It probably won't surprise anyone to know that home prices on the Midpeninsula are high and getting higher. And sales of "ultra-luxury" properties (costing $3 million and up) jumped this summer compared to last.
According to a Coldwell Banker Residential Brokerage press release from Steve Maita, there were 55 sales of ultra-luxury homes in June in Santa Clara County, up 66 percent during that period a year ago. And a month later, July saw a 65 percent increase compared to July of 2014. In August 2015, Silicon Valley had 45 ultra-luxury sales, up 39 percent from August 2014.
What makes a property worth all that moola? Sure, there are certain desirable touches some clients seek, such as open-floor plans, high ceilings, green-building features, radiant heating, drought-resistant landscaping and outdoor kitchens. But for many buyers, it's all about location, said Alex Comsa, Coldwell Banker sales associate in Palo Alto.
"Some clients want to be within walking distance to downtown, or in a small pocket like Old Palo Alto," he said.
Often, the lot is more important than the house itself.
Comsa said there are three basic types of properties that make up the luxury market: large lots with average houses on them, average lots with new houses or large lots with new houses.
"Some clients are looking for large lots, even though the houses are just average, and the lot value of a large lot brings the property to the 'luxury' pricing," he said, adding that most new homes in the area would qualify as luxury.
Nash Verghese, a software executive and client of Comsa who recently purchased a home in North Los Altos for around $3 million, was a buyer searching for the right lot, rather than the house on it.
"I was not looking for a place to move directly into," Verghese said. "I have a second home that I remodeled and am comfortable living in. I wanted to buy a bigger lot that I could potentially build on at a later time."
Verghese looked at Palo Alto but ultimately decided that Los Altos was the best bet, both for quality of life and investment growth. The 2,400-square-foot home he purchased was built in 1939, renovated in the 1980s and boasts a large lot with a swimming pool. More important to him was its spot on a quiet cul-de-sac near good schools and the Palo Alto border.
"I could see that this would be a lot that would accrue value over the years," Verghese said. He hasn't yet decided whether he'll eventually tear down the existing house or upgrade it.
Buyers now searching for an ultra-luxury home in the area will find some opulent options available. In September, there were 15 homes listed for more than $3 million in Palo Alto and 38 in Los Altos. The most expensive of those included a $24 million Los Altos estate on Old Trace Lane that boasts a rock-climbing wall, indoor basketball court and 10 bathrooms; a Dawson Drive house in Los Altos dating from 1939 featuring a "servant's wing" and guest house, offered for $23 million; and a $14 million, Palo Alto home on Robb Road with sweeping bay views, its own theater and gym.
But not everyone purchases property with settling down in mind. Many buyers are snatching up properties solely as investments, with no plans to reside in the home.
"If an investor buys a lot at $3 million and spends $2 million in building, his cost is usually two thirds of the value of the end product, so the investor would sell the end product for about $7.5 million," Comsa said. "This type of activity has been driving the pricing up."
And low local inventory that is, not enough housing to go around is also leading to boosted prices.
"It is not uncommon to see 10-plus offers on these luxury properties, especially the ones that are very unique," Comsa said.
And while he doesn't see the current rate of increase on home prices as sustainable in the long term, he disagrees with those who say the local market is experiencing another "bubble."
"The buyers (now) are mostly all-cash, so it is very different from the bubble of a few years back, when most properties were financed 80 to 100 percent," he said.
Many of these all-cash buyers are investors from overseas, especially China, Comsa said. He estimated that 50 percent of buyers in the Palo Alto area fit into this category. Often, the houses remain vacant, used solely as an investment, while some buyers do eventually move in or rent them out. The United States visa policy is making it easier for Chinese buyers to purchase U.S. property.
"Also, the recent crash of the Chinese stock market will prompt more Chinese investors to look into buying real estate," he said.
But homes across the spectrum not just those in the "ultra-luxury" category have seen their values skyrocket, Comsa said.
"Lots of friends, neighbors and past clients have been telling me that they can't afford to buy the house they live in, based on the current market, and that they are super lucky they bought a few years ago," he said. "I would not be surprised to learn that 50 percent of current homeowners in our neighborhood may not qualify to buy their house in today's market."
This article appeared in print in the Fall Real Estate 2015 publication.