October 29, 2010

Downtown Palo Alto for Under a Million

Now don’t get too excited, but you can walk to anywhere from here: University Ave shops, theater, library, train station, even Steve Jobs’ house!  Best of all, the asking price on this charming vintage bungalow is less than you’d pay for a boring 1950s tract house in Sunnyvale.

352 Middlefield Rd, Palo Alto, CA 94301
$998,000

image

Beds: 2
Baths: 2
Sq. Ft.: 1,360
$/Sq. Ft.: $734
Lot Size: 5,600 Sq. Ft.
Property Type: Detached Single Family
Style: Craftsman
Stories: 1
View: Neighborhood
Year Built:1914
Community: Downtown
County: Santa Clara
MLS#: 81051038
Source: MLSListings
Status: Active
On Redfin: 8 days

Classic Dwntwn Craftsman w/ countless period details: coved ceilings, hardwd floors, true-divided light windows, substantial moldings, trim, & built-in buffet. Remodeled kitchen & baths. Enclosed front porch. Yard is garden oasis. Deck off kitchen for al fresco dining. Pergola in backyd for entertaining. Small sun room off of master bdrm serves as nursery/office. Walk down cellar for extra storage.

I love period details!  So if this place was built in 1914 I should expect an outdoor privy, gas lighting, a wood stove for cooking as well as heating the entire house, and maybe a delightful row of tiny headstones in the back yard — for all those infants who passed away before penicillin and routine vaccinations.

But the real reason this house is here today was our Caption Contest Winner, ymous, wanted a house in 94301 selling for at least 10% less now than in 2006.  I’ll keep looking for just such a house, but I think I found an even better one.  Just check out this property history:

Property History for 352 MIDDLEFIELD Rd

Oct 20, 2010 Listed $998,000 — MLSListings #81051038
Feb 28, 2001 Sold (Public Records) $830,000 — Public Records

Yes, you read that right.  This house sold for 15% less than today’s asking price… nine and a half years ago.  So if this house goes for the wishing price, the owners will have made a whopping 1.96% a year on their investment, and if we take out the standard 6% for the agents’ commissions and 1% for moving and related expenses (7% total), that’s a net profit of 1.18% a year.  I bet they’re so glad they bought this house and not a bag of useless gold coins!

Sure it’s on a busy street, just one house away from an even busier street.  I guess neither of those streets were busy in 2001 when it traded hands then.  Yeah.  That must be it.

Comments (38) -- Posted by: madhaus @ 5:05 am

38 Responses to “Downtown Palo Alto for Under a Million”

  1. Alex Says:

    That’s still a gain. Pretty weak example.

    At least my example showed a small loss since 2006.

    =p

    Someone should fire madhouse and sell me this website for $50. Anyone. Robosigner, anyone?

  2. SEA Says:

    “countless period details?”

    Most agents know nothing about period details. So many cannot even figure out how to unlock the caps lock. While I’m counting the period details, I’m wondering why not just say, “You’ll be bleeding cash every month.”

  3. nomadic Says:

    Actually, I hate to sound like our resident troll cheerleader, but I think this house will sell quickly and may have been priced to solicit multiple offers. The major street sucks, but it’s not a long walk to downtown at least.

    Hey, check out this fun spelling in the open house announcement: Quintiscential Craftsman downtown…

  4. nomadic Says:

    BTW, the realtard wasn’t lying about the “countless” period details. They truly are countless if you don’t know how to count, right?

  5. SanMatean Says:

    More snark less acid! Burbed, can we get a guest-post from you sometime?

  6. madhaus Says:

    #1, #5, how about some guest posts from you! Then you can demonstrate how they should be done. (shorter and snarkier, right?) At least A Lewis likes the way I do things, but to keep him happy I have to throw in the occasional East Bay listing.

    #3, I agree with you. This is a rather low price for the location, busy streets or no. Think there’s some serious structural damage to explain it?

    One problem with setting a listing price too low: if an offer comes in at or above that price, the seller is obligated to pay the agent the commission, whether or not seller accepts the offer. (The offer must have no contingencies and demonstrate willingness, ability and readiness to pay.) So if you have what you think is a $1.1M house and you list if for 998K (as this agent did), if you get a good offer for $1.02M you have to either take it or pay the commission anyway.

    And that’s the danger of getting ahead of a down market.

  7. CB Says:

    …that’s a net profit of 1.18% a year

    Really? I’m shocked my favorite snark addled Bay Area RE blog would be so stupid.

    Purchased in 2001 for 830,000, eh? Here are the ROI numbers if sold today for $1M less 6% fees, as dictated by reality:

    0% down in 2001: Profit = 940-830 = $110K (infinite gain).

    10% down in 2001: Profit = 110K/9 years/83K initial investment = 14.7% per year.

    20% down in 2001: Profit = 110K/9 years/166K initial investment = 7.4% per year.

  8. SEA Says:

    CB- First of all you are computing ROE, not ROI.

    Second, if you want to discuss ROE, let’s also consider the cost of capital. What about all that interest paid?

  9. madhaus Says:

    #7 is correct that I should not have used the term “net profit” to talk about the annual growth rate of the home’s value. Since one of the continuing themes on burbed is whether or not houses are a good investment, the compound annual growth rate is important to track.

    Since the peak, many homes now show a negative CAGR. And that was what ymous wanted in the first place, a 94301 house down since 2006, preferably by 10% or more (total value, not as CAGR). It isn’t easy to search on these parameters, because I not only need a recent sale, but a recent sale that also has a sale within the past few years (anywhere between 2005-2008 ought to qualify).

    Anyway, thanks, #7, for catching that.

  10. CB Says:

    CB- First of all you are computing ROE, not ROI.

    SEA, I’m calculating ROI. ROE would be even higher because after 9 years, assuming 5.5% interest, equity would be 940-633 = $307,000.

  11. SEA Says:

    CB- For ROI the purchase price is used, so those down payments don’t really matter. For ROE the owners’ equity is used, so we’d need to know the owners’ equity, which is equal to the down payment.

  12. CB Says:

    Cool, if that’s ROE so be it.

    I still think this was a good deal for the owner. I’m figuring an effective monthly after deductions of ~$3,700 -maintenance and upkeep aside. Though I get the feeling this owner actually enjoyed their landscaping and improvements, and maintenance costs are grossly overestimated on this blog.

    Compared to renting, this owner lost a couple K per year, but will come out well ahead on the sell date. Not the same can be said for many renters who invested in the SPX.

  13. SEA Says:

    Oh, let me be very careful here. I am not suggesting that it was not worth the cost to the owner, no matter how one computes rates of return.

    We’ve discussed this quite a bit with automobiles, which it’s generally accepted go down in market value. I own a car. That’s not to say that I am not satisfied with my purchase, and when I go to sell, I’m sure I’ll be happy with the total cost over the entire time I owned it.

    I’ve long claimed if you can afford to buy a nice home, go right ahead. Too many people purchased with the idea that it was always cheaper than buying.

    In the end, I’d guess the owner has been happy owning and living in this home over the last ~10 years.

  14. nomadic Says:

    Here’s another “not-quite-what-ymous-wanted” house:

    http://www.redfin.com/CA/Palo-Alto/212-Byron-St-94301/home/1527536

    Apr 22, 2005 Sold (Public Records) $1,250,000
    May 20, 2010 Sold (Public Records) $1,275,000

    Five years and nearly a wash – before selling expenses.

  15. sonarrat Says:

    http://www.redfin.com/CA/Palo-Alto/555-Byron-St-94301/unit-207/home/1446237 – last sold in 1998 for $792,000
    http://www.redfin.com/CA/Palo-Alto/758-Center-Dr-94301/home/762100 – last sold in 2008 for $3.1M

    There are a couple other condos and townhouses..

  16. SEA Says:

    “Status: Pending Without Release

    This listing is in escrow, past inspections and waiting for loan funding. “Without Release” indicates that the current buyer doesn’t need to sell a home to buy the new home.
    On Redfin: 9 days “

  17. nomadic Says:

    sonarrat – it hasn’t sold yet. SEA mentioned that one on Monday:
    http://www.burbed.com/2010/10/25/caption-contest-results-the-winner/#comment-65600

    I think we’re looking for a SFH for ymous.

    SEA, #16 – Redfin has errors in its “without release” notation all the time. I think it’s up to the realtard to click the right box, and they don’t.

  18. SEA Says:

    CB- I should extend this discussion a bit, since it’s rooted heavily in rent versus buy.

    There were a few years where homes went up in value more than the RBA double every 10 years, which is about 7.2% compounded annually. There were areas where the market suddenly went up 15-25% in a year.

    Buyers would buy with near zero down, and the expenses, in terms of percent of purchase price, were lower than the 15-25% (including all operating and financing costs).

    A $1M home could go from $1M to $1.15M – $1.25M in a year. The total cost of ownership, including maintenance, taxes, insurance, interest, etc., were lower than the $150,000.

    Even if we use the 7.2%, that’s $72,000 per year on a $1M home, or about $6,000 per month, in market value increases.

    Using only one year as an example, and assuming zero transactional costs, after being simplified the total cost of ownership might look something like this (all cash):

    Purchase $1M
    Taxes $12k
    Interest $33k (net cost after tax)
    Maintenance/Misc $15k ($1,250/mo.)

    Total Spent: $1M + $60k
    Market value: $1M + $72k
    Gain on sale after 1 year: $12k

    This is the whole “the home pays the owner.” It should be noted, however, that the cost of capital is significantly lower than the market value increase–positively leveraged.

    This is then used as an example on the whole “rent versus buy,” where the advocate of buying is always better suggests that renting is just throwing money away.

    What is largely ignored, and in fact some people were claiming could not happen, is the risk of the market value going down. Another case is that market values go up less than the cost of capital.

    Did people really think home values could go up more than the cost of ownership forever? Did all those landlords who purchased near the peak really think that renting at less than 5% of the purchase price was without risk?

    nomadic- What’s wrong with the data in this case? My guess is that it’s accurate. Maybe I need to re-read message #3?

  19. CB Says:

    SEA, you are exploring the hypothetical costs for the new owner. An aside, your $15K estimate for Maintenance/Misc is a gross over projection from my experience. Owners don’t buy a Sub Zero every 6 months. My costs are 20-30% that with a gardener.

    I am citing this specific seller, and I think it was a good deal for him/her in a decade where RE gains have been nominal from the crash and burn. I think this seller is in a far better position today than if he were to rent a similar house.

  20. SEA Says:

    CB- Just the other day WillowGlenner posted about a $20k plumbing job. It should be totally obvious that it wouldn’t take many of these to quickly surpass my $15k estimate per year. That said, you are right that the costs should be properly accounted for, including the major systems: Roofing, plumbing, heating, electrical, landscaping, refrigeration (new Sub Zero, maybe?), and so on. And then we’ve also discussed the cost and quality of the contractors…

    I know; I know: Light bulbs and Drano is the RBA standard.

    In this specific seller’s case, you are likely correct in that a similar rental would have had a total cost greater than owning this particular home. Good thing for the owner that this one is almost RBA.

    The next owner might not be so lucky. Who knows.

  21. DreamT Says:

    SEA – You should pay heed to CB’s estimates. Yours are speculative, his/hers are factual. I also agree that an $15k average for maintenance (excluding upgrades of course) is an over-projection. Don’t forget to consider various insurance options in your calculations.

  22. nomadic Says:

    SEA wrote: nomadic- What’s wrong with the data in this case? My guess is that it’s accurate. Maybe I need to re-read message #3?

    I’m not sure what you’re asking me.

    A correction for 758 Center; it was first posted by the doggie groomer on October 4:
    http://www.burbed.com/2010/08/17/location-location-location-at-last/#comment-65035

  23. SEA Says:

    DreamT- Let’s establish a nice working space, where we have the increase in value versus costs.

    Increase in value: We know in the RBA the minimum is about 7.2% per year. If no minimum, it’s the minimum on average. We know outside the RBA, at least on a short-term basis, we have seen some big decreases in value.

    Ownership costs: These range from zero to outlandish amounts.

    I will now outline the four critical cases:

    1. Maximize market value increase; maximize costs.
    2. Maximize market value increase; minimize costs.
    3. Minimize market value increases; maximize costs.
    4. Minimize market values increases; minimize costs.

    Case 1:

    Sure the costs are high (is $15k too high?), but the market value gains are larger.

    Case 2:

    Costs are near zero, and the market value gains are as large as case 1. This is clearly the most favorable for an owner.

    Case 3:

    This is the case that I found most interesting, and I covered it above. I picked the low 7.2% RBA return and matched it with the high $15k in Maintenance/Misc.

    In other words, I minimized market value increase and maximized expenses–This is the worse case scenario for the RBA owner, all other cases are better. I agree that in the RBA this case probably does not exist, since RBA homes only need light bulbs and Drano.

    Case 4:

    A low 7.2% return with near zero costs might be better than case 1, depending on just how much larger the market value gains are versus the high case 1 costs.

    Obviously money is discrete, but we could discuss lots of different returns and costs in this space.

    NON-RBA:

    The space above is only for RBA property, since the low return was 7.2%. Outside the RBA we need to consider negative returns, plus far higher maintenance/miscellaneous costs. That said, it should be clear when market values are going down, this is highly unfavorable for the owner.

  24. SEA Says:

    nomadic- You wrote, “Redfin has errors in its “without release” notation all the time. I think it’s up to the realtard to click the right box, and they don’t.”

    My question is what error, if any, do you think might be present with this particular listing?

  25. nomadic Says:

    My question is what error, if any, do you think might be present with this particular listing?

    For this particular listing, the validity of the “without release” notation is probably accurate. My point was that you posted the definition as though it’s gospel and it should be taken with a grain of salt.

  26. SEA Says:

    Oh, I just used that fine “Copy and Paste” feature, and that is what pasted. I probably should have just wrote “pending.” In general I wouldn’t want a REALTOR responsible for running a Nuclear Power Plant.

  27. DreamT Says:

    nomadic, I read #23 twice but could not find the joke at the end this time. Am I getting old?

  28. nomadic Says:

    You read #23 twice, DreamT?

    TL;DR

  29. Pralay Says:

    Am I getting old?
    —–

    You were young before started reading. But definitely got old after reading……TWICE.

  30. madhaus Says:

    #23, would you like to do a guest post? I think you’d be perfect for the Expensive Zip Codes feature.

    I mean, if nobody is going to read them, might as well have you exhaustively cover every single one of them.

  31. Petsmart Groomer Says:

    Here’s another “not-quite-what-ymous-wanted” house: 561 Center ($1,708 per square foot). Can the seller make a $310K profit in 18 months?

    Oct 20, 2010 Price Changed $2,595,000
    Sep 08, 2010 Listed $2,695,000
    May 04, 2009 Sold $2,285,000
    Nov 15, 2004 Sold $2,125,000

  32. Real Estater Says:

    All,

    The Palo Alto market is so hot right now there is overbidding on Middlefield! These translations just closed last month:

    3520 Middlefield: Asking – $899K, Sold for – $960K
    1675 Middlefield: Asking – $1.929M, Sold for – $1.95M

    Several other properties on Middlefield and Embarcadero have come up recently and sold in less than 2 weeks.

  33. SEA Says:

    Real Estater- Makes me wonder why the asking price keeps going down on 561 Center. Maybe you can elaborate the difference between those two Middlefield homes and the Center home.

  34. madhaus Says:

    These translations just closed last month:

    Well there’s your answer, #33. Foreigners with suitcases full of cash. That’s why they need translations.

  35. SEA Says:

    Where’s the suitcase full of cash for 561 Center? Maybe the flight was delayed? Canceled? Maybe the buyer doesn’t know how to say, “Let me in immigration man.”

    You know the problem: No Palo Alto identification. Getting rid of your immigration man problems? Now that’s worth two suitcases of cash!

  36. Pralay Says:

    The Palo Alto market is so hot right now there is overbidding on Middlefield! These translations just closed last month:

    3520 Middlefield: Asking – $899K, Sold for – $960K
    1675 Middlefield: Asking – $1.929M, Sold for – $1.95M

    —–

    Both the properties were lingering on market since August. That feels definitely hot. ;)

    But, 1675 Middlefield was listed for $1,998K. If there was an overbidding, got to be disappointing one. That’s not hot.

    In any case, these are two-car garage properties and that’s why they are selling with overbidding. That’s hot. If it was one-car garage like Real Estater’s home, it would have been a different story. That wouldn’t be hot.

  37. Pralay Says:

    Real Estater- Makes me wonder why the asking price keeps going down on 561 Center.
    —-

    Wrong side of Middlefield.

  38. Petsmart banker Says:

    561 Center is pending after price having been reduced another $100K and 200+ days on the market.


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