The New York Times this weekend had an interesting article on passive houses, a building standard popular in Europe that reduces energy consumption for heating and cooling by 90% compared to a conventional home.

It has been a good deal more expensive to build, however, than the average home. That might partly explain why the passive-building standard is only now getting off the ground in the United States — despite years of data suggesting that America’s drafty building methods account for as much as 40 percent of its primary energy use, 70 percent of its electricity consumption and nearly 40 percent of its carbon-dioxide emissions.

Proponents of the standard, who note that passive homes often use up to 90 percent less heating and cooling energy than similar homes built to local code, say the Landaus embody the willingness of more homeowners to embrace passive building in the United States. Even Habitat for Humanity, the affordable-housing philanthropy, is now experimenting with the standard.

Yet the market remains minuscule, and the materials and expertise needed to build passive homes are often hard to find. While some 25,000 certified passive structures — from schools and commercial buildings to homes and apartment houses — have already been built in Europe, there are just 13 in the United States, with a few dozen more in the pipeline.

To achieve the passive house standard, homes are airtight and fitted with thick insulated walls and floors, triple-paned windows placed with extra care towards how much and what type of sun they receive, and a sophisticated ventilation system to maintain temperatures, all of which is calculated by a computer model.

The whole idea can start to seem a bit fussy though when the orientation for a pleasant view out the window cannot be had because it is not ideal for solar energy, or a fireplace is considered too inefficient, or the triple-paned windows had to be exported into the United States because an energy-efficient equivalent couldn’t be found locally.

Like any other new technology that promises an energy-efficient future — solar panels and electric cars — the cost of early adoption can be prohibitively expensive now but payoff with time. The Times article estimated that it cost the builders an extra $50,000 to meet passive house standards, which would be earned back in energy savings within 10 years.

But with the median age of homes in the U.S. at 36 years, the basic concepts of a passive house can still be trickled down to currently inefficient homes by renovations such as reducing draft, better insulation, double-paned windows, or planting a tree outside to block summer sunlight.

Recommended Reading:

Creating a Better Standard of Living For Your Family
Choosing the Best Location for You
Do-It-Yourself Projects That Will Help You Sell Your House
How Far Would You Go To Lower Your Landscaping Costs?
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So you are ready to move out and sell your home. And you found yourself a real estate agent to help save time, expenses, and the headache of navigating the myriad of details that go into putting a house on the market. But not all agents have the professional experience necessary to sell your home quickly and for the highest price. Or even worse, they are lazy. Here are 10 best practices that a good listing agent will use to get the best price for your home:

1. Conduct a pre-sale inspection with the seller

A good listing agent should meet with the seller and do a walk-through of the property. With a fine-toothed comb, both of you should look for problem areas that can be easily fixed before getting professional inspections and listing your home.

Few agents are willing to do the extra work of a pre-sale inspection, but fixing a leaky faucet or other easy to address problems beforehand will mean a cleaner report when the professional inspector comes through, and potential buyers see less initial issues with your home.

2. Getting and reviewing necessary professional home inspections

Depending on the age, size, location, and condition of a home, an agent will be able to advise what are the required and recommend home inspections. Some common inspections are termite, general property, roof, and chimney. They are not always required on the seller side but it leaves a better impression if you do. (Buyers note: get your own inspection to verify a seller’s report.)

Also, without all the necessary inspections, a home cannot be accurately valued. In this situation the buyer makes an offer and then conducts an inspection only to find out something the seller didn’t know. The buyer will then renegotiate a lower
price or, at worst, take back the offer.

3. Price it right from the start

We all want our home to sell for what we have personally invested in it, but overpricing will just make it harder to sell. Buyers are weary of a house that is not priced accurately, which results in less offers, a prolonged marketing period, makes the competition look better, and may eventually sell for below market value.

A listing agent should know the value of a home based on the local market and price it accordingly, maybe even modestly, to create demand and let buyers push up the price through multiple offers.

4. High-quality marketing material

Make your home look its best. If your home needs it, your agent should put you in contact with a home staging professional to target your buyer market. For advertising work, an experienced home photographer and graphic designer can help present the strengths of your home.

5. Generate buyer interest through the Internet

A 2009 study by the National Association of Realtors found that 90% of buyers use the Internet when searching for a home. There is no reason why your agent shouldn’t be taking advantage of this large and affordable medium.

Internet marketing should include a dedicated home website, with a slide show or video tour of the home, and advertising through various social media and syndicated websites.

With a larger audience, your home has a higher
chance of receiving multiple offers and, ultimately, a
higher selling price.

6. Prepare a listing disclosure package before going on the market

Without a properly prepared disclosure package how can a potential buyer have all the information they need to know about pricing and specific details of a home. A disclosure package needs to include seller requirements, previous inspections and modifications, HOA documents (if any), and a seller wish list.

7. A seller wish list

This gives basic instructions of how to structure a potential offer, but more importantly, lets the buyer know conditions or expectations that make for a strong offer. For example, the seller may want to sell the house as-is, or rent back the house after it has been sold. A careless agent wouldn’t take the time to make a wish list and instead let a potential buyer set the offer conditions.

8. Setting up a broker tour

One of the advantages of having an agent is holding a broker tour. It’s an opportunity to have local real estate agents view a home and receive valuable feedback on the pricing, condition of the property, and network with agents who have potential buyers. The more qualified buyers looking at a home will drive demand and increase perceived value. If your agent isn’t doing this, they aren’t doing one of their primary jobs: to market the home.

9. Following up after a broker or open house tour

A listing agent should contact any agents with buyers or potential buyers who might be interested in putting down an offer. A less proactive agent would wait for offers to come in.

Just as important as receiving offers, is knowing how many
potential buyers there are. It helps in negotiations by
leveraging the seller’s position.

10. Track buyer progress during and after escrow period

An offer doesn’t mean your agent’s work is done. There are many factors that can unravel an offer from the buyer side that a seller should be aware of.

A good portion of why home purchases fall apart is because of financing. The buyer may not be qualified to purchase the home even though they are pre-approved. An inferior lender may not have the loan approved quick enough or not understand loan qualification requirements, which
might happen when a lender is not local.

In addition, your listing agent should regularly contact the buyer’s agent to make sure they finish home inspections and don’t miss contract deadlines during the escrow period. It is a lot harder to sell a home if it goes pending and then comes back on the market because of a buyer issue that could have been prevented by the listing agent doing the research beforehand.

Recommended Reading:

What People Think About Before Looking for a Home
Quick Fixes to Sell Your House Faster
Why Some Houses Don’t Sell: A Buyer’s Perspective
Games Real Estate Agents Play With Home Buyers
Tools for Protecting Yourself During a Home Purchase

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Kudos to Zillow for providing a detailed video explanation on "Understanding the Zestimate". Zillow doesn’t have the last say, but is definitely a great tool that you can use when starting to evaluate a home’s value.

Next time you are evaluating the price of a home, don’t forget to check out our article on the hidden factors in calculating your home’s value. 

That’s why it’s important for agents to educate consumers about both of our roles in a real estate transaction.  The Internet has more than enough information to help buyers identify neighborhoods they’re interested in exploring further, so I explain to clients that they don’t need an agent to begin the first part of their property search.  From that point on, however, an experienced, professional agent is invaluable.  Here’s why:

1/  The best agents are market experts, and continually renew their expertise by having their ears to the ground at all times.

Consistent tracking on the pulse of the real estate market is a trait of any good agent: we’ll provide current, sometimes up-to-the-minute, information on schools, neighborhoods, and even tracts of homes and builders.  Many times it’s information you will never find on a website.

Recently had a client that had been monitoring a luxury development in Emerald Hills.  Persistently keeping track of the activity in the neighborhood early and often helped my client purchase a bank-owned property before the property was put on the market — and for several hundreds of thousands dollars less than he would have paid otherwise!

2/  Agents know what makes sellers tick.

Steve Leung covered some of how you can walk in a seller’s shoes.  Good agents can help you get the property you truly love at the best price possible. They can advise when to write an offer for lower than the asking price or when to be aggressive by offering at or near a property’s full listing price.

They know that by being good at selling homes, you develop the empathy to be able to make good offers to buy them.  And they know how to talk to other agents of different ages and experience levels.  That versatility helps you in every step of the way, particularly in the little details that need to be caught before they cost you your dream home.

3/  Agents negotiate on your behalf.

Because they have a fiduciary responsibility to protect their clients, agents will fight on your behalf over not only a property’s price but also the contract terms, which in many cases are just as important as the amount of money you offer.

Experience and negotiation are what set some agents apart from others.  You can’t buy experience in this area.  During a recent offer presentation to a seller, I made the decision to present an offer with my clients by my side.  The competition and negotiation was not easy, but this decision ultimately helped my clients get their offer accepted and buy the property.

4/  Agents can refer you to trusted associates.

The best agents have a team of other professionals, from appraisers to lenders to home inspectors, whom they trust to make sure buyers and sellers are protected through every stage of the real estate process.  Agents stake their reputation on their referrals.

Why is this important? I recently worked with buyers who ended up switching to a discount broker. First, I put introduced them to the mortgage broker I consider part of my team, who pre-qualified them and secured a good interest rate for their purchase. Then, because they were interested in a wide range of neighborhoods, I suggested they drive through those neighborhoods. Often, that helps buyers determine which they like best and which they don’t like after all. After their short driving tour, we planned to look at properties in their favorite neighborhoods.

After driving through several neighborhoods, the buyers told me they’d decided to work with a discount broker since they were already doing the legwork of touring neighborhoods to narrow their search. I wished them well, and we both moved on.

Not long after, the buyers called the mortgage broker to whom I’d referred them. They explained that their current mortgage broker couldn’t get them an interest rate as low as my teammate had provided. Could he arrange for a new loan before the closing in two days? Unfortunately, he couldn’t. The buyers ended up with a higher-price mortgage — and we’ll never know how well the discount broker negotiated on their behalf.

The moral of the story is this: real estate agents provide real value.  When you try to navigate the purchase or sale of a home on your own, you may end up wishing you’d had an expert on your side.

Copyright (c) Alex Wang for the Silicon Valley Real Estate Blog, 1SiliconValley.com

Recommended Reading:

• Creating a Better Standard of Living for Your Family
• Winning the Bidding War
• Choosing a Home Inspector in Silicon Valley
• How a Win-Win Saved My Client $25,000

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller. Here are a few examples:

- Property condition: one is an ?”as is”? contract and the other requires that the property be delivered with a warrantee of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

- Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

- Defaulting: one contract has more ?”teeth”? with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is ?”bilingual”? in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client.  Let’s look at some examples of why it matters.

Subtleties Behind CAR and PRDS Contracts

There are many issues to consider, but let’s just think about property condition for a moment. If you’re a buyer, you may prefer the PRDS form because it requires the home to be delivered with all systems being operative (heater, water heater, appliances, electrical systems etc.), and it requires a licensed contractor to do the repairs. 

The CAR form, on the other hand, is ?”As Is”? and the seller or a handyman could do the repairs. With the AS IS form, you can still request repairs, but the seller is not obligated to do them.  If you are buying a home and use the PRDS contract, though, and you discover leaks in the roof, at the shower enclosure, or elsewhere, for instance, the seller must pay to repair these items, and the seller must hire a licensed contractor to do them. It’s not a request, it’s already been agreed upon.

Areas to Note as a Seller

As a seller, there are good and bad things in both contracts for you too. Many sellers will be happy to use the PRDS contract if they can make it ?”As Is”? because there are other provisions in that form that are favorable to the seller.

One such area is the appraisal.  In the CAR contract, making the appraisal a contingency (the home must appraise to purchase price) is part of the boilerplate and needs only to be checked to be included. In the PRDS form, it’s not mentioned at all “? it is simply absent. (Buyers – it can be written in, of course. But will most agents ask you about it and offer to write it in?)

Comparing and contrasting the purchase agreements in use in Silicon Valley could easily be a multiple day course as there are many points to evaluate and juxtapose.

What is important to know, as a consumer, is whether your best interests are being represented when the form selection is made, and whether there are modifications that should be done to best protect you, such as an as-is addendum if you’re the seller (and it’s a PRDS contract) or writing in an appraisal contingency or a leak-free roof warrantee (if you’re a buyer).

A good Realtor will be able to discuss the strengths and weaknesses of each form relative to your position at the bargaining table, and will add, delete, or change things as needed to give you the best representation and negotiation possible.

(c) Mary Pope-Handy for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Creating a Better Standard of Living for You and Your Family
• Why Your Home Will Sell Faster, For More Than the One Next Door
• What People Think About Before Looking for a Home
• How to Successfully Complete Your Home Purchase

"Besides, what if there’s an emergency?" she said.  He passed the commute time listening talk radio and audio books, and he’d learned enough French to get him through his last business trip without accidentally ordering snails at local restaurants.  (See the article How Long Will My Silicon Valley Commute Take?)  But he knew that when the tide flowed anytime after 3pm, there was no such thing as a person in a hurry: there were just kindred spirits parked on the highway.

They could afford it now and the extra time would help better their standard of living.  She knew he had work-a-holic tendencies and had a freelance job herself.  So it just made sense to move — but not only because of the extra time.  While this part of Silicon Valley was closer to other opportunities for both of them, she also said off-hand that she liked that it was a more prestigious neighborhood with stronger schools and less cars parked along the street.

We talked earlier about the logistics of moving up to another home.  (See the article Keeping Your Sanity While Moving Up to a Larger Home.)  Because it’s such an important decision both financially and emotionally, it’s important to understand what you’re getting when you upgrade.  (Also see the article Emotions in Real Estate: From Fear to Elation.)  Here are some of the factors to look for.

What a Zip Code Buys You

From their family room, we looked across the street.  "That’s really not a good thing for when we go to sell your home," I said.  He looked at me a little quizzically but he and his girlfriend looked at each other for a second and got the drift. 

This was a quiet neighborhood of single-family homes.  There are some neighborhoods in Silicon Valley where I joke that you can staple hundred dollar bills to your jacket and still walk down the street feeling safe.  And now that his options had vested and the two of them were engaged, they wanted to move to one of those zip codes.

"Yeah, the owners across the street rented out their home.  Now the new guy has a lot of guests over and it’s never the same cars twice," he’d said.  Experienced property managers have seen this before, but that’s a story for another day.  Ironically, this was actually a statistically safe neighborhood. 

Peace of Mind

Detail-oriented real estate agents not only do research to understand the numbers, they also have an earned understanding of "how safe" a neighborhood is.  After all, agents who list properties in a neighborhood spend a lot of time there.  Families, especially those with young children, or parents who travel a lot, are acutely aware that how safe they feel affects how well they live.

Whether the home is seven- or six-figures, on behalf of clients, I’ll often call the local police department to see what law enforcement thinks of an area and if there’s anything my buyers should know about.  Usually, it’s pretty straight-forward because most of the areas that have a reputation for being safe are actually safe.  

One time, though, I heard some rumors.  Then the beat cop told me that she wasn’t allowed to give out any opinions because some real estate agents had gotten angry and reported what she said to her supervisor.  At that point, I wondered aloud why anyone would try to buy a home without their own representation: I was representing the buyer at the time and that was information I wanted for my clients.

After some convincing, we dug into the details.  Three blocks over in a commercial zone, there was a cluster of local banks, each of which had been robbed in the last few months.  Because the highway was in the opposite direction of the homes in question, each time the robbers fled the neighborhood away from any residences.

I’m obviously not saying that I would have recommended this home to my clients based on this information.  But when I did my duty and presented it to them, it was a non-factor in their decision because it didn’t affect the residential area.  If this information were hidden, they would have assumed the worst and never would have sacrificed their standard of living and peace of mind on the neighborhood.

Pride of Ownership

People who’ve invested time, effort and money into owning and living in a home will tend to take care of that investment and want the people around them to do the same.  People who haven’t may not have that same mentality, and while safety is more important to standard of living than pride of ownership, your family’s comfort with the neighbors has a day-to-day impact on how well you live.

Financially, if there are two identical homes and one is closer to rental properties and the other is surrounded by other single-family homes, in general, the latter will be more valuable and the mentality of the neighbors will be slanted more towards maintaining property values.  If you pay the same for the former, you should consider that an implicit increase in cost.  (See the article Not Overpaying When Buying a Home.)  The most prestigious neighborhoods generally have high owner-occupancy.

Prestige

Many buyers are a little sheepish when they talk about prestige for fear that they think others will judge them.  (See the article Determining Your Must-Haves When Buying a Home.)  But it’s important to understand that the branding of a high-end neighborhood often helps their homes’ market values weather tough times in a way no other factor can.  Just look at the difference between Milpitas and Palo Alto in 2007. 

In fact, there are tangible reasons why these areas feel "nicer" than others, and some of those reasons are government or neighborhood regulated.  For example, neighborhoods with HOAs, often restrict the number of people who can live in one home, how or whether cars can be parked curbside, and where to put garbage, among other things.  While there is a trade-off in flexibility under these rules, the difference between these neighborhoods and ones nearby without some common agreement is often obvious.

And almost all cities have zoning laws that regulate minimum lot sizes and setbacks so that homes have ample spacing between them.  It’s no coincidence that more prestigious and expensive cities have stricter requirements, and hence, larger lots. 

This in turn keeps property values up, increasing the tax base and allowing for more services.  Palo Alto, for example, provides its own electricity.  But more often these services often show up as more ample trees and parks, safer streets, better fire protection, and higher-quality schools.

Schools

Speaking of quality schools, here’s a thought experiment.  Whose elementary schools are better than the ones in Cupertino or Palo Alto?  Or Los Altos or Saratoga?  The article is a little dated but the relative numbers are about the same.  The most expensive and prestigious cities unsurprisingly have the highest test scores.  (See the article Silicon Valley School System Bang-for-the-Buck.)

The article mentions that there are better values and individual schools scattered around various cities in the Bay Area, but people know which cities are associated with good schools because of the branding prestige provides. 

Schools, unsurprisingly, are so important that many people move specifically to an area for them.  My clients with more than one child often do the math and decide that moving to an area with a better school district is much less expensive than sending their children to private schools. 

Some of my clients would rather choose a good district as a whole instead of move to one school’s neighborhood because it shows a regional commitment to education.  Others would actually like to move up, but have less competitive schools because they measure standard of living by how happy or well-adjusted their children are.  And others want to find a window where they live in a less prestigious city that feeds into a great school district.

It’s not only important for real estate agents in Silicon Valley to understand what goes on in the minds of sellers (see the article How Buyers Can Walk in the Shoes of Sellers and Their Listing Agents), it’s important to do so to best represent buyers as well.

(c) Steve Leung, Alex Wang for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Keeping Your Sanity While Moving Up to a Larger Home
• Determining Your Must-Haves When Buying a Home
• Emotions in Real Estate: From Fear to Elation
• Not Overpaying When Buying a Home
• Download the Silicon Valley Home Buyers Book

The technique goes by several monikers and it can be the difference between being a motivated seller and a motivating seller.  Some call it a "reverse offer", others use the term "preemptive offer", or even "seller-initiated offer".  In any case, the technique is the same: the listing agent draws up a purchase contract that specifies terms that the seller will accept and gives it to one or more buyers. 

The contract is the same one that a buyer’s agent would write up when making an offer, except written by the seller.  All a potential buyer needs to do is sign on the proverbial dotted line.

Most of the time, reverse offers are used to open a line of communication, hoping to create competitive a competitive situation between multiple buyers, or to attract the attention of one buyer deciding between several properties.  But there are key considerations when for both buyers and sellers when the seller writes a reverse offer.

Making an Offer vs. "Make Us an Offer"

Sellers clearly benefit in a number of ways when they receive offers.  The seller gets the offer itself and the ever-important line of communication which can lead to better terms for both parties.

More importantly to the seller, that offer represents someone’s tangible interest, which can be used to create a bandwagon effect leading to a competitive offer situation.

All agents know how to leverage these benefits, so they often encourage buyers to "make us an offer".  So why would a seller choose to do the opposite and make a reverse offer?  Here are some reasons why:

1)  Generating attention.  Reverse offers are usually made at a lower figure than list.  Buyers are generally both surprised when they receive a contract from a seller, and curious about the lower number. 

2)  Testing the waters.  The lower number included in a reverse offer is less public than a reduction published in the MLS, but gets one-on-one feedback about the seller’s terms. 

3)  Encouraging action.  Buyers who aren’t on a definite timeframe may take their time evaluating options.  A reverse offer provides a way to quickly gauge a buyer’s interest and seriousness in a home, provided the offer expires after a set period.

Reverse Offer Expiration 

When making reverse offers, it’s important for sellers to keep in mind that, once the offer is sent, it cannot be revoked unilaterally. 

The offer expires at a date written into the contract.  If there isn’t a date, the contract is considered an open offer.  The contract is initiated when buyer delivers their acceptance of the offer — so a better offer coming in the day after a countersigned purchase contract can’t be accepted.

Buyers and Reverse Offers

I’ve never met a buyer who has been unhappy to receive a reverse offer.  Are they surprised?  Usually.  Will they listen?  Most always.  The reason is that when clients receive reverse offers, they’ve receive some beneficial information from it.  Here are some key items:

1)  Clarity on Acceptable Terms.  You can ask the seller questions about what they’re looking for, but once their terms presented on paper, you have the minimum acceptable numbers for contract elements like contingency periods, days until closing, down payment, and deposit.  Those terms may be better than what a buyer would offer themselves: because these terms are often used by sellers to determine how strong a buyer is, buyers will often choose the highest and lowest numbers to convey their financial ability.

2)  Motivated Seller.  The offer tells my clients that they’re working with a seller who is interested in completing a transaction, as opposed to waiting for a target number.  They may be motivated in the sense that they need or want a transaction to complete quickly, or they may be motivated because of something about the buyer — perceived reliability, things in common, and other factors often affect how quickly a transaction can go.

3)  Pricing Flexibility.  A reverse offer wouldn’t be worth much if its number were the same as list and it sometimes has additional terms that are worth money, such as a more expensive home warranty than my clients would have asked for, or agreement to help fund closing costs. 

Buyers should be aware that the reverse offer figure often isn’t the "best" number.  While the convention is for contract terms to remain private, agents know that information, once published, can travel freely.  At that point, the seller’s bargaining position may be weakened with a number of interested parties if the number is low enough.

The intention is usually that the offer be good enough to open that all-important line of communication, at which point negotiations can continue.

(c) Steve Leung, Realtor, for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• What People Think About Before Looking for a Home
• The Thought Process Behind Making an Offer on a Home
• Making an Offer on a Home: Behind the Scenes
• Determining Your Must-Haves When Buying a Home
  
• Download the Silicon Valley Home Buyers Book

Others get first interviews, with the traffic that new resumes tend to attract on the MLS, but they get few callbacks and what offers drop in are filed where they belong.  The proud parents: they tap their feet anxiously as they shift uncomfortably on the increasingly hard bench in the waiting room, wondering why.  

I knew her Silicon Valley home wouldn't be like that.  Hers was the second on the market and the two weren't apples and oranges.  We spoke at length about the alternative home in the neighborhood, and the analysis was pretty simple because, while this was a prestigious subdivision, there were precious few differences between the floorplans of any of these Silicon Valley homes.  The appliances, the granite in the kitchen, the marble in the bathrooms — all were included upgrades at the same quality, if not the same color.  

But she felt the very thought of it was insane.  "That home has been sitting on the market for weeks now.  I went to an empty open house there just last week.  How are we supposed to get a better price than the other one without upgrading everything?"  The devil is in the details.

Getting an Edge When Selling a Home Using Small Details

Empathy.  We stepped outside for the moment to envision how our interview candidate would look to prospective buyers.  Over the years, she'd gotten used to the loose handle on the front door and always liked to tell the story about an obscure dark stain on the well-used living room carpet.  Her fondness for her home reflected in her eyes as she recalled the story about how her two-year old had managed to knock the lid off a safety mug. 

She looked at me quizzically as I removed my shoes before opening the door lock, but she followed suit quickly realizing that she preferred anyone seeing the home to do the same.  We could see the children next door playing tag in the living room, but we hadn't heard them from the inside because of the quality of the materials shielding the two homes from each other. 

I turned to her and smiled.  "It would be a shame if people didn't know how well your home is constructed," I whispered as I turned the key and, with only a gentle touch, rattled the handle making an ugly clanking sound as its screws rattled against their sockets.  Fortunately, the screwdriver on my Swiss Army Knife was just small enough to solve the issue. 

It was one more step towards her goal of getting the home on the market as quickly as possible, minimizing any out-of-pocket expenses required to do so, and enticing people to want her home more than anyone else's virtually identical home in this Silicon Valley neighborhood. 

The Extra Polish for the Interview

How much more confident would you be paying more for a well-constructed duplex or condominium than a hastily thrown-together apartment conversion?  It sounds trivial, but when a rattling door handle can obscure the quality of a well-constructed home, how much money and time on the market could that cost? 

There is a clause that makes things easier, but there was no guarantee we'd get one.  It's a common contingency waiver in Silicon Valley, but a lot of buyers are reluctant to sign as-is clauses on the purchase of a home.  And even as-is, the buyer could still negotiate some items (read: money) back if there were an inspection contingency in the offer.  Besides, savvy real estate buyers will often say they'll ignore the little nits that bother them, but then price them into the offer.  The disparity is that a collection of little $50 nits turns into an offer 1 or 2 percent lower than it could have been.

Of course, a squeaky hinge or loose doorknob is no big deal.  But, in the scheme of things, neither is a typo.  Would you email your resume with one on it?  Perception trumps any semblance of reality and there are a number of common areas (beyond the traditional cleaning) that have a great impact but can be improved at only an incremental cost.

1)  Tubs and Showers

Ewww.  You could eat off the floor in her kitchen.  Every crevice glistened in the sunlight coming in from the patio.  But while the cleanliness of the kitchen could literally inspire medieval bards to song, the bathrooms weighed down the home with rusty water stains lining the edges of all the tubs.  They made the home feel old and used, and the cleaning service she used didn't remove the stains.  Fortunately, a Clorox bleach pen whitens those hard-to-clean areas very conveniently.

2)  Carpets

Nothing kills a showing faster than smells and, over time, most scents get trapped in the carpet, even when after regular vacuuming.  And frankly, after years of living in the same home, the carpet generally takes on the scent of the people living there (something completely unnoticeable to most sellers). 

The issue is psychological: buyers need to be able to envision your house as their own, and they can't do that as easily if their instincts tell them they're in someone else's house.  Getting a professional carpet cleaning can help a carpet look "younger" and eliminate any non-neutral scents in the house.  Folex carpet spray works wonders on eliminating individual spot stains.

3)  Light Bulbs

Obviously broken ones need to be replaced, but why replace perfectly good light bulbs?  Whether it's because of the large oak in the front yard or the office building across the street, some homes just don't get that much light, even during the day.  This raises a red flag with a lot of folks.  Replacing light bulbs with ones rated for the highest wattage safe and suitable for that outlet will subtly increase the brightness and appeal of your home.

4)  Insects

Owners are usually extremely conscientious of getting rid of cobwebs and ants inside the home knowing that buyers don't want to see insects.  After all, many people have a very strong innate reaction to things that crawl or buzz around.  But they often don't check for trails of ants marching their way into a home through cracks from the outside, or mosquitoes hovering around a porch lamp at night, or even wasps that have made their home in a nondescript corner of an overhang. 

There are a number of natural remedies for ants and you can often keep flying insects of the porch using a special outdoor light bulb that generates light invisible to bugs.  Eliminating wasp nests is potentially dangerous but there are techniques for differentiating them from bees nests then eliminating any threat.

5)  Doors

Imagine being at a car dealership and walking up to what you really hope is going to be your next car, but as you're about to get into the driver's seat, you can't get the door open.  In fact, you have to lean your weight back and give it a good pull before it begins to budge, and when it finally does you're thrown backwards in surprise. 

That happens all the time in houses for sale.  Sometimes a stuck door is an indication of structural changes in the house and that the foundation needs to be checked.  Silicon Valley is earthquake country and mild settling occurs frequently; humidity and moisture variation, among other things, can also cause this issue.  But often times, the problem can be fixed simply by tightening or replacing the door's hinges.  The most drastic measure is planing the door by sanding or cutting it to allow smooth operation.  Opinions on when to plane doors vary.

6)  Wood

Particularly on kitchen cabinets but often in bathrooms as well.  Having cabinets that glow from their cleanliness before a showing helps improve the overall appearance of your home and there are some relatively simple recommendations for fixing minor cosmetic problems.  Even a simple treatment with a cleaner like Cabinet Magic or Pledge can give many wood cabinets or fireplace mantles a deeper, richer, much improved look that lasts for a few days.

7)  Scuff Marks on Floors and Paint

Everyone understands there are going to be scuff marks.  What happens, though, particularly with dark scuffs, is that they tend to take the focus away from the more important aspects of your house.  And, on the other extreme, some buyers envision themselves putting a lot of work into removing these marks and are less than about the idea.  This type of buyer values the ability to move in trouble-free. 

Advice on removing scuffs on walls and floors varies, but the general consensus is that minor stains can be eliminated pretty easily — and you can help buyers focus on how great the condition of your home is. 

Availability For Showing Is Everything 

It was the undiscovered country.  The downtown market in this Silicon Valley city was heating up and even homes that were structurally sound but had serious functional flaws were selling quickly — and for well over the asking price.  Their schedule was clear, though.  No showings on weekends, only Monday through Thursday between 9:30 and 5pm.  No exceptions. 

I had to feel for the listing agent because our story had to have been typical.  Like everyone else in Silicon Valley, particularly the tech industry, my client really wanted to see homes in Sunday, maybe Saturday if the home was right enough.  Weekdays during the day were out of the question, even during lunch because it just wasn't practical to drive all that way, see a place, eat something and get back to work in an hour.

I did see the place myself.  It's one thing for me to preview the property, send video, and document my opinions on a property, but this was where my client was going to be living as his primary residence and I didn't feel comfortable with him making an offer on a first home he hadn't seen. 

After four months on the market, at a reasonable price for the area, the listing was cancelled.  They obviously didn't want any intrusion onto their personal lives.  It could have been that the property owners weren't serious about selling; it could have been that they valued their time with their newborn more than upgrading to a new place. 

From a business standpoint, the comparables would have supported offers over the asking price, but given the difficult showings and lack on online disclosures, there was no convenient way to make an informed offer.  This was an extreme case, but it's a clear illustration of what can happen if buyers can't see the product they're putting anywhere between a few hundred thousand and several million dollars on. 

Putting Your Best Foot Forward to Sell Faster and For More

There's a reason why developers use model homes to entice people to buy homes in their communities.  To ensure a faster sale, it is generally best to have moved out of the home.  Professional staging helps paint a better picture than a vacant home, but vacancy does have the advantage (and disadvantage) of allowing a closer look at the property itself, without being colored by furniture.  This isn't always practical so here are some subtle ways to help your home sell if you need to live in the home you're selling.

1)  Vigilance

Opportunities present themselves to people who are ready for them.  Agents and their clients sometimes have to act within tight windows of time, whether it's during a quick lunch break or a lull because their daughter's soccer game ran long.  Either way, it's a last-minute call.  Is it a scramble or do you know that your toothbrush isn't on the bathroom counter and that the bathrooms are all presentable?  I know it's an imposition, but if — while you're both living in and selling it — you treat your home as if it didn't have curtains, you'll sell it faster.

2)  Absence

A lot of buyers don't mind if the owners are there.  All buyers don't mind if the owners aren't there.  The reason isn't personal.  Buyers don't want to hurt the feelings of their hosts, the home owners, so they'll often mute their honest opinions or stay longer than they actually want to. 

The unintended consequence is that, because they don't communicate what they're really thinking, it's difficult to immediately address any negative issues that arise.  After all, if the carpet is dirty, most people won't want to say that within earshot of the owner — because it's considered rude.  But they'll say it without reservations to me because we'll figure out a way of solving that problem, whether through a sellers credit, price negotiation, or simply hiring a good carpet cleaner.

3)  Post-It Notes

The reason why some owners want to attend showings is because they want to play up their favorite features.  I usually accomplish this by adding small notes to draw attention to areas of particular quality or interest that might be missed during a casual viewing.  One note per room, up to a maximum of seven per home (seven being a psychological maximum for memory in studies), prevents information overload and acts to highlight the best features of a home.  After all, if every feature were a "best" feature, who would remember any one of them?

4)  Livable Staging

Most furniture used in staging is meant for show and not use.  Some of it is lighter so that it's easier to move.  Other pieces serve no useful purpose other than decoration, or to draw the attention to or away from particular features of a home.  Many professional stagers, however, can completely makeover your home using furniture and accents that you can actually use for daily living, combining the advantages of making your house look like a model home and allowing you to live there — provided you're vigilant about keeping it in model condition.

Every showing is a job interview and by paying attention to what the condition of your home implies to buyers and how readily available the house is to show, you can help your home sell faster and for more than the one next door.   

(c) Steve Leung for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Why Some Houses Don't Sell: A Buyer's Perspective
• How Identical Properties are Apples and Oranges, or Just Apples
• Scents That Keep Your Home from Selling Faster
• Silicon Valley Home Prices and Housing Market Update
• Keeping Your Sanity While Moving to a Larger Home

A few years had gone by and some promotions later, in their case both his and hers, the cozy enough feeling gradually drifted into wishing there were more room for her son to have a proper desk in his room for his homework and having a separate office in case either of them wanted to work from home.  

It was time for an upgrade, and for them, it was worth tackling the challenges involved.  Moving is never easy, physically and psychologically.  And then there are the logistics of selling the home you live in and purchasing a new one, often simultaneously.  Auto retailers have this one solved, but there are more variables involved when trading-up your home.  Here are some tips I recommend to my clients for moving into a larger, more expensive home.

Preparation for Moving Up

"I love it," she said.  Everything about their current home was serviceable, but from the granite island with inset burners in the kitchen to the Juliet balcony overlooking the main entryway, just walking through this Silicon Valley house made them feel more alive.  We'd already done the calculations, gotten pre-qualified, and knew where the down payment was going to come from so the only thing left to consider was the offer itself.  We headed back to the car and they glanced at each other, then glanced back at me and said, "Shouldn't this be harder?"  

It certainly could be, but we'd been preparing since the day they said, "How do we do this?" and now it was time to cash in the rewards from our preparation. 

Getting Started

1)  Pre-Approval and Budgeting for the Costs of the New Home

Calculating how much they could afford on a new mortgage payment was the easy part.  They could afford the new mortgage payment straight-up, and without any gymnastics like a no-ratio loan, so getting pre-approval wasn't an issue.  In this case, we knew it was the hidden costs that surprise you.  No, I knew this loan officer and she wouldn't try to sneak anything though — larger homes simply cost more to maintain and furnish. 

After all, it wasn't just the new desk for their son and the accoutrements for the new office: they were moving up everywhere from the new dining room to the expanded living room, and adding a patio and a backyard.  What they saved on the HOA, we figured they'd end up spending on landscaping and electricity.  They're small costs compared to the home, but a lot of little financial details end up being a lot of your money at the end of the month.

2)  Arranging Funds for the Down Payment

The check they wrote from their home equity line-of-credit (HELOC) would cover what my client's family needed for the down payment.  They'd need to close the HELOC upon the sale of the house, but the funds they'd receive would cover the loan and they weren't at risk of a penalty because they'd had the HELOC open for a few years.

People sometimes get bridge loans which are short term loans based more on the collateral used for the loan than the credit of the people taking the loan.  The rates are generally more expensive than HELOCs but this may be a viable option for people who are planning on paying off the loan quickly.  Some people open a new HELOC for the same purpose but are surprised when they're penalized for closing the loan too quickly (by selling the house).  Paying extra points for a short period of a couple months may be less expensive than a penalty.

3)  Reserving Funds for Your Transition 

The goal was, obviously, to perfectly time selling their existing home and moving into their new home back-to-back.  We'd try to incorporate contingency language into the contracts where they wouldn't have to carry two mortgage payments for their transition period, and, in the opposite case, we'd try to incorporate rent-back language so that they wouldn't have to find temporary housing until their new home is purchased or available.  

But knowing where the money would come from if those events were to occur is part of sleeping well at night.  Plus, movers cost real money and many aren't shy about asking for a tip at the end of the day.  

4)  Knowing the Housing Inventory Available and Market for Your Home

Looking before you leap.  This step illustrates the old adage when moving into a bigger house.  You have the mental picture in your mind of the neighborhood where you want to live and the type of home you want to live in.  Wouldn't you like to know how many of those types of home are available so that you can guesstimate how long it will take you to find the home you're looking for?  This is why I do (and publish) so much research on the Silicon Valley housing market.

And on the flip side, you've heard stories in both directions: the horror stories about homes taking months over price reductions to sell tempered by the multiple-offer, no contingency scenarios the hottest properties are going for.  Where is the reality and where does your home fit in?  It's your house: you deserve to be proud, but if you scare people off with your initial pricing, others may not even give your home the look it rightfully deserves.  There's a misconception that you can "always negotiate" — but you can only negotiate if people talk to you in the first place.

I have plenty of stories about the pitfalls of overpriced homes.  When it comes to something this important — in this case, you have two homes riding on the pricing of the house you're trying to sell — I will always give you an unbiased, straightforward opinion.  Your home might be one people will line up to bid on.

5)  Getting Your Current Home Sale Ready

Imagine being at the Olympics getting ready to run the 100m dash and not being at the starting block when the gun fires.  Being able to avoid starting off flatfooted when moving into a larger home is essential to ensuring you can quickly take advantage of any opportunities that arise.  Once you know you want to move up, you can begin the process simply by ensuring that your current home is, at the very least, presentable and clean — in every room.  It won't be optimal at first, but you'll still be able to show your home as quickly as possible if needed.

Even before you put your home up for sale, as you become more comfortable with the idea of trading up, you might start to remove some of your valuables and put them in an established location, like a safe deposit box, so that you can leave your home unattended — again, if needed.  Eventually you can begin to pack away the more personal effects that keep people from envisioning your home as their own.  And, ultimately, you can empty out, stage, or get livable staging so that your home is easier to sell.

Making Your Transition Easier Using Contracts

It really depends on the market.  Sometimes they come in droves, other times you have to offer freshly-baked cookies.  Sometimes you can't drive a block without seeing what you want, other times you have to fish for pocket listings. 

You may not be able to plan precisely when you'll sell your home or when you'll find the perfect place for you, but with preparation and knowledge of the tools at your disposal, you will be in a better position to negotiate: after all, one of the goals when managing a transaction for moving up to a larger home is to have as little overlap as possible, saving you money in the process.

If You Find a New Home for Yourself Before Selling Your Old One…

1)  Longer Closing Period.  Price and all other terms being equal, offers with longer closing periods are usually less desirable for sellers than ones with short closes.  But as an agent, I believe it's important not to assume.  Sometimes sellers like longer closing periods because they're doing a 1031 Exchange or they're looking to upgrade too!  Understanding the needs of the seller is just as important as understanding your needs as a buyer.

2)  Sale Contingency.  It's possible to make the purchase of a bigger home contingent of the sale of your existing home.  This puts the burden of risk onto the seller.  The likelihood of the seller accepting an offer with this contingency obviously depends on the risk the seller is willing to take, the compensation being offered in return (if any), and how likely the seller believes they are to receive more attractive offers.

If You Find a Buyer for Your Home Before Finding a New One for Yourself…

1)  Longer Closing Period.  Many buyers are flexible about the actual day they actually get the keys to the house up to a certain point, usually around 30 to 45 days, sometimes more, sometimes less.  This period can be used to close on the upgrade home so that there's a relatively seamless transition.

2)  Rent-Back.  Of course, buyers ponying up hundreds of thousands if not millions of dollars for a Silicon Valley home are going to want to live in it sooner rather than later.  A rent-back clause allows you to lease the home from the buyer for whatever time period and compensation you both agree to.  This is a relatively clean way of buying more time to find and close on the perfect upgrade.

3)  Purchase Contingency Period.  There's nothing like a signed contract to put the picture of finality into people's heads.  And it's that finality that contributes to seller's remorse, which exhibits itself in the question sellers repeat to themselves, "What did I just do?"  A purchase contingency period specifies a period of time, usually days, when you as the seller can back out of the contract without penalty.  This period of time is used to identify a home or whether the type of home you want will be available to purchase.

4)  Closing Contingency.  This clause puts the burden of risk onto the buyer.  By including a closing contingency, you're telling the buyer that you agree to the sale, but only if you decide to purchase another house within a specified period.  If that period elapses without the contingency being lifted, no sale occurs.

(c) Steve Leung for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Determining Your Must-Haves When Buying a Home
• Why the Perfect House Wasn't So Perfect
• Silicon Valley Housing Market and Home Prices Updates
• The Price of the House Across the Street and Its Long Shadow
• How a Win-Win Saved My Client $25,000

Theoretically, he loved the place, from location to square-footage, to the deep auburn color of the hardwood floors.  Then, out of nowhere he exclaimed, "What in the world [ed. he didn't use that word] am I supposed to do with the loft?!"

Ah, the loft.  We had talked about it for ten minutes, bouncing ideas around, before deciding to take another look around.  I'd been mulling it over but was distracted by the plus-shaped guest room, one where the only way a queen-sized bed could fit would be diagonally.  This room would probably need to be a study.

There was another "study" though, a second plus-shaped bedroom, with inward folding corners and all.  Any bed that would fit either of these rooms would mean a very uncomfortable night for two, like my client's parents! 

For his purposes, he was right about the loft.  The master bedroom had a tall, quixotic spiral staircase next to the bathroom, winding its way up to a loft that was larger than the master bedroom itself — larger than the other bedrooms put together too.

It would have been the perfect place for a pool table, but that would have made the master suite the corridor for any guests to get there. 

Why do buyers walk away…?

Reasons Why Buyers Walk Away

We kept on brainstorming: wall it off, knock down the wall to the staircase, use it as the master sleeping area, get a ping-pong and pool table, make it a very large office and workshop.  There was only so much Tetris we could play with the other two bedrooms before it became clear.  He really loved the place, but we had to.  Here are some possibilities as to why buyers walk away.

1/  Lack of Usefulness.  His expression said the same thing, but I vocalized it: "This place is almost a million dollars and 400 square feet [ed. 20%] isn't usable for you."   He looked at me square and said that the space that was the loft could have been — should have been — a large, functional guest bedroom or den. 

2/  Too Much Work.  And, while he could have renovated this home any way he wanted to, for a million dollars, do you blame him for wanting something plug-and-play?  When you're the seller, there is a fine balance between making your house "sellable" and doing so much work that you never make back your money (negative ROI).  As a buyer, if you've got a day job, family, friends, and hobbies that already take 28 hours in a day, how excited are you about taking on a home renovation project — one that can disrupt your life?  There are buyers who get excited about putting their own touch on a home, but this excitement sometimes fades quickly once they quantify the effort involved.

3/  Lack of Resale Possibilities.  "We made the effort and spent half-an-hour trying to figure out what to do with this space?  When you go to sell this place, do you think other folks are going to do the same thing?" The answer came two months later when the listing was withdrawn for lack of interest at levels near the asking price. 

4/  Image.  In order to consider buying a house, a buyer has to see themselves living in it.  My client definitely envisioned himself in this property, but there was one in Willow Glen that fared a little differently…

5/  Smell.  Some say that the smell of freshly-baked cookies or warm pie helps a home sell faster by helping buyers associate something good with the house they're looking at.  Smells have been proven to trigger memories, but what some people enjoy may be offensive to others.  Incense, chemically-scented candles, and burnt baked goods have been known to get both good and bad reactions.  In general, the best smell for a house to have is nothing noticeable and there are smells that keep houses from selling faster.

Reasons Why Buyers Don't Come At All

The Willow Glen charmer.  We were in the area and it was near to the end of our day.  This one was for-sale-by-owner property and it technically met all of my client's criteria, but I moved it to the end of our tour just in case. 

"It's purple," I said wryly. 

"Why not?"

Curiosity got the better of us and we parked across the street to take a look.  It wasn't a shy house, with its royal coloring and white picket fence.  We stepped under the wooden archway leading to the front door and peered into the dimly lit living room.

The owner was a kind and gentle woman with two boys, and when she let us in, it felt as if we'd taken the red pill from Silicon Valley to Wonderland.  The pattern of black-and-white checkered tiles in the kitchen, from floors to ceiling, was occasionally offset by faded but proud tiles with handwritten recipes from years past.  The antique piano leaned against the wall under an ornate wooden frame which guarded the still of an ancestor from times long ago.  It was a 1920s parlor, a genealogical study, her life's story, all at once.

This was her house and there were reminders everywhere that its personality could never be truly separated from our Alice.  It was branded: what could a buyer do to make it their own?

I would hazard a guess, from our conversation at her house, that most people never got so far as to experience her graceful hospitality. 

Characteristics That Scare People Away From Viewing a House

1/  Paint Color.  This house was imperial purple.  It's definitely possible to repaint a house, but when people judge books by covers, the color of a house signals the quality, upkeep and styling of the interior as well as its appliances and fixtures.  In this case it was an accurate signal to the quality and styling, though the upkeep was good.  This also triggers thoughts of "too much work."

2/  Overpricing.  This happened to be a for-sale-by-owner home.  Owner sales are notorious for being overpriced because the owner imposes their wants and needs on the price of a house versus what the market will bear.  Agents do this too, but indirectly.  They may present, "I can get that price for you," then convince the owner to lower the price later.  This strategy can sometimes backfire for owners; here's another example.  In other cases, less ethical (and arguably less successful long-term) agents hope for someone who isn't well informed to come along, but with Internet research being the norm, those odds are becoming longer every day.

3/  Functional Obsolescence.  In the Bay Area, it's very common for homes over forty years old to have one bathroom for two, three, even four bedrooms.  Clients I've seen perusing these listings all have the same question, "What am I going to do when guests come over?"  This is a signal of functional obsolescence, where the house doesn't meet the needs, market expectations or uses envisioned for it.  Functional obsolescence often requires remodeling or revised expectations in pricing.

4/  Put Off by Adjectives.  Would it surprise you to know that, in studies, some of the most common adjectives used by real estate agents actually put people off?  There's a quote from the book Freakonomics in this article.

5/  Lack of Pictures and Bad Pictures.  Blind dates.  You hear about nerves, trepidation, and even jokes on Friends about seeing the person you're supposed to be meeting on the blind date and then leaving without them knowing.  You may go on the date, but would it cross your mind that you might be wasting your time?  Houses have bad picture days too, especially the sky might be overcast leading to less ambient light.  Would you want to go to a property that marketed itself as "dark and musty"?

(c) Steve Leung for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Silicon Valley School System Bang-for-the-Buck
• Determining Your Must-Haves When Buying a Home
• Search MLS for Silicon Valley Homes
• How Identical Properties Are Apples and Oranges, or Just Apples
• The Price of the Home Across the Street and Its Long Shadow

To them, it would probably seem like nitpicking, and in most normal cases, it would be: their property wasn't a two-bedroom but a one-bedroom loft with a den.  The distinction seems trivial but I'd been studying comparables in this complex for a while, and in this prestigious building with only four different floorplans, true two-bedroom units (where the second bedroom is walled off) were scarce and commanded a premium.

Nope, after pulling up their MLS listing, the photos showed their property was just like every other apple in the cart, a one-bedroom loft with a den — only priced $150,000 higher!  I had to find out what their thought process was.

Does the Unit's Pricing Strategy Depend on Someone Uninformed Coming Along? 

A red flag.  They were just doing what they thought was best for their client.  "We're impressed with the knowledge of the local agents but we think this unit is unique," was the listing agent's reply before we parted our separate ways.  Maybe they promised the client they would get that price?  Maybe they believed they would price high and negotiate down?  Either way, I had to do what was best for my client.

I placed the phone back into its base station and tapped my stylus on the desk a few times as I prepared to make some phone calls and recheck the comparables in the complex.  There was a recent private sale and another property coming on the market at a price about $150,000 lower than our story's unique condo. 

But even if I had three lifetimes, I never would have predicted what our story subsequently did with his listing.

Sometimes You Compare Apples to Apples

In this complex, lofts were truly commodities — basically all of the ones in this story were identical in floorplan and construction — but there was some price fluctuation between comparable units.  Why?

1/  Condition (or the perception of good condition).  Making quick fixes to a home often helps the property sell faster and at a higher price.  But more often than not, condition is more a matter of perception than what you get from a formal inspection.  One property in this complex was shown with a dirty futon mattress in the loft and surface stains in the bathroom.  How well do you think this property competed with the clean and empty, but otherwise identical, unit down the hall?

2/  Upgrades.  Compare key items.  Kitchen: cabinets, drawers, countertops, appliances, faucets, sinks and flooring.  Bathroom: counters, showers, tubs, tiling, faucets, sinks, toilets and seats.  Floors: carpets, hardwood vs. laminate, tiles.  Walls: wallpaper, paint, moulding.  Stairs: railings, banisters.  

3/  Location.  Real estate isn't about location, location, location.  It's about what the location, location, location provides for you.  Penthouse and corner units provide less noise and traffic and are generally regarded as desirable or prestigious.  How desirable is the unit by the elevator when it's Saturday night in an active complex?  Is the convenience worth the trade-off in noise?  Now what about penthouse or corner units?  Would you pay more for that?

Using these three factors, you could compare most properties in this complex.  On the other side of Silicon Valley, however, there were "identical" properties that needed a little more investigation. 

Sometimes Apples Should Actually Be Treated Like Oranges 

The personalities of the two properties here were completely different.  This property was bright and sunny with the daylight shining through the enclosed patio of the condominium and reflecting off the entryway mirror: the polar opposite of the one we had just visited.

It wasn't a long drive and, actually, I felt a little guilty about driving the less-than-two blocks inside the same complex to get to this other townhome, but it had been a pretty long day — this being our fifth out of eight properties today — and I wanted my client to take a load off his feet, even for a couple minutes.

But it's funny how light is like a breath of fresh air.  We'd just waded through the darkness of a brightly lit Sunday afternoon cloistered away by a property that just didn't know better.  The carpet wasn't doing anything to help what little light managed to meander its way through the overcast sky of trees.

No, these weren't comparable properties.  Yes, they're in the same complex and you would put the two side-by-side on a competitive market analysis (CMA), going over the features that each one had line-by-line and probably drawing an identical pricing strategy.  But after visiting during two points in the day and seeing the properties' personalities, there was no apples-to-apples comparison.  

Light you can see.  There are a number of other hidden factors you need to ask about which change the character of "identical" properties.

Hidden Factors That Affect "Identical" Properties

1/  Plumbing.  One property we saw was the lead in to the primary water mane, so every time someone ran their washer, the roar of a burst of water would fill the living room.  To make living in this unit more tolerable, the HOA limits the times washing machines are allowed to be used.

2/  Neighbors.  Another property had a unit upstairs with hardwood floors and lots of young children.  They're fun and friendly but the ensuing stampede during the mad rush for school in the mornings was inevitable.

3/  Garbage Pick-Up.  An earthquake.  The crash of bottles during hours normally reserved for slumber.  The two are surprisingly similar but one happens every week.

4/  Service and Delivery Entrances.  The beep large delivery trucks make as they back into the delivery entrances is designed to get as much attention as possible. 

5/  Gated Entrance Traffic.  The beeping of dial tones.  The ring and ring and ring followed by a casual exchange of greetings and the buzz which grants entrance.  The crash of the gate as it closes.  Bam.  Sometimes it feels like you're greeting everyone in the complex!

Sometimes Apples Fall Off the Truck 

"Well, these are two adjacent units and you can combine them into a four-bedroom place," he'd said.  Yes, it wasn't one loft he had listed, but two.  And each had been priced at over $800,000 — overpriced by about $150,000.

After about a month without any takers on either property, the two were combined as a package and were now selling for over $1,700,000, truly subscribing to the philosophy of the whole being greater than the sum of its parts.

Since that property was listed, eight other properties in the same complex have been sold on have gone into contract.  Now the two lofts are listed as two one-bedroom units with a den but they're still priced over market. 

The listing agent has a one year agreement and with rents for those units averaging $2,500 per month, the owners lose $5,000 in opportunity cost each month that goes by (for $20,000 now).

My client bought an "identical" property, including the same upgrades, relative location, etc. for $150,000 less. 

If you have an apple, what happens when you price it like a truffle?

(c) Steve Leung for the Silicon Valley Real Estate Blog at 1SiliconValley.com 

Recommended Reading:

• Why the Perfect House Wasn't So Perfect
• The Price of the Home Across the Street and Its Long Shadow
• Determining Your Must-Haves When Buying a Home
• Silicon Valley Real Estate Buyers Guide
• Search MLS for Silicon Valley Homes

Technorati Tags: Silicon Valley, Real Estate, Comparables

Instead, they become signals of things to look out for: little tooltips that say, “Pay a little more attention to me,” sometimes with an exclamation point.

In this case, it was a subtle alert to look very closely at comparable properties.  And the important data wasn’t in the house were were about to look at — it was in the house across the street which just went into contract…

Measuring the Potential of a Tired House

But first things first, that data doesn’t mean much if the client doesn’t like this house.  After all, we were doing a buyer tour.  The comparable house across the street already had a buyer in contract and making a backup offer on it would only add uncertainty to my client’s search.

Besides, since we didn’t believe that the listing agent had other suitable properties, listed or pocket (the reason for any equivocation), we wouldn’t gain any usable brownie points for a backup offer either.

A good quality comparables comparison requires attention to detail.  This house, from the outside, looked like every other one in that part of the neighborhood.  Walking towards the lockbox, we were greeted by a plant whose flowers formed gentle rainbow-colored birds.  The entryway was welcoming and the deck beneath the doorway was in reasonable condition.

Outdoor Details

It sat opposite what was a small fenced Japanese garden which shielded the sitting room and its window from prying eyes.  That was appealing to my client who’s never really understood houses without blinds or drapes facing the front.  His saying is, “Sure, I have nothing to hide but why advertise?”

Doing a quick walkaround, we noticed the yard had a healthy lemon tree and little touches, including a small but efficient toolshed and a garbage area covered with a shingled roof.

I fumbled with the front door lock for a second until we realized there was a deadbolt hidden away by the lockbox itself close to thigh-level.  Then a quick turn of a key revealed the kitchen immediately to the left, the corridor back to the four adjacent bedrooms, and the sitting room to the right.

Kitchen Quandry

The kitchen immediately caught my attention as a huge negative.  There was very little counter space and what space there could have been was taken by the embedded electric range, lined up against the wall towards the corridor.  I cook a lot and there wasn’t enough space to have more than a few ingredients on that side.

The cabinets had been replaced from the originals drawing a striking contrast to the appliances, which were several decades old and looked completely out-of-place.  And, functionally, the oven would barely fit most roaster chickens, never mind a Thanksgiving turkey, and especially not one from Costco.

“Where Are the Bathrooms?”

It’s not that either of us needed one.  The fact was: the second one was hard to find and the house was barely over 1,300 square feet!

The four bedrooms were all about the same size and located in the same part of the house.  Newer houses have one or two obvious master suites and often keep guest rooms separated to give the owner and visitors some privacy.  But this house had a configuration not atypical for its 50 year age.

There wasn’t any distinct master suite but there was one bedroom with an attached bathroom.  The bathroom was technically a full bathroom with a toilet and a standing shower, but the entire room barely had room for its door to swing through and the shower was folded back behind the bathroom’s entryway making it very easy to miss.

It reminded me of the bathroom in an efficiency suite and that significant deficiency would definitely decrease demand.

Is This a Bad House or Does It Have Potential?

The house does feel spacious for its size and I noted that if it were converted in-place to a three-bedroom house with an expanded the kitchen, it could be a strong property.

In fact, if you were to concentrate money on upgrading any part of a house (assuming there’s not an incredible deficiency elsewhere), it should be the kitchens and the bathrooms: they generate the highest ROI and usually (but don’t always) pay for themselves.  The bottom line is that the house has potential at the right price.

The House Across the Street Casts a Very Long Shadow

The asking price for the house we saw was listed at a little under $900,000.  For the Bay Area neighborhood we were in, that number — ignoring the house — isn’t unreasonable.  But the house across the street was also listed at about $900,000 and had 400 more square feet, a lot 1,500 square feet larger, hardwood floors and granite counters in the kitchen, central air conditioning and both bathrooms renovated.

Comparing Asking Prices

If the house across the street is so much of a better value, how was the price for this house determined?  Here are a few possibilities:

1/  The actual sale price (not the asking price) of the house across the street was much higher than asking, justifying the difference between the kitchens, bathrooms, and other amenities.  (This is a possibility but is unlikely because the market comparables indicate a price reasonably close to the asking price.)

2/  The availability of homes at that price point in that area is much lower than demand.  (There are several houses on that block, some for sale by owner (FSBO).  The FSBO homes help inflate asking prices, but not necessarily market values.)

3/  The owner (or in this case estate) has unrealistic expectations.

4/  The owner or agent is chasing a long tail offer based on something “unique” about the property that will be highly valuable to a very small segment of the population.

5/  They are hoping for a buyer that is underrepresented or isn’t well-informed about the local market.

Poor Initial Pricing Negatively Affects the Selling Price

The last three points fall into the “let’s see what we can get” argument.  The rationale is that if you price the house high, someone will come in with a lower offer and you can always counter.  The problem with this methodology is that the seller signals these points to prospects, none of them good!

When sellers set the price too high, they signal to potential buyers one of five things:

1/  I’m greedy: I know you’ll start negotiating by knocking 5% off my asking price so I’ll raise the price we start from.

2/  I’m unreasonable: I want this amount of money no matter what the market dictates.

3/  I don’t know the market: I really do think my house is worth that much more than the last few houses that sold.

4/  I’m delusional: My house is unique and you’ll pay for the privilege of having it.

5/  I don’t really want to sell: I set my wish list price and if I don’t get it, so be it.

A good buyers agent will alert you to these possibilities and ensure you find properties that are better priced for the value you see in them.

Great Initial Pricing Causes Auctions

I analyzed a property in downtown Mountain View and when I was there, I saw a stack of business cards Kinko’s would have been envious of.  The asking price was under $700,000 (a good value for that location and the quality of the property) and when they finished, the final price was over $100,000 more.

This happened because the below-market asking price caused an auction situation between multiple strong bidders.

In the Silicon Valley Real Estate market where there are people with very strong purchasing power, it makes more sense to cause a competitive situation with a lot of buzz than it does to eliminate prospects with unreasonable pricing.  But pricing depends on the details of each property and knowing how they affect the value of other properties in the area.

For both buyers and sellers, having an agent who knows how to accurately price homes is absolutely essential.

[ed. The properties and analysis in this story are real but the actual prices and locations have been obscured.]

(c) Alex H. Wang for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Recommended Reading:

• Why You Need Real Estate Agents and Why You Don’t Trust Them
• Is Your Real Estate Agent a Double Agent?
• When Not to Buy a House
• Silicon Valley Real Estate Buyers Guide