Los Altos Real Estate Blog

The high-end luxury market in Los Altos has had a lot more activity this year than it did in 2010.  The local luxury markets have been doing very well and sales have picked up quite a bit as buyers step back into the market looking for the right combination of quality and price.  While the number of homes sold could end up being the same, there are more transactions happening on a consistent basis with better offers.  We do not have the bargain hunters in the market that we did in 2009 and early 2010.  The buyers appear ready, willing, and able to buy at or near the listing prices, which is good for the overall market.

Right now, in early June 2011, there are 8 luxury homes for sale in Los Altos with prices of $3,000,000 or more.  Of those listings, 3 are priced over $4,000,000.  There is one property listed for sale at $3,000,000 that is really about land value as it's a small, older home on over 2 acres of land.  There are 2 luxury homes pending sale, one that will close on June 10th and another that will close in August.  Having these two pending will help continue the trend of closed luxury home sales in Los Altos which is running at about 3 homes per quarter.

There have been 5 luxury homes sold in Los Altos so far this year and of those, 3 have been over their asking prices, one was at it's asking price and only one was below it's asking price.  The property that sold below it's asking price was in a neighborhood that didn't have many high-end homes so the location was an issue.  Otherwise, it was a really nice property.  The rest of the homes were all well located and fine examples of luxury properties.  These sales are a sharp contrast to the homes sold in 2010 where all but one property sold for under their asking prices.  So, while sales volume may be running at nearly the same rate, the quality of the sales is greatly improved.  Based on the activity of buyers, a total of 7 completed/pending sales, and the available inventory, I predict we'll see a total of 13 high-end home sales in Los Altos for 2011.  This report does not include off-market properties which I report on separately through the year.

If you'd like to know more about the high-end market in Los Altos including off-market listings and sales, give me a call.

Welcome to sunny California!  The land of million dollar shacks with lines of buyers waiting for them.  Here in the prime markets of Silicon Valley you're welcome to make offers on many of the fine properties we have for sale.  Just don't count on your all cash offer actually winning the house!  You see, that house in Los Altos you've got your heart set on has 9 other offers - 8 of them are all cash too!

In our local markets, demand is so high that multiple offers and all-cash offers are common.  It's frustrating for an all-cash buyer willing to spend $1 million to be outbid by 7 other people willing to pay 10-20% over the comps.  If cash is king, how much cash does it take to actually be the king?!

As an agent, it's hard to counsel a client to offer more than what the comps support.  Regardless of that, if the market is driving prices higher and overbidding is what is needed to win then that's the advice we need to give.  Right now in Palo Alto, Los Altos, and other hot markets, the general attitude is to take the asking price, add 10%, and use THAT as the starting point to make your offer.  This isn't for all homes, just the ones in the entry-level market below the median asking price.  The bottom line is, if you want it, you will have to pay - a lot!

There are some things an all-cash buyer can do to make their offer even stronger.  One is to have no property inspection contingency.  Surely you jest!!  I jest not!  While I usually tell my clients that making such an offer is very risky no matter how many inspections have been done, making an all-cash offer with no property condition contingency is often what is required to get the home.  What I tell my all-cash buyer clients is that no matter what the contract says, you still have the 3-day right-of-recission permitted under California law.  That's your backup if you change your mind or find a major issue with the home.  Other assumed terms include "as is" and a close of escrow date no more than 14 days from the offer date.

This market is every bit as challenging as the '97-2001 boom years when people used funny money to pay small fortunes for McMansions.  The key to success in most cases is writing an offer that goes over the asking price enough to get the home without overpaying.  Finding that out requires looking at original listing prices, final selling prices, and looking at how much of a bump recently sold homes had.  It also helps to know how many offers came in on each house.  In one neighborhood, for example, a listing sold with only 3 offers and another with 10 offers.  Knowing the offer history on nearby houses is important to help guide the extent of how far over asking an offer must go.

Los Altos is a very close knit community and the real estate agents are no different.  You made a decision to move into or out of Los Altos and now you need to find an agent who will give you the information you need to buy the ideal home or sell your home fast.  The decision to work with an agent depends on many factors including personality, experience, knowledge, and skills.  To make the best decision, you need to know what factors are unique to the REALTOR and the local Los Altos market.

Personality - As with anything else in life, you want to work with someone who is pleasant to be with.  One Los Altos REALTOR may be perfect for one person and a mismatch for another.  The personality of the agent is a factor.  You need to find someone who you like and will work with you while treating this relationship as an appropriate combination of personal and business.  Part of their personality is how they do business.  If they have a team and send you off to one of their staff all the time, you may not get the level of attention and service you need.

Experience - Most Los Altos real estate agents have significant experience.  Choosing an agent with the most years in the business may not be the best approach.  Consider their experience from the standpoint of their ability to find you the home you want and use the tools needed to do so.  An agent with strong technology experience will be able to find your home using means other than the MLS.  They may also be able to tell you if the home you want even exists.  Additional personal experience in remodeling, land rights, building, and other areas could also be of great value.  The key to these is that knowledge of them is fine but direct, personal experience is better.

Knowledge - It's one thing to know the market and inventory.  It's another to know the community and fellow real estage agents.  You want a real estate agent who knows the Los Altos market very well including homes that have sold and trends in the neighborhood you're looking in.  What is equally important is knowledge of pending issues related to real estate including new zoning, development, taxes, and other issues that may impact the Los Altos neighborhood you like.  It's also important for the real estate agent to know other agents and know them well.  Personal connections with other agents can help you buy or sell a home much faster and give you an edge in the market.

Skills - Special skills with financing, technology, construction, marketing, and other areas can give a real estate agent a big advantage over others in Los Altos.  In meeting with an agent to discuss your needs, it is best to select someone with the right mix of skills you need to either buy or sell your Los Altos home.  In today's world, technology and online marketing skills carry more value than traditional advertising skills to get a home sold or bought.  It's the ability to discover information and distribute it effectively that makes most agents more effective.

Call me today and we can discuss how to put my experience, knowledge, and skills to work to help you buy or sell a home in Los Altos.

A great way to get into Los Altos is to buy a fixer-upper.  It can save you money over buying a turnkey home and get you into some of the best schools in the area.  If you want to buy a fixer upper house in Los Altos, you need to know what prices make them a good deal.  Just because a property is priced low doesn't make it a bargain.  Also, as with many Los Altos houses, being "distressed" doesn't make it a deal.  There may be issues that make the deal cost more than they're worth.

Optimum Prices - In most cases a home priced between $1,000,000 and $1,400,000 is likely to be a good deal relative to other homes in the area.  If the home is a decent size, you can probably just remodel it without having to add more space.  A fixer upper in Los Altos that is priced in that range and is 25-35% below the equivalent fully upgraded home is most likely to be a good deal.  For example, a home priced at $1.3 million in a neighborhood with upgaded homes priced at $1.7 million is a good deal because it's about 30% under the market.  Assuming the square footage and lot sizes are similar, the $400k difference can more than cover most remodels.

Location Is Critical - There are a few homes that have been on the market along busy streets, at corners, close to commercial space, and other challenging locations.  Those homes carry a substatially lower value and it's reflected in the market.  In general, a busy street or other bad location will shave at least 10-20% off the price of a home compared to one on a quiet street.  Keeping that in mind, a property that is worth less as a fixer upper will still be worth less as a fully upgraded home.  Even if you fix it up, it will be difficult to sell down the line.  I advise not buying homes in bad locations regardless of how distressed or motivated the seller is.  There are several examples of Los Altos homes in new or remodeled condition in bad locations that ended up going to foreclosure or short sales because the values stayed low.

Best Neighborhoods - The best Los Altos neighborhoods to buy a fixer upper in are those where the average homes are selling at or above the median price - about $1.7 million right now.  Assuming you can get a home that needs work but doesn't need any additions to boost it's size, you'll get a great deal.  However, keep in mind that the market is extremely competitive.  Avoid overpaying for a Los Altos home just because it's at a particular price point.  Some neighborhoods have smaller, non-conforming lots.  If you see a fixer upper on an 8000 square foot lot and the neighbors have 10,000+ square foot lots, you will not get the same resale value they do down the line.  A popular area for buy fixer upper homes is in central Los Altos where the lots are consistent and many homes have been upgraded.

For more details and specific examples using current homes for sale, call me.

The idea of buying a home "all cash" is appealing and in strong markets such as Los Altos or Los Altos Hills, it's almost a requirement.  An all cash buyer can close in days, doesn't care about appraisals, and could make for a really easy transaction.  An all cash offer is very powerful at the bargaining table, but it isn't all powerful.  Some advantages of all cash offers include:

• No financing contingency
• No appraisal
• No dealing with banks
  
• The ability to close fast - in just a few days if necessary
• No question of affordability
• Little question of closing on time
  

In most cases, buying a home in Los Altos with cash means the offer has fewer hurdles to jump over to close the transaction.  No matter how well qualified the buyer, if they have financing there's always a question of appraisal value, timely approval of the loan by the bank, and if they'll actually go through with the transaction.  A buyer with financing can take 10 days to work on getting final loan approval only to have the loan denied.  Then the home seller is left with trying to market it again.  While Los Altos home sellers usually don't have a problem getting another offer, losing a buyer can be a major issue in other markets.  An all cash offer gets around all of that.

There are a few things that can strengthen an all cash offer but require a great deal of risk on behalf of the buyer and they're not something I recommend.  The first is to make the offer without any contingencies.  This means that in addition to buying with cash, you're willing to take the home as it is without having any way of getting out of the contract (except the state mandated 3-day right of recision).  The only way this approach is relatively safe is to have all the disclosures reviewed and any inspections done in advance of making the offer.  It there is time, then buying a Los Altos home this way could be effective.  Otherwise, I recommend having the inspection contingency in place to ensure you have time to determine property condition.

There are a few ways to undermine an all cash offer.  In many situations buying a home in Los Altos, cash buyers will lose out to buyers with financing because they make a few mistakes.  Some of those include:

• Offering a low price (Los Altos home sellers will not take less just to sell to a cash buyer)
• Adding in special conditions or contingencies beyond property condition
• Asking for too much time to inspect the property condition
• Not sufficiently documenting your cash assets
• Having an escrow period as long or longer than a financed offer
  

The bottom line is that an all cash offer will usually be the strongest offer made on a Los Altos home but there are ways to diminish its power.  When making an all cash offer on a Los Altos home for sale, make sure it has as few limitations as possible, make all your inspections before writing the offer, and keep the escrow period short (3 weeks maximum).  You'll run a much higher chance of getting the home you want.

The spring selling season in Los Altos brings back multiple offer situations as the rule, not the exception.  For homes priced below the average selling price, about $1.6 million, you'll find that nice homes in good locations go fast.  Los Altos homes for sale priced below that price point find the competition is fierce.  This article outlines what happens behind the scenes when a home is expected to receive multiple offers.

For the purposes of this article, let's assume a new Los Altos home is put up for sale on Wednesday with broker tour scheduled for Friday and open houses on Saturday and Sunday.  It's a 4BR/2BA with 2000 s.f. in good condition, on a nice lot, and in a pleasant neighborhood.  Offers will be taken the following Wednesday at 10AM.  It's priced at $1.395 million.

Step 1:  Building Interest.  Once the Los Altos home goes on the market, agents with clients will be looking at it the same day.  They'll forward the listing for qualified clients who will take a look and consider a visit.  In addition, twice as many individual buyers will look at it without their agents.

Step 2:  Open Houses.  When the home is held open during broker tour and open houses there will be a few buyers and/or agents who express a strong interest in the home.  In Los Altos, buyers will often try to make a "preemptive offer" before anyone else and most local agents will decline that offer.  A Los Altos home for sale will get a higher price if left to the open market.  Local agents know this all too well.

Step 3:  Obtaining Disclosures.  Several buyers and agents will download disclosures packages for the home.  The number of packages is a strong indicator of the number of offers that may come in.  It is at this point that a buyer can decide NOT to get disclosures.  If a Los Altos home is highly competitive, it is possible to not get the disclosures in advance and write an offer "blind" - meaning without reviewing the disclosures.  I strongly advocate not doing this because a fully prepared offer, with disclosures reviewed and signed, will be stronger at the negotiating table. There are many times when offers come in without having the disclosures reviewed and signed.

As a matter of course, roughly a third of buyers who get disclosures will write an offer.  If a Los Altos home for sale has 20 disclosure packages downloaded, there will likely be 6-8 offers.

Step 4:  Communicating Offers.  In the example above, offers are being taken at 10AM.  The listing agent will call everyone who has expressed interest in the home to see who is writing an offer.  They'll get a count of "confirmed offers" so they have some idea of what to expect the following morning.  When talking to the buyer's agents, the listing agent will tell the other agents how many disclosure packages have been downloaded and how many offers are confirmed.  That gives the buyer's agent some idea of what they can expect.  Some agents will not communicate that they are bringing in an offer until the morning they're being taken.  Some agents feel this gives them an advantage by surprising the other buyers.

In Los Altos, local listing agents prefer to be given notice of a offer.  When working with other Los Altos agents, it's important to be upfront about intentions without "tipping your hand" and giving them leverage to obtain other offers.  It's a delicate balance of savvy negotiating and professionalism.

Step 5:  Accepting Offers.  Offers that a communicated verbally, in person, will get preference with most homes in Los Altos.  Local agents with known reputations also have an advantage because the listing agent knows who they're working with and can assure their seller the transaction will close.  I wrote a seperate article about pricing strategy in multiple offer situations so I recommend reading that for details of how to construct a good offer.

This is a bit of what goes on behind the scenes with multiple offesr on Los Altos homes for sale.  As the inventory increases and the year moves along, these situations decline and they're less likely in high-end homes.  However, Los Altos is a strong market so always be prepared.

The old phrase "time is money" is more true in real estate than most industries.  The longer a home sits on the market, the lower the final selling price relative to start price.  This is true in Los Altos and the rest of Silicon Valley.  In this part of the world, a home priced right relative to location and condition will sell in a week or so.  Ongoing negotiations might push that sell date out to 3-4 weeks.  However, if there's no activity - no disclosure packages downloaded, no offers (verbal or written), and few or no duplicate showings, then it's time to drop the price.

Stage 1:  Reduce the price after 14 days on market

A price reduction in the first two weeks is ideal because the home is still "fresh" in the eyes of the market.  Consider it a "do over" because you priced it so high.  Buyers will forgive that little indiscretion just this once.  If you push the reduction to 30 days or more the home will no longer have the same fresh feel and buyers will wonder what's wrong.  While the listing is still considered "new" and buyers are intrigued with it, keep their attention with a price reduction.  The percentage of the reduction depends on how far the asking price is over the suggested valuation.  If the original suggested listing price was $1,398,000 and it's priced at $1,600,000 (with no buyer prospects), then the price needs to come down to at least $1,498,000 and would be better at $1,398,000.

Stage 2:  Reduce the price after 45 days on market

As a rule, if a home is listed for more than 10% over the comps it will lose over 90% of potential buyers.  They skip it because it's overpriced.  In stage 1, I used the example of a home priced at $1.6M that should be $1.4M and suggested an initial price drop of $100K.  By cutting the overpricing in half, I recaptured half the buyers.  However, pricing within 3% of the anticipated selling price will get me over 90% of the buyer market.  So if the home has been on the market for over 30 days, it's time to get the price down to exactly where it needs to be.  This is because buyers now regard the property as being stale, possibly with problems, and likely to offer less than the asking price.  In Los Altos, 45 days on market is still not too long so coming down to the market price will likely get at last one offer.

Stage 3:  Over 60 days on market

At this stage, the home starts to lose value.  Looking at Los Altos homes on the market longer than 60 days, many receive offers and ultimately sell for less than the original target listing price - market value at the beginning of the listing.  This isn't always true, but often.  Pricing right to begin with prevents losing value.  It also makes a strong case for making fast price reductions.  Keeping the Los Altos buyer pool engaged is critical in retaining value.  The home in the examples above might ultimately sell for $1.35M which is abotu 97% of the target asking price but that means it would lose $50K from what it could have gotten in the first place.  It's important to price right to begin with but if not, fast price reductions are essential.