Valuation: Price Per Square Foot is only Part of the Answer

Additons and price per square foot values - house being added onto in Silicon Valley - price per SF with add onsThe “price per square foot” data point can be useful between uniform or very similar homes, but using it with dissimilar properties (size, lot size, school districts, and other elements) will result in a wrong valuation and upset home sellers and listing agents.

An important real estate principle to know is that smaller homes nearly always sell for more on a per square footage basis than 10-15% larger houses in the same area. The reason why is that kitchens and bathrooms are the most expensive rooms, but often there is just 1 kitchen and a similar number of baths with smaller vs larger homes.

Even if the properties are comparable in many ways, more than 10 or 15% difference in square footage can make the price per SF very wrong.

When to use the price per square foot data set

If evaluating condos in the same complex, such as a 2 bed, 2 bath with 1,000 SF, it makes sense to compare units in the same complex with 900-1100 SF (plus or minus 10%). If nothing is available, going to 15% may work, but the data won’t be as reliable – 850 – 1150 SF.

In a subdivision of houses that are all about the same age and with similar lot sizes, the target would again be 10% of the home size. In a 2,000 SF house, that means plus or minus 200 SF, ideally, but not more than 300 SF.

If a 1500 SF house is included in the analysis of a 2,000 SF house, it will mislead the home owner because the 1500 SF house will sell for more on a per SF basis than the much larger 2,000 SF house. The seller will overprice the home if doing that.

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, as long as it’s within that 10% range, ort 15% at the very outside.

 

Other factors that influence valuation – beyond the price per square foot

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 square foot alone:

Location and lot / land differences and price per square foot

  • precise location (view, proximity to something undesirable)
    • for example, one house is next to tidy homes, but another has a junky neighbor or two
    • one house is internal to a neighborhood, and another is on a busier road
    • one residence backs to commercial property or a tall apartment building, which another backs to a single story house
    • whether the street is a good one or full of parked cars & RVs
    • whether the house is below or above grade/street level (most people don’t prefer being down from the street)
  • lot size and usability (flat vs sloped)
  • lot shape & access (flag lots may sell for less than homes directly on the street)
  • back yard size

Home changes and condition
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Five Pricing Mistakes to Avoid

Five pricing mistakes to avoid - not factoring in location problems or other negative issues is a huge mistakePricing is the most important part of “marketing a home for sale” that sellers and their agents do. There are five pricing mistakes to avoid that we’ll go over here.

The one most important tip: over-pricing is the #1 reason why some homes don’t sell. A property has the best chance of selling at highest value and quickly when it’s priced right from the start. Here’s a quick list of the most common pricing errors which Silicon Valley home sellers should avoid because they often lead to over-pricing.

Five Pricing Mistakes to Avoid

  1. Selecting the list price of the home based on what you want or need rather than on what the market will bear (the “probable buyer’s value” of your home).
  2. Using dissimilar “comps”. The best comparable properties will be within a mile  of the subject property, within 10% of the home’s size and 10% of your lot’s size, in the same school district, ideally in similar condition and architectural style, in a similar type of location, and on top of all that sold very recently.  Don’t compare a patio home or zero lot line home with a house on a normal lot where the owners can walk fully around the property. Don’t use the price per SF of a property 20% (or more) larger or smaller.
    • Of the five pricing mistakes to avoid, this is the most common one – for both sellers and for buyers trying to gauge where a property might sell.
  3. Hiring an agent who tells you an inflated price and then using that number. Look at the numbers yourself. A better practice is to first select the best Realtor and then arrive at a pricing strategy together. Many agents are pressured by homeowners to tell the owner what he or she wants to hear. This is truly counter-productive!
  4. Not factoring in negative issues which could impact your home’s value, such as proximity to busy roads, high voltage power lines, the look of nearby homes and yards, non-permitted work or additions, a strange layout, etc. Ignoring it – or believing that buyers will – means you will be perpetually too high in your assessment of your home’s value.
  5. Failing to include the current competition in your assessment of your real estate’s value.  Are there a lot of homes like yours on the market? Are they selling or staying on the market? The buyers are are sending signals, so listen to them! Are there short sales and bank owned homes selling nearby? If so, those are going to pull your home’s value down, so those need to be included in your assessment. It is very important to establish the probable sales price of your home by looking at the competition as well as the pending sales and recently sold homes.

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Expired, Canceled, Withdrawn Listings: What Happens If You Take Your Home off the Market?

Expired, canceled, and withdrawn listings are all frustrating situations for both home sellers and the Realtors they worked with. After considerable effort, and likely also significant cost. the property failed to sell (or it went pending, fell through, but did not re-sell). What happens next?

3 Minute Video Overview

 

What is the difference between expired, canceled and withdrawn listings?

Let us begin by discussing the difference between canceled, expired, and withdrawn listings and how each impacts your vulnerability to being swamped with messages from real estate agents.

On the multiple listing service, these are very distinct statuses.

MLS status for listings

  1. A withdrawn listing means that the property is still listed for sale with a real estate agent or broker but is no longer listed on the multiple listing service (MLS).  It’s still a valid listing and other agents should not approach you about working with them since you are still in a contract to sell your home with your current agent.
  2. An expired listing means that the contract for your listing has come to an end and the listing is no longer in place.  Other agents may approach you since there is no valid listing in place.
  3. A canceled listing is one in which the seller and agent or broker agree to terminate the listing. Since the listing has ended, other agents are free to contact you.

In a nutshell, if your Silicon Valley home’s listing becomes either canceled or expired, real estate sales people may contact you, but if it is merely withdrawn, they are not supposed to reach out to you because you still have a valid listing in place. (more…)

Thinking of Selling Your Silicon Valley Home? Get It Right The First Time if You Go On The Market!

Thinking of Selling your Silicon Valley Home? Sell it right the first time!You keep reading that it’s still a “seller’s market” in Silicon Valley real estate. You hear about homes recieving multiple offers and prices getting pushed up. Yet with interest rates still threatening to rise and more layoffs, not everyone is ready to take the plunge to sell.

Should you jump in as a San Jose area seller now?

Maybe, but if you do it, do it right! The dirty little secret that no one talks about is that not all Santa Clara County homes for sale are selling like it’s a hot market. They sit on the market, popping up on MLS searches for month after month, lower their prices, and might eventually accept an offer below asking price.

Dangerous Seller Myths

There are quite a few common myths that home owners believe about selling their property. Believe these, and act accordingly, and your chances of selling are dramatically damaged:

  • my price is high, but buyers can always “make an offer”
  • it’s a seller’s market, my home does not have to be perfect
  • if I fix up the home to sell, the buyer may not like the changes (this one is especially common)
  • it was like this when I bought it, so I don’t have to improve it now
  • I have lived with (fill in the blank) forever, there’s nothing wrong with it

Getting the home prepped and pricing right matter tremendously. Today let’s focus on preparing and staging.
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Should You Move Out Before You Sell?

Should You Move Out or Vacate Before You Sell?A decade ago, it was the norm for Silicon Valley homeowners to occupy the home they were selling – today a majority of homes are being sold unoccupied or vacant. Why is that? And should you move out before you sell?

A few years ago, around the mid- to late-2010s, we began to see an increasing number of vacant and professionally staged properties for sale. Last year, most sellers simply felt safer moving out before selling due to the pandemic. Today that continues to be the case.

Over time, the reasons for homeowners to move out before marketing a primary residence have increased. While sellers can certainly still occupy a home on the market and sell it successfully, it’s not our recommendation for most people and here’s why.

Seller Stress

First things first, if you are able to move out before you sell it can reduce a lot of stress. And this has almost always been the case.

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Silicon Valley real estate sales to “all cash” buyers: how prevalent are they?

Ten dollar bill (shown in part) with the words "Cash Is King" - all cash offers are preferred by home sellersHow common are “all cash” transactions for Silicon Valley real estate right now?  During the first couple of years after the downturn ended and the recovery cycle began, we had a large percentage of all cash buyers in Santa Clara County and nearby. In recent years, though, that ratio has been declining. Where are we now?

Some areas and some types of sales are more frequently all cash than others.  Here are a few quick stats for the last 60 days  (numbers from MLSListings, crunched by me – disclaimer on good intentions but no guarantee) for single family homes, townhouses, and condominiums (not included are multi-family homes, apartment buildings, mobile homes, farms / ranches etc.). Also, please note that this is for closed sales, not pending sales.

What percentage of sales are all cash?

  • Santa Clara County: 12% all cash
  • San Mateo County: 20% all cash
  • Santa Cruz County: 18% all cash

Few areas in Santa Clara County

  • San Jose (entire city): 10% all cash
  • Los Gatos: 12% all cash
  • Cupertino: 11%
  • Milpitas: 4%
  • Morgan Hill: 13%
  • Campbell: 10%

All cash sales close escrow without a loan. In higher priced homes, some new owners will put financing on the property after close of escrow.  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 priced distressed properties in particular.

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”?

Finding Your Next Home

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

 

 

 

How Important are Parking Spaces and Garages in Silicon Valley?

Cambrian Park Home, built by LeepMost homes in Silicon Valley come with some type of parking space for cars beyond street parking.  Home buyers want to know that there will be a place for their vehicles (and often their “stuff” too).   Garages and parking are sometimes under-appreciated aspects of evaluating real estate, and sometimes there are parking surprises after the close of escrow, so it will be the focus of today’s topic.

Parking and resale value

Because a real estate purchase is a big ticket item, it is always important to consider the ability to sell it later.  (Always buy with selling in mind!)  Will the property you have or are considering buying be hard to sell  in the future if it is not a red-hot sellers market?  Parking can greatly impact “resale value and overall desirability to a large portion of consumers, who may look at that space as protection for a beloved vehicle, a safety feature, a future hobby room, or many other possibilities.

If you are evaluating a Common Interest Development (CID) condominium, townhouse, or planned unit development home with private roads and parking, there will be some special concerns that may be a little different than if you were purchasing a single family home. We’ll consider both.

General principle:  In all types of housing in the San Jose area, usually the most highly desired type of parking arrangement is an attached garage with direct access into the home and with side by side parking provided (not tandem).  This is not true in all cases but is generally true.  You would not find home buyers interested in historic homes (Victorian, Spanish, Craftsman) wanting a prominent two car garage at the front of the house, commanding the lion’s share of the view from the street. (So don’t expect to see that in Japantown, Naglee Park, or the the Rose Garden areas of San Jose.) But for the typical buyer of the more common ranch style house, the attached garage is expected and appreciated, and if it’s missing it may be a challenge to sell the property later because the property will be appealing to a smaller pool of buyers.

Regarding direct access: garages are not allowed to have a door entering into a bedroom. This is for safety reasons since bedrooms are where residents are most vulnerable, and garages are an area of increased safety risk.
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Selling your Silicon Valley Home? Fix it first!

Selling your Silicon Valley home? Fix it first - image with nice house and advice to sellersSelling your Silicon Valley home this year? At the top of your to do list should be decluttering and fixing the home and yard. These basics are extremely important because they give home buyers confidence, and confident buyers write stronger offers with higher prices. When you do the work upfront, your future home buyers will be far more comfortable with an As Is sale, and you are more likely to get top dollar for your home.

Starting point: a list of what needs to be fixed

The first and most important thing if you’ll be Selling your Silicon Valley home is to go through your property – both interior and exterior – and get everything into good working order.  This may seem intuitively obvious but it doesn’t always happen.  Once I assisted some buyers with a home in which one of the bathrooms was not fully usable.  The owners just used other bathrooms but to the buyers it raised an enormous red flag and a ton of questions: when did it break? why didn’t you fix it? what’s the cost? are the sellers just hiding something?  This is a typical reaction when there’s deferred maintenance, particularly in a kitchen or bathroom. It happens in condos, townhouses, single family homes and even luxury homes.  But if you’re selling, don’t do it: get your repairs done first and foremost.

Exterior of the home

  1. Grab a clipboard or notepad, a paper and pen and walk around the exterior of your home.  Look for things which don’t work, need cleaning or otherwise need repair.
  2. Check the paint, windows, screens, downspouts, spigots, doorbell, front door, mailbox, door hardware etc. (Wood on the outside of the home tends to need painting every 5 years, by the way.)
  3. Is the house dirty or dusty? Consider power washing (close to when your home will go on the market).
  4. Are there stucco cracks or wood damage to the outside of the home (siding or under the eaves)?
  5. How are the sidewalk, the walkways, patio, or deck? Look for trip hazards.
  6. Exterior lighting – do the lights come on as expected?
  7. Sprinklers – are they working as needed?
  8. Are your downspouts extended so that water flows away from your home when it rains?
  9. Are your gutters cleaned out?
  10. Lawn and landscaping: is there a need for re-seeding, planting annuals?  Are the trees and bushes in need of a trim? You do not want trees hanging over the roof for many reasons, and bushes and other vegetation should not obscure windows as you want as much natural light to flow into the home as possible.

Interior of the home

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Preparing Your Silicon Valley Home to Sell and Return on Investment

If you are preparing your Silicon Valley to sell, you may have concerns about both time and money. You probably don’t want to spend a year getting ready, but you do want to make the appropriate changes which will bring a good return on investment. Some home owners don’t understand the connection between the home’s condition and ultimate sale price – their expectations may be a little off.

Sometimes when I meet prospective clients who are thinking of selling their home, I hear immediately, “we only want to sell As Is” and “we don’t want to have to re-carpet, re-paint, etc.”.  In the next breath, they tell me, “and we want top dollar for our house”.  Those two are often mutually exclusive desires – that is, getting one usually means you won’t get the other.  But not always, and I’ll show you how to increase the odds of doing both.

Preparing your Silicon Valley home to sell and return on investmentTo get top dollar, a Silicon Valley home for sale must appear to be the best value for the money and attract the most qualified buyers who step forward with a strong offer.  Buyers will pay more IF they feel that your home is a better value.

There are a number of things which need to be done for that to occur, but one of the most important has to do with the condition and appearance of the property. Confident buyers write stronger offers than buyers who are concerned about the house or condominium and potentially unknown risks. (Buyers are thinking “risk, risk, risk” and “beware of hidden costs”!) Home buying is both a business decision as well as an emotional decision.  To get top dollar, your home has to make sense and appeal to buyers on both levels, and we’ll discuss both in this post.

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The three greatest temptations for sellers in a raging hot market

House for saleIn a raging hot seller’s market such as we are experiencing today in Silicon Valley, home owners may be subject to some very costly temptations.

Home seller temptation # 1: overconfidence on the market

Because folks read about the dozens of offers on some homes, by extension, it’s easy to believe that every home sells, for top dollar, with no effort or planning on the part of the seller. This is a huge mistake. Perhaps we should even call it a myth since it may be commonly believed.

In today’s wildly hot market, there are still some homes that DO NOT SELL. 

What are the odds that your home won’t sell?

I just pulled some numbers from the MLS today, July 23, 2018. You may find them surprising!

  • In Santa Clara County, there are currently 1274 single family homes on the market
    • 490 of them have been on the market at least 30 days – 38% are not moving quickly & likely need a price reduction, if it hasn’t already been done
    • 211 of the 1274 have been for sale for at least 60 days – 17% have had 2 months worth of open houses, keeping the home spotless, etc.
    • 107 of the 1274 have a “days on market” of 90 days or more – 8% have serious market rejection
  • These are not all luxury homes!
    • 9 are listed at under $1 million
    •  13 are offered between $1 million and $1,499,999 (“normal” houses in our area)
    •  9 are on the market between $1.5 mil and $1,999,999
    • 14 are listed at $2 million to $2,499,999 (these are still not luxury homes in most cases)
    • 11 are priced between $2.5 mil and $2,999,999
    • That’s 56 homes of 107 that are under $3 million. The balance are “high end homes”, which usually are more challenging to sell

The best homes, those which are well priced, well marketed, and are easily shown, sell within 2-3 weeks. After that, home buyers view them as stale listings and assume something terrible is wrong with them. After three weeks, unless the home gets a deep price reduction, it’s unlikely to get multiple offers.

This first temptation is the greatest one, and it often leads to mistakes in areas #2 and #3, listed below. (more…)