My clients ask me all the time how they can possibly get a good deal on a house in such a hot seller’s market (and in Silicon Valley, it’s pretty much always a seller’s market). I have four golden rules for getting a good deal in a great area, and I’ve had to follow them myself when I bought my own home.
1. There is no such thing as a great deal, but you can find a good one.
In certain areas that have the rare but perfect combination of great schools, abundant and lucrative jobs and a downtown nearby (read Palo Alto), there are no true great deals. If you look at the home price appreciation for Palo Alto over the past 10 or so years, even when the rest of the country was down, Palo Alto home prices remained steady. In other words, Palo Alto has in recent memory been pretty insulated from downward fluctuations of the market. Because of this, Palo Alto is a reliable investment, and as such, attracts heavy interest both from local and foreign buyers, which constantly drives up prices.
Cities like these, where you can buy a house and be pretty darn sure it isn’t going to go down in value, are what I classify as great areas. And that’s why there really aren’t any killer deals in places like Palo Alto. The upside to this is that if you can afford to buy in one of these cities, you can be confident that you’re making a good investment.
The good news is that despite there being no great deals to be found, if you are diligent, confident and patient, there are certainly good deals to be had. This brings me to rules two, three and four.
2. If there is a winner, there usually must be a loser. Seek out the loser.
Timing is everything in the real estate market. This is especially true in hot markets where offer deadlines are usually set one to two weeks after the MLS debut of the property. Usually, when two or more similarly sized and located homes come on the market at the same time, the better priced and presented property will attract all the attention and come out the winner, leaving the other home as the better deal for a buyer. In other words, you want to always gravitate toward the “loser,” as that home will end up being the better deal.
So the next time you see an attractively priced and well-presented home, a street over from another seemingly overpriced, cluttered and not as attractive home, go see the latter and the leave the former for the flock of buyers who will likely bid the price up to an above market result. There’s a higher likelihood of paying the asking price (or lower) on a home that doesn’t have multiple offers. This is where the confidence part comes into play. Going against the herd takes courage, but that’s where you find the good deals.
3. If you love it, everyone else probably does too.
This is the rule that I kept repeating to myself and my fiancé as we searched for our next home. We would walk into these amazingly presented homes that sparkled, with gleaming hardwood floors, light streaming in through large windows highlighting Carrera marble clad kitchens…we instantly felt like we were falling in love. But after searching for a few months, whenever we walked into such a house, my fiancé would turn to me and say “I love it. It must be out of our price range.” And we would walk out, and try to find a house that didn’t evoke such strong emotions.
Why? Because if you love it, chances are everyone else will too. This isn’t necessarily a bad thing, but just realize that you won’t be able to get a good deal in this kind of situation.
If a perfect home in a perfect area is outside of your price range, try to identify what you can live with and what your deal breakers are. Can you tolerate an older kitchen for a few years before you can save enough to remodel it? How important is a big backyard to you? Do you mind a location handicap such as a busy street, power substation etc? As you tour homes, add and subtract these attributes to your list, so that you can hone in on the perfect fit for you.
4. If it seems too good to be true, it probably is.
Often, clients will email me a property that sits in a great area, but is priced well below all nearby competition. They say, “This home looks great, just what we are looking for! Is there something wrong with it or do you think it’s just a really good deal?” In these situations, the answer is usually neither. It is instead a very sound plan crafted by an experienced listing agent and seller who are using auction theory and emotional attachment to get an above average result for that particular home. In an area where there aren’t a lot of homes on the market, but there is a lot of demand, the list price doesn’t really matter all that much. An agent in Mountain View decided to test this theory by listing his personal condo for $1. It sold in a week in the high $400,000s, the best result ever recorded in that complex. If the demand is there, the list price is just a jumping off point. By the time buyers find out that the home will sell for way above the list price, they are usually already invested in the idea of this house becoming their home, and are willing to bid up to “win” the home from the competition. The seller wins in this scenario.
Thanks for reading! In my next post I’ll discuss how to pinpoint the next hot neighborhood and how these pockets can actually be a great deal if selected carefully and methodically. If you have any questions or are interested in buying or selling a home in the Silicon Valley area, please get in touch.