In an unprecedented move against future lawsuits, Silicon Valley real estate agents now routinely require that home buyers sign statements swearing they've been counseled about the ills of impulsive buying behavior.

The special only-in-Silicon-Valley "disclosures" often target young, inexperienced home buyers who throw cash at sellers while waiving their rights to consumer protection in a potentially financially disastrous game of "Who Wants To Buy A Home in Silicon Valley?"

Median prices have risen at least 100 percent since the market bottomed early in the 1990s, buyers are engaging in all out bidding wars to buy a home, but many experts aren't certain real values match the run up in prices.

"In this kind of a market, Realtors need to take precautions to help people understand the market conditions," said David Barca, president of Silicon Valley Association of Realtors.

"The inclusion of disclosure statements is one way to help make sure people are well-informed," said Barca.

Setting themselves up for winner-lose-all consequences, competing buyers first seek the upper hand with sky-high offers far above the asking price. Young upstarts loaded with stock-market cash don't hesitate to offer 20 to 35 percent or more than the asking price. Unlike markets elsewhere in the nation and even previous markets in Silicon Valley, most buyers pay more for homes than the sellers ask.

One buyer paid $2 million for a home listed at $969,000 -- 115 percent more than the asking price.

"The prices of homes today are shocking, but buyers in Silicon Valley have acquired unbelievable wealth, so it's no surprise that they can pay inflated prices," said agent Vern Hansen of Cashin Company in Menlo Park.

Increasing the odds that theirs will be "The Offer," buyers strip offer contracts of contingencies specifically designed to protect them from financial disaster.

To the victor, goes the spoils, warn real estate agents.

Buyers who eliminate financing contingencies leave themselves vulnerable to losing thousands of dollars in "good faith" deposit money if they can't come up with extra cash should the appraisal fall short of the offered price. Buyers who forego inspection contingencies risk buying a money pit that could require still more money in repairs.

Menlo Park attorney Robin Kennedy says the market already has begun to spoil.

A growing number of buyers call her looking to sue after they've discovered they didn't get what they thought they paid all those "Yahoo dollars" for. And it's not always the financial tykes.

"They may even be buyers who bought homes several times before, but this time they bought the home with what they call 'Yahoo' dollars and they forgot that all the other times they had inspections done. It's terrifying and I'm beginning to see the consequences in my practice," she said.

A year ago, Kennedy received a complaint or two a month about a buy gone sour.

Now she gets 10 a week.

"They are buyers who purchased and six months later want to hire us because they want to sue someone. They've turned up a major foundation problem and it's going to cost $100,000. The roof leaked and then caved in and ruined Grandma's piano and almost killed the baby," said Kennedy of the Miller, Starr and Regalia, real estate and land use law firm.

Agents say many errant buyers behave as they do because they are oblivious to the last market crash a decade ago. During the mid to late 1980s, many of them were out-of-state, living at home, attending college or otherwise insulated when values doubled and even tripled. By the end of the decade, however, the market crashed and within months homes values plummeted.

Those hurt worst purchased just as the market peaked. Failing to heed warnings then, many home buyers lost both jobs and homes to the recession. Those who managed to survive, regained their equity only a few years ago.

"If a client insists on paying over the asking price, we're counseling them to consider whether they can handle both the mental and financial aspects, since no one can guarantee prices in the future," Hansen said.

Today, Silicon Valley enjoys a much more mature, broad-based and flexible economy. However, with so much home buying linked to high-flying stocks, the residential real estate sector is not bullet proof.

The new Millenium's hard-to-define up-and-down stock market certainly played a role in Silicon Valley agents' decision to protect themselves from buyers putting too much stake in buying a home.

"There's such a desperation out there and people don't seem to care about the price. While we are seeing a few more listings, prices are not dropping and, unless there is a financial crash, the craziness is going to continue," said Nina Yamaguchi, with Coldwell Banker in Cupertino.

"We are asking clients to sign an agreement that they understand the risk of paying more than the asking price and we are advising clients to not go over their comfort point," said Yamaguchi.

While agents have a fidicuary duty to caution buyers about market conditions and impulsive buying behavior, law does not mandate a written disclosure form.

The contents of the new caveat emptor disclosure statements vary widely as each company seeks how best to protect itself from liability should the market turn on buyers who then conveniently forget verbal warnings.

Generally, the written warnings inform buyers of market conditions, sales and prices. They also advise buyers against spending more than they can afford and warn them not to waive contingencies and other rights.

Kennedy is drafting a more formal "advisory" that will become part of real estate contracts drafted by the Peninsula Regional Data Service, a subsidiary of the Silicon Valley Association of Realtors.

"I think it is a really good idea. I'm very concerned about buyers, who in the frenzied rush of these multiple offer situations are making million-dollar plus decisions that are enormously risky and they have given up all of their protections that are part of standard real estate practice everywhere in the country, all because they want to be the winning bidder," Kennedy said.

Also See:

Published: March 1, 2000

Use of this article without permission is a violation of federal copyright laws.

Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.