Category Archives: Market Commentary

Top 5 Tips for Winning in a Multiple Offer Situation

Top Five Tips for
Winning in a Multiple Offer Situation

In today’s real estate market, with an abundance of buyers
and a shortage of inventory, many desirable properties are receiving multiple
offers—often over asking price. As a buyer it’s scary to think that you have to
compete in an auction to get the house you want.

So what do you do when you find a house you love and are
ready to buy, but find yourself in a multiple offer situation? How can you
improve your odds of making the winning offer?

In my 20 years of working as a real estate agent, I’ve been
through multiple offer scenarios many times—on both sides of the table. I know
what a seller’s agent is looking for and I also know how to present my buyer’s
offer to win the deal. Here’s a countdown of my best tips:

5.  Bid over asking price.

Many times a property will be
listed with a price that seems too good to be true. It is. The agent is pricing
the house low to attract a lot of “buzz” that will result in multiple bidders.
But in the current market, even houses that seem fairly priced are getting
multiple offers over asking price. The trick is to anticipate the level of
interest, know how much to bid and make sure that the seller’s agent is willing
to work with you if you need to go back and forth on price.

4.  Get your financing and paperwork in order.

In this fast-paced market, deals
wait for no lenders. Sellers want to be certain when they accept your offer
that your loan will go through and you can close escrow within their timeframe.
Make sure you are pre-approved and ready to go.

3.  Be prepared to have few or no
contingencies.

In many cases a seller will have
inspections done before they put the house on the market and expect you to
accept their reports. Of course, you can ask to have your own inspections done,
but this may make your offer less favorable than that of another buyer without
this constraint. If you want your own inspection, you can arrange to have it
done before you present your offer to avoid this.

And the contingency of selling
your current home before you buy is a thing of the past in this market. If you
need the cash from the sale on your existing home to buy the next one, your
best move is to sell it first or find some bridge financing.

2.  Don’t be difficult to work with.

If you or your agent exhibit signs
of being too demanding or high maintenance, the seller’s agent may advise their
client to take another offer to avoid the hassle. Make sure you are reasonable
and pleasant in all your interactions.

And the #1 most important tip to winning in a multiple bid situation…

Work with an experienced, respected agent with deep local knowledge in
the area where you want to buy.

An active, local agent knows the
inventory, knows the community and knows her fellow agents. She can advise you
how much to bid, recommend lenders to help you get pre-approved and tell you
what contingencies are important. The seller’s agent will have confidence that
she can move things along easily and quickly.

In this competitive market you
need an experienced agent who you can trust. My clients are made up of 85%
referrals from people I have helped happily buy and sell houses. Call me and
let me help you find the perfect home at the right price for you.

Next Blog: Anatomy of a Multiple
Offer Win—And We Didn’t Have the Highest Bid!

To Hold or Sell Your Home

The big increase in prices, extreme lack of inventory and record low interest rates this year are creating a perfect storm of a seller’s market. If you’ve been on the sidelines waiting for the market to improve, this may be just the time to finally put your house up for sale. The big question for homeowners on the fence is:

Do I hold or sell?

Should you put your house on the market now to benefit from recent uptick in the market or should you hold on and hope that housing prices continue their upward spiral?

That’s a good question! If only I had a crystal ball, I could give you the perfect advice.  But, since that’s not the case, let’s think about this…

Although we can never tell if the market will move up or down, we do know that the market tends to move in cycles.  Look at the graph below, which shows the median sale prices in Palo Alto, from 2004 through 2012.  It is based on 4,214 listings in Palo Alto.

Sales prices

From this data, it would appear that 2013 might be a year similar to 2012, perhaps with a slight increase in price. If that’s the case, there’s little difference between selling now and holding on a bit longer.

But there are lots of factors that could influence sales prices.

For example, record low interest rates are driving buyers into the market NOW. Should the rates increase, the buyer pool is likely to shrink.  This will lessen demand, and in turn, decrease sale prices. A downturn in the stock market or loss of confidence in the economy could also dampen buyers’ enthusiasm and result in lower prices.

Rather than try to predict the unpredictable, it’s better to look at what makes sense in your individual situation:

If you are considering downsizing, now is a fantastic time to sell.  You may pay more for a smaller home than you would have in the past few years, but you will also make much more on the sale of your larger property.

If you want to buy a new home before you sell your current home, now is a good time to sell. Currently, there are some lending options available, like bridge financing, that make it possible to buy your next home as you get ready to put your current home on the market.

If you are 55 or over, you may be able make a one time transfer of your tax basis to your new home, making it a great time to sell and make a profit on your current home, while keeping its low property tax basis—even if your new home is worth more.  As with any tax related information, be sure and check with your CPA or tax attorney to see if you qualify.

If you want to more up to a larger home, but don’t qualify for the tax base transfer, it makes sense to hold onto your house if your 55th birthday is within striking range.

There are many more factors to consider when deciding whether to hold or sell. Contact me and I’ll be happy to walk you through all the options and help you make the best decision for you.

Where Do I Go?

Where Do I Go?

The popular topic in the local real estate community is the
ongoing lack of inventory of homes for sale. According to our local MLS, the
number of homes for sale in our local market (Palo Alto, Menlo Park, Atherton,
Portola Valley, Woodside) is down 40% – 60% versus this time a year ago,
depending on the price point and neighborhood. Since our are generally has
fewer homes for sale relative to the number of homes and buyers, this inventory
decrease translates to it feeling like there is NOTHING for sale, and multiple
offers on the few homes available are the norm, not the exception.

Adding to this, with the phenomenon of overseas buyers and
recent liquidity events and stock run ups for local companies, we are seeing
more wealth and resources available to purchase homes than ever before. This is
like adding gasoline to the proverbial fire, and driving prices upward at
impressive rates. Check out these charts, showing changes in median home prices
(half of the houses sold for more, half for less) in our communities over the
past year. Palo Alto up 20% 2011 to 2012, Menlo Park 11%, Woodside down 10%
(I’ll come back to that), and Portola Valley up 13%.

That’s better than the NYSE which is up 12.9% over the same
period, and you get a place to keep your stuff too.

So let’s assume you have been sitting in your house in North
Palo Alto for the last few years while your kids finish High School, watching
houses around you sell in a week at prices you can’t believe. You come home,
realize you don’t need a four bedroom house and the property taxes and say to
yourself “Self, let’s cash out!” (Actual clients’ example here). Your next step
would be to call me and say ‘Chris, what is my house worth?’. I’d give you a
range (say $3M – $3.2M) and you would say ‘wow, that’s like $500,000 – $700,000
more than I paid for it in 2006’ or something like that. Then you would ask me
the hard question:

Where do I go?

So you sell your house in Palo Alto and pocket a $500,000
net gain after selling costs, plus your original equity and you are going to
downsize to a three bedroom house. The kids are in college so schools don’t
matter much but you don’t want to move to Napa. Your new budget is $2M so your
property taxes will be lower and your mortgage is something you can pay off
before retirement.

Woodside:

OK, I’m biased as I am currently buying a home in Woodside.
Why? Read my other blog article “A Realtor Buys a House”. For our
fictional couple here, it’s close enough to all the fun stuff you did in Palo
Alto, the market isn’t as tilted in favor of sellers (prices down 10% last
year), and you get some land or a view depending on where you are in town. If
you have little ones, Woodside Elementary School is fantastic. Woodside Bakery
and Buck’s are experiences in and of themselves. Bring your horse.

Ladera
Ranch:

Ladera is really unincorporated San Mateo County, but it is
a closely knit community border Portola Valley with off-street walking paths
leading down to the shopping center and a community center with pool and tennis
courts, so it combines the best of rural and suburban living. Many of the homes
have views and the neighborhood feeds into the excellent Los Lomitas schools.
Convenient to 280 and open space preserves.

Portola
Valley:

Extra space and views of the Bay or open space are hallmarks
of Portola Valley. The small town vibe and peaceful feeling make it an escape
from the madness that defines most of Silicon Valley. Generally, there are more
bikes than cars and the open spaces define the views and feeling. If you feel
like Woodside is getting too uppity and flashy (the locals say too Palo Alto),
then PV is the place.

Emerald
Hills:

Views on a budget. Roy Cloud Elementary is excellent and the
market and prices make for a great downsizing option. You are car dependent,
and the narrow, winding roads will have you trading the Suburban for a Vespa.
If you like Tuscan hill towns, Emerald Hills may be just your thing.

Redwood City:

Redwood City is the largest city on the Peninsula and where
I think the biggest potential for appreciation is. Prices are relatively low
compared to the surrounding cities, and Redwood City has invested heavily in  an urban renewal of its downtown that is
drawing more business to restaurants, The Fox Theatre and the Cineplex. As we
have seen in Mountain View over the past 20 years, an attractive, bustling
downtown leads to gentrification which leads to rising property values. Redwood
City, especially neighborhoods like Mount Carmel, is my appreciation pick for
the next decade.

Econ 101 Palo Alto style – Another View of Low Inventory

Yesterday on Palo Alto Patch, Michael Talis posted some data highlighting the lack of inventory of homes for sale so far this year. This isn’t really earthshattering news to anyone who has been looking for or making an offer on a house in Palo Alto lately, but he does put some numbers behind the refrain ‘There is NOTHING for sale right now’ and prayers of new listings coming after the Superbowl.  Here is a link to the post: http://paloalto.patch.com/blog_posts/january-2013-palo-alto-housing-drought-continues

While we are clearly in a Seller’s Market the numbers are a bit off from the ones in this article. The MLS, which is the database of homes for sale, estimates that up to 30% of the homes in Palo Alto sold this year were sold without being posted on the MLS. This is usually referred to as “Off-Market” which is really a misnomer, because the house was for sale, exposed to the market and sold, just not through a particular channel. It’s kind of like selling your used car to your neighbor without putting it on CraigsList or putting an ad in the Palo Alto Weekly.

As a home buyer, these two trends of low inventory combined with pent up buyer demand and an increasing number of homes being sold without posting to the MLS create two situations to be aware or beware of.

1) Econ 101 Palo Alto Style – As we were taught in Econ 101, in the face of scarce resources (homes for sale) and high demand, market forces will drive prices upward to equilibrium, in this case pricing a lot of folks out through a combination of absolute prices and terms (cash, no loan, no contingencies, free rent back to the sellers, throw in a dog or kid, vacation in Hawaii, do your laundry, please, please, please let me buy your house!!!!, etc.). 

2) Market knowledge – I can’t tell you how many folks I met last year at open houses and otherwise who had the strategy of looking at houses on Redfin.com (very cool phone app for trolling the MLS) or Trulia.com, then looking at the houses at open houses and not utilizing a local agent. They thought they had perfect information and would love to tell me what the house sold for last time and how many $/square foot the neighborhood sold for and a bunch of other data. Guess what – they are still looking for a house, only seeing 70% of the market (the non-MLS stuff doesn’t show up on Redfin), wasting a bunch of their time and getting frustrated while the market appreciated 24% last year. 

24% – That means an entry level three bedroom, one bath house in South Palo Alto that sold for $1,000,000 in January 2012, is now going to cost you $1,240,000. I don’t care how many shares of LinkedInGoogleFacebookAppleWhatever you have, $240,000 is a lot of money. You can get a really nice, low mileage Ferrari 430 for that!

If you have read this far, here is the punch line – the Palo Alto market, and by extension almost everywhere within a 10 mile radius, is ON FIRE in 2013. There are few homes and way too many buyers with way too many resources fighting over way too few homes. We don’t see anything that will change this dynamic for at least a year, potentially until 2015 or 2016. After the correction then, prices will still be 20%-40% higher than they are today, so if you are playing in this market play to win.

Arm yourself with the data and the local knowledge that you only get from a real estate professional who knows the market you are looking in. Here is a great place to find one: http://dreyfusproperties.com/realtors. Discuss your goals, why you want to buy a house and set realistic expectations, including expecting to pay a premium. Take a deep breath. Drink – A LOT.

Good luck!

A Realtor Buys a House – A New Dad’s Journey Through Hell – Part 1

My wife and I have been wanting to move to Portola Valley or
Woodside for a couple of years (OK, 20 for me, she is a more recent convert),
and looking with varying degrees of seriousness. During that period, I have
mentioned our interest to several clients as I was helping them buy or sell
their homes in the area, and my comment was often met with a mix of suspicion
and fear that I would somehow buy up all the “good” homes, leaving them with
the dregs.

I thought that it might make for entertaining reading to
actually document how we went about this process and share our experience. It’s
probably remarkably similar to yours, especially if you are a client of mine.
If you aren’t, you should be. Shame on you…..

In the interests of full disclosure and transparency, I’m
approaching this like the television program HouseHunters. We have already
found our house in Woodside and are in escrow. We move in May.

Thanks for reading and stay tuned…….

A Realtor Buys a House, Part 2 – Laying the Groundwork

Palo Alto Condo Price Climb

One of my specialties is Palo Alto condominiums and I have been keeping a
close eye on the condo price climb.  Statistics show this real estate
trend is likely to continue as the market responds to the fundamental economic
law of supply and demand.

According to figures released by the National Association of Realtors, homes
for sale across the United States were at their lowest level in 11 years for
December 2012.  Despite increasing demand, home sales fell in December due
to the shortage of homes for sale.  The “Existing Home Supply” report is
based on residences that have been previously owned and not new construction.
 You will see in the attached graph the drastic decline in homes for sale
over the course of the last year. 

The Palo Alto real estate market is feeling the impact of short supply and
condo prices are climbing as a result.  Several factors are contributing
to the short supply of available units in Palo Alto:

  1. Stock market
    volatility- people are relying on their homes as their investment
    potential as the stock markets face turbulent times.
  2. Baby Boomers-
    having purchased their homes when markets were substantially lower, they
    are staying in their homes as long as possible not only for the investment
    factor, but to avoid capital gains as well.
  3. “Facebook
    Effect””- what realtors are calling the trend of IPO companies creating
    massive wealth in Palo Alto and the Silicon Valley, and a subsequent
    influx of homebuyers.
  4. Palo Alto is
    desirable- with top-rated schools and amenities, an address in the
    community of Palo Alto is considered prestigious so buyers are increasing.

As you will see in the following graph, factors such as these have driven
the price of town houses and condominiums up despite a tough economic
climate.  Out of 1,242 listings, the median average in 2012 was $900,000
from only $580,000 in 2004.  This provides a condominium owner with a
significant return on their investment if they choose to sell (see graph below).

The steady decline in available units and the condo price climb in Palo Alto
have created a seller’s market.  If you have a condominium and you are
considering putting on the market you can expect multiple offers and a price
well beyond what you could have expected in prior years.  

I specialize in Palo Alto condominiums and would be happy to discuss ways
for you to not only maximize the exposure of your unit, but also attain the
highest sale price for your condo.  

How to Value Luxury Real Estate

Maslow’s hierarchy of needs says that human beings make decisions first based on fulfilling their physical needs, then their safety, then the more abstract concepts of self-esteem, and finally, if all else is satisfied, decisions are made to further their self-actualization, to become “everything that one is capable of becoming.” 

Valuing high-end, luxury real estate is challenging because decision-making has climbed up Maslow’s hierarchy to those higher, abstract levels and the basic objective standards have less importance. Put another way, you don’t need a 5,000 square foot house or a view of the hills to the west or even a short walk to school. You want that. And the value you put on what you want is directly related to how many options you have in the real estate market and how many homebuyers want those same things. 

That is why a straight price-per-square-foot analysis is ineffective in putting a value on luxury real estate. It assumes fungibility — that one house of the same size and quality is substantially equivalent to another in the same time and place. 

A price-per-square-foot calculation, as well as comps provided by many real estate agents, often don’t take into account lot size, location, amenities and, most important of all, the hundreds of unique attributes people value that can’t be stuck into a Zillow algorithm. And they most definitely don’t take into account the “I’ve never seen anything quite like this” or the even more amorphous, “I just have to have it” factor. In placing a value on luxury properties, subjective ideas of what is important have a dramatic impact.

When valuing luxury real estate, you do start with the basics: bedrooms, baths, and square feet. Then you need to consider the more abstract but often more significant features of lot size and location. In this luxury market, a square foot of dirt in one neighborhood is worth a lot more than a square foot of dirt in another neighborhood. Heck, a square foot of dirt may double in value from one street to the next!

And that’s where the most subjective assessment comes into play: evaluating the property for any unique attributes for which people will pay a premium. Those unique attributes are often obvious, such as expensive finishes, a pool, a tennis court. But sometimes they can be subtle, or they can speak to only a small group of potential buyers, but speak very loudly. Is the property new construction? Is it new construction by a well-known architect? Is it new construction by a well-known architect with a hard-to-get interior designer? Is it on a cul-de-sac? Is it on the ONLY cul-de-sac? Is it a large lot? Is it the largest lot in town?

All of these factors increase value, and the amount people will pay for those attributes is a condition of local mores and the local economy. It is in this area of subjective qualities about a home where mistakes can be made and value can be lost and gained. 

Before you set a price on your home, ask yourself, “Could a buyer easily find a house similar to this one? What qualities about my house are different from other houses currently on the market?” If something about your house is truly unique, but that unique feature may speak to a smaller group of people, such as horse stables, a location within walking distance to a country club or private school, make sure you and your agent market that specific feature to that target group. 

Identifying that “hook” for potential homebuyers, speaking to their higher needs on Maslow’s hierarchy, could mean the difference of hundreds of thousands of dollars in the final sale price of your home. And while it may not be your ticket to being the best person you can be, it just might get you the best price you can get on your home. 

2012 Q3 Market Commentary

Land, they ain’t making any more of it. Buyers are channeling their inner Will Rogers as the theme for the third quarter and the mid-peninsula market seems to be the demand for land. If you are an architect, contractor or interior designer, start staffing up because we see customers coming your way as teardown purchases dominated much of the local real estate scene. Real estate agents groan as they pile up on clients who all want the same thing, a premium lot in a premium spot. And, as they get snapped up, the competition for what remains is driving prices higher.

Note: Click on images to view larger

Palo Alto

Palo Alto recorded its fifth consecutive quarterly rise as the average sale price crept over $2,000,000. For those keeping score, that is a 26% rise over the third quarter of 2011. Lack of inventory continues to cause upward pressure on prices with 6% less homes being offered for sale than what was an already a low third quarter in 2011. North Palo Alto neighborhoods were the big performer, with a 32% increase in average price versus 21% for South Palo Alto.


Menlo Park/Atherton

Prices dropped a slight notch in Menlo Park from the previous quarter as inventory increased a bit. But the average price was still well ahead of last year with a 22% increase over the third quarter of 2011. Atherton, on the other hand, was a feeding frenzy with the average sale price leaping 50%, largely on the back of some very high-end sales and a resurgence of the appetite for land from builders and end-users. 


Portola Valley/Woodside

Portola Valley had a nice 13% jump in the average price compared to Q3 2011. The story behind that jump was the demand for entry-level homes and land. Woodside continues its sluggish 2012 performance with the average price moving down 4%. Central Woodside, however, rocketed up with a 119% increase in average price as a few big ticket sales affected the numbers.


Los Altos/ Los Altos Hills

Los Altos had a bang up third quarter, posting a 22% average and 19% median jump over 2011 numbers. North Los Altos was a big performer, with 38% increases in both the median and average price. Buyers up in Los Altos Hills unleashed their demand for the pricier stuff, causing the average price to climb 24%

Act fast. Capital gains could jump in 2013.

“A house divided against itself cannot stand” is how Abraham Lincoln put it. While we’re not in Civil War territory today, we’re definitely in a place of political impasse.

Homeowners take note: our government is likely too divided to stop the Bush tax cuts from expiring at the end of 2012, no matter who the next President is. You can still sell your house under the current tax code, but you must hurry.

If you’re like some of my clients, there’s a lot at stake. The Smiths bought their classic bungalow on a shady street in Palo Alto in 1971 for $151,000. That same house is now worth a tidy $2.5 million. Yes, it’s a great problem to have, but it’s also better to pay the current 15% long-term capital gains tax, than next year’s expiration driven rate of 20%. Also, add the medicare tax of 3.8% on gains, recently upheld as part of the new federal health-care program, and you’re looking at a nearly 9% rise in taxes. If, after adding the cost of capital improvements, the Smiths have a basis of $400,000 and net $2,000,000 after costs of sale, they have a long-term capital gain of $1,600,000. Even with the $500,000 tax-free gain exclusion given a married couple on a primary residence, that’s the difference between $165,000 in taxes this year versus $261,800 the next. Keep in mind, too, that the pre-Bush capital gains rates are not a ceiling. A nation that keeps talking about balancing its books is a nation likely to raise taxes, before too terribly long. 

The lesson here? If you’re thinking about selling, ask yourself if you’re confident your house will be worth 15% more next year—because that’s the magnitude of gain you’ll need to cover a bigger tax hit. If you decide to take the money and run, do it now and don’t wait to the last minute. That’s what everybody else is going to do. And yes, in my world, it’s almost the last minute. Not only is 2013 coming fast, but the closer it gets the more likely it is to cause a stampede of sellers who, together, drive prices down. 

Now for those of you that have been adults for a while, I think it’s worth noting that you can no longer skip capital gains by using the proceeds to buy a more expensive house. That little dance move was removed from the tax code quite a while ago and replaced with the $250,000 exclusion of tax on gain on the sale a primary residence ($500,000 for a married couple). If you did partake in the old tax law, don’t forget that you have carried that gain with you.

At whatever rate you end up paying, the measurement for capital gains is what you sell your property for minus the purchase price and the cost of capital improvements. Maintenance and repair, like painting your house, is not a capital improvement and so not added to your basis. However, in the last 90 days before you sell your house, more fine print starts to work in your favor. Any decorating or repair expense—like painting, landscaping, wallpapering, or fixing the chimney—is deemed a deductible selling cost, as are advertising fees, administrative costs, inspection fees, legal costs, and your real estate broker’s commission. 

Q2 Condo Health Report: Condo Inventory Falling, Buyers Clamoring

Condos and townhomes are a great way to get a pulse on the Palo Alto real estate market. This segment tend to be more volatile than single family homes, so we can get a good feel for what’s happening in the market by looking at their inventory, sales prices, and general activity. This market behaved differently in the first and second half of Q2, thanks to the Facebook IPO.

In the first half of Q2, our local market reflected excitement about the Facebook IPO. In the runup up to the IPO, we saw a large uptick in available (and later, sold) properties, as many sellers decided to capitalize on optimism surrounding the IPO. 67% of the condos and townhouses sold in Q2 were sold before the Facebook IPO. Even with the increase in inventory, buyers were clamoring for these properties. And then, just as quickly as the excitement began, the condo market lost its momentum.

Let’s dissect the second half of Q2. As the market changed, sellers and buyers reacted very differently. Sellers suddenly became apprehensive about listing their properties. As the optimism (and Facebook stock price) dipped, fewer properties became available to purchase. Compared with 2011, inventory in the final weeks of the second quarter was almost 55% lower than it was at the same time last year. 

Buyers, however, still clamored for properties. Condos and townhouses sold just as quickly as before the IPO — and still sold, for the most part, above asking. Of the 14 properties which sold or went pending in the second half of Q2, only 3 lasted more than 20 days on the market. 

In the pre-IPO excitement, sales activity increased. In the post-IPO hangover, sellers pulled back, while buyer activity remained constant, or perhaps even increased, despite the contraction in available homes late in the quarter. Right now, we find ourselves in a moment of low inventory and high demand. If you’re on the fence about selling your condo or townhome, now is a very, very good time to get premium price for your property.


Peter Giovannotto is the Palo Alto condo guru for Dreyfus Properties. Peter has created the only known Comparative Market Analysis tool to compare condominiums, townhouses, and homeowner associations in North Palo Alto. Find out more about Peter’s condo analysis tools on his website: www.paloaltocondoinfo.com