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.
Begin with asking yourself this question: what would the buyer of this property be looking for? What needs does this house and land fill? Here are some possible areas to consider:
- Schools – many Silicon Valley home buyers are aiming at particular school districts, or possibly even a single school or set of schools. If the property in question is located in an area with highly regarded schools, this will be an important factor in the market value.
- Condition – some buyers are looking for a lower-cost property to rebuild or remodel. Others only want a truly turnkey home that’s either newly and extensively remodeled or a very young home. Many homes for sale in Santa Clara County are partially updated, and neither fully original nor fully remodeled. Some buyers are OK with this but many want one extreme or the other and most want the move-in, nothing needed house & yard.
- Land – in California, it is the land that holds value, not the structure (which gets old, needs repair, can be destroyed). How much acreage is there? Is it all usable? Is it conveniently located? How are the views?
- Amenities – if the unique home has any special or bonus type features such as belonging to a cabana club or neighborhood pool, features a special attribute such as a wine cellar & tasting room, those should be considered too.
Hypothetical Case: Unique Almaden Valley Home to Sell
Let’s take a hypothetical case of a unique home to sell in the Almaden Valley area of San Jose. Let’s say that this house began as a standard 4 bedroom, 2 bath home with 2000 square feet in a nice area with great schools. And now let’s say that the owners massively expanded the home by adding a basement under the house (an expensive undertaking and which no other neighbor has) that features a game room, a bed & bath suite with a kitchenette, and it includes Brazilian hardwood flooring. We’ll say that the home is now 3000 SF in all and that the owners got all permits and finals. (This is totally made up, I know of no such home in the 95120 zip code.)
With no similar homes to compare it to, how would you estimate the market value of the property?
As a basis, you can see what the house would sell for without the improvement and addition. We know that the value would go up from there, so this will establish a “lower than baseline” value. The house itself is 50% larger but buyers will not pay 50% more for a home that much bigger (sellers often wish that they would) because the land didn’t get 50% better and neither did the neighborhood, and the house is only part of the package. Smaller homes sell for much more per SF than larger homes do.
You can also see what homes of a similar square footage are selling for when the extra space is above ground, such as with a 2 story home. Most home buyers would far prefer that all square footage be above and not below grade. If you can find properties that are 5 bedroom, 3 bath and feature a bonus room (and beautifully remodeled) all above ground, that is likely to be your high end of value.
The likely buyer of that property may be someone looking for the best schools who either wants/needs a pool table room (or has a hobby that calls out for a rec room or bonus room) and wants a guest suite (perhaps for relatives or a nanny or some other purpose). Or perhaps the buyer will be someone who wants to create a home theater, in which case being in the basement is a plus since you don’t want a lot of large windows there.
The best comparable sales may not be within a mile, or even be within 10% of the size of the home. They could be further out but fill similar needs and show what buyers will pay to have those needs filled. It’s not always exactly about the square footage, the numbers of beds & baths, the precise street or view.
With a lot of tweaking, it’s usually possible to narrow the range for that likely buyer’s value for the home to within 10% of the correct spread.
At that point, it may be good for your agent to connect and network with other good Realtors to get some insight as to the recently sold and closed properties and those which are sale pending. There may be more to it than the price which shows up on the county records. It can also be wise for your real estate agent to call in a favor (once it’s listed for sale, after you have signed the paperwork) or two and ask colleagues and friends in the industry who are experienced with similar properties to swing by and offer their suggestions on market value. Collaboration does not show weakness on the part of your agent, but rather going the extra mile to get it right. Sometimes the extra input can be very helpful.
A quick warning on appraisals: sometimes agents or home sellers will want to get an appraisal of value to determine market value. I want to caution that appraisals are not the same thing as a competitive market analysis (sometimes called a comparative market analysis). Appraisals look at what has sold and often times they may not factor in things the same way that an agent would for a buyer’s response. For instance, I once saw a Los Gatos home which sported a tangerine colored kitchen sink. For an appraiser, that sink (which was in mint condition) was not an issue. It functions, it’s in good shape. But as a listing agent, I can tell you that things like teal colored carpet, flocked wallpaper and crazy colored fixtures do not make a home easier to sell or to sell it for top price. They may be OK for an appraiser but not for what buyers will be willing to pay today. It will hurt you competitively.