One of the mental traps I see that can foul up real estate expectations across Silicon Valley is the over emphasis placed on “price per square foot“. Here’s where the internet can seriously mislead people into thinking they understand home values more than they do, resulting in botched negotiations, frustration and disappointment. So let’s talk about it.

As one factor among many, it’s completely fair to include the price per SF when trying to determine what a home’s probable market value ought to be. (Remember, too, that a house, condo or townhouse isn’t worth one exact number, but a range – because the terms involved also impact the sales price.)  Although price per square foot is one way of finding approximate value, often is not the best, especially if you use it alone, because there are other factors besides the square footage of the house.  Here are some of the other factors that can mess up that valuation based on price per SF alone:

• precise location (view, proximity to something undesireable)
• lot size
• lot shape & access (flag lots may sell for less than homes directly on the street)
• whether the house is below or above grade/street level (most people don’t prefer being down from the street)
• back yard size
• amount of remodeling (and how recently it happened, whether with permits/finals)
• care for the home
• additons vs original square footage (more…)

How common are “all cash” transactions for Silicon Valley real estate right now?  Throughout Santa Clara County, they were 25% of all sales, up from 20% in October 2011,  among houses, duet homes, condominiums and townhouses (class 1 and class 2, does not include mobile homes, 2-4plex or apartment buildings or raw land).   What’s trending? Lots, including more cash offers.

Some areas and some types of sales are more frequently all cash than others.  Here are a few quick stats for the last month (last 30 days from today – numbers from MLSListings, crunched by me – disclaimer on good intentions but no guarantee). Also, please note that this is for CLOSED SALES. As of this writing, we are seeing a huge uptick in multiple offers in all price ranges in many parts of the valley, and it seems that many are all cash or very large cash downpayments.

• Santa Clara County: 25% all cash
• San Jose (entire city): 27% all cash
• San Jose short sales: 27% all cash (down from 33% in Oct 2011)
• San Jose bank owned or REO sales: 39% all cash (38% Oct 2011)
• Short sales & REOs were 52% of all sales in San Jose in last 30 days (was 48% Oct 2011)
• Of SJ homes listed at $300,000 or less: 44% all cash (was 48% Oct 2011)
• Of SJ homes listed at/under $500,000: 33% were all cash (didn’t track in October 2011)
• Los Gatos: 9% all cash
• Saratoga: 8% all cash
• Almaden Valley area of San Jose: 10% all cash

Some of these sales will have no financing and the new owners will occupy the home.  Particularly in lower priced homes, though, these are investor buyers who will be renting out the property.  This is often the case with the lower price distressed properties in particular.  In higher priced homes, some new owners will put financing on the property after close of escrow.

With the crazy new demands that keep coming at us from banks and new requirements being imposed on appraisers, now more than ever, cash is king.  That doesn’t mean that the cash buyer will get a deep discount, but there will be a slight one in most cases and certainly preferential treatment that will create a great advantage in multiple offer situations.

Learn more about buying and selling Silicon Valley real estate with cash offers:

Cash offers: what do you need to know if buying “all cash”?

Q & A: Making an Offer

What’s My Silicon Valley Home Worth? Estimating the Probable Buyer’s Value  (financing impacts market value)

Some first time home buyers in the San Jose or Silicon Valley area get confused by the “assessed property value” of houses, condos, or townhouses: they mistakenly think that this number has some bearing on the real estate market value.  It doesn’t.  The assessed value is used only for determining the amount of property tax being paid.

Residential real estate in California is reassessed upon transfer of title, or change of ownership, in most cases (there are some exemptions). From there, the assessed value can only go up 2% per year at most (thanks to the passage of Proposition 13 in the 1970s).  When property values decline, as they have recently, owners of properties with higher than market value assessments can appeal and get a temporary rollback in valuation for the purposes of having property taxes lowered.  This is very very common (and even so, the assessed value is usually still off as it’s based loosely on the January values of that year – the values are often higher than market value for these petitioned properties).  The tax assessor’s office has a lot of latitude in determining the assessed values; it is nothing at all like an appraisal, which should use strict comparisons.

Let’s look at a few hypothetical examples, taking tract housing with the same square footage, layout etc:

1 – If a couple purchased a Cambrian Park house in 1960 to 1970 and paid $20,000 for that property, but today’s value is approximately $500,000, the property tax being paid will reflect the long term ownership and won’t be based on the current market value.  That couple might be paying $600 to $800 per year in property taxes with a corresponding “assessed value” of about $52,000. (more…)

Are open houses important for getting a home to sell, or for getting it to sell at a higher price?

In Silicon Valley, only a small percentage of homes sell directly from an open house visit by a home buyer. Depending on whose statistics you believe, it’s somewhere in the 5% to 10% range. Some would argue for smaller figures than those.

The best home buyers, who are pre-approved and serious enough to be working with a real estate professional and have their own buyer’s agent, can come whenever it suits both their schedules and the home sellers. But that doesn’t mean that all of them do.  Some serious house hunting buyers may be out on their own, without their agent because they don’t want to “bother” him or her too much. I’ve had clients like that myself, and no matter how much I reassure them that I want to show them homes and prefer it, even, they want to mostly look on their own until they are either more serious or have found something they really love.  It is not uncommon for buyers to phone or email me that they’ve seen a house that they want to buy.  This seems to be a growing trend.

Knowing that the best Silicon Valley home buyers do have an agent, don’t necessarily need open houses, there are some who move from this thought to the idea that open houses are without significant value to the home sellers.  Some Realtors would assert that open houses only get neighbors and “Lookie Lous”, that they are only used by the agent to get new buyers and are a waste of everyone’s time. That’s an extreme position and I think it’s mistaken. (more…)

If you’ve had your San Jose home listed for sale with a real estate professional but after several months on the market it didn’t sell, you are probably tired, discouraged, and maybe even angry.  What went wrong?

Everyone likes “easy answers”, and the most common easy answer to the question of why the house is now an expired listing is price.  Most homes that don’t sell are overpriced. This is true but an oversimplification.

Often, price isn’t the only factor, or is not even the biggest obstacle in the home’s not selling. (Sometimes it’s not a problem at all.)  Frequently, it’s a little more complicated than that.

(more…)

Sometimes it’s not too hard to find the likely market value of a property: it might be a San Jose tract home where several similar homes, in similar conditions, on similar lot sizes, has sold recently.  Or, if not such a cookie-cutter property, it could be a “typical” type of house for a given part of Silicon Valley – a typical Cambrian area 3 bedroom, 2 bath house, for instance.

But sometimes, you have residential real estate that really is not too similar to others nearby.  It may have been custom built or remodeled to an extreme.  It might have an exceptional location or view.  Or perhaps it’s in a region where there is very low turnover, so no recent sales.

Estimating the probable buyer’s value with a unique home for sale in Silicon Valley is tricky but not impossible.  There may be no “good comps” within a mile, but there are homes that fill similar needs and that’s where you look.  We must put ourselves into the buyer’s shoes as much as possible. (more…)

How important is the marketing of homes for sale in Silicon Valley?  First it’s important to understand what we mean by the term marketing: generally, it is the way we attract potential buyers to the homes for sale.  This is more than just the flyer or newspaper ads.  It includes:

• pricing the home
• photographing the property
• describing the home on the MLS (and including good pictures)
• the quality of the flyers
• the print advertising
• the online advertising & exposure
• the networking with other agents
• the direct outreach and appeal to consumers
• the accessibility of the home
• staging the home to sell (appeal, cleanliness, no odors, etc.)

Marketing can be good, bad, or somewhere in between. Bad marketing will likely cost sellers money and good marketing will likely make them money.  

Today we’ll go over the most important elements of marketing because sellers should evaluate them when hiring a Realtor to assist them in the marketing and sale of their home.  While there are many areas of marketing, the most crucial, by far, are these three: pricing, photos, and the description on the MLS.

Pricing:  The biggest marketing mistake which is commonly seen is overpricing.  Sellers sometimes believe that their home is worth more than the buying public do and a home will remain unsold no matter what else is done right.  In fact, you could fly airplanes aroud the home and put full page color ads in every paper around the world but if the home is overpriced, it still won’t sell!  Pricing is the most important part of marketing.   With a too-high price, traffic will be diminished and offers will be low at best (lower than actual market value).

Of course, most homes are worth not just one exact dollar amount but somewhere within a range of prices, depending on terms, the speed of the sale etc.  If the pricing is well done and the rest of the marketing is also quite good, the home ought to sell on the high end of what is possible at that time.

Pricing mistakes are very costly and very easy to make.  Here are some of the ways which sellers can be misled about the probable market value of their home:

• using old comps
• relying upon online home valuations
• basing their home’s sale price on what they “need”
• hiring an agent based on his/her suggesting the highest list price (we call that “buying the listing” when an agent overstates value to secure the listing)
• expecting 100% back from all improvements done to the home
• believing buyers can “always make an offer” (if it’s overpriced, they usually won’t)
• thinking there’s no harm in just reducing the price later (if the market is going down, you will be “chasing the market down”)

The one thing that neither the sellers nor their Realtors control is the real estate market, which is fickle and can change.  In recent years it’s been up and down, depending upon location, price point, school districts and more.  Using six month old comparable sales to establish current market value just isn’t appropriate.  Sometimes even the most recently closed sale is not enough, especially if the market is sliding.  Instead of just relying on the solds, also look at the pendings and the current competition.  The less competition your home has, the better odds you have of selling it – and for more.  But a surge of inventory will cause home values (including yours) to drop.   To understand the probable buyer’s value, all of these must be factored in together.  (The online valuation sites do not do that.)

I should add that it is harder to sell a property that has issues such as high voltage power lines, deferred maintenance, messy tenants who make showings difficult, busy road, junky neighbors, or some other undesirable element.  Many agents will suggest a lower price to compensate for whatever issue is hurting the marketability of the home.

While it’s true that there is no problem that a better price cannot fix, most sellers are trying to maximize their sales price.  For that reason, I’d always suggest asking your real estate agent if there’s anything that can be done to improve the market value aside from that lower price.  Sometimes fresh paint and carpet and a professional house cleaning can do wonders for the home’s saleability.  Or giving tenants a lower rent in exchange for their cooperation during the sale will create an easier time for buyers wanting to see and purchase your home.   A little effort may have a great payoff.  (Some agents focus almost exclusively on price and may not be worried about any other element of marketing.  This is a mistake, so be aware that you may run into an agent with this belief.)
(more…)