Silicon Valley Real Estate Trends

With continued low inventory levels and higher demand from buyers, the April median price in the Silicon Valley real estate market jumped to their highest level since 2007 to $800,000 for a single family residence -- up 24% from the same month a year ago.

Similarly, the median price in April for condos and townhouses in Santa Clara County was $510,000, compared to $349,000 the same month a year ago which was a phenomenal 46% change.

For San Mateo County, the San Mateo real estate trends showed the April median price at $956,000, compared to $760,000, last year or a 25.8% increase.

As you know, a median price figure is the middle transaction so this statistical calculation won't necessarily translate into an across the board increase for each and every home.  What it does indicate is a strong market pressure and an upward trend for the Silicon Valley real estate market.

The frequency of the sale prices exceeding list prices is 73% in Santa Clara County and 68% in San Mateo County.  An indicator of the magnitude shows that the sale price to list price ratio averages 106.1% and 105.8% in Santa Clara County and San Mateo County, respectively.

An indicator I track closely in addition to the above ones, is the median days on market.  This represents how long it takes for one-half of the listings to sell.  In Santa Clara County, it is 10 days but just 9 in the Cupertino and Sunnyvale market area (hottest area in the county with a median sale price of $1,223,000) to 17 in the South County area which comprises Morgan Hill to Gilroy with a median sale price of $629,000.  For the current San Mateo real estate trends, it is but 11 days.

If a listing lingers on the market significantly longer than the median, well then it is a candidate for an analysis to determine the possible cause(s) including price, condition, marketing, etc.

As the old Meat Loaf song went, "two out of three ain't bad".  The last three buyers I helped recently, two strategies out of the three were successful.  In the first one, with multiple offers, my advice to my buyers was to offer in a range above list price and doing so beat out the second-place offer by just $1,000 with eight offers and a sale price over $800,000.  In the second transaction, the strategy devised by and used by my buyers failed.  They calculated a dollars per square foot against comparable homes.  For residential, this approach only works when you get lucky as in winning the lotto but I use this in addition to other aspects in my commercial transactions.  Their offer came in tenth out of ten and they missed purchasing a beautiful home by over $100,000.  For the third one, my buyer listened and followed my advice to offer in a range above list price and even though he didn't have the highest priced offer, the seller did accept his offer and closed recently.  For this one, there was more to my strategy than just price so on that basis, he won.  In the two successes, I not only gave advice on the minimum but on the maximum to pay for the home.  By the way, my long-term average performance is a success rate of 60% so these last three upped my average slightly!

In the last few weeks, I've noticed a change in the market in the favor of the buyers!  Many homes have generated multiple offers but not to the extent that we saw in the early part of the year.  This is in keeping with the historical tendency as we near Memorial Day weekend that buyers decide they have other things to do -- e.g., graduations, weddings, anniversaries, planning for vacation when school gets out, etc.  Also noted is that the inventory levels or those homes available to purchase have risen lately, affording more choices for buyers.  For single family residences, the highest inventory in seven months and for condos and townhouses, the highest level in eleven months!

Notwithstanding my prior comments about the market conditions during April, buyers that have pulled back from actively looking for a home for whatever reason, now stand a much better chance of being able to buy with less competition than in the recent past.  Mortgage rates still remain favorable but have nudged up a bit but still in artificially low levels as the Feds continue to purchase a mixture of U.S. Treasury and mortgage-backed securities to the tune of about $85 billion per month!  Their most recent comments contain a lot of double-speak thus raising the risk of a change in their programs -- e.g., less buying and the risk of higher mortgage rates.  In following the money, a lot of the funds created in the banking system have gone into asset categories like stocks and real estate (Google recently hit $900 and LinkedIn $200).  This is the "new" way the government prints money.

Please leave a comment or question if there is something you'd like to hear more about or would like information about the market in your neighborhood or contact me through my website or send me an email.  Thank you for reading!

Owning property with a non-spouse

As a real estate professional, I come into contact with individuals who are planning to purchase a property with another person not their spouse. This is an extremely tricky area because the partners could have a falling out or something happens to one of them to change their mind about their share of the ownership.

• One, a father told me that his son and his girlfriend were going to buy a home together. I suggested that his son and girlfriend needed a written contract or an agreement as they weren't yet married. The father's remark was something like "of course they will get married, I'll disown my son if he doesn't marry his girlfriend". Now, I was just trying to help and head off some potential problems that may have occurred due to their non-spousal relationship.

• In a second situation, I was working with a young professional women who wanted to purchase a commercial building to relocate her business to. Her other real estate investment was in a partnership with three other women. She suggested that the three others buy out her portion so that she could proceed with her business plans. When my client received a ridiculously low offer, she had no recourse other than to hire an appraiser and attorney to convince her partners of the proper valuation. No written contract was ever discussed or completed as they all were "good friends". This situation continued to unravel for over a year and even then still had each of the partners paying large legal fees to their own attorneys.

Attending a recent broker's tour meeting at the headquarters of the Silicon Valley Association of Realtors, I heard Nancy Chillag speak to these types of arrangements. Nancy Chillag is an attorney who has practiced law for over 20 years and specializes in construction law, representing both contractors and homeowners. What follows are my notes of her presentation. Hopefully, they will help you keep away from problems that do not have to even come up.

Nancy's first piece of advice is to always have a written contract.

Her second bit of advice was to ask some basic questions before getting into a partnership:

• Who's going to contribute what to the venture?
• How are negative cash flows going to be handled?
• How are repairs and maintenance expenses going to be handled?
• How is the non-payment by a partner going to be handled? By a loan from the other partner(s)?
• What type of situations will cause one or more of the partners to a buyout of the remaining partner? This is commonly referred to as a "buyout provision" as part of an exit plan. For instance, many corporations have a succession plan to prepare for the replacement of key executives.
• How will the value of the property be determined? One manner could be that each partner hires an appraiser and then the appraised amounts are averaged.

Of course, nothing in state law requires that an owner stay with another owner that he/she doesn't want. If the situation disintegrates enough, Nancy said that may call for a partition lawsuit where one partner sues to partition his/her share. Courts normally order a sale of the property and make it subject to their approval. A costly method to employ that often results in less interest by buyers as they don't want to get involved in someone else's legal web.

If you are considering a real estate investment with at least one non-spouse owner, get things taken care of in advance. Contact Nancy Chillag of Chillag & Associates in Menlo Park. Visit Nancy's website at www.chillag.com. She has also authored "Building by the Book: Legal Advice for Contractors" and "How to Survive a Remodel" a book I have in my library.

Thanks for reading!