From San Carlos to Sunnyvale, there has been a frenzy of homebuying this year never seen before: multiple homes selling for $1 million or more over their original asking prices.
According to the Multiple Listing Service, an online home-listing database, at least a dozen Palo Alto homes sold for more than $800,000 over their asking prices in Palo Alto between March 9 and Dec. 7. Of those, seven sold for at least $1 million over. The highest percentage paid was on a five-bedroom, 2,086-square-foot home in Greenmeadow, which sold for $3,250,000, or 63 percent above the asking price of $1,998,000.
What's going on?
Low inventory and a shifting market, combined with sales strategies from the dot-com boom, are all playing a role in bidding wars, according to local real estate agents.
"It's a symbol of advancing markets setting new prices in new neighborhoods," said Michael Dreyfus, Palo Alto district chair of the Silicon Valley Association of Realtors.
In his opinion, the impact of international buyers on the local market is slowing, allowing for local buyers, who may have a home somewhere else, to take a stab at buying on the Midpeninsula.
Four years ago, "Some poor local person was priced out ... by a mainland Chinese buyer" who often effectively said, "What's it gonna take?" to buy a home and put cash down to close deals quickly, he said. But international buying has dropped off a bit today, so many of the homes being purchased are by local buyers.
Alain Pinel Realtor Xin Jiang has first-hand experience with the recent bidding wars.
"I represented a buyer in a sale that went for $1.1 million over. We had a very tough competitor," she said. Of the five initial offers, her client's was third highest. The top two, she said, were at $500,000 over.
"We got a second chance," she said.
"It's all hardcore, all dollar dollar," Jiang said. The decision is not being made based on how sweet the potential buying couple is with their two kids.
Two of the forces at play -- and what can motivate buyers, especially when homes on the market are scarce -- is how much the potential buyers love the property or how urgently they want to buy.
For example, she said, "The wife is due (to have a baby) and they just want it."
Tim Kerns, who sells homes in Menlo Park and Atherton for Coldwell Banker, said the frenzy has extended to Menlo Park as well. He said a West Menlo Park home on a 10,000-square-foot lot was offered at $2,300,000 and sold after only three days for $500,000 above the asking price with eight offers.
Another, smaller home on a 7,000-square-foot lot was offered at $1,998,000 and sold for $2,450,000 (or 23 percent above the asking price) with seven offers.
Jiang said many buyers in the $2 million to $3 million range are from other Bay Area cities such as San Ramon, Millbrae or San Mateo and have a home so they have equity to bring to buying another home.
"The house somewhere else provides $1 million to $1.5 million equity, then they can borrow $2 million," she said.
Four local agents interviewed for this article, representing homes up and down the Peninsula, say the prices and subsequent overbidding and final sales often have to do with how a real estate agent prices a home.
With such low inventory, some agents or real estate companies choose to price low to create bidding wars so that buyers feel the fear of scarcity a bit more and are motivated to bid on the homes.
"Palo Alto is so expensive, but much of the overbidding has to do with how an agent prices a home. We are seeing prices in Menlo Park, San Carlos and Redwood City go nuts too," said Judy Citron, an agent with Alain Pinel in Menlo Park. (Citron and the other agents interviewed for this story said they don't generally practice aggressively low pricing.)
Dreyfus said agents who purposely price homes much lower than what the home is worth (a practice called "auctioning") do so to attract many, many buyers. In the case of many of the dozen homes in question in Palo Alto, there were upwards of 20 bids. One home in Midtown was listed at $2.2 million and received 27 offers. It sold for $3.11 million in an all-cash sale.
The more aggressive pricing, he said, originated during the dot-com bubble, when sales were done quickly with no contingencies with "clean" contracts. The practice stuck after the market fell, he said, but things are shifting a bit.
He was recently in the East Bay and noticed some real estate agents using language similar to a car dealer, calling their practice "transparent pricing," in which potential buyers can somehow be assured that the price is fair.