It is true that there’s no such thing as a “perfect house” anywhere in Silicon Valley. No matter what your budget, there is always a change you might want in any home. (Often buyers want about 20% more than their budget allows, in my experience. This is equally true of first time homebuyers as it is for move up or even luxury home buyers.)

So it comes down to which compromises you’re willing to make. There will always be compromises - but which ones are acceptable, and which ones aren’t?

It is extremely helpful if you can prioritize, in order, what you must have or strongly prefer to have, in your next home. Sometimes couples have some, but not all, of the same preferences, wants and needs. Where they get into trouble in homebuying is when they have different priorities. In fact, that can make it almost impossible to buy a home and have everyone happy at the end.

I would like to suggest that one of your top priorities ought to be “resale value” and “resale ability”. Some may object, “I am never going to sell this home!” but in truth, we don’t know the future. If you buy a home with a problem that makes it hard to sell generally, and you get stuck having to sell it in a bad market, it will be brutal and possibly even risky if you later are selling due to any financial hardship.

What kinds of things should you consider as factoring into resale value later?

The biggest challenges anywhere in the San Jose, Los Gatos or Saratoga area are the things you cannot change. For the most part, anything inside of your home can be upgraded, fixed, or remodeled. But you can’t improve the neighborhood, the land the home’s sitting on, or issues beyond your own property line.

Some “big issues” along these lines include:

• high voltage power lines
• train tracks
• freeway walls
• busy roads
• commercial properties too close
• airport too close
• traffic cutting through your street (for schools, freeway access etc.)
• having lesser quality homes nearby (apartments or neglected homes)
• blighted homes, neighbors who do not keep up their yards
• too many cars or other vehicles on the street
• loud neighbors
• an earthquake fault
• being in a flood plain that requires flood insurance
• other natural or environmental hazards such as asbestos, radon, and mercury

For the most part, there is absolutely nothing you can do about any of these problems. If you purchase a home with one of these issues, realize that when you sell your home, the impact may be the same or may be worse.

If you begin with the end in mind, that is, buy with selling in mind, you will purchase a home that will enjoy a better chance of selling in any market.

Want to improve your possible resale value when you purchase a Santa Clara County house or condo? Buy a home that has the potential of appealling to the largest possible audience. Begin with the end in mind. Some of the homes that have the most difficulty selling in every market appeal only to a small pool of buyers. For current homeowners who want to sell, the advice is the same: get your home into shape so that it appeals to the largest group of potential buyers.

We’ll discuss “what buyers want” in a future post soon so that sellers can get their home into the best possible condition for resale value.

What makes a house a “luxury home”?

A luxury property in Santa Clara County often includes a number of elements that set it apart, such as:

• price tag: these homes usually sell for more than three or five million dollars (and may be $10 or $20 million or more)
• more than an acre or two of land
• house larger than 4000 or 5000 sf
• the inclusion of “out buildings” such as a guest cottage, gatehouse, etc.
• views (valley, hill, acreage) or special features of the land (waterfront, riverfront adjacent), a vineyard, or something else special and uniquely beautiful
• amenities such as a pool, tennis court, racquetball court, gym, sports court or facilities for enjoying other sports & exercise on site
• specialized hobby or relaxation rooms, as in a darkroom, library, workshop, conservatory
• entertainment centers not commonly found in private homes, like a ballroom, dedicated home theater room for movie viewing, pool or billiards and “game room”, and ice cream parlor
• safety tools such as a video survelliance system, electronic gates

The (main) house itself is qualitatively different too.

Kitchens tend to be the most important room for San Jose area home buyers of all price ranges, and this includes homes that cost upwards of ten million dollars. Usually, kitchens in these homes are designed with a very clear purpose in mind and are done beautifully, though recently in Los Gatos I saw a home listed for about ten million with a kitchen that needs to be completely remodeled. This is very unusual, though.

Most luxury homes features kitchens of one extreme or the other. On the one hand, it may be more industrial in nature if those cooking in it are primarily professional chefs, domestic employees or catering services rather than the homeowner. This is not the kitchen of glossy magazines, it’s not meant to impress anyone for all the maple cabinets, stainless steel appliances and granite countertops. This sort of kitchen is functional, not gorgeous, and it may have stainless steel countertops, for instance, alongside the giant gas range. Such a kitchen is usually separate from the living areas and the guests are not expected to visit this part of the home.

Far more commonly found in Silicon Valley is the other end of the spectrum, the kitchen where residents spend most of their time, and it’s meant to impress. Here we see high end materials and appliances in a room viewed as much as art as the meals created in it are. This type of kitchen is often the focal point of today’s upscale or luxury home. The home’s floorplan is “open” to the kitchen - often the kitchen and family room blend together as part of a Great Room. This is a kitchen designed for owners who cook, not those who have servants.

Luxury kitchens in most luxury homes include:

• a large, professional grade oven and stove
• two regular ovens plus a built in microwave
• maple or cherry cabinets, some with glass doors to showcase artistic pieces
• slab granite (or other slab material) countertops (sometimes stainless or concrete)
• an island with vegetable sink and disposal
• two or more dishwashers
• a butler’s pantry, often with a dishwasher and sink area for dishes and cutlery, which are stored in the bulter’s pantry and not in the kitchen itself
• sometimes other appliances and tools such as a built-in espresso machine (trash compactors are not so much in favor today but may still be found)
• special lighting, often imported, plus spotlights and under the cabinet lighting

Very often there’s an elegant breakfast room, often with windows on three or more sides, or nook and a place for stools to sit up close to the counter, frequently at the island but not always.

A formal dining room is to be expected in the ultra expensive, multi-million dollar home. Recently, though, I toured a home in Saratoga listed over five million dollars that was newly constructed and missing a dining room! Apparently the builder thought a corner of the living room or family room could be dedicated to formal dining, but I thought that this was a terrible oversight. Many high end homes feature large dining rooms that can seat 10 or 14 at one table, or in some cases host two tables with a half dozen or more at each. Truly elegant dining rooms will also include a fireplace as well.

I won’t do a room by room analysis, but there are many more features commonly found in expensive, estate properties. Lots of crown molding and baseboard, exquisite light fixtures, built ins, beautiful stone floors, elaborate electronics systems, and many more amenities can all be hallmarks of fine homes and estates.

Sometimes, people go a little too far in an effort to appear ultra elegant. Usually it’s something overdone, like too many Greek statues or other improvements that may be “over the top”, such as the use of too much black marble, too many chandaliers, or too much gold paint worked into a ceiling or fireplace mantle. These things are easy to fix and to personalize the home so it’s more appropriate, so don’t let the finishing work be a put-off. (Of note to me in the “over the top” category was seeing diamonds built into bathroom fixtures in one Monte Sereno home. What were they thinking?)

Even in homes with a high price tag, it’s important to carefully examine not just the general condition of the home, but the specifics. Sometimes, despite the acreage or square footage and apparently expensive construction, homes are not always well built - all builders are not the same. It is important to use due dilligence and look at the craftsmanship, simple things like grading and drainage, to make sure that the home is built not just to look good today, but to last into the future. Always, always get a home you wish to purchase thoroughly inspected. And if you own a lovely estate property, get it inspected periodically to maintain your property and prevent expensive problems such as foundation cracking and dry rot.

The trick is in figuring out how much room you really need to negotiate and at what point you’re dramatically hurting your chances of selling by overpricing. Where’s the tipping point?

Let’s do some mythical math - let’s say a 4 bed, 2 bath home in Los Gatos or Almaden Valley is worth approximately $1,000,000 (depending on terms like “As Is”, the loan type or all cash, free rent back, etc., the probable sales price range might go from about $975,000 to $1,025,000). 

If the home’s likely value on the market is worth about one million, many agents will suggest listing the home at about $999,000 in order to get buyers who may not search over the $1 million mark and to drum up interest, traffic, and hopefully at least one offer.

Saavy and experienced agents know that most homes sell fairly close to list price in today’s market (Almaden Valley houses are selling, on average, at 99% of list price and Los Gatos homes are selling at an average of 97% of list price), so most would not want to go beyond that percentage - whatever it is - since we also know that most homes are not selling.  Five percent over probable list price is ususually the upper limits of what may be wise positioning.   In the case of our mythical million dollar home, the highest that some agents would see as potentially viable might be $1,050,000 - but many others would not venture that high, feeling it creates a big risk of the home sitting on the market too long and ultimately selling for much less if the home is perceived as shopworn. They might place the upper limit at $1,025,000 or close to there.

Sellers, though, sometimes see the numbers but want to list their home higher - perhaps 10% higher or more over probable market value.  Why is this so often the case?

Sometimes it’s a misperception of how to get the highest price for the home.  “I’m not in a hurry… I can wait for a good offer” is a common retort.  The fallacy is that waiting will bring more offer - in most markets, it will bring less. The exception is in a rapidly appreciating market, waiting may cause the market to simply catch up with you.  If you’re really not in a hurry, wait until the market is where you want or need it to be before selling.  Putting your home on the market and waiting 4 or 6 or 12 months for it to sell is most often frustrating, not fruitful.

Sellers may hire the agent who tell them the highest price. If you were to interview 3 or 4 real estate licensees and ask about the market value of your home, they should all be fairly close if they’re looking at the same comps.  If all but one are in a “band” and one is much higher, beware.  That agent may be attempting to get your listing by providing you with a price that can’t truly be justified.  In the business, we call it “buying the listing”.  (I have lost a few listings by simply telling the truth about pricing, only to see the home get listed at a crazy high price - and never sell at all.)

Another reason seller may err with overpricing  is that being emotionally attached, home owners occassionally feel that certain improvements or changes that they made create more value than most buyers will accept.  For instance, if your home is wallpapered in very, very expensive and imported or antique wallpaper but the buyers hate it, it is not an “improvement” per se.  Same with high quality but out of favor colored carpets.   Feeling very attached to a house, its memories and meaning can make it very difficult to view selling the house as a business decision.  But to maximize what you take away from the property financially, that’s what’s needed.  At the extreme, some sellers may become defensive and angry if they ask a Realtor or an appraiser “what’s my home worth” and the answer doesn’t measure up to expectations.

It is very important to have the assistance of professionals who can give you unbiased (neutral) information & advice.  A dangerous plan is to tell your agent what the home should be worth and then insist that he or she agree with you under pain of not being hired (or getting fired).  As a fiduciary, your real estate agent should give you correct information - even if it’s not what you want to hear.  Ultimately your best help in pricing, and hopefully in working with an offer when it comes, will be by teaming up with someone knowledgeable who can give you good information, data, and advice so you can make the most of whatever market your home sale happens to be in.

To answer the original question, then, agents suggest pricing a home at market value because that’s one of the key things you need to do to increase the odds that your home will sell.  They are providing good advice.  This alone - pricing it “at market” - isn’t enough to sell a home, but it’s probably the most important part of any marketing plan.

There just aren’t many of them!

As of today, in Los Gatos (95030 and 95032 zip codes) and Saratoga (95070) , there are 185 single family homes (houses, perhaps a few “duet homes”) for sale.  Of the 185, a mere 14 of them are distressed properties (6 bank owned, 8 short sale).  That is just 7.5%!  For those who want Los Gatos or Saratoga Schools (not Campbell, Union, or Cupertino), the odds are even worse.  Only two of those homes go to the Los Gatos-Saratoga High School District. (Prices of all distressed properties currently available in these areas range from $699,000 to about $3 million.)

There are some good deals to be found in addition to this very small pool of bank owned properties and short sale listings in Saratoga and Los Gatos.  Often the best deals are found among homes which have been on the market a long time but aren’t selling due to cosmetic issues.  Homes which need changes such as fresh carpet, paint, or “easy” updating and remodeling (like new countertops, light fixtures, etc.) can be the best bargains around, particularly if the seller is truly motivated.  So don’t lose heart - just broaden your strategy a little and you’ll be far more able to locate a suitable home.

Here’s a look at the numbers from my Real Estate Report for single family homes: 

Among the sold homes, the median price has been slipping.  This is an “overall” number though, not reflecting price points, location, or school districts.

Here’s the same info for condos and townhomes in Saratoga:

As you can see there were no sales of condos in Saratoga in November - hence all the zeros.   What is managing to sell are the very least expensive homes - not the luxury condos.

Now let’s turn our attention to what’s happening now amoung the active or for sale homes in Saratoga (using Altos Research, to which I have a subscription).

Here’s a graph displaying the overview of list prices for condos and single family homes in Saratoga:

Oddly, list prices appear to be up even though the median sales price is clearly down.  Are sellers out of touch, or what’s happening?  We’ll need more data to answer that.

Here’s a similar graph but just of the single family homes, and this time with a breakdown by price quartile. (Please note that the info would be even more precise if broken down by school district, but this particular program doesn’t yet filter by schools.)

Interestingly, the middle quartiles showed upward movement in pricing over the last 12 months. I have buyers in the lower 3 quartile and it seems that there’s not much inventory among thouse in Saratoga or Cupertino Schools, and when the home is nicely fixed up and has no issues (problems), prices seem to be inching up. 

And again, list price of condos with price points included.

Condos in Saratoga did not fare as well, as you can see. This has been true throughout the county - since single family homes have become more affordable, consumers are often electing to purchase a house rather than a condominium.

Inventory for houses, townhouses/condos in Saratoga:

It’s seasonally typical to have more inventory in summer than other times of the year. Going back a few more years, please note where the peaks are found - always sometime in summer. (Single family homes only.)

It’s less visible, but still visible, with condominiums and townhouses in Saratoga:

Days on market for both housing types:

Houses by quartile is not much different - DOM is rising across all price points:

It is strangely disjointed in the Saratoga Condo market, though. I can’t explain why this is so “all over the board” based on just this data.

My suspicion is that the homes with the better schools are faring the best, but that’s just a hunch based on how well homes usually sell - it’s not provable with this info at hand.

If you’re interested in buying or selling a Saratoga home, please contact me. I’ll be happy to meet with you for a no obligation initial consultation.

It’s a great piece but being so very brief, misses much of what makes San Jose and the south bay (particularly Santa Clara County, Silicon Valley), such a great place for children. 

Something to understand about our area is that things don’t start and stop at any of the city limits. One of the plusses of the sprawl is that we have a lot of regional features.  Great America Theme Park, with all its roller coasters, shows, water fun and more, is actually in Santa Clara. But Santa Clara touches and is only a few minutes from San Jose.  Folks in Santa Clara may be just as rabidly fans of the San Jose Sharks as anyone who actually lives in San Jose proper. Ditto that in Los Gatos, Campbell, or anywhere  in the south bay area. 

Like water? San Jose touches the southernmost part of the San Francisco Bay (at Alviso, once a separate town but now part of SJ).  Santa Cruz is just 30-45 minutes away and it offers the beach, the Santa Cruz Boardwalk (amusement park) and tons more.  Kids here can learn lifesaving, rowing (crew at Lexington resevoir), sailing (kid lessons at Vasona Lake County Park), and windsurfing (Lake Almaden and other places too).  There’s a waterpark in the Evergreen district too, just in case the lakes, resevoirs, and bays aren’t enough.

Looking for “winter sports”?  - the Bay area is only a few hours from cross country and downhill skiing. Ice skating can happen year round, thanks to indoor rinks plus seasonally available outdoors skating in downtown San Jose.

Much more could be said about the area, such as the availability of horses (a surprise to many but stables and lessons can be found in San Jose, Los Gatos, Saratoga, Los Altos, Palo Alto and more areas), the rich cultural diversity, the availability of community sports such as soccer, the overall friendly atmostphere, and much more.   For those of us who live here, or who have raised kids here, it’s no surprise that San Jose made the short list of best places for children to grow up in!

Only a qualified, licensed Pest Control Operator can diagnose termites and pests, but this looks a lot like subterranean termite tubes to me.  When you see “mud tubes” such as this, it is time to call a good termite and pest control company for diagnosis and treatment.

Why do termite & pest companies insist that the garage be largely free of personal possessions when they inspect? It is so that they don’t miss things exactly like this. 

When buying or selling a home, understand that the inspectors arent being difficult if they won’t warrantee a garage as free of pests when they cannot view the walls or floor.  Bookshelves and personal storage can obstruct the view of things like this.  If you’re selling, be ready for the inspectors - have all your items away from the walls or even better, entirely out of the garage. If they have to call a packed garage as an “unknown further inspection”, it’s likely to cause you problems later, when there’s a time pressure.  Best to know upfront, for everyone’s sake, what the score is.

To read about the market in particular parts of Santa Clara County (both cities and districts within the city of San Jose), you can read my full on-line report here: http://popehandy.rereport.com.

There is also a 4 page printable version with more insightful articles about the annual market, here: http://rereport.com/scc/print/Mary.PopeHandySCC.pdf   

Economists are mixed on what will happen in 2010 and beyond, but many think that this year will be better than last, and 2011 will be a “hot” market again as prices are largely undervalued right now.

There are some caveats - the home cannot cost more than $800,000 and a couple cannot earn more than $255,000 per year.  Owners must have been in the home for five consecutive years of the last eight.  This may be the ideal help for Silicon Valley seniors wanting to downsize.

To read the article on Realty Times, click here.

Don’t count on it.

Lowball offers are contracts written substantially below the list price (and often well below market price).  How low is too low? It really depends on the micro-market of the home you’re interested in (the neighborhood, price range, school district, etc.).  In most of Silicon Valley, houses, condos and townhouses sell within 5% of list price most of the time. The average list price to sales price ratio is usually closer to 1 - 3% of list price. 

My usuall advice to buyers is this: if you don’t think that the home is worth within 5% of list price, then keep looking until you find a home that is.  Most of the time, sellers aren’t prepared to come down more than a few percent. 

Once in awhile, of course, a million dollar home will sell for nine hundred thousand. But it is very rare that a home will go for 10% or more off of list price.  Most often, in fact, the seller will be angry about an offer that far off the mark and will simply write a high priced counter offer.  For example, let’s say a home’s listed at 1 million dollars (to use round numbers) and a buyer writes an offer for eight hundred ninety thousand dollars.  Most likely, the seller will volley back at something like nine hundred eighty thousand.    The best listing agents will tell the seller, “rather than take an offer more than 10% below list, let’s reduce your home’s price 4-6% and see if we cannot sell it for more than that”.  And usually, they can.

Buyers: if your budget is appx $500,000 or less, please don’t waste everyone’s time by looking at homes priced at $600,000.  Look at $500,000 or less - maybe a tad higher than five hundred, but not much.  Look within 5% over your budget, tops.

Sellers: if you are getting lowball offers but no “close” offers, the buyers are telling you something about the market conditions. Consider reducing your price so that your sales price can be reasonably close to list price.  Ask your agent for his or her unbiased opinion of your home’s probable sales price. (Some sellers browbeat their agents on price, feeling that if they can convince the agent the home is worth more, it will sell for more.  Give your agent the permission to be honest with you - that will be your best help.)