Los Altos Real Estate Blog

The Facebook IPO launches today at $38 per share with high hopes it'll skyrocket in the near future.  Most REALTORS and home buyers or sellers feel the Facebook IPO will have a strong impact on the local markets especially Palo Alto, Menlo Park, and Los Altos.  However, how about the rest of the country?  Will real estate prices increase elsewhere?

The reason real estate prices are rising and inventory is dropping in many local markets is that the benefactors of the Facebook IPO live here.  However, the euphoria that comes with a new "hot stock" is also likely to drive market recovery in other places.  The reach of the money here is likely to spread to other metro areas with strong ties to Silicon Valley and the San Francisco Bay Area.  It's akin to "trickle down economics".  The idea that money is back in the market could swing buyers into a "everything is fine" mode nearly anywhere.  That mindset could drive more sales around the country.

How long the Facebook IPO euphoria lasts will depend on how long the stock price continues to climb.  I believe that as long as that happens, home buyers will get the same feelings they did back in the dot-com boom and prices will rise around the country.  What I hope happens this time around is that we've learned prices should rise at a reasonable rate so this all doesn't result in another bubble.

1361 Sherman Avenue

Menlo Park, CA  94025

Price:  $1,998,000

Virtual Tour:  www.1361ShermanAve.com

Charming country home on a quiet street in West Menlo Park with Las Lomitas schools.   Situated on a huge 9,375sf lot, this 3 bedroom, 3 bathroom home offers both ample living space and a cozy country feeling.  The master bedroom suite features a walk-out patio with space for plants and sitting area. The master bathroom offers a traditional Japanese soaking tub with views of the tranquil yard below.  The adjoining walk-in closet has plenty of space.

There is a separate spacious bonus area perfect for a play room or casual entertaining.  Recently landscaped back yard features built-in grill and space to entertain on the Arizona flagstone patio.  The home has been repainted inside and out.  The downstairs has hardwood floors.  Minutes to Stanford University, and downtown Palo Alto or Menlo Park.

OPEN HOUSE:  Saturday and Sunday 1:30-4:30PM

With the impending Facebook IPO, there has been a lot of gossip about what impact it will have on local real estate.  I've written about this before but as time moves on, the markets continue to evolve.  Two of the hottest nearby markets are Palo Alto and Los Altos.  Will people with wealth from the Facebook IPO drive sales and prices higher?

Yes and no.  The Facebook Effect is already starting to be seen in these markets (as well as Menlo Park and others).  The anticipation of higher prices is driving prices up as other buyers snap up homes which prices are within their reach.  This is driving sales (number of homes sold) a bit higher as well.

What is The Facebook Effect?

• Sellers on the market expect multiple offers and higher prices
• Some sellers are holding off selling hoping for a future windfall
• Prices in Palo Alto and Los Altos are up sharply so far this year, before the Facebook IPO happens
• Buyers are moving quickly on nearly anything on the market in many local towns
• Some buyers are "settling" now instead of waiting in the belief prices will rise
• General market euphoria feels like the boom markets of 2000 and 2005

Is The Facebook Effect Good For Real Estate?

Absolutely but it has changed the dynamics of how homes are sold.  One effect I've seen is a rise in off-market sales.  Sellers are willing to sell off the MLS to any buyer who will pay a price close to the open market.  This gives buyers who don't have Facebook money a chance to buy without having to compete with cash-rich buyers.

The other factor is that average and median sales prices are rising at a steady pace with Palo Alto leading the way.  As prices return to their dot-com peaks, the euphoria is likely to abate a little as buyers settle down.  Sellers will still be in control for a long time and hopefully this market sustains itself.

Lastly, new construction is plentiful which is great for local builders who were hit hard by the economic downturn.  There are a lot of speculative builders coming back into the market which should continue well into 2013.

In many competitive real estate markets, home buyers are coached by their agents to write their "highest and best" offer to get the home.  In a multiple offer situation (which is becoming more common again), a buyer has ONE SHOT to win.  As a home buyer, you write your "best" offer but...not really.  You probably held back a little, right?

Real Estate Is Like Poker

When it's the final table, last two players...you and the seller...you have to go "all in" to win.  Take the Palo Alto market for example.  You write a full price offer on a house listed at $1.1M knowing you could write at $1.2M - that isn't your best offer.  The house sells at $1.2 leaving you wondering what happened.  A hot market like Palo Alto requires going "all in" to win.  The same applies to Cupertino and Los Altos in many cases.  Don't hold back!

The Need To Save

As with anything else, you want to get the best deal possible.  I get that.  My job as your agent is to get you the best deal possible.  But, you have to actually get the deal.  Making offers that don't get accepted is just a waste of time.  So, you'll get guidance from me telling you what your highest and best offer need to be.  That guidance is based on what is happening right now.  I beat out 34 offers on a house in Cupertino, trust me, I know what you need to do to win.

What's Your Best Offer?

The offer I tell you to write will be your best offer.  That's my job and what you pay me for - guidance on what the best offer is.  I'll tell you the price and terms.  We can certainly talk through all the points but just remember - this is what I do every day.  You'll want to hold back.  Don't.  Let me guide you and you'll walk away with a good deal but a winning deal.

I had a recent client buy a home where the termite inspection ordered by the seller turned out to be wrong.  The buyer, my client, had their own inspection done and it showed drywood termites - in contrast to the original report obtained by the seller.  The second inspection wasn't convincing and since the original inspection company had such a strong reputation, we all decided the termites probably weren't really there.

Big Mistake

My client decided to have the original inspection company come back and take a second look at the places termites were supposed to be.  The inspector CHANGED HIS MIND! and confirmed there were, indeed, termites. This happens and the company that did the work I still hold in high regard.  People make mistakes.  But, the buyer made a decision to purchase at a particular price based on NOT having to repair termite damage.  Who's at fault here?

The Original Termite Inspector

My recommendation to the buyer (my client) was to go back to the original termite inspector and ask them to remediate the issue at little or no cost.  Since their report was wrong, that seemed fair.  The temite inspector agreed and my client is happy with the results.

What To Do When A Home Inspector Is Wrong

• If a conflicting report is available, show it to the inspector
• If the purchase has already been closed, ask the inspector who made the error to fix the issue
• The cost of the fix should be reduced or zero
• Work with the inspector to make sure there is no misunderstanding

Just keep in mind that people do make mistakes and the termite or home inspector should be treated with respect.  A rational discussion of what mistake(s) were made and a reasonable solution will go a long way for all parties.  One key thing to remember is that when an inspection mistake is made it is NOT the fault of the seller or the agents involved.

The local real estate market is now a seller's market, especially for homes in the low-end or median price ranges in many towns.  The hottest markets such as Palo Alto, Los Altos, and Cupertino routinely see homes sell with multiple offers.  Once in a while you'll see a home that goes on the market and sells on Day 0 or within 1-2 days of going on the MLS.  As a buyer, this is frustrating because you didn't get a fair shot at seeing the home to make an offer.  How did it sell so fast?

A Pre-Emptive Offer

A pre-emptive offer is made before the official offer date set by the seller and their agent.  It's usually after the first weekend of open houses on the following Tuesday or Wednesday.  If you write an offer the Friday before the open houses or over the weekend, unsolicited, then it's considered a pre-emptive offer.

Is A Pre-Emptive Offer Good?

Writing an unsolicited pre-emptive offer can backfire if the seller is expecting to see multiple offers and the "frenzy" of the current market.  Your offer undermines that and could be viewed negatively.  However, if you write a pre-emptive offer that meets the anticipated goals of the multiple-offer frenzy they expect, you just might get it.

How Do I Write A Pre-Emptive Offer?

Talk to your agent (me) and I'll talk to the listing agent about the seller's expectations and if they'll take a pre-emptive offer.  If they will take an offer, we'll talk about price and terms that would be appealing.  There is negotiation and diplomacy in getting this done right so everyone walks away feeling good about the transaction.  It's NOT always about price alone.

The success of pre-emptive offers in Palo Alto, Los Altos, and Cupertino is rare but it does happen.  If you're ready and able to move quickly, it could pay off and mean less stress for both you and the seller.  If you're considering buying a home in any of these towns, call me to discuss your needs and the best approach to upcoming inventory.

I represented the buyer on a single-family home in Cupertino that had 34 offers.  My clients won out against all-cash buyers and others who, in theory, had strong offers.  Why is it that some offers are beating others?  Which price points are getting the most demand and competition?  Right now, the most active price range in Cupertino are homes in the $900,000 to $1,100,000 price range.  As long as the home is in decent condition and in a reasonable location, it will get multiple offers.  How many depends on the overall size, condition, location, and starting price. A common configuration that gets multiple offers is a home that has 3 bedrooms, 2 bathrooms, about 1600 square feet, on a 6000 square foot lot.  That home will typically be priced at $998,000.

What's the best offer to make with financing?

If you can line up real "pre-approval", meaning underwriting has done all their homework and is ready for fund a loan, that's an edge.  You can fund in 21 days which makes you more appealing than other buyers with 30-45 days to close escrow.  Of course, you'll need to offer a good price.  I can tell you, based on the activity, what is optimal.  In the current market the winning bids are 10-15% over the asking price - for homes in this hot range.  That decreases with higher priced homes and goes away entirely on homes that have been on the market a while.

Other terms that could make you appealing include: no financing contingency (if you're absolutely approved), no property condition contingency (do your homework before the offer date), and "as is" condition.  If you get the disclosures on the house and fully review them prior to making an offer, you could do this.  If you want your own inspections, line them up to happen in the first 24 hours of your accepted offer and get the results a day later.  You'll be within the 3-day right of recission period and could still cancel the contract if you find something serious.

What's the best offer to make with cash?

All cash buyers have an upper hand, BUT NOT ON PRICE! Just because you're "all cash" doesn't mean you will get a deal.  Far from it.  You need to make an offer that beats out the others on price as much as possible.  Most agents will take an all cash offer over an offer with financing, if the cash offer is slightly less.  However, it must be close.  Other terms you'll want to consider:  no property condition contingency, 10 day close, and "as is" condition.  That's the strongest offer you can make.

If you want to make a competitive offer for a home in Cupertino, call me and we can discuss what you're needs are.

Being on of the most expensive luxury markets in the country is a big torch to carry.  Los Altos Hills is often cited as the #3 real estate market in the country, which is often reflected in the lofty prices for single-family homes.  Last year was a big recovery year and it look like that is continuing in 2012.  The average sales price in March 2012 was $2,836,556 which is down from $3,025,000 in February.  However, nine homes sold last month compared to only 3 the month before.  It's actually well below the spike in prices we saw last year with the average went to $3,147,000 but that was a bit of a skewed statistic.

Two major changes in the market this month; the days on market is down to 146 from 181 last month and the inventory has dropped so there is only 4.8 months of inventory to meet demand.  That's down from 10 last month and shows a shift in buyer behavior.  While the high-end is still struggling, homes price in the $2.5-$4.0 million range are selling well and don't stay on the market long.  Sales started in March and continued into April 2012.

While the Los Altos Hills real estate market often sees significant fluctuations from month-to-month, the general trend in Q1 is up.  As long as buyers continue to snap up homes as they come on the market (as has happened recently) the overall price trend should continue.  There were several homes sold in March that will close in April that will reflect this strength.  One place that is still weak is the extreme high-end market.  Homes price over $5 million are still seeing downward pricing pressure.

The Los Altos real estate market is as strong as ever with the average selling price in March up to $2,032,075 and 37 single-family homes sold.  That's up from 15 homes sold last month and up from 28 sold in March 2011.  Prices are up and multiple offers have become standard as the median is now up to $1,915,000.

With only 1.8 months of inventory, the market is strongly biased to sellers.  The sales price to list price ratio is one telling sign of this.  In March 2012 the ratio was 102.7%, down a bit from 104.2% in February but still high.  This means that offers over asking dominate the market.  Another factor is that days on market is also low.  Most sales are happening within one week on the market, with a few homes taking up to 2 weeks (depending on price and location).  Low inventory is partially due to some sellers waiting for "The Facebook Effect" to occur - buyers with Facebook IPO money to get into the market.

Some of the major sales last month in Los Altos include 1310 Villa which sold for $3,450,000 and 307 Verano Drive which sold for $3,395,000.  They were two of four sales that closed in March over $3 million.  What's more interesting is five sales in the $2.4-2.6 million range.  This is a major tier for builders and was a barrier in prior years.  The increase in activity indicates more "move up" buyers who are buying larger, quality homes without pushing the top tier too far.  If sales continue to hold in this price range, the overall market should continue its strong climb.