We are delighted to be a part of the Alain Pinel team and proud to say that per the recently published REAL Trends ranking Alain Pinel Realtors remains #6 in national ranking, for a second year. Better yet, we are also still the #1 residential real estate firm in California. It’s interesting to note that the the number in parentheses (49 for APR) is APR’s ranking in number of closed transaction sides. This represents steady improvement. In 2010, Alain Pinel was ranked 49th, 52nd in 2009 and 68th in 2008. For us, working for a highly regarded, regional real estate company has allowed us to remain completely focused on our clients and their needs, and be entrepreneurial and creative in our approach. Additionally, we are able to leverage our company’s market presence, depth of legal, marketing, public relations, and information technology resources as well as professional alliances.
Remarkable Recovery in Palo Alto and Menlo Park Real Estate Markets!
In a recent blog post we reported on First Quarter 2011 trends for the communities in which we work. We thought you might be interested in delving deeper.
We noted that Palo Alto can now be described as a “Seller’s Market”, one in which buyer demand exceeds the supply of available homes. The graph below depicts market trends for single family homes in Palo Alto from February, 2010 through April, 2011.
In the past 14 months the supply of available homes (light green bar) has dramatically decreased as the number of sales (red line) has increased. These are called “pending sales” which means that a seller has accepted a buyer’s offer, but the transaction has not yet closed escrow. The dark green bar shows the number of homes “Sold”, or closed escrows. Note that during the month of April all categories are hovering at around 60, which means that the market is absorbing the available homes as they come on the market. Future blog entries will address some of the characteristics of a “Seller’s Market” .
The below graph for Menlo Park reflects the same time period. Just as in Palo Alto, inventory has decreased from 2010 levels however, as the Spring market has evolved, more inventory has come on the market. While the number of pending sales has increased , there is still a supply of homes for sale. In March 2011, there were 67 homes for sale, 31 became pending sales and 30 close escrow. This approximates a 2-month supply of inventory. Inventory levels rose in April, while the number of pending sales increased at an even higher level. If this trend continues, Menlo Park’s market conditions may also be described as a “Seller’s Market”.
Understanding market trends is vital to both sellers and buyers as they plan their strategies for navigating the real estate market, and this is the type of information we like to provide our clients so that they can make sound and informed decisions.
Robust First Quarter Housing Market for Peninsula!
The first quarter of 2001 brought good news! In general, two key indicators, Number of Sales and Average Sales Price continue to trend up in our little corner of the world. Los Altos Hills and North Palo Alto were hot spots with growth in Number of Sales up substantially quarter over quarter while Average Sales Price was up in Los Altos Hills, Menlo Park, North Palo Alto and Palo Alto.
Overall brisk sales activity continues in all communities, and in Palo Alto the market is trending toward a “seller’s” market characterized by a shortage of available homes relative to demand by buyers. One of the most remarkable trends is the high-end Palo Alto market where there have been 20 closed sales in excess of $3.0 million during 2011 compared to 2 for the first part of 2010! If you are thinking about the sale of a Palo Alto home, this is a great time to consider placing your home on the market. If you are considering the purchase of a home, interest rates continue to be attractive. Currently there are interest rates of less than 5% for high balance conforming loans ($729,750). escortzone
The Gamble Garden Spring Tour 2011 is happening today and tomorrow and you don’t want to miss it!
Originally built in 1902, The Main House and the Carriage House of Edwin Percy Gamble were bequeathed to the City of Palo Alto by Elizabeth Gamble in 1981. This wonderful community resource is managed by the Elizabeth F. Gamble Garden foundation and Spring Tour 2011 offers a wide spectrum of Palo Alto landscaping. The five very personal gardens you’ll tour highlight exceptional design choices while still reflecting the unique lifestyles of the owners. Spring Tour activities take place today and tomorrow from 10:00 a.m. to 4:00 p.m. with tickets available at the front of the Main House. In addition to Spring Tour 2011, Gamble Garden will be filled with shopping and culinary opportunities, live music and even artists painting in the garden.
We believe Gamble Garden offers resources and inspiration which are unique to our community. The Main, Tea and Carriage Houses, along with the formal gardens, allow current and future generations a window into Palo Alto’s rich horticultural and architectural past.
We’re proud to support Gamble Gardens and we look forward to seeing you on Tour or in the gardens.
Transfer of Property Tax Base to New Residence
Earlier posts have discussed Proposition 13, The People’s Initiative to Limit Property Taxation, which was passed by California voters in 1978. One of the unintended consequences of this measure was to discourage people from selling their residences as their family circumstances changed. As children left their family homes and started their own new households, parents remained in homes larger than they wished. However, due to the property tax disincentive which occurred many were reluctant to sell their current homes with low assessed values to purchase smaller homes which would be assessed at higher amounts.
In 1986 California voters passed Proposition 60 which permits people over 55 years of age to sell one home and buy another of equal or lesser value within the same county and transfer their original Proposition 13 tax basis with them. The time limit for affecting this tax transfer is two years, and depending on the timing of the transfer, the value of the replacement home can be as much as 110% of the home being sold. This property tax transfer is a one-time benefit.
In 1988 California voters passed Proposition 90 which extends the Proposition 60 property tax transfer benefits to replacement residences in other counties, providing these counties choose to participate. As of February, 2010 the following eight counties allow the transfer of property tax base:
Alameda Los Angeles San Diego Santa Clara
El Dorado Orange San Mateo Ventura
On the surface the application of these Propositions seems straightforward, but in the course of our real estate experience we have been reminded that for all tax questions it is essential that tax advice be obtained from a Certified Public Accountant (CPA) or an attorney familiar with tax laws.
An example which came up recently for us involved a divorcing couple who were in agreement over which spouse would take the property tax base to a new residence. The home that they owned together and were selling was held in a family trust, while the replacement home was purchased in one of the spouse’s individual names, i.e. the manner in which title was held was not consistent for both properties. Unfortunately the specific questions surrounding the transfer of the tax basis did not arise until the closing when the tax assessor forms were accessed for completion. The tax assessor’s office staff was uncertain about the applicability of the law and the divorce attorney was also not clear about the issue. In the end the client sought the advice of a real estate attorney whose opinion after considerable research and based on this client’s situation was that the transfer of the property tax base was possible.
Our advice if you are planning to transfer your property tax base to another home is to always seek tax advice from a qualified professional before entering into any real estate listing or purchase contract. While real estate practitioners are familiar with the basics of these laws, they are not qualified to give tax advice.
Why is Proposition 13 Controversial?
In an earlier blog post, we discussed how property taxes are established in California based on Proposition 13, The People’s Initiative to Limit Property Taxation, which was passed by California voters in 1978.
As the State of California continues to experience challenging economic times the subject of Proposition 13 and perceived inequities in property taxation have become the subject of political discourse. As noted in the previous post, a property is reassessed at the time of sale based on the cash or market value at the time of purchase. Assessments in subsequent years may not rise more than 2%.
Here is an actual example based on two similar homes in the Vintage Oaks subdivision in Menlo Park. Each home built in 1997 sold originally for around $1,000,000, and property taxes were approximately $10,000 per year (1% of 1,000,000). One homeowner has lived in his home since he acquired it, and his property taxes for 2010-2011 are around $14,500. The other property has been sold several times in the past 14 years. The current owner purchased the home about 2 years ago, and the current tax bill is $32,400, more than twice the neighbor’s tax assessment!
Locally property values have risen dramatically over the years. In the example above, the property purchased two years ago at around $3,000,000 represents a 200% increase in value. Proposition 13’s limitation on the amount by which property tax assessments can be increased benefits long-term owners by protecting them from paying taxes on “unrealized gains”, and allowing them certainty that their property tax obligation will increase no faster than 2% per year. This has been vital to older home owners on fixed incomes and lower income individuals whose incomes may not rise as quickly as the values of their homes.
Conversely, an argument can be made that newer and younger homeowners are bearing a disproportionate share of property taxes, and that the provisions of Proposition 13 are “unfair”. echoua.com Those who perceive the inequities of Proposition 13 also often refer to the taxation of commercial properties which do not sell as frequently as residences. Long-term commercial property owners benefit from assessments lower than the actual market value of their properties.
An unintended consequence of Proposition 13 is that some homeowners resist selling their long-term homes with lower assessed values because they cannot afford or do not wish to increase their property tax obligation. We will write about this in a future post.
From a historical perspective it is interesting that Jerry Brown was Governor in 1978 when Proposition 13 was enacted and now, over 30 years later, he is again at the helm as the state faces a difficult financial crisis. Proposition 13 is sure to be part of the dialog!
Is the Market Up or Down? Palo Alto Update
The proof is in the numbers, and the good news locally is that the market is UP compared to 2009! Here’s the first of several Third Quarter updates for our local communities.
Palo Alto
Overall market trends are favorable, and this year we are even seeing recovery in the very high end (over $4 million) of the market. In 2007 there were 18 sales of $4 million and over reported by the Multiple Listing Service. In 2008 there were 9 and the number dropped to 3 in 2009. To date in 2010 there have been 7 sales in excess of $4 million reported by the Multiple Listing Service.
Palo Alto | Year-to-Date Sales | ||
Q3 2009 | Q3 2010 | Change | |
# of Closed Sales | 275 | 314 | 14% |
Average Sales Price | $1,484,000 | $1,600,000 | 8% |
North Palo Alto | Year-to-Date Sales | ||
Q3 2009 | Q3 2010 | Change | |
# of Closed Sales | 103 | 123 | 19% |
Average Sales Price | $1,741,000 | $1,977,000 | 14% |
Carol & Nicole
Successful Buyer Strategies (Part 1)
“Surround Yourself With a Team”
The purchase of a home is a significant financial decision for most people, and developing successful strategies will allow for a smooth process and satisfying outcome.
Buyers today feel empowered by the wealth of information easily available through the Internet. However, buying a home is far more important than just having information. There are several key professionals who we recommend you consult as part of developing a plan for the purchase of a home: a lender, a financial advisor and a Realtor.
First, it is important to know how much you can afford and a lender is the best source of this information – even if there are programs available online for calculating mortgage payments! A good lender will have access to a variety of loan products and can make suggestions for types of programs suitable for an individual’s needs. Even when our buyer clients tell us that they are planning to pay “all cash” for a home, we recommend that they consult with a lender because there are advantages to having a purchase money loan.
Second, seeking solid financial advice is a key consideration. Knowing the tax advantages to owning a home and the tax consequences of liquidating certain investments to secure a down payment is essential. A financial advisor or an accountant is the best source for having accurate and reliable information pertinent to your particular financial situation.
Third, a good Realtor is vital. A good Realtor will listen to your wants and needs, will coach you through the process, and can also introduce you to prospective lenders and financial advisors in the event you do not have access to these professionals. We like to use the illustration of a symphony conductor who pulls all the instruments of the orchestra together when needed, on time and in a harmonious way. A good Realtor will have access to the housing inventory, will screen opportunities, make sure you get to see them, and will educate you about communities and values. Once you decide upon the house you would like to purchase, your Realtor will help you structure an offer that will match your risk tolerance and will negotiate on your behalf. Once you are in contract, your Realtor will manage the complicated escrow process coordinating many details between the seller, the lender, the insurance agent, the inspectors, and the escrow officer right up to the close of escrow.
If you have not yet chosen your team, it is wise to get recommendations from your circle of family, friends and co-workers. A satisfied client is a strong referral and is usually willing to share their experience with you. It is always acceptable to ask for an initial interview in which you screen candidates for your team! Good chemistry and trust are the cornerstones of an excellent relationship.
Here’s to your success!
Carol & Nicole
Good News for Local Housing!
This past week David Streitfeld of the New York Times wrote an article entitled “Housing Market Plunged in July, Fueling Anxiety” which was also printed in the local San Jose Mercury News. Streitfeld utilizes statistics provided by the National Association of Realtors and comments about the reaction of financial markets in response to a 25.5 percent decline in sales from July 2009 to July 2010. Read more here…
We are lucky to live in our local Peninsula communities where we enjoy a diverse economic base, interesting neighborhoods, renowned public schools, and an entrepreneurial and creative population.
While the national real estate news may be grim, our local markets are actually doing quite well. Here are some graphs reflecting real estate activity in three of our local communities:
Palo Alto
Palo Alto | July 2009 | July 2010 | Change |
# of Houses for Sale | 115 | 99 | -14% |
# of Pending Sales | 31 | 50 | 61% |
# of Closed Escrows | 40 | 42 | 5% |
# Months Inventory | 2.9 | 2.4 | -17% |
North Palo Alto
North Palo Alto | July 2009 | July 2010 | Change |
# of Houses for Sale | 54 | 32 | -41% |
# of Pending Sales | 10 | 21 | 110% |
# of Closed Escrows | 16 | 22 | 38% |
# Months Inventory | 3.4 | 1.5 | -56% |
Los Altos
Los Altos | July 2009 | July 2010 | Change |
# of Houses for Sale | 92 | 71 | -23% |
# of Pending Sales | 20 | 30 | 50% |
# of Closed Escrows | 30 | 38 | 27% |
# Months Inventory | 3.1 | 1.9 | -39% |
Menlo Park
Menlo Park | July 2009 | July 2010 | Change |
# of Houses for Sale | 107 | 100 | -7% |
# of Pending Sales | 19 | 36 | 89% |
# of Closed Escrows | 29 | 39 | 34% |
# Months Inventory | 3.7 | 2.6 | -30% |
So, while our markets remain price sensitive, they are healthy: inventory levels are down and number of sales are up! ….and for anyone who is considering purchasing a home, rates are at astounding lows!
Let us know if we can be a resource for your home-related needs. We are happy to share the names of our trusted vendors.
We hope that you will help spread this good local news to your friends and neighbors!
Carol & Nicole
What? No Permit? (Part 2)
In our prior posts we have discussed building permits as they relate to buying and selling residential real estate. During the course of our real estate practice we have come alongside our client to help them resolve “permit problems”.
We once listed a home for sale and during the course of reviewing the sellers’ disclosures we inquired about modifications made to the home, and they mentioned that the prior owner had added the second story. Continuing to probe we asked if they had copies of the building permit or the plans. They confidently responded that they did not, but they were sure it was fine because they’d purchased from a licensed contractor. A check of City records, however, showed there was no evidence of plans or permits. Fortunately for these homeowners they were able to obtain a permit for the addition retroactively, though they did have to make some electrical and heating system modifications which cost around $5,000.
Recently we represented a buyer for the purchase of a home which had been recently extensively remodeled with a building permit which had been “finaled” by the City. This particular home has been sold frequently and, over the years past disclosures and records were no longer available. In walking through the home with our buyer clients we alerted them that one particular modification appeared to have been a garage conversion to living space. Because of its location in the set-back, this raised the possibility of a zoning violation, though a prior owner had built a carport with a building permit to meet the City’s requirement for “covered parking”. We recommended an investigation to determine that the conversion to living area had in fact been properly authorized.
Extensive research of the seller’s and the City’s records confirmed that while the recent remodel had been done with a building permit, the original conversion to “living space” had not. Consequently, in order for this space to be reflected in the home’s square footage the City determined that a permit would need to be issued, drawings including engineering calculations would be required, and invasive testing to confirm construction compliance to specifications would need to occur to get the needed approval. Additionally, since the former garage’s slab was most likely not designed to carry the load of the converted living space, it would need to be reinforced by excavating beneath and pouring additional concrete reinforced with rebar. The ballpark cost to obtain the permit was around $50,000!
The buyers chose to complete the purchase of the home and take on responsibility for the modifications done without permit (refer to Blog Post dated………) but there was a costly price accommodation for the lack of permit.
In our earlier post we spoke of the “risks” associated with lack of permit documentation. In this particular instance, the lack of permit could have resulted in following scenarios:
- Seller remedies the situation obtaining the permit after the fact per the estimate given
- Seller is now aware of lack of permit and goes back on the market with a new disclosure
- Appraisal on the “reduced” living area does not support the buyer’s loan and buyer cannot purchase
- Appraisal on the “reduced” living area does not support the price, and while buyer may still be able to get their loan because it was relatively small compared to the purchase price, buyer has major buyer’s remorse
So, at the risk of repeating ourselves:
If you are a homeowner and you are modifying your home, always check on permit requirements, and always make sure your contractor obtains progress inspections by a building inspector including the final sign-off. Keep the “finaled” permit as part of the permanent record of your home so that you can pass it along to your buyer when you sell.
If you are a home buyer, always review the seller’s disclosures carefully and ask questions if there is something you do not understand and, at the risk of sounding self-serving, always entrust your real estate representation to a competent professional Realtor who is knowledgeable about the local community.