Real Estate

When is a comp not really a comp?

Real Estate Matters

by Michael Dreyfus

We've all heard a version of the same story at a dinner party or on the sidelines of our child's soccer game. It goes something like this: Someone's neighbor/friend/coworker got a knock on his or her door offering $5 million cash for a house this neighbor/friend/coworker paid only $3 million for just last year.

Exciting? Yes! A serious offer? Ma-a-a-a-ybe. Did the market value of this house (and by the transitive property, all comparable neighboring homes surrounding it) just jump to $5 million? Absolutely not.

While this story may, as they say on TV crime shows, be "based on actual events," the instances of these offers actually panning out are few and far between. But let's assume for fun that the offer is genuine and that the coveted home is your home. The person knocking on your door actually has $5 million cash, is eager to hand it over and move into your house next month.

Now you need to ask yourself: Is the windfall worth pulling up roots? Are you ready to take on all the ensuing drama and hard work? Are you willing to possibly change neighborhoods, towns, schools, jobs? Are you prepared to say goodbye to your home? If you've weighed the pros and cons and decided to take the money, I say go for it and never look back. This windfall will likely never happen again.

Which leads me to my next point. This $5 million offer will likely never happen again. Did I just say that? In two or three years, when you are ready to sell, your home's market value is $3 million, not $5 million. Even assuming the $5 million cash offer was "real," it does not mean your home value shot up into the stratosphere overnight and never came back down. It came back down the minute you said "no thank you" and sent that $5 million wad of cash on his or her way.

Which is not to say you made the wrong decision in turning the offer down! You may have decided that it just wasn't worth it to you or your family to leave your home. I personally think this decision is often the best one. Your home is not simply an investment like stocks or CDs -- it's your shelter, your holidays, your family and friend headquarters, and in reality it may make you a lot happier than any pile of money could. Turning down the extraordinary offer is not always a bad idea, even if it is a once-in-a-lifetime offer.

The reason this scenario is coming up a lot recently? I'll give you a hint. It rhymes with Puckerberg. As we all know by now, Mark Zuckerberg bought the four homes surrounding his Crescent Park property for a lot of money roughly $30 million. As reported by the New York Times and virtually every other media outlet in the country, he paid a "whopping $14 million" for the house next to his, twice what he paid for his own much larger home a couple of years ago. While it sits in a lovely neighborhood and by any standard is worth a number in the many millions, this neighbor's home was not worth $14 million until Mark Zuckerberg decided it was worth $14 million. Yippee and bravo to Zuckerberg's neighbor for that lucky geographic fluke, or what I sometimes think of as an Act of God.

Light, anecdotal dinner-party conversation aside, I've seen people base their retirement plans on one of these Acts of God (aka extraordinary offers). This is a problem. If you decide to decline one of these Acts of God and to stay in your home, you do so with my absolute blessing. But please do not count on someone to come knocking again with $5 million burning a hole in her pocket, or for Mark Zuckerberg to move in next door any time soon. My sense is he's pretty well settled where he is for the time being.

Michael Dreyfus founded boutique brokerage Dreyfus Properties, with offices in Palo Alto and Menlo Park, in 2000. He can be reached at mdreyfus@dreyfusproperties.com.

Comments

Posted by PA resident, a resident of Midtown
on Jan 12, 2014 at 9:04 am

Mark Zuckerberg paid the home owners what the future value of their homes would be projected 10-20 years from now. His logic is why wait 20 years to sell and get $14M, when I will give you the money now. I believe some are even renting their homes back - hence no disruption to their lives.

This was a unique and isolated case.


Posted by Sam, a resident of Midtown
on Jan 12, 2014 at 3:59 pm

Steve Jobs did the same thing with his neighbor. The neighbor moved immediately a few blocks away. Jobs wanted the house to house his security team. It happens....


Posted by Sorry?, a resident of Old Palo Alto
on Jan 13, 2014 at 9:00 am

I thought the house behind Jobs' on Santa Rita was torn down. He did not want any neighbor that close to him. At the time, he did it without permission from the city, was fined, and simply paid the fine. He turned the lot into a garden.


Posted by Crescent Park Dad, a resident of Crescent Park
on Jan 13, 2014 at 10:38 am

No offense, but your version is incorrect. He did buy the property and did tear down a "historic" house...however, since he did not replace the house, he could not be fined. And since then the historic ordinance that covered such a house has gone away.


Posted by anonymous, a resident of Green Acres
on Jan 13, 2014 at 6:57 pm

Jobs tore down the house and put up one of the loveliest home gardens I have ever seen for his wife. I used to walk by it every day and was incredibly envious as I used to have a garden like that in a town far away where I could afford the property!

I wish folks like Zuckerberg would expand their view beyond the properties around their homes, get together and invest in other property around town to keep Palo Alto a nice place to live! Buying the old bowling alley property, for example, and just sitting on it, or developing the back lot, and letting the tenant update with the longer lease, would have retained that asset as a place for our kids and families for local recreation, without ultimately costing them much or anything.

The orchard at Maybell is across the street from an existing park has 100 established trees that need no watering (as we head into one of the worst droughts on record) and are home to at least one nesting red-tail hawk. Why not consider buying it for the 4 ranch houses that could be renovated as 4 executive homes for visiting foreign executives, since they are walking distance to elementary, middle, and high school? Why not consider renovating those houses and building a few on the periphery to be homes designed for families with severely disabled children, as the OH at Juana Briones (location of long-time preschool, elementary, and county rehab programs for severely disabled children)? If they retain ownership of the property, they could ultimately come out ahead, and in the meantime, make Palo Alto a really nice place to live for their families, too. Keeping the development to scale in the neighborhood minimizes the impact to the routes to schools including Gunn, where the children of at least some of these people may eventually want to go.

Keeping Palo Alto a nice place to live will also protect the investments they've already made.

Point taken about market-value, though. We don't have that issue so much on this side of town, although we get a letter offering purchase of our home nearly every month (we live nr Gunn HS).


Posted by anonymous, a resident of Green Acres
on Jan 13, 2014 at 6:59 pm

Correction to what I wrote:

Why not consider renovating those houses and building a few on the periphery to be homes designed for families with severely disabled children, as the OH at Juana Briones (location of long-time preschool, elementary, and county rehab programs for severely disabled children) is right across the street?


Posted by palo alto resident, a resident of Duveneck/St. Francis
on Jan 13, 2014 at 7:06 pm

Steve Jobs bought the house next door, tore it down, then bought the house next to that.

Mark Zuckerberg bought the houses surrounding his to control who lives there - not as an investment or for any other reason.

I'm hoping Marissa Mayer bought the funeral home to control what gets built near her home, she seems to be very neighborhood oriented, so I'm hopeful!


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