Jeffrey R Keller

Settlement Contingency Protects You But Makes Your Purchase Offer More Acceptable

2023-11-02 By Jeffrey R Keller

Many homeowners are held back from purchasing a new home because they want or need to sell their current home. Many potential buyers have heard about home sale contingencies, but fewer have heard the phrase “Settlement Contingency”. By putting yourself in the shoes of a home seller, you know most sellers are less likely to accept your purchase offer if you have a contingency that lets you first try to sell your existing home. A settlement contingency can give you the time needed to close the sale of your current home but cause less concern to the seller of a home you wish to buy.

A settlement contingency can prevent you from feeling you are forced to accept the risks of a no contingency offer. This contingency is useful if you have already put your home up for sale, and both received and accepted a purchase offer. A settlement contingency allows you to have a valid purchase agreement for your new home up until the specified scheduled settlement date for your current home. If you can not close escrow by the specified date, your purchase agreement can be terminated and your earnest deposit returned to you. Again, putting yourself in the shoes of a seller, it is easy to imagine that knowing you already have an accepted sale for your home and a specified date for it to close escrow, the risk your purchase offer failing because of your own home sale, has much less uncertainty and risk. Furthermore, the seller has a pretty good estimate of when he will receive his money from the sale of his home. The seller may judge the risk to him of your settlement contingency to be quite acceptable.

High Interest Rates Make New Home Construction Less Feasible

2023-10-27 By Jeffrey R Keller

The city of San Jose just released a report titled “Residential Feasibility Analysis” that compares expected construction costs with the value of the construction. The report says the total estimated development costs have increased by approximately 12-13% over the last 18 months. Construction mortgage rates have doubled over the last 12 months and hover above 8.0%. The report analyzed the expected total construction costs of building multi-unit housing and compared it to the expected value of the completed project for housing built to be rented and housing built to be sold. For market-rate homes, the expected residual value per unit ranged from -$322,000 to -$614,000. The residual value is the expected sales price minus the total of the hard costs, soft costs, sales costs, and profit. With these strong negative residual values, a builder would not want to build.

Looking at the San Jose real estate market shows that weak sales prices are not the cause.

The average total development cost for a rental unit in San Jose was estimated to be $549,100 in 2019, $790,800 in 2022, and $890,600 in 2023. In “Attachment A – Cost of Development” the total cost of city permits and fees is estimated at $53,600 to $92,800 per unit.

With little likelihood of new construction increasing the supply of housing, it is hard to see a path for reduced home prices in a healthy economic environment.

Zestimate – Zillow Lost $304,000,000

2021-11-09 By Jeffrey R Keller

In 2018 Zillow announced “Zillow Offers” which gave home sellers an opportunity to sell their home directly to Zillow without listing their home for sale on an MLS. With the Covid-19 pandemic leading to restrictions on holding open houses it would seem that 2021 would be a great opportunity for the program. Zillow would use its Zestimate to begin the offer price and use an in-person visit to adjust for the cost of needed repairs.

Zillow’s Nov 2, 2021 earnings report and discussions indicate 2021 was not a great opportunity. The company posted a $304 million inventory write down in its third quarter and said that the total write down would be more than $540 million. Zillow will shut down its Zillow Offers division, leading to a 25% reduction in employees.

One of the eye-opening statements made in the company’s shareholder letter written by CEO, Rich Barton, and chief financial officer, Allen Parker, was “Our aim was to become a market maker, not a market risk taker.” The Zestimate apparently did not give them adequate short term future prices.

Does “market maker” bring up comparisons to the Hunt brothers effort in 1979 to become a market maker for silver which drove up the price of silver from $6 per ounce in early 1979 to $50 per ounce in January 1980?

San Jose Rent Prices Increase Slightly – 1st Time Since March

2021-02-01 By Jeffrey R Keller

The San Jose median rent price increased for the first time since March 2020. SF rent prices also increased for the first time since April 2020. They caution that increases are typical for this time of year so it may not indicate that effects from the pandemic are decreasing.

City	1 Bed Rent (m to m)(y to y)	2 Bed Rent (m to m)(y to y)
SF	$2,680 (0.8% )(-23.9%)	$3,500 (0.0%)(-23.1%)
San Jose	$2,130 (1.9%)(-12.7%)	$2,660 (0.40%)(-10.1%)
Sacramento	$1,400 (-2.1%)(7.7%)	$1,730 (0.0%)(15.3%)

Sacramento median rent prices are up year-to-year suggesting many renters are relocating within California (possibly expecting to return to their former location).

View San Jose house prices or San Jose condo prices.

Are Closed Campuses Affecting Home Prices?

2021-01-20 By Jeffrey R Keller

With many college campuses either closed or partially closed, there are fewer renters near the campuses. Has the decrease in rental demand tipped demand for owning homes in those locations?

Our MLS does not define a mostly residential neighborhood adjacent to San Jose State University, so it is not easy to look for any trends there. Looking at Zip Code 95112 and trying to compare it to San Jose citywide trends also does not show any obvious change in ownership desire.

Stanford University is adjacent to the Palo Alto College Terrace Neighborhood. Many of the Stanford students and even visiting professors rent a place to stay, near the campus.

Palo Alto College Terrace House Prices per sq.ft.

Palo Alto College Terrace Condo Prices per sq.ft.

The typical volatility in the average prices could be masking a slight change but it does not appear that property owners near Stanford University have changed their minds about owning the property.