First-time homebuyers anywhere face a task that is as much overwhelming as it is exciting.
First timers in Silicon Valley, however, face an even more daunting, competitive and high-risk housing market.
"It's a very competitive market that can be very frustrating and very exhilarating," said Laura Perkins, an Alain Pinel Realtor based in Saratoga who has worked in the Silicon Valley market for 13 years. "It depends on whether you win or lose."
For first-time buyers, winning is all about preparing.
"First-time buyers are excited, scared, stunned throughout the process," Perkins said. "They need to be effectively educated on what to expect from the get-go and what will be expected of them."
Expectations begin with a realistic budget, said Virginia Supnet, an Intero Realtor based in Los Altos.
"Depending on how much cash or financing they're going to be using, I basically show them the type of homes that they could probably expect to purchase on their budget," she said. "Because (the current market) is blowing up so quickly, I also say look, some neighborhoods in Palo Alto are more competitive than others. They have to stay below what they can afford."
In this area, first-time buyers are looking at condos and townhouses in Mountain View, and possibly less expensive areas of Palo Alto or Menlo Park, such as Belle Haven.
According to the Silicon Valley Association of Realtors(r) (SILVAR), the median price for a condominium in Mountain View last year was $612,500, up 23 percent from 2011. Menlo Park's median was $895,000; Palo Alto's was just under at $895,000. East Palo Alto's was the lowest, at $290,000.
One of Perkins' listings that is nearing closing with a first-time home buyer, a 752-square-foot one-bedroom, one-bath condo in Mountain View, is offered for $360,000.
By contrast, the cheapest Palo Alto condo on MLS Listings is on the market for more than twice as much at $795,000. Supnet said that condos at that price range in Palo Alto attract many bidders and go very quickly, meaning buyers need to be ready to bid smartly and act quickly.
Sue Gamble of Cooper & Gamble Real Estate in Mountain View added that competition in general in this area is intense.
"In this market, the challenge is that there are not enough homes on the market in any one area," she wrote in an email. "There are many people chasing each home."
And, the expectations of the clients themselves are endless. There's paperwork, loans, confusing acronyms and an unforgiving market.
Perkins begins with her first-time clients by working on a detailed spreadsheet that includes income generated, current expenses, where clients think they can expand regarding expenses, how much down payment reserve is possible and after the down payment and closing costs are made, how much additional "nest-egg" money is left over.
She wants her clients to have at least six months' worth of savings before making the financial commitments necessary for purchasing a home.
Perkins also provides clients a spreadsheet with loan amounts and corresponding interest rates, so clients can see how much their house payment will be after taking out a loan. The chart demonstrates that a $100,000 loan at 4 percent would cost $477 per month, for example.
Getting approved for loans is a sub-process that requires providing credit-card statements, employment history, tax returns and more.
First timers often borrow from their parents, against their 401K reserves or sell stock to cover loans. Gamble stressed that getting pre-approved by a reliable and acceptable lender is important.
But depending on loans is difficult in what Perkins calls a "robust 'all-cash, no-contingency'" market. "With so much 'cash' in the Valley, cash offers generally win over loan-required offers," she said.
Sellers are hoping for a quick close of escrow, which is delayed by loan appraisals. Supnet also said that she sets clients up to release as many of their contingencies as possible to make their bids more attractive to sellers.
Perkins and Gamble said the bidding process is one of the biggest challenges that first-time homebuyers face.
"I say, you must be patient and if you get tired of looking and making offers, you should stop and take a deep breath and then start back later," Gamble wrote. "If you miss a house by getting outbid, my feeling is that 'Houses are like trains, if you miss one another one will come along.'"
Even if a first-time homebuyer makes a successful bid, the excitement is cut by even more costs. Perkins said that before she bought her first home as a 21-year-old in Cincinatti, Ohio, she wishes someone would have explained principle mortgage insurance (PMI) to her.
If a buyer puts anything less than 20 percent of the appraised value or sale price down on a home, he or she must pay an additional $300 to $400 for a PMI. This allows the buyer to obtain a mortgage with a lower down payment because the lender is protected against any default on the loan.
New homeowners are also hit with insurance, taxes, water, gas, electric, homeowners association bills and more.
But not all is lost, Perkins said.
"Eventually you 'win' and can start unpacking your boxes. Taking chances and believing in yourself is exciting. Home ownership is still an American dream."
Editorial Assistant Elena Kadvany can be emailed at email@example.com.