First Time Homebuyers Struggle To Buy Homes In San Jose Market

First Time Homebuyers Struggle to Get Offers Accepted in this Market

Are you an FHA or VA buyer, buying a home in this San Jose 2012 Real Estate Market? If so, this blog is for you.

Many first time home buyers today are hearing the words, "Sorry, we didn't get the house" from their Realtors more and more these days. These are difficult words to hear when you have your hopes up high and really love the property.

The real estate market in San Jose is extremely competitive under the 350K price tag because investors are snapping these properties up. They primarily target single family homes in decent areas with good schools. The buyers who are buying their first homes also want the same thing.

Why are so many investors buying right now?
These investors understand that the US economy is starting to pick up. Stocks are doing well, interest rates are low, employees have more job security, and the housing crisis may be almost over.

FHA buyers are often overlooked
Here's the issue. Many first time buyers do not have a 20% down payment and they have to rely on an FHA loan. These FHA loans have many restrictions on what can and cannot be purchased. Often these FHA lenders have 1 or 2 appraisers who are sent out to the property to appraise the property. When it comes to a condo purchase things get extremely restrictive for the FHA buyer.

Many times these appraisers come in lower than the purchase price. These are deal killers. Many appraisers come from various areas outside of San Jose and do not understand the local market or home values. Often times these appraiser point out things about the property that are unacceptable and need to be repaired. These can also be deal killers. For example, a few years ago I listed and sold a home in downtown San Jose. This home was built in the 1930s and had a detached garage. The paint on the garage was flaking off the exterior of the garage. One of the lender conditions in order to fund was to repaint the garage and remove the paint chips from the ground. My seller complied, however, this may have been a deal breaker.

Those buyers who find themselves pre-approved with an FHA loan or a VA loan are having to really compete. Most sellers will look at these offers last because they have potential pitfalls with appraisals and repairs.

If you are an FHA or VA buyer, here are some tips to help you win over the competition:

1) Work with a Realtor who knows the local market. This is crucial. If you are trying to buy a home in Evergreen and your working with a real estate agent in Saratoga, maybe you need to rethink your approach. Here's what I mean. The neighborhood agent has a better chance of getting your offer accepted because he tours homes regularly, knows the values associated with the schools, and networks with other agents and sellers. The networking is the most important. This is precisely how I've helped many FHA first time buyers get their offers accepted. Its not WHAT you know, its WHO you know.

2) Be Flexible. If you are rigid and narrow in your thinking, you'll most likely be a renter for the next several years. If you become a renter, good luck. Renters are not happy paying lots of taxes to the IRS and getting a rental increase every year. So be flexible in what you expect for the amount of money you are willing to pay. Some buyers want a lot and are not willing to settle. It's ok to want a lot, but sometimes you have to settle. When I get buyers who want the 350K house with a payment that "feels" like rent. I smile and tell them, "Yes. And so does every other renter out there." Get real. You can't get a Los Gatos home at a Los Banos price.

3) Be Aggressive. Since you know that your FHA offer may not be the most desirable, you have to do something else. What will make the seller want to accept your offer over a all cash offer? Price - Plain and simple. Offer more money than the others. What else can you do to be taken seriously and get your offer accepted - bake cookies? come on really.

4) Don't Give Up! Its a numbers game. I recently worked with an FHA buyer and made 7 offers on different houses. She was upset that we did not get the offers accepted every time, but she didn't quit. She didn't quit on her dream of home ownership and she didn;t quit on me as her agent. On the 8th offer, we go it accepted. We will close escrow next week.

I hope that these tips have inspired you to beat these investors and cash people at their game. We need to get more first time homebuyers in homes and help the housing recovery. Don't get me wrong, investors help the economy, but not like first time homebuyers. These homebuyers buy furniture, hire licensed contractors (ie. plumbers, electricians, roofers), and they make the schools and neighborhoods stronger because they live there. I have a special place in my heart for first time homebuyers because I remember buying my first home in Cambrian. My wife wife was pregnant with our firstborn and we purchased our home with only 5% down. That down payment of $8,650 was the best investment I ever made.

If you need help buying your first home in the San Jose area, please give me a call at (408) 460-8401. Thank you for reading my blog.

San Jose Real Estate Housing Market Update

The past year has been challenging. We've had a shrinking inventory of available homes for sale and more and more buyers wanting to buy the low bargain priced homes. In Santa Clara County we saw most sales being gobbled up by investors and first time home buyers last year. According to Matrix, 70% of the actual sales for Condos/SFH in Santa Clara County within the price range of $200K and 400K were distressed property. That means that only 3 out of 10 homes sold in this price range were what we Realtors refer to as "Regular" or "Normal" sales. If you lived in a 200K to 400K neighborhood and had some equity in your home, would you have sold in 2011? Probably not.

San Jose Real Estate Sales in 2011

Of all the Distressed Properties Sold in 2011, almost 7 out of 10 Single Family Homes sold were under 600K price range.

The chart below shows us the number of distressed sales (Short Sales/REOs) in the year 2011 for SFH for all price ranges.

Half of all the distressed sales for SFH in 2011 in San Jose were between 200K and 400K.

According to RealTrac, inventory of bank owned property is expected to increase in 2012 in California. California has been and will continue to be a place where REO properties ate a hot commodity. Cash investors compete with first time buyers for a chance to buy low priced homes everywhere. There is foreign money pouring in from all over the place (especially from Canada and China). I have listed and sold REO properties to foreign investors wanting to snap up bargain deals.

Will Inventory Remain Low in 2012?

According to RealTrac, the number of notices of default and lender repossessed properties declined in November 2011. However, a leading indicator points to a higher level of potential foreclosures on the 2012 horizon. There was a 63% month over month increase in scheduled foreclosure auctions in California in November 2011 which is the highest rate increase in the US.

According to a report released January 25, 2012, NAR Economic Forecast of existing home sales are expected to grow from 4.26 Million homes sold in the US in 2011 to 4.45 Million homes sold in 2012. NAR Research also forecasts another growth in 2013 to 4.62 Million. The NAR report stated that 2011 Median Home Prices on existing homes was $166,100 and would grow in 2012 by 1% to $167,300 and then would grow another 3.2% in 2013 to $172,600. This means that we have hit bottom and we are on our way up.

The California Association of Realtors did a similar forecast in September of 2011 and predicted that Median Sales Price in California would grow 1% from $291,000 to $296,000 in 2012.

If you are a buyer waiting for the perfect time to buy a home, I am telling you that this is the best time to buy. Are you tired of renting? Don't get stuck paying off someone else's investment.

According to CAR's Housing Affordability Index, 60% of Santa Clara County's households can afford to purchase their first home. If your household income is at least 73K and can afford a monthy payment of $2,460 then you can buy a home in California.

I can help you buy a home with at least 3% down payment and low mortgage payments that feel like rent. Please call me today at (408) 460-8401.

Top 5 List of Most Important Buildings in San Jose, CA

Since I'm in the real estate business I thought I would have a little fun. Here is my list of the Top 5 Most Important San Jose Buildings (in my opinion).

Let's start with Number #5 - Tower Hall at San Jose State University. This is a campus landmark and one of the oldest buildings on campus which dates back to 1881. This building survived the 1906 earthquake and has been renovated numerous times. As a SJSU alumni I remember when I first stepped foot on the campus and took in the Tower Hall view. It really is a San Jose icon and a thing of beauty.

#4 - Mark's Hot Dogs Orange building - Mark Yuram was the original owner of Mark's Hot Dogs which has been a San Jose restaurant since 1936. It is important to note that Mark originally had a hot dog stand in downtown San Jose and then moved his hot dog business to 1920 Alum Rock Ave. It was there on Alum Rock Ave that grocer Frank Pohl designed and built the 37 ft round Orange which is 15 ft tall. It is estimated that this orange structure was built somewhere in the mid 1947. The Orange structure was moved to the current location 48 South Capitol Expressway in San Jose in 2003.
If you have not taken a trip to this place you are really missing out on some real San Jose history. I wish I could say that these are the best tasting hot dogs in the world but I can't. They do taste good though, really good. The thing I remember was driving up to the Mark's Hot Dogs and having the service girls come out to the car with a tray full of goodies. My favorite was the chili cheese dogs and bbq chips with a root beer float. As a young boy I thought that was cool to have a tray hanging from the driver's car window. It's worth a trip to Mark's Hot Dogs just to see the giant orange!

#3 - San Jose Center For The Performing Arts - The location of the building is 255 Almaden Blvd, San Jose. One of the reasons I think this building is great is because it was designed by the Frank Lloyd Wright Foundation. This 2,665 seat auditorium is designed for live theatre, symphony music, and the performing arts. This is the place that my graduating class had our graduation ceremony. So it means alot to me.

#2 The Old Bank of America Building - The Old Bank of America Building is located at 12 South 1st Street in San Jose. Originally it was the San Jose branch of the Bank of Italy built in 1925. The Old Bank of America Building is also one of the oldest skyscrapers in greater San Jose area, and was designed by architect H.A. Minton. This building is iconic and always pictured on San Jose postcards. As a child I remember a flourescent green light at the top of the building. My parents told me that this is where the bank stored all the money. I believed them.

#1 The Winchester Mystery House. It is located at 525 South Winchester Blvd in San Jose. Its is a beautiful Queen Anne Victorian originally built in 1884 by Sarah Winchester. Sarah's husband was William Wirt Winchester who amassed a fortune because he was the inventor of the winchester rifle. Sarah believed that in order to thwart evil spirits away she needed to continually make noise. So she kept carpenters there and paid them to build on and make noise with saws and hammers. Sarah kept adding and adding to the house without a master plan. This went on for 38 years from 1884 until she died in 1922. Some say that the house is haunted, however, I think it's a significant building with some serious San Jose history. This is why I chose the Winchester Mystery House as my #1 Most Important building in San Jose, CA. If you ever get the chance you should visit the Winchester house. I enjoy walking around the estate gardens and taking in the beautiful architecture. This home is a San Jose treasure.

Real Estate Housing Market in San Jose for 2012

Happy New Year everyone.

I spent the day watching the 49ers beat the Rams. And if this is a precursor of how this year will go, it looks like it will be an awesome 2012 for the Bay Area. Go Niners!

The San Jose real estate market is hot. In Cambrian, there are half of the listings we had compared to May of 2011. Listings are selling with multiple offers under the 400K price range anywhere in San Jose. Investors are pumping in tons of cash from oversees and within the US. First time buyers are competing fiercely with investors for a shot at being a homeowner.

The same is true for other areas in San Jose. In Santa Clara County, there are are only approx 2100 condos and single family homes for sale as of Dec 23rd 2011. This is the lowest it has been for years. The low interest rates and the low down payment FHA programs make it affordable to buy right now.

Investors see a window of opportunity that may not last too long. As a native San Josean, I have not seen the chance to make a positive cash flow on investment property like this in a long time. The rents in San Jose have gone up 30% in the past 2 yrs and they will continue to go up. People who are losing their houses due to foreclosures are scrambling to secure rentals right now. Demographics show that young adults will be leaving college and their parents home and enter the housing market looking for rentals. Meanwhile, the number of new housing developments has slowed down tremendously the past few years in San Jose due to the economy. So I believe that the already tight rental market will get worse for renters this year. Expect rents to go up even more in 2012.

Recently, I have had many calls from potential buyers who have a foreclosure on their record in the past year or so. They tell me they want to buy and NOT rent. Why would these folks want to buy after they have gone through a short sale or foreclosure? Because these people don't want to throw money away. Just because they were in a bad investment and got out of it, doesn't mean that they never want to buy again. They know that if they don't buy something now when prices are low, they will end up making someone else's mortgage payments in the future. You can't get rich by paying off someone else's investments. You build wealth by setting yourself up with good investments and real estate should still be in your wealth building portfolio.

If you need help sorting through your real estate situation, please call me at (408) 460-8401. I would love the opportunity to speak with you.

End of the 2011 Year Real Estate Summary

Leslie Appleton Young, the chief economist for the California Association of Realtors, recently noted that all that California’s real estate market really needs to right itself is six straight months with no surprises. All the ingredients for a turnaround are there — record low interest rates, outstanding affordability, and very attractive home prices. But economic and political headwinds at home and abroad kept the market from really gaining much momentum this year.

To be sure, 2011 was anything but predictable. On top of the tepid economic recovery here in the U.S., there was one crisis after another around the world — the Japanese Earthquake and Tsunami, the “Arab Spring” uprising, a spike in oil prices, political standoffs on Capital Hill, the debt limit ceiling and downgrade of U.S. debt, and most recently the sovereign debt crisis in the eurozone and the subsequent stock market volatility here at home.

While the Bay Area’s real estate market did show some encouraging signs of improvement in certain price segments and communities, skittish consumer confidence, the sluggish economy, stubbornly high unemployment and volatile financial markets all combined to keep home prices and sales flat in most areas.

DataQuick, the La Jolla research firm, reported that Bay Area home sales in October — the most recent figures available — increased 5.3 percent from a year ago, but the median price of $350,000 was down 4.1 percent from last year.

CAR in its annual forecast predicts that home sales in California will rise just 1 percent in the coming year. But Appleton-Young says that our region has advantages over other parts of the Golden State that could come into play. “The Bay Area, particularly Silicon Valley, stands out as having the strongest economy and housing market,” she said.

Indeed, real estate is all about location, and nowhere is that truer than here in the Bay Area. We really have four distinct micro-markets: Silicon Valley and other west bay regions, the distant suburbs in the east, north and south bay, the dense urban market of San Francisco, and everyone else.

So how did they fare in 2011? While the local markets in San Francisco, Silicon Valley, the Peninsula and Marin in general held up reasonably well, many of the more-distant regions continued to be challenged by distressed properties, softer pricing and slower sales.

Distressed MarketsOne trend we’ve noticed of late is a drop in the number of bank-owned properties that are listed for sale and an increase in short sales. The reason may be that government regulations and controversies over “robo-signing” have kept more foreclosures from coming on the market. As banks put the robo-signing debacle behind them, we may see more REO properties released in 2012.

While the release of additional distressed properties could keep prices of all homes down in 2012, we suspect that strong demand by investors for these homes will probably keep prices from falling much further. We’ve seen multiple offers for many bank-owned properties, sometimes all cash offers, as investors snap up what they believe to be great bargains.

Luxury MarketOn the other end of the spectrum, a continuing positive sign for the local housing market again this year has been the steady performance of the luxury segment. High-end homes from Silicon Valley up through the Peninsula and into San Francisco and Marin continued to sell well, often with multiple offers above the asking price.

Buyers in the luxury segment of the market ranged from high-tech, biotech and financial executives to well-healed overseas investors from Asia and Europe who are drawn to the attractive pricing of luxurious properties compared to the higher prices back in their home countries.

Russian billionaire Yuri Milner, a big investor in Facebook, Groupon and Zynga, made headlines this year when he reportedly paid $100 million for a lavish 25,500-square-foot mansion in Los Altos Hills. But he was hardly the only luxury buyer. Sales of homes valued at $5 million and above soared 80 percent in the Bay Area this year, jumping from 44 transactions in 2010 to 79 so far in 2011, according to MLS figures.

Non-distressed mid-marketHomes that are somewhere between distressed and luxury properties – the bulk of the market here in the Bay Area – probably were the most challenged in 2011. One big reason for the softness is that we didn’t see very many move-up buyers trading their entry-level homes for larger, more expensive properties as they have traditionally done in the past.

Equity homeowners stayed on the sidelines, perhaps due to a lack of confidence in the housing market and the economy in general. They may have been frightened away by doom and gloom news headlines about the housing market, or maybe fear over whether they might lose their job should the economy stumble again.

This uncertainty and lack of confidence, I suspect, will continue to some degree into 2012 until there is more positive improvement in the economy.

But as we approach the new year there are glimmers of hope that the housing recovery could finally gain some traction.

Gradually we’re seeing fewer distressed sales and more “normal” transactions. Despite the recent downturn, the high-end market had a solid year in 2011, which is a good sign for the entire market.

In the past, luxury homebuyers — the so-called “smart money” — are often the first to declare a market bottom and jump back in because they have the means to do so once they are convinced the time is right. The other segments eventually follow.

Buyers are far more active right now and that, coupled with tight inventories, is helping to firm up pricing while getting serious buyers to be a little more realistic when making offers–especially in the entry-level arena. Properties priced correctly and that show well are getting a tremendous amount of traffic as well as multiple offers in some cases.

Additionally, we are finally seeing many banks starting to process short sales in a more streamlined fashion, allowing us quicker short sale approvals.

Finally, the news media are starting to join the chorus suggesting a turnaround is near and that now is the time to get back into the housing market. A recent Fortune magazine article declared, “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” And The Wall Street Journal followed with a headline declaring, “It’s Time to buy that House.”

So will 2012 usher in a steady, predictable economic recovery at long last or another wild rollercoaster ride of economic and political surprises? Only time will tell how it all plays out. Fasten your seat belts!

If you or someone you know is thinking about buying or selling property, please call Daniel Pizano at (408) 460-8401.

This article was written by Coldwell Banker marketing department and used by permission.

Dealing With Appraisal Issues in this Real Estate Market

DEALING WITH LOW APPRAISALS IN THIS REAL ESTATE MARKET

I've often heard first time home buyers refer to the house hunting process as the "Search For Their Dream Home." If this is the case, then an appraiser can come along and abruptly wake you up from your dream. The National Association of REALTORS® reported that 16 percent of real estate professionals surveyed in June 2011 reported a cancellation of a sale and this was mostly due to a large number of low appraisals.

Appraisals are coming in lower and lower these days. This is largely due to a bifurcated market in which distressed properties are priced one way and the regular sale "mom and pop" home is priced another. In my opinion, short sales bring prices down. Bank owned properties bring prices down. However, regular sales with equity usually hold out for more money.

Depending on the market and the situation, if you are living in an area with mostly regular sales your prices may be flat lined or slightly higher at best. This is true in the Bay Area with Cupertino, Palo Alto, and Los Gatos holding up pretty well compared to other areas such as Morgan Hill and Gilroy for instance with more distressed properties.


Why do an appraisal?

Remember, the appraiser works for the bank but is usually paid for by the buyer. The appraiser creates an appraisal report to show the bank or lender that the property is worth what the buyer is offering to pay. Cash offers don't need to have an appraisal done, however, it's a good idea to know the value.


What does an appraiser check out?

Both Condition and recent Comparable Sales among other things. An important task for the appraiser is to make sure that the condition of the property is acceptable to the lender/bank. Generally speaking, a conventional 25% loan appraisal will be much more lenient than an FHA or VA appraiser.

In a previous transaction where I represented the seller, an FHA appraiser made the seller repaint the exterior of the garage. The paint was old and flaking off on the ground/grassy area. The seller complied to the demand of the appraisal and we closed escrow. In a regular sale (not an FHA or VA) this may have never been an issue. If it was another seller, this could have been a deal breaker.

In another previous transaction where I represented the seller, the seller was required to repair all the Section 1 (termite and other water damage) before the VA loan could fund. My seller complied with this demand and the transaction closed escrow.

In still another recent transaction where I represented an FHA buyer, the appraiser called for some minor repairs to be made prior to the loan funding. The repairs were made, the appraiser went back out to the property to verify, and the loan funded.

In all these three instances, the appraiser was the "eyes and ears" of the bank. They made sure that the loan would not fund unless conditions were met.

In addition to the condition, the appraiser looks for comparable listings and sales in the area as part of the appraisal report. This is a vital part of the appraisal because prices go up and down very quickly in any given market. With so many short sales and REOs on the market prices can get pulled down quickly, especially in highly distressed areas as discussed earlier.


How important is the appraiser's knowledge of the market?

Very important. The appraiser's job is not easy. A good appraiser knows the local housing market well and understands property values in each the neighborhood. They also understand how schools affect value. A good appraiser can see two identical houses side by side and knows that one house is in a different school district than the other. A good appraiser will make price adjustments based on the school's academic performance and overall desirability. A good appraiser is essential in any market, however, this market especially. Otherwise, we can all just go to Zillow and get a Zestimate.


I have experienced all sorts of appraisal scenarios. Here are the three most comon:

Scenario #1 - The appraisal comes in at the purchase price. This is often the case and the transaction goes through smoothly.

Scenario #2 - The appraisal comes in over the purchase price. This happens once in a while and the buyers are ecstatic to know that they have some equity before they even move in.

Scenario #3 - The appraisal comes in low. This just happened to my buyers who are first time buyers and are buying a bank owned property (REO). The appraisal came in 10K lower than the purchase price. Luckily, I negotiated on behalf of my buyers and the sellers (bank) agreed to lower the price by 10K. This was great news to the buyers who ended up getting a 10K discount on the house. The transaction went on to close, however, it could have easily went the other direction and fell apart.

What are your options if the appraisal comes in lower than the purchase price?

Basically, there are a few options you can take as a buyer if the appraisal comes in lower than the purchase price. The options are: walk away from the transaction; negotiate down to the appraised price; come up with the difference out of pocket and continue the transaction; demand an appraisal review and contest it; pay for a second appraisal.

Have your real estate agent give you a Market Analysis of the property you want to buy before you write an offer

An important step you should take with your real estate agent is to make sure that you know the comparable sales in the area. This will save the buyer and seller and everyone involved lots of time and energy.

If a short sale property is listed at 150K and my buyers want to go right away and see this great deal that is too good to be true. I tell them maybe it is just that - Too good to be true. Why? Because the bank will undoubtedly bring in their own appraisers and find out what the true value is. If the last few sales (of similar homes) have sold for 350K, it just won't sell magically for 150K. Last I checked, the bank doesn't give away money. The seller or bank will come to know the value by the appraisal report and will adjust their price accordingly. After months of waiting for this short sale, the buyer will most likely walk. So, there really is no need to run to that short sale property priced at the unbelievably low price.

Your real estate agent is your best resource to help you establish value and possibly negotiate for you if you are faced with a low appraisal.

For more information about the real estate market, call Daniel at (408) 460-8401.

CPA Kevin Just explains Short Sales and Foreclosures and how it relates to your taxes

This Blog Post is written by CPA Kevin Just

About Kevin Just: CPA who has assisted the real estate industry for 32 years and currently manages Just, Gurr & Associates, voted best accounting firm in Silicon Valley in 2010 and 2011 in the Mercury News Readers’ Choice Awards.


Cancellation of Indebtedness Associated with Principal Residence

A taxpayer may realize income from cancellation of indebtedness (COD) on their principal residence either by foreclosure, deed-in-lieu or by short sale. How the income is reported depends on whether the mortgage debt is recourse or nonrecourse. If there is income, then there may be elections applicable to the transaction allowing the income to be excluded from taxation. If there is a loss on the transaction, the loss is a non-deductible personal loss.

First mortgages used to purchase the property are generally nonrecourse in California. Also in California, second or third mortgages are normally recourse as well as are refinanced first mortgages. To be certain, the mortgage document would need to be closely reviewed.

If your property is foreclosed, given to the bank or sold in a short sale, and your debt is nonrecourse, then the transaction is treated as a deemed sale. In the deemed sale, the balance of the nonrecourse loan is the sale price and your cost in the property is deducted from the sale price. If there is a loss, it is nondeductible. If there is a gain, the gain may be excludable due to the sale of principal residence exclusion rules.

If your property is subject to recourse debt, either a refinanced first mortgage or a second mortgage, there will be COD income. COD income is ordinary income. There are various exclusion provisions in federal and California tax law that the taxpayer can elect in order to avoid tax on this income. There are old tax provisions that can be used and then there are new ones that have been in the news recently. The old provisions allow exclusion of COD income if the taxpayer files for bankruptcy protection or if he is insolvent on the date of the COD event. The new provisions are targeted towards principal residences. Both federal and California law were revised to help homeowners after the recent financial collapse. Federal law allows unlimited COD income exclusion for income associated with qualified debt canceled between 2008 and 2013. California has similar rules, but there is a maximum that can be excluded of $500,000 on debt of no more than $800,000.

Debt forgiveness associated with property that is not a principal residence has some similarities, but many differences. Properties that are not a principal residence are not discussed here as it is a much more complex discussion.

Kevin Just
Just, Gurr & Associates CPAs


This information is of a general nature and is intended to highlight general tax matters. It should not be used as a substitute for specific tax advice. You should seek the guidance of a competent accountant and/or attorney in order to consider these issues within your special situation. Kevin Just can be reached at Just, Gurr & Associates, 1500 E. Hamilton Ave, Suite 200, Campbell, CA 95008; (408) 371-2200; or by e-mail at kjust@justgurr.com Visit our website at http://www.justgurr.com/