If you’re looking for a way to exercise your skills, or lack of them, in the area of patience you need go no further than attempting to purchase an REO (foreclosure). There’s plenty of things in life less frustrating…like waiting in line at Starbucks or the security screening thing at the airport, or going to the DMV to renew your drivers license. Think those are fun? Wait until you buy a foreclosure, or worse yet, a Short Sale!

Just for the purpose of brevity, we’ll only discuss the REO process here today. Mostly because I think I’ll need medication to discuss the short sale process! A home gets listed as “bank owned”. It’s looking good at a discount price and even though it needs work of some kind, it’s going to get offers. The listing agent sets an offer date which is published in the MLS and encourages you to meet that deadline and requires you to be approved by one of their reps as a condition of offer presentation. Sometimes the bank offers you some kind of rudimentary disclosures, maybe their rules for REO sales, maybe some HOA docs if it’s a condo/townhouse…or maybe they give you nothing at all.

A fairly new trend is for the listing agent to state openly that phone conversations are not OK. Any and all questions or communication needs to be done via their assistant and only by e-mail. Sounds friendly, huh? So, you present the offer…and you wait. After 2 or 3 days the lender comes back with a boilerplateish kind of document that essentially asks you to raise your offered price. Technically, it’s their request for you to come back to them with your “highest and best” offer since they are now letting you know officially and in writing that they have multiple offers. They’re also letting you know that they reserve the right to continue to look at offers even though your now way past their published deadline for offer presentation.

OK, you sign this document, and maybe you sweeten the pot for the lender too. At this point do you know what happens? You wait some more. The bank also is OK with collecting more offers if they can, possibly rendering your “highest and best” irrelevant again (who knows?).  After a week of stage two waiting, you hear (if your lucky)that you’re the winner. At this point you’re sent a 14 page addendum telling you, among other things, that the bank is still OK marketing this place and booting you out of first position at their discretion. They also want you to sign a clause that has you agree to pay them a fine of up to $350.00 a day if you are late closing the escrow. If you agree to all of that you probably will get the home. Maybe.

Doesn’t it sound fun? Then you get to inspect the property and find out all the details that the bank has so far not provided you.  Like I said, buy an REO or hang out at the DMV? Hmmm….

I had the good fortune in the last few weeks to have a couple of very popular listings here in Foster City, 1121 Catamaran and 18 Dory Ln, and one thing became very clear to me while chatting with folks at each of the open houses…there’s a whole lot of buyers out there either not working with local real estate agents, or not working with agents at all. Dory had about 90 people at it’s open house, Catamaran at least 200. I’m sure of that on Catamaran because I printed 90 flyers and I had 4 left at the end of the day…people mostly come in groups and, almost always, one person takes a flyer.

In the case of Dory, I handed out 14 disclosure packets to interested parties prior to looking at offers…and I received 7 of them. On Catamaran I handed out 11 disclosure packets and received 3 offers. Of those 25 packets only 9 of them were given to local agents and 5 of the 10 offers came from local agents. Interestingly…of the 10 offers 6 of them were truly outstanding (price and terms) and 5 out of 6 were from local agents. Both winning bids came from local agents.

Why, you ask? It seems so obvious to me. These local agents know the Foster City market inside and out. They know what constitutes a good offer in a multiple offer environment and they know what will be important to a seller. One of the big reasons they know that is because they have sold listings here too. They also routinely see good offers from bad ones and thus they know what they’re doing.

Just so were clear, when I say a local agent I mean an agent who actually does a fair amount of business in Foster City. There’s real good agents in San Francisco, San Jose, Fremont…etc that would be lost in the Mid Peninsula and have no clue about Foster City. Honestly, I have no clue about San Francisco as a residential market. I’ve been a realtor for 20 years, sold hundreds of homes, but I’ve never sold a property in San Francisco. I would not provide a client the kind of service they deserve working with them in San Francisco.

Especially if you’re out there trying to do this thing on your own, consider working with a local agent…it will be more than worth it to you. That also applies to sellers.

When you buy a home you’re going to, at some point, have the inevitable conversation about the need for a Home Warranty policy. What is a Home Warranty policy you ask? It’s an insurance policy that covers lots and lots of issues that can, and will, come up after you begin your residence in your new home. The basic policy covers most appliances, electrical, plumbing, furnaces, hot water heaters, garage door openers…etc. Inevitably, right after you move into your new home something breaks. When that happens you call an 800 number given to you by the Warranty company and they send out a local professional to fix it. You pay a small service charge but the bigger portion of the repair is covered by your policy. Some items that you routinely use (and probably ones that break easiest!) are not covered under the basic policy but can be added for an extra charge. These items include washer/dryers, refrigerators, central AC, roofs, spas and swimming pools. The basic policy is under $400.00 in most cases.

Here’s some of my observations about Home Warranties:

* They’re essential to have…you’ll use them, I promise!

* The Home Warranty company rarely sends you the policy or any information after you close escrow. At least it seems like that to me because I frequently am asked by clients for the relevant info when they discover they need it and they never seem to have the policy around.

* It’s the darnedest thing…the issue you need help with is the one thing that’s not covered under the basic policy. (Your ice maker breaks on the fridge door, the plumbing main line ruptures)

The most important thing to remember about the Home Warranty…is the fact that you have one!  I can’t tell you how many times a client has called me after a few months in the house and says something like “Hi Jim, our hot water heater ruptured a couple of days ago and so we called a plumber and had it fixed…how do we use our Home Warranty for that?” Umm…bottom line? You’re screwed. You have to call the Home Warranty’s 800 number, they have to send the plumber out.

Even with all the potential headaches accounted for these things are worth it. As a buyer, they’re usually provided for you at closing without you paying for it. Sellers are smart to provide these since they greatly minimize hassles for them after close of escrow. They last for a year after COE and you can always extend them at that time. We used ours five times in the first month we lived in our house when we bought in 2004. I love these things.

About a week ago I showed a house in Foster City to some folks who expressed some interest in the place. I called the listing agent, who I’ve known for a long time, and asked some questions. I found out two important things…1) the home was getting plenty of interest and there was a possibility of multiple offers, and 2) the listing agent was willing to look at an offer that I would write immediately. No waiting…and no competition for the buyer. Why, you ask, would that happen? Because the relationship that’s been established with that agent insures her/him that our potential transaction will be smooth.

This isn’t all about me of course, this is the story of the value to the consumer of working with an experienced agent. It’s become sort of common in the last few years for buyers to ask me if I’m willing to kick back commission the way rebating online real estate companies or other discount brokers do. These brokers have created a fantasy world where they’re selling the notion that a real estate agent’s job is a commodity. That we’re simply interchangeable parts, order takers and secretaries who merely know how to fill out forms and present them. Sometimes it works out and it’s true too! Lot’s of the rest of the time it’s not true. I think most of the time it’s not true.

There’s probably 100 reasons why experience is beneficial to a buyer or seller, yet I know that the Internet allows people to study and gain knowledge that wasn’t available to them just a few years ago. There’s certainly one way that the Internet or the rebaters can never touch and that’s in the area mentioned above…relationships. I can’t tell you how many times a client of mine has landed on a home in a multiple offer environment because of the relationship I’ve had with a listing agent. It’s also been enormously important for me as a listing agent to be able to identify an experienced agent that my seller can trust to close escrow on time. Relationships are also important in connection to lenders, title people, and inspectors as well.

Lots of this is simple human nature. You spend 20 years in one community and you get to know your coworkers and other agents. Naturally, you’re going to feel comfortable working with them. Working with somebody like this sure beats having an offer faxed by an “agent” who wasn’t in real estate just a year ago.

If you’ve never bought a home, this is what the playing field looks like. One hurdle after another. At least it feels alot like that! First you shop for a lender to get qualified and discover that you need more down payment or your credit requires some work. Then, when that gets all resolved you look and look…often for months. Then you find a place that works, one you really like and you decide to make an offer…only to discover that there are 3 other buyers who like it just as much. You write an offer, but it’s not good enough and you have to go back to the drawing board. You repeat this process…5 or 6 times! Finally, you ratify on a home…but you worry about how qualified you are because it’s sure been awhile since you had all those conversations with that lender! After navigating that river you have an inspection done…and discover a problem that you hadn’t been aware of previously with the property. While that’s going on your lender sends an appraiser out the the property (which you have to pay for) and you worry about what happens if the home doesn’t appraise.

You know what? There’s all kinds of other potential hurdles that could happen as well. The possibilities are infinite! When we’re talking about that inspection issue mentioned above however, that could clearly be to your advantage as a buyer in this market. When a new, and as of yet undiscovered problem comes up you can very well have a solid reason to continue negotiations with the seller. Even if you have taken the property in “As Is” condition, a significant and new issue that’s pertinent to the value of the property can and should be addressed. I’ve had multiple experiences with just this type of issue. Newly discovered foundation problems, drainage related problems, electrical issues…I’ve seen resolution in most cases inside of an escrow that favor the buyer. Even if a seller gets multiple offers on a home, will that seller get that kind of interest going forward if the buyer backs out and the seller needs to market the property again…this time with a big new report that he’s liable to disclose? Most the the time the answer is no!

If you enter into an escrow and find something unexpected…don’t be surprised if it turns out to be favorable to you as a buyer.

There were some great and interesting comments on that post I did the other day called Sneaking Up On Them. By and large I agree with them too. There is no question that buying a home in this area is unlike any other…probably in the world. There’s also no question that buying anywhere for the first time, and especially in this expensive place is often a terrifying experience. I totally agree. Here’s the thing, I’ve discovered that two truths can simultaneously occupy the same space. It can be terrifying and also an important thing to do.

It’s important to say that there’s certainly no shame in feeling afraid when you’re about to buy your first home…or your 5th for that matter! This issue expands when fear becomes the thing that controls our decisions. I don’t have to look too far for an example here, I just look at my own history. We moved to this area in 1990 and at that time I remember a little 3 bedroom house I saw in San Mateo that was going for $220,000. Somebody I knew said “You should buy that.” Do you think I did? Of course not…I was too scared. I had just moved from Denver, and houses in Denver were selling for under $100,000! 220k seemed like a fortune. A couple of years later another opportunity presented itself on a view home on Georgetown in the Baywood area in San Mateo…it was $350,000. For what it’s worth, there hasn’t been a house sell on Georgetown for under $1,000,000 since 2003…and it was a 2 bedroom 1 bath house that went for $885,000!Again…I was too scared. I probably have 3 or 4 more stories just like that, where fear prevented me from taking the plunge. I finally got it together in 1999 and bought a house, and we did it again in 2004. I’m not complaining, mind you, we live in a great house and I love it…but we sure did miss some opportunities! For no other reason than irrational fear too.

Alot of you probably won’t believe this, but I sincerely believe in the importance of buying a home…and not just because it puts food on my table. I think it’s an important thing for everybody to do. I have no vested interest in what you do as a home buyer, I’m just writing a blog, so when I say that it’s a good idea to get out of your own way and take the plunge that comes from honest self analysis of my own personal mistakes. I’ve sold hundreds of homes in the last 20 years, yet I’ll bet I’ve seen almost as many folks opt out of buying because they couldn’t get past their fear. I sincerely don’t believe that it was ever in their best interest.

A home comes on the market. It’s on 4 or 5 days and it appears that there is not momentum towards multiple offers. Here’s a scenario I’ve seen a gazillion times over the last 20 years, and almost exclusively with first time buyers when I show them the house. Buyer likes the house. Buyer thinks the spouse should see it. 3 days later…buyer’s spouse see’s it. Buyer and spouse likes the house.

Buyer asks “What’s the next step?” 

I say “Read the disclosures and get an approval from your lender”. The disclosures are typically online and, in my experience, the lender can produce a pre-approval in about an hour. Two days later…buyer has some questions about the disclosures, hasn’t connected with the lender.

Buyer says “What’s the next step?” Again.

I say “Write an offer”.

This may come as a shock to some of you, but when a realtor answers the question “What’s the next step?” with “Write an offer”…or words to that effect, the buyer’s response is often not too different than if I had responded by telling a really vulgar, profane joke…or if I willfully insulted the buyer’s Mother or something.

“Wr, wr, write an offer!?!?!? (They now are repeating the obscene vulgar joke!) Typically, I tell them this: Finding a house you like and not having any competition is a good thing. Mutiple offer scenarios are common again around here and this place is lacking other fins in the water. The single most important thing, if you like it, is to get it away from competition. You’re protected by the contingencies in your contract. All those things you’re worrying about, you can worry about them in escrow. If those worries get too overwhelming and the property has too many issues, you can back out under said contingency. Getting the home off the market is priority number 1.

Know what usually happens? The buyer stalls for 4 or 5 more days, wants to go see it again at the upcoming Sunday open house, and the calls and says “We’re ready!” At this point I call the listing agent to tell him/her that the buyer’s would like to write an offer… and he/she say’s:

“That’s great! Funny too that I just got a call from Joe Blo and A&B Realty…and Joe’s clients are writing too.”

I’m sure you think I’m exaggerating or just flat making this up! No, I’m not…this scenario happens all the time in my experience. As an agent, it makes me crazy! Of course it doesn’t always happen, but it happens enough that it’s aftertaste is clearly remembered! If you see a place that you like…jump on it! Get it away from potential competition! Your leverage negotiating is obviously SO much greater without competition! Avoid sneaking up on a listing, advance boldly, because it very well will save you plenty of money.

So, you spend months and months looking, trying to find just the right house. During that time you see, maybe, 50 or 60 homes and you fine tune your requirements down to a fine point. You figure you’re compromising on many things but the market seems to be warming up to a very great degree and that gives you some motivation. After rejecting house after house…you see a place that actually has possibilities! You can live in this place! What do you do now? Quite often, in my experience, you find enough fault with the place that you talk yourself out of it!

“Well, I’m just not sure about that location”. “It may be too far from work”. “Can I really afford that?” What I usually see happen is the buyer exhausts themselves with all this and eventually succumbs to the process…and they take the plunge. The plunge can also be a process of it’s own. It’s common again in this market for multiple offers to be the rule and once that common denominator has been established the buyer has to decide how aggressive they will be in writing an offer. At first the offer tends to be kind of conservative. It may not go over asking, or it may not have the most favorable terms for the seller. If the buyer misses the mark on the offer, they tend to get a little more aggressive the next time out…and again the next time, and the next time…etc. The point is that there are mutiple opportunities to plunge along the way to ratifying.

There is one group, however, that has a very high propensity to never take the plunge. It’s the entry level buyer who has in his or her mind what they want and finds that dream at odds with the reality of home buying on the Peninsula. Here’s some unfortunate truth, if your qualified to $550,000 the chances of you being able to buy a minimum 3 bedroom, 2 bath single family home in Foster City, Belmont, San Carlos are very, very slim. You can do it in San Mateo…but you’re going to be on the east side of 101. If you want a single family house and your qualified for $375,000 you need to consider Daly City, San Bruno or Redwood City…and you better be ready for iffy neighborhoods and fixer uppers.

Here’s the thing, there’s always options. If you can’t find a house you like, buy a condo or townhouse. Why? Because buying is always better than renting. Take the plunge on something because it doesn’t make sense to keep providing for the landlord’s retirement instead of your own.

Got this really outstanding e-mail the other day from blog reader Nancy Chang:

“Hi Jim,

Just read your blog entry on “Choosing the right path”. Sounds a lot like homes in the $600,000 to $800,000 will get offer prices over asking prices. So what do you think about 827 Vespucci lane unit that sold for $570,000 when the asking was $630,000 and the 1497 Marlin unit that sold for $630,000 and the original listing price was $699,000? It just doesn’t make sense at all. Why are they sold for so much lower while others are being bought for higher than asking price. By the way, I don’t know about the Marlin unit but I saw the Vespucci unit. It’s nice and updated and the HOA is low. What gives?”

GREAT QUESTION! There’s not an easy answer either. Why do some homes get 13 offers, go $120,000 over asking and some sit for months? The example in Nancy’s e-mail are classics too. Maybe the only explanation lies in the reality that the old, pre 1998, way of thinking about real estate has returned…being that location and type of property are of singular importance in determining value. In 2004, for example, anyproperty seemed to get multiple offers! If your house was right on Hillsdale Blvd, it got multiple offers. Small condos got 15 offers, houses right next to the train tracks did too. The properties that Nancy mentions above are all townhouses and even though they are in good locations and have reasonable HOA dues they’re still townhouses…and those have historically not been as valuable as single family homes.

 I know that I have far more requests from clients this year to find a single family house than for condos. One in particular, a young woman in her late 30’s who’s qualified up to about $385,000 is determined to find a single family house when a condo would be so much better suited for her. About 95% of the houses in her price range are in areas that she really doesn’t want t0 live in, but she’s SO very motivated to buy a house that she’s been overlooking these homes obvious location problems to reach her goal. The locations of the condo’s in her price range are much better…but that doesn’t matter. A house has more appeal.

Maybe we’re just in a normal market…or maybe the desire to live in the Mid Peninsula is so stable and solid that we’ll see mutiples on all categories again soon. We’ll see…

Determining the correct path when it comes to making a decision about what price to offer on a house in this area seems to get more and more confusing with each passing month. In the last 3 months in San Mateo, Foster City, Belmont and San Carlos 187 single family homes have closed escrow in all price ranges. Of those 57 houses closed escrow at a price over their original asking price…and most of those were just slightly over asking. Only 1 house originally priced at $1mil or more sold for more. 42 of those 57 overbids were on homes priced at $825,000 or less, so in other words the lower the price, the greater the chance you’re going to have to pay more than asking to get the house. If the house is priced under $500,000…it’s a guarantee.

Here’s the thing, there were 100 houses priced between $829,000 and $2.4mil…and 15 over bids. 36 houses sold that were listed between $695,000 and $829,000…15 of those had overbids. The highest being 4203 Skymont in Belmont that went $60,000 over asking. 2 others hit $50,000 over but most were under $10,000. Even under $500,000 the overbids were at most $65,000 on an REO in San Mateo. It was originally listed at $389,000.

The question for buyers and agents alike becomes, what price should we offer? If a number of offers come in with FHA loans and I have 20% down will that overcome someone elses higher bid? Here’s my opinion…it’s flat out confusing! If less than 10% of the offers on every house sold in the last 3 months were aggressive overbids, how aggressive should we go?

Yesterday I presented an offer for some clients on a great house at 3519 Winway in San Mateo. The house was listed for $699,000 and needed some updating but was a great value. It was obvious at the open house Sunday that there was going to be multiple offers. My client commented that there were too many smiles on faces there, he was sure he was going to have competition! Sure enough, there were 13 offers…it sold for more than $800,000. How do you figure it? With no history at all of even 1 single $100,000 plus overbid in the area, somebody stepped up for this house. It actually is a fantastic house…so it”ll most likely pay off.

To me this is a very interesting thing. I had a listing a month or so ago that got 8 offers and only went over asking by $888.00. The question needs to be asked: Are we going back to large overbids to secure properties? If so, how will the appraisals come out if buyers are doing that? How many zany overbids does it take to constitute a trend? How many buyers will get sick of losing out before they start suggesting it themselves?