Whether you are buying or selling a home in Silicon Valley, the real estate market data is super important to your sense of realty values. This is one area where it”s expensive to get it wrong when pricing a home to sell or deciding on a price for a bid to buy.
How can you get it right?
For a comparable or competitle market analysis:
In general, real estate professionals try to narrow the data to similar properties when doing a market analysis:
- don’t compare apartment style condos with PUD townhouses or single family homes
- don’t compare properties from different zip codes, school districts, or with more than 20% difference in home size
- ideally, DO pick properties within 1 mile, within 10% – 15% plus or minus the size of the home and the land
- ideally, try to get homes similar in age or condition
- make sure the comps are current – 90 days is best, but if you have to go back 11 months or so, make sure that you adjust for the market changes since then
- if at all possible, compare similar type homes: golf properties with golf properties, view homes with view homes, equestrian estates with equestrian estates
- also if possible, use the same zip code as sometimes this also has an impact
General market trends relevant to the property in question
To get a sense of the market generally (rather than just the comps for one particular piece of land or house), it is somewhat the same in terms of criteria, but not so specific. I’ll often use just a few criteria to see how the “overall” market is doing – often the approximate price point, school district, and zip code will do the trick.
For example, if I’m looking in east Los Gatos (Union School District / Campbell Union High School District) for a house worth appx $1,750,000, I might check market data such as the absorption rate or the days on market for homes matching just this criteria:
- Los Gatos / 95032
- High School District 473 (Campbell Union HSD)
- list price OR sale price for solds the last 90 days $1,500,000 – $2,000,000
- Perhaps similar square footage plus or minus 10-20%
This is a small enough segment of the market that I’ll have a pretty good sense of what’s happening there pretty quickly.
Case study
Today some buyers of mine were interested in a property where the house was lovely but obviously overbuilt for the neighborhood. Driving down the street, you could see with your own eyes that this one house was twice as grand (if not more) than anything else nearby. But is that a problem?
I ran the absorption rate via the months of inventory for similar homes and found that there are 4 houses on the market like it, and 0 that have sold in the last 30 days. That’s not a good thing – that’s an infinite amount of inventory. But it’s only one data point! I looked to see how many had been on the market over the last year and there were only a half dozen, and of them, only 2 had sold. That’s not ideal. It’s best to buy a home that can sell when you need it to do so – and if it cannot sell in a hot seller’s market, what will it be like in the inevitable correction?
Usually it’s not so black and white, though. In those cases, it’s helpful to drill down the data to include more factors. At times I’ve seen that particular subdivisions simply sold faster and for more than similar ones nearby. This is where real estate is as much an art as a science.
Beware oversimplification
The biggest danger is in JUST looking at the zip code, or just the price point, or just any one item that gets picked out of a hat. Easy answers are often not the best ones. It’s fine to get the “birds’ eye view” for an overview, just like it’s good to see the county as a whole, but the house you want to buy or sell isn’t the county, it’s a very specific piece of real estate. You and your Realtor must figure out what’s relevant. Maybe it’s walkability to schools or shops. Maybe it’s access to light rail. Perhaps it’s something else. But do narrow the field to what’s relevant and then you will have good data.
