Are you a Move Up Buyer in Silicon Valley? Then you know how hard it is to achieve that goal and make it a reality.  It is much more challenging to sell and buy due to the market’s dynamics.

If you’re a Buyer in Silicon Valley, then you are well aware of how competitive it is to get a house, condo, or townhome. A Buyer may have started with the want list and then quickly condensed it.

What makes buying or move-up buying a challenge?

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, be prepared for possible bidding wars.

But if you’re a Buyer with a home to sell first, then you’re really up for a challenge.  But! The Caton Team is here to help you create a plan for success.

Seller EXPECTATIONS in a Seller’s Market

If you’re a Seller these days, you have some expectations, and when the market is in your favor. It’s great.

During a Sellers market, with multiple Buyers for each home, a Buyer must put their best foot forward to succeed, and truly, this goes for any market. Here are some suggestions:

OFFER OVER LIST PRICE – sometimes even more than the Comparative Market Analysis (CMA) warrants.  This can be frightening and can set up a Buyer for some surprises.
The Caton Team always prepares a CMA and gauges market activity to help a Buyer determine their right price. The Buyer will also choose the price they want to offer. We are here to guide you with data.

WAIVE CONTINGENCIES – These days, a Buyer should not ask for repairs but account for them. It’s also hard to request time to sell their current home first.  If a Buyer wants to be a contender, it can feel like they must come in Non-Contingent and ready to close.  Let me rephrase that.  A Buyer should write their best offer, and if that includes a contingency, the Buyer must do what is best for them.  Just know – if there are too many contingencies – generally that offer goes to the bottom of the stack because in a Sellers market, the Seller often has plenty of offers to choose from and does NOT have to accept a Contingent Offer.  (Note, in cooler markets Buyers have more leverage and will have the opportunity to ask for contingencies.)

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, but Buyers also 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 the money for the downpayment, closing costs, and reserves are liquid and real. You would too if you were in the Seller seat.  Our job as Realtors is to protect OUR Clients’ best interests.  Meaning, when working with Sellers and 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 have an impact on what is considered the “Best” offer.  It is not always price that equates to “Best”.  (Curious why?  – Ask us anytime – that topic is for another blog post.)

An example of a Buyer’s surprise is when the appraised value is lower than the offer price.  The Buyer may want to pay the difference between the appraised value and the offer price, and that too is a conversation on what’s best for the client.  There is no “cold feet” in Real Estate; quitting on a Non-Contingent Offer means the Buyer could forfeit 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 up the Perfect Offer Package. If you want to stand out and succeed, contact The Caton Team today! We’re eager to chat and develop a personalized plan to help you reach your real estate goals.

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.

DREAM OPTION

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 future downpayment and enjoy the Home Buying Experience at your own pace, knowing you can A) Prove your Funds are liquid and B) write an offer non-contingent on selling your home first. In a Seller’s market, an offer contingent on selling doesn’t always fly, and if it does, you’ve got to act fast and sell your home, as you will have a time frame. So your current home better be ready to go on the market, packed, inspected, and show-ready.

Oh – Did I mention this option is also terrifying?  A Seller feels as if they are losing their only piece of California – the “what if we don’t get the next one” can be frightening.  So it is important to weigh all options.

Next up…

SELL FIRST WITH RENT-BACK OPTION

Similar to the first scenario – except instead of moving out at the close ofescrow – the Seller is granted Rent Back to live in the home for an agreed-upon and short timeframe for a negotiated price, 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 downside – 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.  Also, of late, this is frowned upon due to insurance issues or higher premiums since the home is a “rental” in the eyes of the buyer’s bank, and that could equate to a higher interest rate on their loan. We see short-term rentals but longer ones – far less.

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 (most likely contingent on closing on their current home), then quickly close on their next home – a domino closing effect.  The downside, their proceeds are not in the bank, possibly hindering their chances. Their Proof of Funds will be short, and even if the owner writes a Non-Contingent Offer – we as Realtors know – it isn’t over until it’s over.  In other words, when Sellers compare offers, the one with fewer strings attached generally 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 BRIDGE LOAN

Another option is to obtain a bridge loan. A bridge loan gives the owner the opportunity to purchase their next home before selling their current home. This can be an expensive option. Interest rates and fees are higher. But it gives the client the peace of mind that they know where they’re going before they sell their current home, and they only move once.

THE LONG ROAD

Now here’s another idea – but it takes a few years, and you truly need to ask your CPA and Financial Advisor about this. The idea is to convert your primary residence into an investment property – then do a 1031 exchange. First, the Seller moves out. 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? Each client situation is unique. This blog post was really just me organizing my thoughts, then I figured – why not share this – if I can help someone make a better decision for their future, then I did my job today.

THINGS TO CONSIDER

No matter what you’re planning to do. The first true step in Real Estate is to apply for your loan and determine your affordability for the next purchase. Figuring out what your monthly payment is and how much of a down payment you need is the most crucial step. This will help us figure out how to move forward on your goal.

Does the home you have to sell have enough equity to be your down payment? Or will you need to bring funds to the table to have a more manageable monthly payment? What is a comfortable monthly payment for you?

There are many choices associated with this, and that is why The Caton Team is here to help. Email us at info@TheCatonTeam.com

Remember, Interest Rates will rise and fall, and impact a Buyer’s monthly outlay. This affects prices. Rates rise, which can diminish a Buyer’s buying power.  As the interest rates rises the amount of the loan reduces.  To remedy this, a Buyer will need to bring in more money towards the downpayment.  Easy, if we have Aunt Sally on speed dial. If rates fall, we praise the Real Estate gods for their moment of affordability.

The Caton Team cannot forecast the future, but we have endured all sorts of markets and aided clients in various stages in our combined 40+ years.  The more homework a client does now, the better. The market is dynamic and always changing. We don’t want to see a Buyer wait themselves out of the market, and in an inclining market, that can happen faster than you think. Timing the market is hard, so it is best to focus on your goals, whether buying or selling, and working within the market you are experiencing.

Bottom line, we are here to help. Ask us all your questions – 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 (Sabrina) have over 40+ years combined local real estate experience.  We represent our clients with integrity and grace.  Our offer packages stand out and often just have the edge a Buyer needs in this market.  Our Seller Package is successful, our negotiating is skilled, kind, and focused.  We pride ourselves on being effective, efficient, and responsive.

Real Estate is multi-faceted, and this blog is just the tip of the iceberg.  Each client has a unique set of needs.  We value the sit-down appointment 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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