While I believe that most who are involved in the San Carlos real estate market have been pleased with the turnaround of 2010, I think that most would also agree that the market is still susceptible on a variety of fronts, not the least of which is buyer and seller errors. From 1997-2007, it was difficult for buyers or sellers to do wrong in San Carlos.  If you paid a little over market as a buyer or listed a little high as a seller, the market was robust enough to minimize most errors over time.  That is not the case today.

How do buyers and sellers in San Carlos set themselves up for a successful venture in our real estate market?  Answer:  Educate themselves.  Buying a home in San Carlos should be more than running through some open houses on Sundays.  Selling a home is more than sticking a sign in the front yard.  There should be a well calculated plan in place.  Below are just some of the key points that buyers and sellers should be aware of when becoming involved in the San Carlos real estate market:

1.  You’re in San Carlos. First, understand that San Carlos plays by its own rules.  What is happening in neighboring or nearby towns could be completely different than what is happening in San Carlos. Second, drill down a little deeper. Know the difference between the six areas of San Carlos:  Alder Manor, Cordes, Clearfield Park, Beverly Terrace, White Oaks and Howard Park.  Educate yourself on the difference in buyer demand between these designated areas of San Carlos.  Right now, the difference is significant.  For a color coded map, please click here.

2.  Ignore the List Price. For the most part, list prices in San Carlos are irrelevant. Outside of giving a hint as to what the seller may be thinking in terms of valuation, they should not have any determination on what you ultimately offer on the property.  I have always told all of my buyers that they we need to come to our own, independent evaluation of the property.  List prices in San Carlos are all over the map.  Currently, 25% of our active inventory has been on the market over 100 days.  On the other side of the spectrum, 36% of our pending inventory was on the market for under two weeks (homes used for the percentages above were spread out evenly over all different price zones in San Carlos).  The point is that some of the list prices being set in San Carlos right now are not necessarily at market value . A buyer’s ability to understand the true valuation of a property is critical.

3.  Staging. For sellers, it’s the ability to put your home in the most favorable light possible to prospective buyers.  Many people do not believe in staging.  I will reluctantly admit that I did not either prior to starting my real estate career.  However, I can tell you that most people walking through an open house or a private tour make up their mind about a particular house within the first minute of being in the house.  Either it’s in contention, or they have dismissed it.  The old adage of first impressions are everything, is very true.  Need further proof?  There are a handful of realtors doing a substantial amount of business in San Carlos.  All of them either have a personal stager/designer, or one that works for the realtor almost exclusively. Presentation, spacing and design all make a difference.

4.  Solving Layout Issues. It’s the number one complaint among San Carlos buyers.  Unless they have been substantially remodeled, many San Carlos homes have layout issues.  The key is understanding which layout problems are more easily solved.  San Carlos homes suffer from layout issues for a variety of reasons.  Most homes in the flats were built as two or three bedroom homes in the 1940s.  Over time, many of these homes were the victims of weekend warrior projects. A high percentage of these homes also have unpermitted additions and remodeling flaws. Homes falling into this category will almost immediately be dismissed by most buyers.  However, if the house has a great lot and happens to be on an ideal street, it may be worth your time to bring a designer through the prospective house.  There are a few very knowledgeable designers in San Carlos that can walk through a house with you and your realtor and advise you almost instantly on two items: (1) how to fix the issue and a prospective cost; and (2) what the likely requirements will be from the building department in San Carlos.  Once buyers are armed with this information, they can better determine the true value of the house. Having the professional advice from the designer on the two points above will put the buyer in a better position to negotiate the price of the home. On a side note, if you are in need of a designer to accompany you on a tour of a home that you are considering, I am happy to refer you to the two that I have used with good success in San Carlos.

5.  Educate Yourself. Times in real estate have changed.  Realtors are no longer able to hoard the statistics on the real estate market.  Anyone can get comparable sales prices and market trends at the push of a button.  Many buyers and sellers looking in San Carlos do gather a lot of their own information.  However, few take it the extra step of really understanding the subtle nuances that exist in San Carlos.  The advice and guidance that you receive on these subtle nuances will make the biggest difference in the deal you ultimately strike.  What do I mean by subtle nuances?  Items that do not show up on most comparable market analysis reports in San Carlos, such as:  (1) current buyer preference/demand (it seems to change weekly), (2) layout disasters vs. those that are solvable, (3) when a street, or even a block, can make a difference in valuation, (4) prospective distance to downtown, (5) the differences found in the six areas of San Carlos, (6) finding the off-market properties, (7) determining an independent valuation, and much more.  All of these are crucial elements that should be taken into account when buying and selling in San Carlos.

My new listing at 181 Coventry Court will be open Saturday and Sunday, 1:00-4:00.

This truly unique San Carlos property has much to offer:

* 4 Bedroom, 3 bath home with 2,800 square feet of permitted living space

* Expansive 21,900 square foot lot which backs up to regional Open Space

* Quiet cul-de-sac location

* Chef’s kitchen

* All three bathrooms have been completely remodeled

* Backyard features an oversized deck and large, level play area for kids

* Views of the Bay, East Bay & Open Space

Priced at $1,649,995

For more photos and a virtual tour, please click here.

It’s not the craziness that existed a few years ago, but it has felt like it at times over the past few weeks.  For those properties in San Carlos that are priced well and have a little something extra going for them, multiple offers will be in the near future for those particular sellers.  We started to see multiple offers again in late 2009 for homes between 750K-900K.  The difference now is that the price range for multiple offers extends to the highest point of the San Carlos market, including two million dollar homes. Given that this trend is gaining momentum, an updated post discussing the pitfalls of multiple offers is overdue.

Getting Started

You have just toured a fantastic new listing and you have immediate interest.  The problem is that the rest of San Carlos was also through that same open house and there will undoubtedly be other interest.  What are the first steps?

Get in touch with your agent immediately. Your agent may be the nicest and most knowledgeable person in the world, but if they are not “on it” any chance you had at obtaining the house just flew out the window.  Persistence, preparedness and diligence wins in a multiple offer situation. Have your agent immediately contact the listing agent and ask if a pre-emptive offer is a possibility (in order to have you avoid a multiple offer situation).  If a pre-emptive offer is not a possibility, ask about the availability of disclosures.  Obtaining the disclosures as soon as possible will give you more time to fully digest the issues that may exist with the house.  Finally, the listing agent should be told to keep your party in the loop regarding all offers, an offer date and any other relevant status updates.  The listing agent should have your agent’s mobile and email.  Some agents work better off of email, rather than calling.

* Key point: Remember to always examine the situation from the listing agent’s point of view.  In a multiple offer situation the listing agent is always looking for what we call “certainty of close”….in other words, which offer is most likely to close the deal.  From my experience, the buyers indicating the highest level of interest and diligence from day one, usually outperform the other offers and give the listing agent some additional comfort in terms of their desire to close the deal.

Forming a Strategy

Once you have decided to draft an offer and know that there will be competing bids, your strategy will need to be fine-tuned.  Your strategy will largely be affected by how many offers are expected to be in play.  There is obviously a big difference between three offers and ten offers.  Your agent should be in constant contact with the listing agent asking for updates on the amount of expected offers.  This can be very difficult for listing agents to determine because many buyers will not come forward with an offer until the last minute.  A better indication usually centers around how many disclosure packages are out to interested buyers.  If ten disclosure packets are out, you can probably expect five offers.

I tell my buyers that the first step in forming a strategy is for us to take a look at the property and conduct our own, independent evaluation of the property and come up with a value using all of the traditional tools used in a market analysis. In other words, temporarily let go of the fact that this is a multiple offer situation and come up with a price.  I like to call this a sanity check.  It’s your first real data point.   The second step is to understand that you can conduct a very thorough analysis, but in the end the property is worth what someone is wiling to pay for it. If you are in a multiple offer situation, the market is most likely telling you that the list price is either right on the money, or may need to be adjusted slightly upward to come into line with market demand. The difficult part here is deciding if the list price was simply set too low or if you are willing to pay a little extra because the property is a perfect match.

Key point: I’ve never believed that you can fully take the emotion out of buying a home, but your agent should be able to do just that. Marking that first data point with an independent evaluation of the price of the home is key. If you are considering going over and above the list price, constantly referring to that first value will help balance your emotion with what makes sense from an investment standpoint.

Looking Beyond the Numbers

Make no mistake about it, your total purchase price is by far the most important part of the offer for the seller.  That being said, there are other considerations as well:  close of escrow, contingencies, an as-is sale and many others that all need to be accounted for.  Remember that you are likely to have a similar purchase price to other prospective offers.  Doing anything and everything that you can to cut the seller’s risk with an offer will be an additional point in your favor.  There are many strategies and out-of-the-box ideas that can work here.  Your agent should be able to get creative and offer you some insight.

Presentation

Your offer is drafted and ready to go. If the listing agent is willing to allow your agent to present the offer in person, it is always best to do so.  This is your agent’s chance to convince the listing agent and the seller that your offer is the best, give them the confidence they need to choose your offer and allow the listing agent to ask any questions he or she may have regarding the offer to be answered right there on the spot.

The perfect storm of market conditions in San Carlos is leading to some questionable tactics and dilemmas in certain transactions.  Buyers that fully understand some of these pitfalls will be in a much better position to protect themselves against these unfortunate positions.  My feeling is that this storm has been brewing for some time, but here are the ingredients for our current market:

(1) Extremely low inventory

(2) Interest rates at record lows and loans guidelines which have been loosened since last year

(3) A flood of buyers into the San Carlos market, believing they have waited long enough for the bottom to hit and now want in

(4) Multiple offers are back….not quite the same way they used to be, but they are back nonetheless

(5) On the realtor side, the number of transactions for San Carlos is down 34% over the high in previous years. The result:  fewer realtors completing transactions, and those who are completing transactions are doing fewer of them.

(6) Frustration on all sides.  Buyers are frustrated with a lack of inventory, sellers are frustrated with lower values and realtors are frustrated with the lack of transactions.

All of the above factors, when mixed together, create the perfect storm for some situations that buyers should be aware of:

The Forced Offer

When a listing agent realizes that there will be interest from more than one prospective buyer, they will usually set a date to hear the offers on a property.  99% of the time your agent will show up with the offer in hand, at the time and date specified and be able to present the offer.  Now, let’s take the perfect storm above and say that there is one prospective buyer who has lost patience with the process and an overly aggressive agent that tells his clients the old line “all offers must be presented to the seller within a reasonable amount of time, as dictated on the offer.”  Translation:  put in an offer ahead of the date and time specified to hear the multiple offers and the listing agent has a duty to present that offer ahead of time. Some agents will refuse to show the offer to the client because their reputation in the real estate community will be on the line…..and they are correct, however, they still have a duty to show the offer to their clients.  The best way to handle this is to inform the sellers that in the event someone forces an offer on them prior to the multiple offer date, they can view the offer, but have an understanding that they should not respond until after all of the offers have been heard.  The problem is that sometimes the forced offer is so attractive that the seller is afraid that particular buyer will not wait around and ends up wanting to accept the offer.  The listing agent will ultimately need to abide by his client’s wishes and allow them to sign the offer.  Meanwhile, the other buyers waiting to present their offer on the specified date will be out of luck, as the property will have been sold.

>>> How to solve this issue:  If you have identified a property you would like to offer on, and it will be a multiple offer situation, have your agent stick like glue to the listing agent.  Have your agent call or email them twice a day asking for updates.  Be prepared for the example above.  That way if your agent gets word that there is a forced offer, you will be able to respond quickly.

The Sharp Offer

You don’t see these as often as you did a few years ago, but with the perfect storm of market conditions, don’t be surprised to see it once again.  First, just what exactly is a sharp offer?  A sharp offer is when you have a buyer who offers on a property in a multiple offer situation, but includes a clause through a self-made addendum that says something similar to “We believe the attached offer is a compelling offer for the property, however, if our offer is not the highest offer, we will agree to increase our purchase price to an amount equal $5,000 above the next highest offer, not to exceed X.”

The benefits to the sharp offer are obvious.  They allow the buyer to bid competitively on a property without the worry of overbidding to the point where they far surpassed the next closest offer.

The disadvantages to a sharp offer is that they are frowned upon by some sellers because they believe the buyer is somehow trying to cheat the process.  Additionally, some agents do not like to deal with them because they believe the clauses are often poorly written and can expose possible loopholes for the buyer to back out or form other liabilities for the seller.

>>>How to deal with the sharp offer?  First, ask your agent if they are comfortable using a sharp offer.  Second, your agent should call the listing agent and see if they are agreeable to hearing a sharp offer.  Finally, if the answer to both of those questions is “yes,” you should have a family attorney or at a minimum, the supervising broker of your agent, look over the clause drafted by your realtor. Sharp offers can be extremely effective and can end up saving you a significant amount of money.

The Non-Contingent Offer

I thought we had done away with these a while ago, but they seem to be popping back up again.  A non-contingent offer is where the buyer waives all contingencies in the contract. The buyer does so in order to make his or her offer more attractive to the seller.  Normally, there are at least two contingencies, those two being the Property Inspection Contingency and the Financing Contingency.  Both are critical.  Giving up your right to have a professional inspection of the property and having 100% confidence that your bank will close the deal on your prospective home is a real risk.  Many buyers make the mistake of relying on the home inspection reports given to them by the seller’s professional inspector. The problem is that if the particular inspector missed something in his report, the buyer is the one who will be left holding the bag.  The seller’s professional inspector does not owe any duty to the prospective buyers.  There is no line of privity between the two and the buyer has not paid the professional inspector any type of consideration.  Additionally, the sellers are not expected to give a professional accounting of their property in their disclosures because they are not experts in the area of home inspections.  Finally, with the appraisal issue being what it is in San Carlos right now, pre-approval or not, your prospective mortgage is anything but a guarantee.

>>>Considering a non-contingent offer? Rarely is this a good idea.  Of course, there are individual circumstances involved  and each situation should be evaluated on a case-be-case basis, but in general, they are a serious risk.  My advice would be to take a hard look at your offer and see if there are other ways you can incentivize the seller.

For those who have a child playing in organized sports in San Carlos and for those who utilize our parks on a daily basis, the following information will seem almost surreal.  At last night’s ASAC (Athletic Site Advisory Committee) the Parks and Recreation Department announced their recommendations for budget cuts which will be brought before the San Carlos City Council. When I first heard the proposed cuts, I asked to be told again because I was confident that I did not hear it correctly.  The following is a list of all proposed cuts effective July 1, 2010:

Parks which will be closed and fenced off:

(1) Arguello

(2) Crestview

(3) San Carlos Avenue Neighborhood Park

(4) Cedar Street Park

(5) Hillcrest Park

(6) Laureola Building

As far as organized sports go, losing Crestview for soccer and Arguello for little league and soccer will severely impact those programs.  Both were chosen because they are typically one sport fields.  Nonetheless, these fields carry the burden for their particular sports.  AYSO, CYSA and Little League had field shortage issues before this recommendation.  I spoke with a few of the presidents of these leagues this morning and “incomprehensible” seems to be the right word to describe their reaction. Having been involved in field scheduling for soccer for many years in San Carlos I can tell you that the loss of these fields would severely damage the quality of these programs.  Additionally, for those who like to walk the parks and informally use the fields for daily activities, they will no longer be able to do so since the fields will have a fence constructed around them.

Other Proposed Cuts

Closing the above mentioned parks and fields is still not enough to meet the new budget restrictions.  Add the following as well:

(1)  Youth Center to be closed for 10 months out of the year.  The other two months it will be open ONLY FOR REVENUE GENERATING ACTIVITIES. The Youth Center offers many benefits for the kids of San Carlos, including keeping many occupied with constructive activities.  This will be a tremendous loss.

(2)  All off season sports will be done away with.  For instance, spring soccer and fall baseball and softball will not receive any field time whatsoever.  The derivative effect of this is that the city will not gain those user fees, which will then force them to pass along that loss to in-season user groups.

(3)  An already sparse Parks and Rec Department will eliminate 3 employees, which will result in less support for those parks which will remain open.

Summary

The budget shortfall, the defeat of Measure U and the general malaise of the local economy has put the Parks and Recreation Department in a very difficult situation.  These cuts will not only impact user groups such as AYSO, CYSA, Little League and Girls Softball, they will impact the entire community. Our San Carlos Parks play a very important role in what this city is all about.  San Carlos prides itself on having a wonderful, small town community. Many of the ingredients which go into forming a community such as the one we have in San Carlos is formed at our parks.  If these cuts are indeed accepted by the city council, it will be a very sad day for San Carlos.

I wish the news was better on this particular topic, but it’s not. Low inventory was the dominant San Carlos real estate theme last year and it will be again this year. Buyers are extremely frustrated. Our inventory, especially the one million dollar and lower market, was almost completely wiped out between October and December of 2009, leaving us with very little to kick off 2010.

The reason for so many of these properties going off the market between October and December 2009 was a combination of :

(1) Very low interest rates, and fear of inflation and rising interest rates in 2010.

(2) A feeling that the market had bottomed in San Carlos

(3) A general feeling that the economy was on the mend.

We will have another market of lower than normal inventory because:

(1)  Many sellers will not want to sell because market conditions are not up to par.

(2) Those who do sell will be relegated to fitting into traditionally smaller groups of (a) estate sales (b) financially must sell (c) are comfortable enough to move up in the market.

(3) Possible rising interest rates will outpace income level growth which will shrink (1) above, and hamper the move-up market.

Why the listings that do hit the MLS will sell better than in 2009:

(1) Last year at this time, trying to get a home loan was ridiculously tough.  Getting a loan above 900K was even harder. The banks were in a downward spiral and either cut, or put very stringent restrictions on all loans.  Most of the big banks have calmed down, settled into more reasonable guidelines and money is once again a little easier to borrow.

(2) There is a predominant feeling in the San Carlos real estate community that we hit bottom at some point last March, and have slowly improved since that point.

Insider heads-up:

Each January I try to talk with realtors to see what they may have coming up in the new year for San Carlos.  While there are a few things on the horizon, many took a deep breath, stared straight ahead and said that they wish they had more lined up for San Carlos. It’s still early and a lot of things can change, but usually there is a lot more activity and prepping by agents for the spring listings.  Buyers wanting to free up some options in the San Carlos market will need to be aggressive and creative.

There are many pitfalls to selling a house in San Carlos.  Many can be avoided by careful planning, diligence and utilizing expertise.  However, there is one not-so-obvious requirement that can quickly sink your prospective house sale and there is not a thing you can do about it.  Unless you have an all cash buyer, there is going to be an appraisal ordered by the bank on your property.  In years past, the appraisal was nothing more than a formality.  Not any more.  In fact, appraisals are killing deals left and right in San Carlos. Here’s how it happens:

Example

A buyer agrees to purchase a home for $1,000,000.  The buyer is putting down the bank-mandated 20%.  In this case, the buyer will be putting down $200,000 and taking a first mortgage for $800,000. The majority of banks today will no longer allow any mortgage where the loan to value is greater than 80/20, meaning the buyer cannot borrow more than 80% of the appraised value. Let’s say that the appraisal comes back in at $900,000.  The bank will now only lend up to 80% of the appraised value, not the contract value.  Therefore, instead of offering the buyer a loan for $800,000, the bank will now only offer a loan for 80% of $900,000, or $720,000.  Now the buyer takes his loan for $720,000, adds his down payment of $200,000 for a total of $920,000 and the buyer is now $80,0000 short in proceeds to complete the sale. At this point, most deals do not make it past the financing contingency and the deal is dead.

Are the Appraisals Accurate?

Many of them are off.  Some are off by so much, its almost incomprehensible. Here are some examples that I have seen in San Carlos over the past few months:

(1) A 3,300 square foot home in White Oaks, completely remodeled about 15 years ago.  A very nice home on a 10,000 square foot lot.  Proposed value: between $1,500,000-$1,650,000.

>>>> Appraised Value: $1,150,000

(2) An exceptionally clean, 3 bedroom, 1,500 square foot home on a prime Howard Park Street.  Proposed value:, between $850,000-$800,000.

>>>> Appraised Value: $710,000

(3) A solid home on a premiere Howard Park street on a huge lot.  Proposed value: $1,150,000

>>>> Appraised Value: $850,000

The list really does go on and on.  The numbers are so far off in some cases it makes you wonder if the appraiser submitted the wrong appraisal to the bank.

Why is This Happening?

There are a couple of unfortunate circumstances that have led us to this point.  First, the entire banking industry is under a set of impossible and constantly change guidelines. Sucked up into this turmoil has been the appraisal process.  Whether appraisers will admit it or not, they are under heavy pressure from the banks to error on the side of caution with appraisals (and that’s putting it mildly).  Many banks will then take the appraisals and lop a certain percentage right of the top of the appraised value. Another problem is that many appraisers are not familiar with San Carlos.  It’s becoming more and more common for San Carlos agents to be dealing with appraisers from south San Jose or the far reaches of the East Bay. Many appraisers do not understand that San Carlos is very much a niche area and we still have a very high level of demand.  Additionally, that demand seems to have risen over the past three months.

Is there a solution?

Unfortunately, there is no silver bullet here. The hope is that, over time, the pressure will be taken off the appraisals and the true value of the property will be determined by market forces, not an out-of-area appraiser and a bank underwriter in Lincoln, Nebraska.  If you do run into a situation where you have an offer or multiple offers on your home, careful consideration should be given to any offer where the amount of the down payment is greater than 20%.  For each percentage point of the prospective buyer’s down payment that is over 20%, you should feel comfortable in believing that number is the percentage amount the home could miss by on an appraisal and the bank should still be able to make the loan and keep within its 80/20 lending guidelines. The appraisal process is going to continue to be a major factor moving into 2010.  Talk to your realtor regarding a plan for minimizing its effects on your proposed sale.

The City of San Carlos is now preparing to deal with the effects from the defeat of Measure U and a lingering budget crisis.  KTVU Channel 2 highlighted the city’s budgetary issues last night on their newscast. It seems quite evident that the police and fire departments may be doing more than safeguarding the citizens of San Carlos.  They will now have to do everything possible to safeguard themselves from the expected budgetary cutbacks. Every year there seems to be one or two issues which unfortunately divide the community.  Measure U and the proposed boundary changes for San Carlos schools seem to have acquired this dubious distinction for 2009. Past winners would include, synthetic turf, the parcel tax, PAMF and the end of intra-district transfers to Carlmont.  To view the full KTVU Channel 2 news report on San Carlos, please click on the link below.

San Carlos Measure U Report

For the past few years I have been working very hard to constantly mold the San Carlos Blog into a site which provides pertinent real estate information and advice as well as offering a venue for discussion of relevant community issues.  In order to do this, the site has gone through a few revisions.  However, the product never hit my ideal version.  Finally, I think I may have made substantial progress. In early January 2010, the San Carlos Blog will be transformed into your one-stop-shop for anything and everything San Carlos.  For the past two months I have been working closely with a company called My Tech Opinion in order to create a brand new site which will completely revamp the San Carlos Blog site. My Tech Opinion is regarded as world leader in this particular market niche. We are not going to give away all of the bells and whistles, however the site will:

* Be a complete education on San Carlos real estate and community issues.

* Have a cutting edge theme which will make the site much more appealing and easy to use.

* Allow users to drill down into each of the six San Carlos Area neighborhoods for advanced data.

* All users will have instant access to having many of their San Carlos real estate needs answered right on the spot.

* Feature a community postings section.

* Video postings section.  Have a fantastic San Carlos video?  Post it. We will do the same. We have been working hard over the past four months filming some outstanding San Carlos videos!

* Feature a program which will allow all San Carlos businesses to stay connected to residents.

* Allow you to connect to the San Carlos Blog and others through all types of social media including Facebook, Twitter, Linkedin, Ping, Skype and many more!

* Receive relevant advice on all issues facing San Carlos home buyers and sellers, including strategies and advice on avoiding pitfalls.

The above is just a sampling of what is to come.  Thank you for continuing to visit the San Carlos Blog and I will look forward to comments on the new site as soon as it is live.  We believe we will have the new site up in early January 2010.

Please click on the link below to hear the most recent San Carlos Blog podcast.  This podcast will look at our 2009 San Carlos real estate market as well as briefly look at short sale and foreclosure issues in San Carlos.

2009 Market Wrap Up