Palo Alto, CA: Sold $1M over asking. Let’s understand why…
Ok, it is a Eichler in Palo Alto so that should at least explain something… They’re desirable in that they’re historic and some people like them. But when they were built, they were supposed to be cheap houses. They just have that modern design aesthetic that’s so distinctive.
It sold for 25% over asking price, that’s pretty much what most homes are going for in the bay area with no inventory. People are desperate with low supply and high demand, appraisals are being waived and don’t really matter in this price point. If you’re buying a 4-5m home you probably have more than 20% down. We need a ton of inventory to come on the market at the same time to level the playing field.
If we look at the local supply, there are literally 12 houses in Palo Alto listed right now with 5 or more bedrooms. All of them are listed at more, some significantly more, than $5m. So this could just the the story of somebody with 3 kids and a home office (and lots of $$) who really wanted to live in Palo Alto.
A few other things to take into account:
- This house is a Deleon listing, they tend to go all out and are very good at catching those crazy buyers. Not quite representative of the market
- Palo Alto has been trending this direction for decades, primarily due to the reputation of its public schools. After 2020 this reputation is under jeopardy, so perhaps only foreign buyers are left in areas like this
- The county gets to collect way more in property taxes when house is reassessed at the new price
- In Palo Altoyou can still inherit your parents’ house at the lower property tax rate
- Foreigners who are buying $5m Eichlers are bringing in high income / spending, and their kids typically do very well in school. On the whole this is extremely positive for an area
Clearly all the above, mostly the lack of supply and high demand, drives the crazy prices above. Not good.