Building a new house in Palo Alto

Building a new house in Palo Alto

Friday, June 14, 2013

Sold! A behind the scenes look at the selling of our Mountain View home & tips for buying in a crazy market.


Kudos to our real estate agent, Erika Enos! Our house sold fast and for more than we were expecting.

This week we officially handed over the keys to the Cuesta Park Charmer. We are very happy that we found a nice new family to love the home and the process went relatively smoothly. Compared to the angst of being on the bidding side of the table being a seller is this market is a joyride. Here's how everything played out:

The Stats
List price:  $1,228,000
Sale price: $1,603,500 (~30% over asking), no contingencies, 25-day close

Open House visitors on Sat & Sun: ~150
Views of virtual tour: 8091 (32% of referring web pages came via HomeCrunch! vs. 26% via MLS)
Requests for disclosure package: 35
Offers: 10

3 offers with contingencies
3 all-cash offers
3 emailed offers (did not show up to present)
7 agents presented offers to us in person
6 personal letters from bidders

Breakdown of bids
1 at asking price
1 at 1.35M
4 at 1.4-1.5M
4 above 1.5M

Top 3 bidders made it to the "final round"

Deciding factors
We had two main criteria that we weighed when looking at offers:
1. Highest price
2. Risk of deal falling through

Lessons for buyers
Having been on the losing end of many a home, we found it fascinating being on the other side and learned a lot about the psychology of the market and what it takes to be a successful buyer. Some of the lessons were obvious, others took us by surprise and made me cringe when I thought back to some of the loser offers we had our agent present over the years. In general I'd say these lessons only apply to "hot" properties when you're competing with many other offers.

1. Contingencies are a non-starter
We had three offers with contingencies. One was a 5-day inspection contingency, one was a 10-day loan contingency, and the third was a 7-day appraisal and inspection contingency. We didn't give any of these offers a second thought because the uncertainty and risk of the deal falling through wasn't worth it to us, especially with seven other "clean" as-is offers on the table. We paid a reputable third party inspector to perform a report for our disclosure package so buyers would have an unbiased professional inspection to review. Asking for a loan contingency is like waving a red-flag saying you're not sure if you'll qualify for a loan.

2. More $$$ is better than all-cash 
There's a lot of hype right now and scary talk about needing an all-cash offer to win but as we learned this isn't the be all end all. The main advantage to an all-cash offer is certainty and a faster close. All things being equal, a cash offer is preferable because it reduces the risk that the buyer will have trouble getting financing. In addition, cash offers can close in a matter of days rather than weeks, so the seller gets their money sooner.

In our case we didn't have an urgent need for the cash or a fast close. (Side note: If you ever want an idea of what the sellers are looking for in a perfect offer, ask the seller's agent. Sometimes the agent will tell you whether cash/fast close is more valuable to their client or more money, or a rent-back, etc.) We didn't have a large mortgage left on the house so the carrying costs were less than $200/day. Since a fast close was worth less than a few thousand dollars to us, the only real advantage was increased certainty that the deal would happen.

Our highest all-cash offer was just over 1.5M and we had several significantly higher offers from bidders who were well qualified for loans. If it had been a difference of 10-30K we probably would've opted for (or countered) an all-cash buyer but above that we were definitely willing to wait and didn't bother asking the cash buyers to match the best offer. I've been told that in general, buyers in the Bay Area pay a premium of ~50K for the "privilege" of getting a loan.

3. Your agent can tip the scales
As part of the selling process, our real estate agent, Erika Enos and I listened to offers in person. Not all sellers do this. Some ask that you simply send in your written offers, but in our case I wanted to meet with the agents and hear why we should pick their clients. Numbers guy Thomas skipped the niceties and joined us after the meetings to deliberate. During these brief 10-15 minute presentations, I looked for clues about who would be the best buyer for our house. All of the agents were professional and courteous but I found myself gravitating towards some more than others. Despite what the WSJ says about attractive agents, I've always found the down-to-earth, friendly agents more likable and trustworthy than the polished, salesy ones. The three agents who submitted their offers via email missed an opportunity to make an impression on us and even though one of the offers was over 1.5M, we didn't know anything about the buyers and didn't include them in the final round.

Betsy Dwyer, the agent representing the winning bidders, did everything right. She let us know she had educated her clients so they had full knowledge of what they were purchasing and explained why they had a strong desire to own the property. She gave us a personal letter from them and told us why the house was perfect for their needs.  She even brought their loan agent to the meeting to assure us in person that they would have no problem getting a loan (in retrospect, a letter would've sufficed). Coincidentally, Betsy used to live around the block from us in Cuesta Park so being familiar with her was a big plus. Her clients were not initially the highest bidder but we were rooting for them to win.

Since all the buyers said they'd be open to a counter, we went back to the top three bidders and gave them another chance to give their best price. We were glad when Betsy's clients came out on top and let them know they had won. Later when one of the other agents came back offering to beat the final price by another thousand dollars, we politely declined because we were confident that we had found the right buyers. Knowing that our agents would close the deal with both sides happy about the terms was more important to us than an additional thousand dollars. In the heat of the moment, it's easy to get caught up in a bidding war and the last thing we wanted was to wind up with a buyer who had regrets or felt like they had overpaid (buyers like these often back out or threaten lawsuits).
Puppy glamour shots, kids' GPAs (4.4 and 4.0!), family photos at our house...how can you say no?

4.  Show why you're a good fit
I have never written a letter to a seller, so I was surprised when most of the agents showed up with personal letters from their clients. I was even more surprised when I realized that they kind of work. Don't get me wrong, a heartfelt letter is not going to put you in the running when the other offers are 100K-200K higher (at least not with this seller) but if you have a competitive offer they do help create an understanding of why the seller should pick you. Even if it's not an emotional decision for the sellers, having additional context about the buyers can help make a case for why you will follow through with the deal and not back out.

Besides the fact that I'm a sucker for dog photos, knowing that a buyer is going to enjoy the nearby dog park and won't be upset about the doggy door that was artfully hidden from view by the stager, gave certain buyers a leg up (yes, pun intended). Other helpful details included background information on employment (our buyers both work nearby in Mountain View and are going to looove their commute), current living situation, what you are looking for and why, what you appreciate about the house, who will live in it, how you'll decide which of your twins will get the bigger bedroom, etc. Whether or not you write a letter, it is important that your agent presents a story about who you are, why the house is perfect for you and each of your family members. As a seller, it's reassuring to know that each and every family member is going to be happy with the house (grandparents and pooches included!)

Feature or a fix...can you spot the dog door? The perfect buyers will love the house after the staging is gone.

5. Play to win
This is a rule I've tried to violate many a time. While sitting through the presentation by the realtor whose clients were offering asking price along with an inspection contingency, I remembered how many times I wanted to half heartedly bid on a house hoping to get lucky and Erika had to tell me, "Sweetie, if you're not going to play to win, don't bother making an offer...it just drives up the price for everyone else." Her words finally made sense to me.

If you are serious about buying a particular house, research comps and have your agent keep tabs on how many offers there will likely be. A good agent checks in with the selling agent to find out how many disclosure packages have been requested and how many confirmed offers there are. Anytime there are more than a few offers on a house you shouldn't be in "get a deal mode"—you will need to put in an aggressive bid from the start or you won't get a chance to play for real. In this market getting a deal is getting a house. Since price is based on recent comps, in a rising market the next comparable house will likely cost more.

When there are more than three offers on a house there are usually two rounds—a first round that weeds out low bidders and a counter-offer round to select the ultimate winner. A good agent will have a sense of what it takes to be considered in the second round based on the number of offers there are (the more offers there are the more aggressive you have to be). When we bid on our Palo Alto house, our initial offer was strong enough that the sellers simply made us a 10K counter-offer and didn't include any of the other four bidders. In the case of our Mountain View house the top three bidders were close enough to each other that we gave them all another chance to bid. In the end, the final offer we accepted was about 25K higher than the highest bid in the first round.

Hopefully these observations will help would-be buyers out there. Whenever we've won or lost a bid on a house I've always wondered what went on behind the scenes in the deliberation room. So here you have it, this is what happened in ours...

Behind the scenes strategery: Erika explaining the pros & cons of each offer while Thomas plots out
price vs risk models and Kay plans her next blog post.



8 comments:

  1. Thanks for sharing, Kay! We're about to close on the sale of our home in Sunnyvale as well (knock on wood), with very similar stats to yours. I think your post will be very helpful to demystify the process to those on the buying side. In our case, we didn't take offers in person... our agent lined up all the offers in a spreadsheet, and verbally told us what they knew about the top bidders from the Open House and their agent interactions. It was important for us to understand how committed the top bidders were to the property, since almost all buyers feel a twinge of buyer's remorse when they find out they've won an auction in an incredibly competitive market.

    ReplyDelete
    Replies
    1. Well put, Eunice. A friend of mine who frequents estate auctions described winning as a conflicted feeling of not knowing whether you're the smartest person in the room or the stupidest. Best wishes for a smooth closing on your Sunnyvale house!

      Delete
  2. Thanks for writing such a detailed , thoughtful ,educational blog.
    now i feel like i have a "leg up " on the process

    ReplyDelete
  3. Kay, Wondering if I may be able to borrow some of your tips for a short column on real estate next wk in the SF Examiner, and potentially use this as quick case study. Can you email me at nate.selt [at] gmail.com?

    ReplyDelete
    Replies
    1. No problem, Nate, as long as you stress the importance of puppy glamour shots in offer letters. I sent you an email with my contact info.

      Delete
  4. Hi Kay,
    Congrats! Did you just have a new baby? That pic on August 29th is precious.

    I was recommended to your blog by a friend. We are newbies to the real estate market and your blog is so helpful. We want to make an offer on a house. Would you be able to send us the spreadsheet that your hubby built? My email is agnes.le [at] gmail.com. If you are too busy as a new mom, I totally understand. Thanks!

    ReplyDelete
  5. Hi Agnes,

    Thank you, indeed we are now immersed in baby land but I hope to get back to blogging soon. As for the spreadsheet, are you referring to the one for our Palo Alto house? He didn't build one for selling the Mountain View house, that was all done in his head. : )

    ReplyDelete