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Midpeninsula homes selling for $1M over asking prices

Low pricing spurs bidding, which leads to a feeding frenzy of multiple offers

This Greenmeadow home on Briarwood Way in Palo Alto sold for $3.25 million, or 63 percent over the asking price. Photo by Veronica Weber.

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.

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Comments

14 people like this
Posted by V. Putin
a resident of Stierlin Estates
on Dec 15, 2017 at 10:01 pm

I am just grateful to President Trump for letting my comrads - I mean business associates - buy houses near their jobs spying (I mean contributing) in Silicon Valley. Free enterprise. Love it.


37 people like this
Posted by Dumb Realtor Gimmick Pricing
a resident of Old Mountain View
on Dec 16, 2017 at 11:46 pm

Dumb Realtor Gimmick Pricing is a registered user.

Realtors think underpricing a property demonstrates selling-skills so they can later advertise the sale as "SOLD $X OVER ASK!"

All they're doing is misrepresenting the property to "generate buzz" and waste naive buyers' time attending open houses and writing woefully low offers for properties that aren't actually within the buyers' price ranges.

Mis-pricing the ask should be a badge of shame, not honor.

"Asking price" should be the "buy-it-now price" in eBay-speak. That'd be a law I'd vote for.


35 people like this
Posted by They price low because it works
a resident of Another Mountain View Neighborhood
on Dec 18, 2017 at 3:20 pm

In my own home search I remember being so frustrated by low pricing and the inevitable bidding war that follows. But after a while I figured it out and I really don't think you can say it is misrepresentation. Any buyer worth their salt will research what homes are selling for, not just being listed for.

As a potential seller now I would want a realtor to list the home low and try to create as much interest and buzz as possible. Sellers have every right to maximize their profits.


28 people like this
Posted by William Hitchens
a resident of Waverly Park
on Dec 18, 2017 at 3:35 pm

William Hitchens is a registered user.

Just curious. How many of these houses have been cash sales with overseas money, particularly from Asia? Financial news orgs like the WSJ have been saying that there is a huge influx of money fleeing Asia that is going into "hot" US real estate markets.


3 people like this
Posted by clearthinker
a resident of Another Mountain View Neighborhood
on Dec 28, 2017 at 3:21 pm

clearthinker is a registered user.

Shouldn't there be a cap on how much profit you can make on a homesale? Everyone should be able to afford a home in Mountain View. Housing is a right, right?
Why should anyone be allowed to make money on their real estate or charge what they feel it is worth? Let's see if we can get Measure V to cover that too.


Sorry, but further commenting on this topic has been closed.

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