by Alex Wang on May 10, 2007 | No Comments »
There was something about it. Maybe it was the bustling downtown area with its crowded restaurants and palatial arts center. Maybe it was the summertime shade of the wooded neighborhood just walking distance away. Maybe it was the knowledge that in a couple years they could send their kids to some of the best schools in Silicon Valley.
The couple next door stepped outside as I was opening the lockbox. They moved stride-in-stride together and you could sense their affection for each other. Their son would have a sister in a few months, and as we said our goodbyes, I could see my clients glance at each other knowingly. Would their path follow the one of the couple we met? Only time would tell. The first thing to do was to step through the door.
Sometimes the feeling is unmistakable. Cliches abound: real estate is about “location, location, location” and sometimes you find the right place at the right time. It feels like that proverbial ray of light peeking through the cloud cover. You just know.
But despite how small of a world it’s become when it comes to communicating with other people — with email, IM, and texting joining their more staid counterparts in the telephone, fax machine, and (gasp!) the written letter — the world is a very large place when you’re someplace else from where you want to be.
These are the personal and financial reasons why location, location, location is so important when buying Silicon Valley real estate. I’d like to share with you a number things my clients and I have talked about. The best location in Silicon Valley is just as unique as the individuals who live here.
What Does Location Buy You?
The infinite expanse. The very dry infinite expanse, plus underbrush thrown in. It can be yours, all 100 acres of it for the paltry sum of $22,105 on eBay. I will state upfront that the head of a pin would be generous land for my knowledge of that area of New Mexico, so there is a non-zero probability that this could be a great deal. After all, real estate bargains often result from having more knowledge and skill in implementing the “highest and best use” application for that real estate — one that others can’t do as quickly, easily, or efficiently.
From an uninformed perspective, the logical questions come to mind. What would you do with it? How do you get there? Who’d want to be there and would you have to compensate people (or compensate people more) to do that? How does the local government feel towards land improvement?
Obviously, buying real estate in Silicon Valley has different dynamics than buying large parcels of residentially-zoned, but ostensibly empty, land in rural New Mexico. But when you look at a purchasing decision from an outsider’s perspective, you can better challenge your own assumptions about what you’re looking for in a real estate location.
I want to ensure that, when my clients put up all that money to buy a house, they get what they really need and want. I also want to ensure that my clients selling homes understand what buyers say they want and why they sometimes change their minds. Location can buy you any of these things; the question is, what’s the motivation behind it? Here are some of the most important ones my clients have shared with me.
Far and away. And from people who don’t have kids. This is the number one criteria I hear when it comes time to search for a home in Silicon Valley. A good school system has halo effects on the homes in that area which may outweigh the actual schools themselves when home buyers make their decisions.
1) Land Value. Areas with good school districts hold their values better in a downturn and increase sooner during an upturn. Buyers considering the investment value of their homes use schools as the fastest and easiest criteria to narrow their search. Some communities like Cupertino that have available land for development “highly encourage” developers to contribute back to the school system for the additional children those properties will bring. This creates a virtuous cycle where schools bring land value, which brings better schools and around again.
2) Prestige. Having a great school system or California Distinguished Schools is a source of pride for the entire community and word gets out quickly. In my article Determining Your Must-Haves When Buying a Home, I mention prestige as a home search parameter that people don’t like to talk about. I often remind my clients that they need to be honest and non-judgmental about their needs and wants. Schools play a significant role in civic pride.
3) Good Schools. Why is this last in the list about schools and why am I pulling out the back of an envelope? The difference in the median single-family home in Sunnyvale (some great, but generally okay schools) and Cupertino (all elite schools) was $325,000 in April 2007 — let’s call it $300,000. A private school like Challenger (this assumes perfect substitution; I’m not making a value judgment for your family) is about $10,000 per year after discounts. If you have two children who go through K-8, that’s $180,000, a $120,000 nominal savings excluding interest differences. That’s why I sometimes suggest that a buying in “too good” of a school district may be a trap for some families.
A very personal question. “Where have you thought about living?” sounds like a basic question, and when you go to a web site to look at properties, it is. Pick a search radius around a certain place on a map and go. It’s essential to a good home search so I include a map-based property finder on my blog.
While many people are willing to trade distance for money, my clients tell me (implicitly) that convenience is a matter of priorities. At one extreme, I knew a gentleman who commuted in from Lake Tahoe and stayed at a local extended stay hotel in the Bay Area on weekdays.
Doing a radius search on a web site for properties is helpful to see what’s available, though it doesn’t go into the depth needed to understand what your needs are, nor does it have the expertise to let you know all the areas where your needs could be better met, sometimes at less cost or distance.
So the question about where you’ve thought about living really becomes, “What matters most to you?”
1) Commute. A while ago, I mentioned someone I knew who liked a long commute so that he could decompress before coming home. For others, commuting takes away time from the things they’d rather be doing. This opportunity cost can also be measured in dollars which I’ve illustrated in the chart pulled from the original article.
Commute time doesn’t necessarily mean the beeline distance from work either. Some people imagine being able to get onto the highway in only one or two traffic lights with a smile on their faces. Others like to know that the school they can drop little Timmy off to is on the way to work.
2) Activities. Splash! He was determined. The wind was low today and it was difficult to keep upright. But there was definitely incentive. Even though the sun gleamed overhead, the water was a crisp penalty for failing to keep the board level. Every weekend, he would carry his sailboard from his patio into the water in his backyard and give it another go. He doubted he’d have the same beginner’s enthusiasm for being dunked in cold water after strapping it to the top of his car. Still, that’s why he moved there.
3) Making the Routine Easier. She liked the fresh vegetables and low prices there. It was like a farmers market everyday, open in the evenings. So hers was the perfect place. What she liked was how happy it made her to be able to drop by there anytime her epicurean impulses brought her in a new direction — or at least beyond what she had in her refrigerator.
How do you define what a great place to live is? I walked up and down the streets of this neighborhood carefully observing how they reacted to it. It’s those details that are important. After all, there’s a double-edged sword here early on in an agent-client relationship: most clients recognize the effort I put into a property tour, which I appreciate, but sometimes they’ll pad what they think of an area because they don’t want to say “bad things” about an effort. Searching for a great home is about refinement: the fastest way for me to optimize our search for what you’re looking for is to be honest, with both me and yourself.
1) Personality Fit. It was a nice place. It just wasn’t for them. With all the things going on in their lives, they needed a place that was a little quieter and a little more serene. It’s the difference between Santana Row and Campbell, between downtown San Mateo or Mountain View and Foster City. After a long day at work, what do you want to come home to, where do you see your family living, and where do you want to start your weekends from? Some people need activity, others need serenity; you can find both in Silicon Valley.
2) Safety. The trips. It wasn’t the jet-set lifestyle but he was always flying back and forth between Silicon Valley and Asia. Sometimes Korea, sometimes Taiwan, sometimes China. It’s the life when you’re head up marketing for silicon. He thinks about what his wife and baby are doing when he’s on the plane. She’s extremely capable but he wants to make sure that she’s never in a position where she has to be a hero.
3) Government Regulations, Planning and Zoning. No one (who’s not a land developer) ever asks for this upfront, but the benefit to land and home prices is extensive. Given land prices here in the Bay Area, if governments relaxed their height regulations, developers would quickly build structures that maximize their use of airspace. City governments also require details like a certain number of parking spaces per housing structure so that other land owners aren’t affected by the additional street parking that would be caused. Every home has an impact on the homes next to it and a well-planned city holds its value, often resulting in a neighborhood that “feels” better than others.
A simple way of understanding your priorities is to ask yourself, “Would I pay more for it if it had…?” and see what you say. Sometimes the answers are surprising. That’s why I ask so many questions.
- How a Win-Win Saved My Client $25,000
- Determining Your Must-Haves When Buying a Home
- Why the Perfect House Wasn’t So Perfect
- Silicon Valley School System Bang-for-the-Buck