sunnyvale the numbers were 47 and 47, so 79%. Here you need to be 110% sure. If you give off signals that you are hesitant, your offer is unlikely to be accepted.
- It’s a big help if you have a really good Realtor who’s known, liked and respected in the local real estate community. Listing agents will prefer to work with an agent who’s trusted. In some areas, like Palo Alto, many homes sell “off market” and then the full inventory tends to be known only by those local and trusted agents.
- A strong lender, especially if you are coming from abroad, who’s experienced in tracking work history, credit, etc. in other countries (and in some cases other languages). Don’t just walk into a bank and pick someone. Get a good recommendation, either from someone at your company who’s had a similar experience or from your Realtor, who should be used to working with international home buyers.
- Being clear on priorities and being able to put them in order is crucially important. It’s usually not possible to get everything on the wish list and also get it in budget. So decide which is most valuable to you: schools, commute time, home type (perhaps you can get what you want, where you want – but only if you buy a condo?), commute time or?
Those are the key ingredients. Perhaps the hardest one, when getting started, is the last one. Let’s talk about that.
Priorities list: pick any 2 out of 3
A request I often get is to find a nice sized home and yard in good shape with good schools and a commute to Palo Alto that’s under an hour. So far, so good. Then comes the desired price tag: under $1,200,000 or under $1,500,000. You can get the home, yard, schools, and commute, but it won’t be under $1.5 million for a good sized, remodeled house and a big yard with better schools. The price tag fitting that description is probably closer to $2 million due to our clogged commute routes.
One of the best areas in terms of schools and pricing is Cambrian, which is a part of San Jose, with either the Union School District or the Cambrian School District. You can get a Cambrian home with good schools for under $1.4 million and it will have a decent sized lot, be in good condition, etc. But the morning commute to Palo Alto will likely be a little more than an hour, and the evening commute perhaps 80-90 minutes, depending on where in PA or Cambrian you’re going and what time it is. A nice house in east Los Gatos with the same schools but more house and yard will probably run around $1,700,000 to $1,800,000 for 2500 SF on a 10,000 SF lot.
Cupertino has great schools but the houses there tend to start at around 1.5 million – so if you are ok with a townhouse or condo, that might work.
The upset as reality sinks in
Most home buyers, even if they’ve studied the market here intensely before arriving, go through some strong emotional stages as they learn the real estate ropes and what their budget can and cannot buy. Sometimes the main shock hits before arriving, though. Recently I got an email from someone moving here from the south, who lamented the situation with a question along these lines: “can you explain to me why home prices in Silicon Valley are 5-6 times more than they are in Atlanta?” It is that bad, yes, and I am sorry. It is upsetting. The faster you can move through the shock and upset, the sooner you’ll be able to clear the emotional clutter and buy that next home and really settle in.
Focus on the positive
The good news is, aside from the cost of housing and the traffic, San Jose – Sunnyvale – Los Gatos and whole Silicon Valley region really is a wonderful place to live. We enjoy 300 sunny days a year on average. San Jose has often been named the best place to raise kids. The intellectual climate cannot be beat as we have great minds from all over the world here. The coast is close, and so is San Francisco. If you do buy a home, appreciation may be substantial, far more than in most of the U.S., if you can “buy and hold“. (We’ve had a lot of real estate corrections and downturns since the 1940s, but look at some old Los Gatos real estate home prices then and see the buy and hold value at its best.)
First there is disbelief or denial. “It cannot be that bad – people are exaggerating.” That’s followed quickly by “I thought it was bad where I used to live!”
Then there may be outrage (anger is too mild a word): “Why would anyone pay that to live there?”
Next, a little bargaining: “What’s the work around? Are there any bank owned homes? How about something older – I don’t mind a 15 year old house…” (To us, that’s a young house, by the way.) “What about buying a lot and building?” Or the commute negotiation “I thought I had to be within 15 minutes, but I could go 30.” A typical commute might be 30 minutes in the morning, but 45 in the evening. Many people have worse than typical, though, as they want a bigger, nicer home, better schools, quieter location, etc.
Depression soon follows suit. This may be accompanied by “We just cannot do it” or “We are not willing to do that” (until they see that rents are $4000 for a smallish house in an only OK area and $6000 per month for a decent sized home in a good area.)
Acceptance comes at last. It may lead people to decide to go all in, bite the bullet, and buy locally. It may lead them to move way out of the immediate area and embrace an hourlong commute – or to take the Apple or Google bus to work, if applicable. It could lead them to move to Seattle, Orange County or somewhere a little less overwhelming in terms of housing costs.
Sometimes people think they are at “acceptance” as they write offers which are habitually 5-15% too low. In reality, they are actually still in the “bargaining” phase, hoping for a good deal amidst our raging seller’s market. That doesn’t usually happen, so writing a lot of unsuccessful offers frequently leads to depression (and sometimes blaming their agent for their offers not going through, even when it’s clear at closing that their offer price or terms were the issue).
How fast can you get to acceptance and write a realistic purchase offer? For people who could have bought 12 months ago but are still shopping now, that wait has cost them about 10% of their home price in many cases. For those looking 2 years, it’s easily double that, and in some cases prices are up a full 30%. That’s like setting a match to your entire down payment.
If you want to be a successful home buyer in this crazy Silicon Valley real estate market, you will need to get onboard quickly, because the longer you take to get to acceptance, the more expensive your final home will cost when the market isappreciating, as it has been for about 3 years now. Time is money and nowhere is that more true than in the San Jose, Silicon Valley, or South Bay real estate market.
Looking for more Silicon Valley real estate resources? Here are a few of my other sites, blogs, and market stats tooks:
popehandy.rereport.com – real estate statics for San Mateo County, Santa Clara County, and Santa Cruz County
popehandy.com – Silicon Valley real estate, Los Gatos real estate, info on many areas of the realty market in Santa Clara and San Mateo counties
SanJoseRealEstateLosGatosHomes.com – Santa Clara County real estate, special focus on San Jose areas of Almaden & Cambrian and also Los Gatos with info on the real estate market, neighborhoods, and more
LiveInLosGatosBlog – Los Gatos real estate, neighborhoods, events, businesses, parks. Many photos and neighborhood or subdivision profiles.
If you want to buy a Silicon Valley home and you’re coming from outside of the area, a few things are done differently here. Rather than give a lengthy explanation, I’ll just provide a quick list of things which are different from other parts of California, the U.S. or perhaps the world.
- The escrow account, where money is held and disbursed by a neutral third party, is ordinarily with a title company in Silicon Valley and the San Francisco Bay Area generally. In CA it’s legal for real estate brokers to have the escrow account, but that is not the custom here. By contrast, in southern Calif., there are separate companies which often do the escrow work or a real estate broker may handle the funds, called trust funds.
- Santa Clara County is a “seller pay county” by tradition when it comes to the escrow fee and who pays the owner’s policy of title insurance. (Most of California is either buyer pay or split 50/50. Also, SCC is where San Jose and much of Silicon Valley is located.)
- Because it’s a “seller pay” county, the seller or the listing agent (the seller’s real estate agent) normally chooses the title company. Most of the time, the home owners do not have a preference and don’t know anyone working at the nearby title companies, so usually the listing agent suggests which one to utilize. If you purchase the property with a loan, you will need to buy lender’s insurance, too – and that’s a buyer cost.
- While in many east coast states an attorney is involved with the home buying and selling process, here lawyers are seldom involved with real estate sales – unless there is a big problem.
- Surveys are not usually part of the transaction here, with exceptions if there are serious doubts about the property boundaries.
- Buyers are provided information on natural hazards, and usually also known environmental hazards and area tax liabilities, in most cases via a professional disclosure company such as JCP Disclosures. Things such as 100 year flood plains, liquifaction zones, earthquake fault lines, underground water contamination will be revealed, if known, in most cases.
- In some parts of the world, buyers do not have their own real estate professionals for guidance and advocacy, but here they do. Most of the time, in the San Jose and Peninsula area buyers have their own real estate agent working on their behalf. Usually the buyers’ agents are paid by the sellers – but they do not represent the sellers. Dual agency is legal in California as long as it is disclosed (and dual agency can mean either the same person or brokerage).
- In recent years, it has become the norm to get pre-approved with a lender or bank prior to writing a purchase offer on a house, condo or other home. (If you meet with a Realtor, getting you set up with a reputable lender will be one of the first things he or she asks you to do.) Also it’s pretty normal to have to provide “proof of funds” to demonstrate that you have the down payment available. Sometimes our international clients are surprised at the documentation required here, so it’s good if you are aware of it upfront.
- It usually takes 30-45 days to close escrow on a property here (from the time the sellers accept your contract to the time you actually own it).
- Finally, it should be noted that the cost of housing in Silicon Valley is truly exorbitant. Most people know that Silicon Valley houses are very expensive, but until they get out and see what things cost, they really don’t understand how extreme it is. Often I tell people to expect to pay twice as much and to get half as much. Unless you are coming from a pricey locale, such as London, Tokyo, Paris, Manhattan or Boston, you may still find yourself in “sticker shock”. A half million dollars buys a fairly small, modest home here, in an average area. A million dollars is better – you can get into a better area and better house. The “luxury market” starts somewhere between 1.5 and 2.5 million, depending on which area you’re considering.
There is most always a big shock when folks relocate to Silicon Valley and start to learn how far their money goes – or doesn’t go – here. This has been the case for a very long time, since long before I got into the business 20 years ago. Prior to to looking online, you may hear that it’s bad, but you don’t really know what people are talking about until you get into a car with a Realtor and go see what $500,000 or a million or more will buy you here.
And now, too add to the already high home prices, the real estate market is overheated due to a severe inventory shortage of homes for sale in the San Jose and “South Bay” areas, too. Most properties are selling over list price – and that was high to start with, particularly for out of state or global buyers.
In most parts of the U.S., a half a million dollars will buy you a great home. Here, not so much. A million dollars will buy you a nice home in a decent area, but it won’t be fancy, and you’re unlikely to have a large lot unless your commute is huge and you’re on the outskirts of the valley. It’s more than a million to have a really nicely remodeled home with great schools; that price point seems to start at about 1.2 million in most parts of the valley. Have a look at the median and average sales prices for houses in Santa Clara County – this will give you a sense of how the market has been behaving, but also of the cost to purchase homes generally.
Each January, would be home owners roll up their sleeves and make plans to buy a house, townhouse or condo. This year, like most, I’m getting contacted by Silicon Valley home buyers new to me as well as those who played with the idea in the past but ended up putting off the purchase. (Recently I learned that nationally, only about 50% of interested home buyers actually do purchase during the year that they think they will.)
Right now it is a very deep seller’s market in Santa Clara County as well as nearby areas of Silicon Valley. There is more demand than supply, the majority of “regular sale” properties under $ 1 million or so are getting multiple offers and the sales prices are averaging over the list price in almost all neighborhoods. The months supply of inventory is less than one month in Santa Clara County right now.
There are a lot of strategies you can employ when competing in multiple offer situations, but very few things can trump cash. A 20% down payment is considered a minimum for most of the valley. It is extremely difficult for a home buyer with FHA backed financing to buy a home in most cases.
This morning I looked at the sales of houses in San Jose over the last 30 days (meaning those which closed escrow). There were 368 houses that sold & closed. Of those 268 had conventional loans, 77 were all cash, 10 were FHA, 6 were conventional 1st and 2nd, 1 was a VA loan and none were “owner carry”. In other words, the vast majority had 20% down or more, and only a tiny handful came to the table with a small down payment.
That doesn’t mean that FHA buyers are never successful or that they aren’t trying. But the odds of success are about 3%.
Looking for another option? There are conventional 1st and second loans available – of course not many of those either but they are usually viewed more favorably than an FHA offer, especially if the house is older or needs work.
Another strategy may be to cosign with a relative who puts up a 2nd mortgage for you.
Nothing can really beat cash, and for most buyers, that means saving for years to pull together that elusive 20%. Up against an all cash bid, even 20% will look weak, but to increase your odds of success, 20% should be your minimum target in today’s market.
First, you need to understand that possibly more than in any other time, it’s a deep seller’s market, meaning you most likely will be competing against multiple offers. Homes for sale are not as abundant as normal, and there are a lot of buyers trying to purchase a house or condo in the San Jose area. Not enough supply, too much demand equals multiple offers and rising prices. (You can check the current Santa Clara County real estate market statistics at www.popehandy.rereport.com.)
Secondly,if you want a chance at buying a property in Santa Clara or San Mateo Counties, you must have a great “offer package”. It is imperative that you have a solid down payment, 20% is a minimum but often it takes 25% or more to convince sellers that they should take your offer over the others. Cash is king and you may get out bid by an all cash offer, especially if it’s also a non contingent offer.
If you include any contingencies for inspections, loan and appraisal, they will have to be fairly short to compete in multiple offers. A 17 day loan contingency is a pretty sure fire way to get eliminated from multiple bids.
Continue reading on the Valley of Hearts Delight blog:
Moving to Silicon Valley: is it possible to get a house here that’s as nice as the one you currently own?
I am frequently contacted by extremely bright, successful engineers or high tech professionals who are in large homes on large lots with great schools in less expensive areas of the country. They want to move here because Silicon Valley is the hub of innovation, our weather's great, crime's low and there's so much to do in this region. They know that housing costs here are extraordinarily high, but they hope that the salaries are commensurately high such that they can replicate the home & lifestyle they currently have – but put it here.
But that really doesn't work. Unless someone's relocating here from Boston, New York, Tokyo or Paris (or somewhere equally astronomically priced), the salary offered in Silicon Valley will not usually make that kind of housing duplication possible.
To move here normally means downgrading the house and paying more for it. Yes, incomes are a little higher but not nearly enough to match the discrepancy in real estate prices. I tell people, as a rule of thumb, that when you move here you will pay twice as much and get half as much. (Salaries? You get a little more. Not twice.)
Sometimes I get the comment "I don't want to move to Silicon Valley and have my family's lifestyle negatively impacted by having to live in a smaller house. I want the quality of life to go up, not down."
That is completely understandable. People who move here don't do it because of housing. Lifestyle often is better here. Shoveling snow? Forgetaboutit. We have 300 sunny days a year on average – if you love to be outdoors, your lifestyle will be far better here where the weather is subtropical. We have the Pacific Ocean an hour or less away, San Francisco an hour away, about 2 dozen wineries, theatre, museums, the Sharks, parks and trails. Our population is highly diverse and highly educated. Crime is low. There are a thousand reasons why the lifestyle here probably is far better than in other parts of the country… but it's not if you equivocate housing with lifestyle.
Yesterday I was asked how the San Jose – Silicon Valley area is different from other parts of the US for home buyers. What did they need to be concerned about here versus in the midwest or east coast? They knew about earthquakes, and having to strap water heaters for earthquake safety, but what about earthquake insurance? Are termites a problem here? What things should home buyers worry about here that perhaps are not issues elsewhere?
I thought that this was a great question. Here are the big areas that come to mind:
- Earthquakes (of course) and everything related: selling requirements, insurance questions, related natural hazard zones (liquifaction zones, landslide areas, etc.), where fault lines are located, etc. People moving to California generally know that they need to be concerned about seismic occurrences, but perhaps not all the related areas.
- Expansive clay soils: when you read your history, you may have heard that in early California, homes were made of adobe bricks. What may not have been clear is how strong that soil is. I have a couple of blog posts on my Valley of Hearts Delight blog on this topic:
Cracked Foundations, Adobe Clay Soils and Water in Silicon ValleyWhat To Consider When Buying a Hillside Home in Silicon Valley
Termites: in general, there are 2 types of these pests active on the valley floor: drywood termites and subterranean termites. (In the Los Gatos Mountains and closer to the Pacific Ocean you may also encounter dampwood termites.) It may be possible to try to prevent subterranean termites with bait stakes placed underground, but there is no way to prevent drywood termites. You can fumigate your home and within a few days they could be back (but won’t be visible for a year or two at the earliest in most cases). Termites do better here than in many places of the country simply because it’s warmer here. They may swarm twice a year rather than once. Please also read this post for more info:
- No basements – there are very few homes with basements here (the very old ones and those which are newer and extremely expensive). A very common question is “where do people store all their stuff if they don’t have a basement?” For most households, the storage center tends to be the garage. Built in cabinets and storage shelves are highly appreciated. When people purchase homes with 3 car garages, often that 3rd space is not for a car, but for “stuff” – luggage, holiday decor, momentos, old files, etc.
- Foundations – older homes are usually built on a “raised” foundation or perimeter foundation with support beams under the center part of the home. Some types of homes, such as Eichler designed houses (mid-century modern ranch style) were built with slab foundations and actually have radiant heating (heating coils built into the slab). Newer homes now tend to be built on slab also (10-15 years of age or less). Most of our valley has 40-60 year old ranch style homes, though, and these are mostly “raised” foundations with a crawl space.
- Houses are built to move in case of an earthquake – most of our homes are built with wood and are intended to move in the case of an earthquake. It is very rare to find a house made out of brick here because they don’t do well in case of severe shaking.
These are perhaps the most salient differences home buyers relocating to Silicon Valley might want to be aware of. For each of these points, there are things to learn and red flags to watch for.
Frequently, people new to Silicon Valley and the San Jose area arrive from places where their last home was new construction, and they hope to find a brand new home here, too.
Unless you are looking to purchase a condominium or a townhome, though, it can be really challenging to find truly new homes for sale here. (There are tons of fabulous new condos in downtown San Jose, which is enjoying a great redevelopment period.)
For the most part, Silicon Valley had a post World War II housing boom that stretched primarily from the 50s into the 70s. By the 1980s, even, most of the open space was gone. Today we do have a few new patches of new homes “here and there”, but there aren’t many. Unfortunately, too, since most of the best land was built up long ago, some of the newest developments are in less desireable areas such as next to freeways.
For the Silicon Valley new home buyer, I want to suggest a couple of strategies: first, in addition to checking out whatever new homes are currently being built, consider homes that are younger than 20 years of age. Many of them are still in great shape. Some have already been remodeled! Another option is to look for the “fully remodeled” home. With the latter, you must be extra dilligent to make sure that the house has not just been gussied up to be be flipped, but is truly remodeled in areas you cannot see, such as the wiring and the pipes.
Please also read:
Myths and Misconceptions about Buying a New (or Newer) Home
Some younger neighborhoods:
Introducing a Beautiful Willow Glen Neighborhood, “The Willows”
The Almaden Winery Neighborhood of San Jose
If you’ve recently relocated to the San Jose area, you may still be getting your “sea legs” here. Perhaps you’re still learning your way around, or maybe trying to get a feel for our market. And very likely you are wondering, “should I buy a home now…or should I wait?”
There are no easy answers. Sweeping generalizations are often wrong in particular cases. I’ll explain.
Right now, if you want to buy a home in Saratoga, with Saratoga Schools and you require that the home be perfect (doesn’t need remodeling, doesn’t back to a busy road or have something else objectionable), and the price point is between one and two million dollars, you’ll have some competition. You’ll be in multiple offers if the home is priced appropriately.
On the other hand, if you want to buy an entry level condo in east San Jose or Morgan Hill, Gilroy or Santa Teresa, it truly is a buyer’s market. Home sellers aren’t giving away their pride & joy, but the market is definitely in your favor and you may well get a great deal.
Each situation is unique: you might need or highly value a short commute distance, or the very, very best schools, or a turnkey home. Or not. Depending on your circumstance, your budget, and your timeframe (if you buy, can you stay put for 3-5 years minimum?), this could be a great time for you to buy.
Some things to consider now – potential plusses:
Most often, November and December are wonderful months in which to purchase a home in Silicon Valley because sellers who market their home now are usually highly motivated. Inventory is lower, but prices are usually softer. When clients ask me, “when is the best time of the year to buy?” I usually tell them “November and December – but no promises for any given year”. Second best month is frequently August.
A big plus for this time of year involves your financing too. Since loans are really something you “purchase”, and the price is influenced by the ancient laws of supply and demand, getting a loan while everyone else is doing holiday things can be a boon to you. Loan rates frequently go up around Valentine’s Day. (I cannot predict that loan rates will go up or down, but historically the most favorable rates are often found at this time of year.)
Are there drawbacks to buying now? Sure. Inventory is restricted. In some price points and areas, that means that there may be multiple offers – even in this “normal market”. Homes may not show as well in winter as they might in spring, so you may have to use a little imagination if the backyard is not as cheerful as you might like to envision.
Overall, I would say for most buyers, this IS a good time to buy a home in Santa Clara County. But call me or email me and we can chat about your particular situation, which may change everything for you!
If you’d like specific information on the housing markets around the San Jose area, please visit my online Real Estate Report, which breaks down the stats and trends. It’s a tremendous amount of very useful data.
Wishing you and yours a joyful Thanksgiving.