The DeLeon Insight Silicon Valley Real Estate Local Specialization
Integrated Approach Septem b e r 2015
The Magic of the DeLeon Business Model - The Buyer’s Side • Structuring Listing Agreements
• Neighborhood Spotlight - Los Altos Hills © 2015 DeLeon Realty - DeLeon Insight September 2015 1 • Marketing Your Home In The 21st Century www.deleonrealty.com
The DeLeon Update: Market Trends Average Sales Price 2014 & 2015
Housing vs. Stocks Why Silicon Valley Housing has been a More Profitable Investment than the NASDAQ By: Ken DeLeon, Esq. DeLeon Founder
01/2015 - 8/18/2015
Average sales price for single-family homes from 1/1/2015 to 8/18/2015 compared to a similar period in 2014.
Average Price/Square Foot 2014 & 2015
01/2014 - 8/31/2014
01/2015 - 8/18/2015
Average price per square foot for single-family homes from 1/1/2015 to 8/18/2015 compared to a similar period in 2014. *Data gathered from the Multiple Listing Service on 8/18/2015
2 DeLeon Insight September 2015 - © 2015 DeLeon Realty
aving traveled the world as a real estate nerd, I always study the real estate market and tax structure of any country I visit. I have found that no government subsidizes homeownership as much as the United States. Two of the great benefits enjoyed by many homeowners include the income tax deductibility of mortgage interest paid and the deductibility of property tax payments. But clearly the greatest benefit of all is the tax exemption of the first $500,000 in capital gains that married couples make on their primary residence. While these benefits are nationwide, they are of particularly great value in California since we pay the nation’s highest taxes, and thus the value of this tax exemption is worth more here than elsewhere. Overall, I believe that buying your primary residence in Silicon Valley is the best investment you can make. This conclusion is best proven by empirically showing the difference in post-tax effective profit you would have made on your housing investment when compared to an investment in the NASDAQ stock exchange of the same amount. To use real numbers, let us compare using funds to either buy a NASDAQ index fund or a primary residence in Palo Alto. Let us presume that the home or the stocks were both bought on January 1st, 2011, and sold on August 24th, 2015, which has been a good investment period for both options (even with the recent volatility in the stock market). With mortgage rates being near historic lows, the cost of a mortgage for my clients is generally at or below their rental rate, making the cost of homeownership similar to renting. Due to this parity in costs, I am not including any additional costs to homeownership in our equation, but if mortgage rates rise greatly, these costs should be accounted for, as well. While considering the housing
investment, assume that a 20% down payment was made for a home bought in 2011 in Palo Alto, which translates to $284,000 based on the median home price in Palo Alto in 2011, which was $1,420,000. Assume this home was then sold on August 24, 2015, when the median home price year-to-date in 2015 for Palo Alto had appreciated to $2,666,000. For stocks, let us assume that same investment of $284,000 was invested in a NASDAQ index fund. The NASDAQ appreciated a great deal from January 1, 2011 (when at 2,653), to when we assume the index was sold on August 24, 2015 (when at 4,526). These years were great years for both the stock market and the Silicon Valley housing market. During this period of under five years, the rate of appreciation for the Palo Alto median home price was 88% versus an increase in the NASDAQ of nearly 71%. However, the purchase of the Palo Alto home was a much more spectacular investment due to two major factors—the leveraging of the down payment by using a very cheap (and generally tax-deductible) mortgage, plus the tax exemption of the first $500,000 in profit on a primary residence for married couples. For both asset classes, I presume a 37.1% capital gains rate, which is composed of 20% for the federal government, plus 3.8% for the Affordable Health Care Act and another 13.3% for the state of California. The after-tax profit differential between these two investments is simply staggering. Due to the tax exemption on the first © 2015 DeLeon Realty
$500,000 in profit and the leveraging of the down payment by utilizing a mortgage, the net appreciation from a Palo Alto personal residence is more than 7.5 times higher than stocks, even with stocks also having a very high rate of appreciation during the same time frame. Note that the tax benefits discussed for housing decline once there is $500,000 in appreciation, for then the government gets 37.1% of all future appreciation just as they do with stocks. This illustration, reflective of the great investment that Silicon Valley real estate has been in the past, shows why we confidently believe that owning a home in Silicon Valley is your best route to after-tax wealth and the security it brings.
- DeLeon Insight September 2015 3
Putting Sellers’ Interests First By: Michael Repka, Esq. DeLeon CEO/General Counsel
here are a number of very good and ethical real estate agents in Silicon Valley. Unfortunately, as someone well-versed in the field of real estate law, I am all too aware of the games that some other agents and brokerages play for selfserving reasons. What is surprising to me is the seemingly illogical arguments put forth by these agents, to which many clients assent without understanding the complete picture or the alternatives. This article outlines a few approaches that I believe are fundamentally better for sellers, along with some counterarguments asserted by certain agents or brokerages. 1) “Double Ending” Transactions Detrimentally Impacts Sellers (See Conflicts of Interest. The DeLeon Insight, May 2015) My position: The same person should not represent a buyer on one of his/her own listings, and he/she should disgorge any financial gain associated with any particular offer getting accepted. This should include undisclosed “referral fees” that the listing agent gets from any other agent. Generally, the listing agent has too much confidential information from the sellers, and there may be too many opportunities to sway the transaction, even before offers come in. Other agents’ counterarguments: • “Agents would not be influenced by the fact that they make double commission if one offer gets accepted over another; they have a fiduciary duty to their clients.” [This argument is convoluted, confusing, and not credible. Plus, one must wonder how an agent’s fiduciary duty can be fulfilled to both clients when the seller wants the highest possible price and the buyer wants the lowest possible price.]
• “In our office, this is not a problem because the listing agent steps aside and works only with the newly engaged buyers, and someone else, generally the managing broker, advises the sellers.” [Setting aside the fact that this requires listing agents to abandon their seller-clients at a critical time, the manager is not very familiar with the sellers, the sellers’ situation, or the property. Further, this “solution” does not address the fact that the listing agent has access to confidential information or the possibility that the listing agent could subtlety discourage other buyers once they know that they have clients who might write an offer.] 2) Long-term Listing Agreements Hurt Sellers (See The Trap of Long-Term Listing Agreements. The DeLeon Insight, July 2015) My position: My position: The initial term of a listing agreement should not extend more than 45 days after the home is placed on the MLS. In Silicon Valley, most homes should sell in this amount of time. If a home has not sold, the seller should be under no obligation to continue with that listing agent. Nevertheless, the seller has the option to relist if they have been satisfied with the agent’s performance, which gives the listing agent an incentive to keep marketing the property aggressively throughout the listing term. Other agents’ counterarguments: • “The agent doesn’t set the price; the market sets the price. I need to have time to push for a price reduction or for the market to catch up with the seller’s expectations.” [I wonder whether the listing agent was candid about the price when getting the listing.] • “It takes time for the right buyer to find it on the MLS.” [The question turns on what exactly did the agent do to market the property and was this explicitly written in the listing agreement?]
4 DeLeon Insight September 2015 - © 2015 DeLeon Realty
3) Listing Agents Should Spell Out Their Obligations in the Listing Agreement (See Structuring Listing Agreements on page 17 of this edition)
My position: Sellers should have the choice as to whether they want to attend an in-person offer presentation (i.e., live presentations by buyer’s agents, but where the buyers generally are not present) or have offers submitted electronically. While sellers get to see and hear the buyer’s agents’ “stories” during in-person presentations, there are numerous disadvantages to this approach, such as: (1) live offer presentations generally result in the buyer’s agents knowing some or all of the other agents that are submitting offers, which could be advantageous for their buyers; (2) some sellers don’t do well with maintaining a “poker face”; (3) the “smooth” buyer’s agent often gains an advantage for his/her buyers, at a cost to the sellers; (4) some buyer’s agents submit a lower priced offer with the hope that they will be able to lobby or charm their way to a deal; and (5) some buyer’s agents use this opportunity to pressure the sellers to accept an offer that is “due upon presentation.” At a recent negotiation training event at Harvard Law School, I explained the inperson offer presentation system for which some buyer’s agents advocate, and the professor was truly surprised that sellers accept this onesided approach. Having completed an extensive amount
of graduate-level work in negotiation and dispute resolution, and having handled a large number of offers, both in person and electronically, I am well-versed on the topic. For most sellers, I have come to determine that electronic presentations generally result in a higher sales price. In fact, I think that is one of the reasons why DeLeon Realty’s sales prices and other stats are so impressive. Using the largest sample size possible, which is all DeLeon Realty sales compared to all the sales of the other top 10 brokerages in Silicon Valley, our average sales price is about double that of the other brokerages, with our homes selling in nearly half the time and for more per square foot. Other agent’s counterarguments: • “Buyer’s agents like the opportunity to advocate for their clients.” [I don’t dispute this for a second— many buyer’s agents prefer to present their offers in-person because that enhances their chances of getting a lowerpriced offer accepted. However, a lower price is not consistent with most sellers’ goals.] • “It is not always about the price and the terms; there are ‘intangible’ factors to consider.” [Any and all relevant information can be obtained from the buyer’s agent, ideally in writing. In fact, I generally leave several hours between when offers are due and when the sellers respond so that we can collect and
verify all relevant information.] • “Sellers are able to determine whether the agent is professional based on the presentation.” [A good listing agent will provide counsel on this themselves after thoroughly reviewing the background and experience of each buyer’s agent, as well as all of the materials presented. In-person presentations often sway sellers toward buyer’s agents who are smooth and charismatic, which can create a detrimental bias.] • “Some listing agents are going with electronic submission because it simplifies their lives.” [Yes, electronic submission is convenient for all agents, which encourages more offers from agents, provides for a detailed record of offers that were submitted, and, importantly, is more convenient for the sellers.] There are pros and cons with every negotiation technique and the particular method recommended will vary depending on the individual home and sellers. A good agent will discuss the advantages and disadvantages of the various methods so that the sellers can choose the one that is right for them. Each of these positions are presented in more detail in the referenced articles, which are available at: www.DeLeonRealty.com.
My position: Listing agents should provide a comprehensive addendum to every listing agreement that specifically lays out what marketing they will do and who will pay for the staging, property inspection, pest inspection, and other expenses. Other agents’ counterarguments: • “I will market ‘aggressively’ but I need the flexibility to make changes to the plan… trust me.” [The agents could always do more, but they should lay out their minimum commitment in the listing agreement.] 4) In-Person Offer Presentations Can Hurt Sellers (See The Downside to Live Offer Presentations. The DeLeon Insight, July 2015)
© 2015 DeLeon Realty
- DeLeon Insight September 2015 5
Neighborhood Spotlight – Los Altos Hills
E X P E R IE NCE T HE D E L E ON DIF F E RE NCE
By: Ken DeLeon, Esq. DeLeon Founder
The hills are alive with the sound of music, as well as multiple offers! After years of relatively slow growth lagging behind the communities in the flats, the affluent hillside communities of Portola Valley, Los Altos Hills, and Woodside have rebounded strongly in the last year and are now attractive to many buyers who appreciate the large lots, rural charm, and great views. While all of these communities have seen strong appreciation recently, the focus is justifiably upon the highly desirable Los Altos Hills, which has seen the greatest surge in demand as reflected in its strong appreciation and the increase of new construction that can be found throughout this beautiful community. Once the darling of Silicon Valley housing, primarily from 1998 to 2000 when prices skyrocketed and the hills became dotted with new homes built by freshlyminted IPO millionaires, the steam went out of this market with the bust of the dot-com bubble. Slower to recover than other markets, the Los Altos Hills bottomed out in 2009 with an average house price of “just” $1,908,388. The market recovered, but at a slower rate than in the flats of Los Altos. In 2013, one could almost buy an acre in the Los Altos Hills for the same price as a quarter acre in North Los Altos! Yet by 2014, the great value and amenities provided by living in the Los Altos Hills
once again have become apparent to home-buyers. Beyond the great value the town provides, one of the two main factors that led to this increase in demand is that nearby downtown Los Altos has become
offers and jumped to $8,500,000 with an all-cash offer, closing at nearly $1,500 per square foot. While this much of a jump is an anomaly, the strength and desirability of the Los Altos Hills housing market is
much more vibrant thanks to newly opened restaurants and stores revitalizing this formerly sleepy village. Secondly, the majority of the Los Altos Hills are in the Los Altos High School attendance area, and the Academic Performance Index score has jumped 100 points to a score of 895, making it almost on par with Palo Alto High School. The strength of the housing market can be illustrated both via a recent sale as well as comparing housing statistics now with the low point of 2009. In March of this year, a nice home near Town Hall was listed for $6,998,000. In years past, the initial list price was a starting point to negotiate downward. Now, it is considered the starting bid. The home received multiple
reflected in the statistics above. Even with this recent appreciation, DeLeon Realty remains bullish on the future appreciation of the Los Altos Hills. By historic standards, this town is still priced much lower relative to neighboring cities such as Los Altos and Palo Alto. DeLeon Realty projects the greatest appreciation either in the areas close to the village of Los Altos and in homes with Palo Alto schools. The greatest growth is projected for those eastern neighborhoods between Interstate 280 and Foothill Boulevard, as these areas have close proximity and even some walkability to increasingly dynamic downtown Los Altos.
LIST YOUR HOME WITH DELEON REALTY AND DELEON REALTY WILL COVER ALL OF THE FOLLOWING AT NO ADDITIONAL CHARGE: Staging, Including Design, Installation and Removal
Minimum of a 12-Page Brochure
First Month of Furniture Rental
Professionally Shot Video Tour
Many Full-Page Ads in Multiple Local Papers
Ads in Chinese Papers and on Chinese Radio
Catered Open Houses and Broker Tour
8 Hours of Contractor Time And, much more….
65 0.4 88.7325
www.d el eon real ty.com
6 DeLeon Insight September 2015 - © 2015 DeLeon Realty
Cal BRE #01903224
© 2015 DeLeon Realty
- DeLeon Insight September 2015 7
Tree Disputes with Neighbors
DeLeon Realty Marketing Perspective: It’s All in the Details By: Michael Repka, Esq. DeLeon CEO/General Counsel
By: Seth Faulk DeLeon Copy Editor
uying a home can be a very emotional experience — even the most subtle details of a home may influence a home’s sale. Though experienced real estate photographers and videographers do a lot to capture the look of the home, these stunning images alone simply cannot communicate all the details that often appeal to potential buyers. To achieve a top-dollar sale, today’s Realtor® must do more. That is why our marketing team provides a custom website, multiple print and online ads, a professional-quality hosted video, and a sophisticated brochure of at least 12 pages. However, the content of all of that marketing material must be compelling. It must draw attention to details that could be missed, tell a story, and move the buyer. Our marketing specialists work closely with both home-sellers and our skilled, in-house design specialists in identifying interesting details (both obvious and subtle) in each home that will appeal to the most buyers, thus increasing the prospective buyer pool. Then, our team incorporates these details into our marketing materials, especially our video scripts, online copy, and comprehensive brochures. Although many sellers may not be sure of the exact design or structural materials that are inside their homes, especially if they did not build the homes themselves, these details can make a difference. However, on the marketing end, it is imperative all stated details are correct, not only to avoid liability, but also to ensure buyers are receiving exactly what they believe they are paying for. Our marketing team avoids accuracy issues by collaborating with our design specialists to verify structural and design elements, making certain each home’s marketing accurately describes these details. Knowing which details appeal most to buyers is an integral aspect of our marketing. For instance, buyers generally favor new or newer homes, so recent constructions are always emphasized in our marketing materials. For homes that are
not brand new, tastefully updated features like windows, lighting, and paint lend a fresh sense of style and should be pointed out. Bringing attention to remodeled spaces or new additions within a home also piques buyer interest. The newness of these details is not always visibly obvious, but by specifying these aspects, we may potentially boost a home’s sales price. Similarly, specifically identifying key details within a home is a tool that may heavily influence buyers. For example, amenities like quartz countertops are gaining enough popularity to be considered as a selling-point by certain buyers. Maybe sellers can’t determine if their kitchen countertops are quartz, so they (or their agent) opt for a more generic descriptor, like “stone,” to use in their marketing materials. However, the term “stone countertops” loses the potentially attention-grabbing appeal it could have on discerning buyers if it was more specific. Explicitly naming the type of countertops (i.e., mentioning the fact they are “Caesarstone quartz countertops”) may make a significant impact on a buyer’s interest in seeing the home.
8 DeLeon Insight September 2015 - © 2015 DeLeon Realty
High-end conveniences are details that may not be obvious, but should certainly be pointed out. In photo marketing, integrated kitchen appliances are often overlooked because they are designed to blend right in with a kitchen’s cabinetry. However, if these appliances were designed by elite brands like Miele, Bosch, or Fisher & Paykel, it is important to specifically list them in the home’s marketing materials, as details like these both intrigue buyers and help the home stand apart from other homes on the market. Other luxurious details like built-in media systems and heated floors are also not visually evident, but are sought after and may substantially increase buyer attention, if aptly showcased. To produce the best possible results for our clients, DeLeon Realty’s marketing specialists select and describe the most attractive details of each of our homes. Keeping up-to-date with design trends and staying aware of buyer preferences are essential to making these well-informed decisions that result in our listings selling for much more on average than any other top brokerage in Silicon Valley.
he care of trees creates a lot of work for arborists, which is not surprising. However, many attorneys have also put food on their tables thanks to trees and their various related issues. Few things spark tensions between neighbors as quickly as a dispute related to a beloved tree. Unfortunately, there is a good bit of confusion as to what rights a homeowner has when it comes to trimming a tree that sits on an adjoining property. Today, a commonly cited (but incorrect) rule relates to tree roots and branches that extend over the property line from a neighboring property. While California law formerly provided that an adjacent landowner whose property was damaged by encroaching roots and branches could cut those branches or roots at the property line so long as they did not enter the neighbor’s property, that rule was substantially changed by a notable 1994 case (Booska v. Patel, First Dist., Div. 1, Case No. A061749, May 20, 1994). Now, homeowners must take into consideration the health of the tree and act reasonably. In other words, homeowners may be opening themselves up to liability if they aggressively shear a tree’s roots and branches at the property line. In Booska, there was a large tree with its trunk entirely on one property and
roots that extended under a fence into the adjacent property. The adjacent property owner cut all of the roots at the property line to a depth of three feet. The other homeowner then removed the entire tree and claimed it had become
© 2015 DeLeon Realty
unsafe and a nuisance as a result of the root severance. Relying upon the pre-1994 case law, the defendant claimed he had an absolute right to remove any encroaching roots or branches irrespective of the effect on the tree owner. The court disagreed, stating that no one “is permitted by law to use his property in such a manner that damage to his neighbor is a foreseeable result” and that the proper test to be applied to the liability of the defendant is “whether in the management of his property he has acted as a reasonable [person] in view of the probability of injury to others.” In the post-Booska world, we are left with less than 100% clarity. Most real estate attorneys agree that homeowners may still cut branches and roots at the property line without the neighbor’s permission; however, they must not act in a way that unreasonably interferes with the tree’s health or the tree owner’s rights. Unfortunately, inconsistent interpretations of what is “reasonable” could lead to many disputes. Thus, homeowners may benefit from coming to an agreement with the neighbors before undertaking the work. Additionally, before doing the work, one should consult with an arborist and obtain a written opinion stating that the work will not threaten the health of the tree.
- DeLeon Insight September 2015 9
Update Your Bath on a Budget By: Jillian Mrsny DeLeon Design Coordinator
ll homes have their imperfections and quirks. We often put up with a dark, dingy powder room or a hall bath with its yellow tub and sink because we love the rest of the house. It has been on your to-do list long enough! Now that you are ready to get started on creating a space you no longer shy away from, here are a few suggestions to help you create the best bathroom possible. To keep your budget low without causing too much stress, we always suggest using what you have. If you have a great old tub with a little staining, you have two options: paint it or replace it. Epoxy paint is a cost-effective option when compared to the cost and hassle of removing the old tub and replacing it. Painting the tub will also cut down on your construction time, which is always encouraged when it comes to one of the busiest rooms of your house. Countertops and sinks can also be painted,
but replacing them is generally not as onerous. Dated cabinetry? If it is functional, try to add new hardware or a fresh coat of paint. We have found greys, whites, and even taupe colors help revitalize old bathroom vanities. If the countertop and sink are your biggest complaint, try replacing the counter with a natural material to bring that bathroom into the 21st century. If the entire vanity has seen the last of its days, we suggest finding a reasonably priced cabinet and countertop combo from Home Depot or Lowe’s. Although it will not be a custom cabinet, these stores offer selection or styles and materials that meet both low budgets and tight timelines. When purchasing a new cabinet and countertop separately, you will need to consider the additional installation cost for each material as well as the construction time needed for each item. Custom cabinets can often take three to four weeks for construction depending on the vendor and details. Countertops can take up to two weeks just for fabrication. This does not
10 DeLeon Insight September 2015 - © 2015 DeLeon Realty
include the time to shop for materials as well as the installation. Staining on your mirror? Over the years, glue, cleaning supplies, and even UV light can deteriorate the coloration on your mirror. If your mirror happens to be glued directly to the wall, you will also need to consider the wall repairs that may be needed to get that wall ready for paint. To avoid additional patching and painting, mirrors can often be saved by adding a simple frame made with painted molding around the edges, to cover the discoloration. Transforming that old dated mirror to a framed mirror is a great way to revamp a dated vanity. Keep in mind that paint can often make for an easy room update with no labor other than your own needed! Before getting started on any project we recommend doing some research. Websites like Pinterest and Houzz have helped to empower homeowners by expanding their knowledge of materials, design, and finishings. The finishing touches and attention to detail will help elevate any bathroom remodel.
Online Marketing in a Hot Real Estate Market By: MyMy Trieu DeLeon Online Marketing Specialist
s there a need to run robust online marketing campaigns in a hot real estate market? Absolutely! DeLeon Realty’s clients are sellers and buyers in some of the most desirable real estate markets in the nation – Atherton, Portola Valley, Woodside, Menlo Park, Los Altos, and Palo Alto (to name a few) – where many homes sell with multiple offers within 10 days, and some buyers purchase homes sight unseen. Therefore, it is imperative to run strategic and comprehensive marketing campaigns that include online advertisements for property listings. While some sellers and their Realtors® may be tempted to just list a property on a multiple listing service and let the home sell itself in a competitive market, DeLeon Realty believes that Realtors® should provide clients with valuable marketing services both offline and online to ensure great results. Great results require sweat equity. With that understanding, our marketing team utilizes strategic and effective online marketing
strategies to market our clients’ homes. For segue for that person to visit the property example, we run Facebook and Google website. Once there, the prospective buyer ad campaigns for each property listing can learn more details about the home, the that target people who are most likely to neighborhood where it is located, see the purchase the home. home location on a map, watch a narrated Most prospective buyers are busy video tour of the home, take a “walkprofessionals and/or live in other states through” of the house via a 3-D tour, as well or countries. If we reach these individuals as download disclosures. while they are searching or browsing for The value of online marketing is real estate and neighborhood information manifold. Primarily, it captures the attention online, we are capturing opportunities for of busy prospective buyers and those who our clients that would otherwise be missed. may be out of the area. Secondly, it provides Traditionally, buyers have relied these buyers with the convenience and timeon newspapers to deliver information saving ability to learn more about a property about local events such as open houses and tour it virtually. Thirdly, online and television commercials to provide marketing enables third parties to share information about products and services. photos and information about our listings Nowadays, people also search for listings with their networks of friends, family, and online through a multiple listing service associates. such as MLSlistings.com, Realtor.com, Running strategic Google AdWords and Trulia, or Zillow, or they may come across Facebook marketing campaigns is only one a Google AdWords ad or a Facebook ad of the many ways in which we maximize that sparks their interest. Rather than hope the opportunity for our clients to receive prospective buyers will find our clients’ competitive and great offers for their homes. homes, we actively seek out prospective However, we consider it a valuable service buyers with our targeted online campaigns. to our clients that is well worth the extra If a photo or detail of a home speaks hard work. to a prospective buyer online, it is a great
© 2015 DeLeon Realty
- DeLeon Insight September 2015 11
The Magic of the DeLeon Business Model—the Buyer’s Side By: Ken DeLeon, Esq. DeLeon Founder
ilicon Valley thrives by disrupting and improving inefficient industries, and it has created many game-changing business models along the way. Yet in the epicenter of the world’s innovation, the practice of purchasing real estate had remained relatively unchanged since the Gold Rush days. DeLeon Realty was founded with the principles of optimizing real estate from the consumers’ perspective, and this article shares the many benefits of our innovative and completely unique business model. Although my undergraduate training in mathematics and economics and my law degree from one of the top schools in the nation, UC Berkeley, prepared me well for a career in intellectual property law, I knew that law was not my passion. I have always loved real estate, and I decided to follow that passion when I left my associate position at Wilson Sonsini Goodrich & Rosati. Setting all feigned attempts at modesty aside, my rise to the top of the profession was remarkable, and unprecedented. In less
than 10 years, I became the nation’s top individual Realtor®, per the REAL Trends/ Wall Street Journal rankings for 2011. What is more important to me is that my clients, many of whom are amongst the best and brightest in Silicon Valley, appreciate my ability to read and even predict the market. Many argued that I was the best Realtor® in Silicon Valley, yet I knew I was not the best I could be. Traditional real estate is based on the concept of the oneman band, and I was not the best at every instrument. Being good at more instruments than the other solo bands did not allay my feelings that there could be a better way. I found that better way when I founded DeLeon Realty in 2011. Along with Michael Repka, our CEO, we crafted a business plan based upon the principles of specialization, collaboration, and economies of scale, all geared towards providing the optimal client experience. Our model resembles that of other esteemed professions, particularly law and medicine. In these professions, welleducated employees specialize in their area of expertise. They are able to provide the highest level of insight possible through their professional training, focus, and collaboration. Our distinct model of
12 DeLeon Insight September 2015 - © 2015 DeLeon Realty
salaried specialists, which is revolutionary in the real estate industry, addresses the major inefficiencies with buying a home and provides home-buyers with numerous advantages. Utilizing Salary Instead of Commission for Our Buyer Agents Buyers are often concerned by the traditional business model based upon commission, through which the more a buyer pays, the more commission is received by the agent. At DeLeon Realty all 45 of our employees, including our buyers specialists, are on salary. This way buyers do not have to worry about a DeLeon agent urging them to make an unwise decision, pushing either for the sale or too high of an offer. Our talented group of buyer specialists is taught to focus upon the best long-term interests of their clients, and not a quick sale. Our approach is more consultative than sales-based, and the focus is upon our agents providing insight and analysis, rather than pressure. The other key benefit to having salaried specialists is that it encourages collaboration. By design, there is no disincentive to bringing in another agent that specializes in a different area if the alternative area would better suit the client’s needs. All of
the agents at DeLeon Realty want the client to find the “right” house, irrespective of whether it is located in any particular agent’s area of specialization, and we often have several agents collaborating to help the same client. Specializing On a Targeted Territory Results in Great Expertise One of the greatest inefficiencies in real estate is that agents do not specialize, but instead try to do everything themselves. Most agents represent clients both purchasing and listing homes for sale, and often do so in a broad area composed of many cities. Thus, agents will often give buyers 50 percent or less of their time as the rest is spent focused on obtaining and selling listings, and this limited time is divided amongst many cities, further diluting their expertise. For example, if agents spend only 50 percent of their time assisting buyers and they look in 10 cities, then those agents will only spend five percent of their time working with buyers in a particular city. Conversely, our buyer specialists focus solely upon the purchase of properties and do not spend any time listing homes. With all of their time concentrated on buyers, and only focusing upon one city, they become experts in every facet of that market. This level of specialization, coupled with me conferring with both agents and clients regarding optimal cities and neighborhoods to fit the buyers’ needs, gives a level of insight that is unparalleled. Further, I have strong relationships with many of the area’s top agents and I can add influence at the offer presentation, which can result in the buyer paying a lower price. This all comes together to provide clients with the best of all worlds - individual and focused attention from local experts plus big-picture advice from the leader of the recently-named top real estate team in the United States. Overall, we seek to bring the same level of expertise and integrity clients would expect at a law firm or another elite professional industry, and this is evident in our agents being amongst the best educated in the industry, with our team of 10 buyer specialists holding seven graduate degrees.
This does not even count the many graduate degrees held by DeLeon personnel in supporting roles. Solving Our Clients’ Problems Another fundamental flaw of the traditional real estate model is that agents do not have corporate resources and instead are loosely affiliated with a brokerage. Most brokerages are structured such that agents are independent contractors operating in silos with no incentive to collaborate with others or share resources. Consequently, individual agents do not have the in-house resources to provide a full suite of services to their clients. At DeLeon Realty, we provide our clients with one-stop service and our in-house loss-leaders at no expense, which include a construction consultant,
© 2015 DeLeon Realty
an interior designer, a licensed contractor, and a real estate attorney. For example, if our clients purchase a fixer-upper, our construction consultant recommends a team of vetted service providers, helps obtain bids for the project, and provides the clients with feedback on the estimates. No other firm provides as many services both during and after escrow, and by doing so DeLeon Realty saves its clients both time and money. By fundamentally altering and improving upon the traditional real estate model, DeLeon Realty’s combination of salaried specialists, with our team of professionals available at no cost upon closing, provides buyers with a uniquely efficient and enjoyable way to purchase property in Silicon Valley.
- DeLeon Insight September 2015 13
Marketing Your Home in the 21st Century By: Michael (Miguel) Erkelens DeLeon Marketing Manager
ilicon Valley is the home of both technology and innovation. Businesses and consumers now expect more than the status quo in nearly every aspect of their lives, and this is no different with regard to the home-buying and homeselling processes. There are many aspects that contribute to the success of selling a home, but none are more effective than the marketing of the property. Achieving the status quo is no longer a recipe for success. Home-buyers want to see, feel, and experience the home on their own time, while home-sellers need to stand apart from the rest of the competition. When marketing your home in the 21st century, you need to think of the process as a fully integrated approach. Print and online marketing, when blended with both the right real estate agent and guerilla marketing practices, create the most successful mix. Right Real Estate Agent No amount of marketing or money invested in showcasing your home will make a distinct difference without first selecting the right agent, but that agent will not achieve the highest possible price if that agent does not invest the resources necessary to reach all potential buyers. The ability of your agent to understand the market and best distribute the marketing budget is key. Your agent should have contacts across all levels of the process that allow for not only the best monetary value, but also the highest quality work possible. The right agent can use these tools and work within existing networks to spark much more interest in the home. Print Print marketing, which includes newspaper advertisements, flyers, and brochures, still holds major sway for both buyers and sellers. When creating these materials, you should never settle for what everyone else is doing. It is simple to create a pre-purchased template for an ad, or even
glossy double-sided brochures created at your local shipping and print store. Instead, work with your agent to carefully analyze your home. Your agent will help you first decide which features best highlight the home, and then how to showcase them. For all print marketing, start with the best photos possible. This is the easiest way to make your home stand apart. Work with a photographer to emphasize features of the home that will leave viewers wanting to see the home with their own eyes. The right photographer will understand this is not simply about art, but about beautifully capturing these spaces. Your real estate agent must then make the critical choices of which photos to place in the print marketing. Take your three major print items and look at them holistically with the goal of selecting unique content that has a strong sense of continuity. Let the photos in the print marketing do the talking for you and use ad copy to highlight the features not evident (See DeLeon Realty Marketing Perspective: It’s All in the Details on page 8 of this edition). This may require some additional investment too; consider
14 DeLeon Insight September 2015 - © 2015 DeLeon Realty
sending out postcards or even pre-mailer brochures by EDDM (Every Door Direct Mail) through the USPS. This allows you to get your materials in front of potential buyers before even listing the home. Online Marketing your home online allows your home to truly shine. Based on data from 2014, the National Association of Realtors® found that 92% of home-buyers use the internet in some way in their homes. With technology today, particularly in Silicon Valley, it is quite simple to get digital content out there. However, what proves to be difficult is the ability to have better content than everyone else. Instead of placing photos of your home in a moving slideshow with music, consider creating a high-end, professionally produced video. You can even take it a step further and have the video narrated or hosted by your agent or an actor or actress, highlighting the unique features of your home. Also, you now have the ability to capture a 3-D rendering of your home. Utilizing technology similar to the mapping applications used for street directions,
companies can now create a 3-D tour of your home that allows potential homebuyers to explore the home from every possible angle, on their own time. This gives a cutting-edge perspective of your home’s floorplan. In addition, creating a single-property website can showcase all aspects of your marketing through photos, videos, tours, and details. This tool enables you to share all the content that 92% of home-buyers are looking for. Guerilla Marketing This is the area of marketing that most people shy away from, yet can have the greatest impact across multiple viewers. Guerilla marketing incorporates techniques that are both creative and cost-effective, with the goal of obtaining the most attention possible for a product. These techniques can include both print and digital forms of marketing, or even some tools that do not fit into either category. Consider doing a social media campaign with Google, Facebook, and Twitter to gain attention. Plan an event or a party to invite people not to just view the home, but to experience it as it is meant to be. At DeLeon Realty, we look at every home individually
and make the decision on which media strategically shows it off the best. Along with the above-mentioned tactics, we even use television and movie theater commercials for listings that are best advertised by those formats. DeLeon Realty understands that, in order to stand out from all our competitors, we must present clients with the largest, most comprehensive suite of marketing offers possible. The aforementioned methods are just the foundation for the strategies we use for our homes.
© 2015 DeLeon Realty
To get the best value and return for our clients and for ourselves, we know that we must be willing to risk our own capital to make it a reality. We pay for each home’s staging and the first month of furniture rental. We also pay for videos, television commercials, photos, printing, Facebook and Google ads, newspapers, brochures, and much, much more. When it comes to marketing your home in the 21st century, it would be foolish to do the same thing as everyone else and expect a better result.
- DeLeon Insight September 2015 15
Structuring Listing Agreements
The Dangers of Off-Market Sales By: Michael Repka, Esq. DeLeon CEO/General Counsel
ome real estate agents love to sell homes without putting them on the market. This makes a lot of sense from the agents’ point of view for at least two reasons. First, they avoid the time and expense of marketing the house. Second, selling homes off-market dramatically increases the chances that the agents will get the commission from both sides of the transaction because they may be the only ones aware of this new “secret” or “pocket” listing. Even if the agents inform some other agents of the home, they are only reaching a small portion of the potential buyer pool. As a real estate attorney, I never understood why people were willing to sell their homes without full exposure to the entire pool of potential buyers. While the temptation of a quick and easy transaction, especially in conjunction with a high price relative to what they paid for the home, may entice some sellers, these sellers likely do not realize how much money they are leaving on the table. To make matters worse, some agents actually lure potential sellers with this promise of a quick sale and they neglect to fully explain the downsides. For some reason, I have perceived a recent increasing trend of homes in Menlo Park selling off-market and I find myself wondering whether these sellers have actually received fair market value. I suspect that long-term residents may be more susceptible to agents who try to convince them to sell offmarket because these sellers find it hard to believe how much their property value has increased over the past decades. Nevertheless there may be specific circumstances under which the benefits associated with an off-market sale could outweigh the probability of a lower price. For example, some sellers have a strong desire for privacy and they do not want people to know that they are selling the property. Another example is when the sellers have already identified the buyer,
and they will avoid commissions. If the commission savings is more than the difference in price, then it might make sense to sell off-market if a fair market value is determined. As the top real estate team in the country, DeLeon Realty has access to one of the strongest networks of potential buyers in Silicon Valley. Yet we still think that most sellers would achieve a higher price by maximizing exposure. It is hard to imagine that individual agents could somehow bring about a better result without fully marketing the home. If the sellers decide to pursue an offmarket sale, they should request a written list of all steps the agent took to get the word out. This should include a list of all agents and potential buyers who were notified of the listing. Additionally, the client and agent may want to consider other opportunities to promote the property on a limited basis. For example, there are several private real estate “clubs” or networks in the
16 DeLeon Insight September 2015 - © 2015 DeLeon Realty
area such as Producers’ Forum or Top Agent Network. Although these clubs do not provide as much exposure as the MLS, they are better than nothing. Before entering any off-market contract, it is advisable that sellers speak with a qualified residential real estate attorney to make sure that they are not making a mistake. Buyers, on the other hand, should be very open to off-market sales. They often represent good value opportunities and the reduced competition creates an environment in which sellers may be willing to demonstrate increased flexibility. When choosing a real estate agent to help with the purchase of a home, one of the factors that should be considered is the agent’s ability to uncover off-market listings. Although listing agents owe a fiduciary duty to their sellers and should be working to achieve the highest price, the buyer’s agent owes no similar duty to the seller.
By: Michael Repka, Esq. DeLeon CEO/General Counsel
sk any real estate attorney about disputes between sellers and listing agents and you are likely to hear a lament about the lack of specificity in residential real property listing agreements. The forms widely used in Silicon Valley are generally written in a way that provides a lot of protection to real estate agents and may contain terms inconsistent with what many sellers desire. However, through detailed discussions with a reputable real estate agent and a relatively simple addendum to the agreement, most of these issues can be resolved in a way that is fair to both the seller and the agent. There are many different approaches to marketing and selling homes in Silicon Valley, yet the two most common listing agreements used by local real estate agents do not place many specific requirements on our agents’ services. Often, sellers and agents have divergent points of view when it comes to the quality and quantity of marketing that the agents will provide in exchange for their hefty commissions. Similarly, some listing agreements are signed without a clear understanding of who will pay for the staging costs, the property inspection, the pest inspection, and the home preparation. Although sellers and agents may not see eye-to-eye on the scope of the agents’ services—most notably with regard to the level of marketing—these issues often remain hidden until after the contract is signed and the parties are bound. The two most popular listing agreements in Silicon Valley are published by the California Association of Realtors® (CAR) and the Peninsula Regional Data Services (PRDS). They are quite vague with regard to the marketing that agents will provide. In fact, they both include language whereby the sellers authorize the broker to advertise and market the property in any medium selected by the broker, but neither agreement includes specific requirements. In addition to the lack of detail with
regard to the scope of services, there are two other significant issues that should be considered before signing a “standard” listing agreement. First, the forms are drafted in a way that provides a great deal of protection to the agents, which may be more one-sided than appropriate. Second, sellers may be liable for commission even if they do not sell the property. Inadvertently triggering a commission obligation can come up in a few circumstances, such as when the seller makes the property “unsaleable” (e.g., cancelling the listing or renting the property), or when the seller turns down a non-contingent offer at or above the asking price. The latter situation is particularly problematic in this market because many properties are priced at a level lower than the sellers hope to obtain. While agents are quick to point out that the “sellers never have to sell,” which is generally an accurate recitation of current case law, that is not the same as saying that the clients will not owe commission unless a certain price target is hit. If the agents mean the latter, then that should be specifically agreed upon and included in the addendum. Many of these problems can be eliminated if addressed before the parties sign the listing contract, and if the agreedupon terms are reduced to writing in the form of an addendum.
specific to the particular property.” 3. The agent should provide a minimum commitment in marketing expenditure (e.g., the agent will invest at least $20,000 in home preparation and marketing and provide the seller with receipts if requested). 4. If the sellers want to retain the right to turn down any offers below a certain price point, then that price should be agreed upon and included in the addendum. 5. If applicable, make sure to specifically address who is responsible for the cost of: inspections, staging, videos (reference a sample provided by the agent), brochures (reference a sample), virtual tours, photography (name particular photographer), cable TV ads (length and number), radio ads (length and number), newspaper and magazine ads (size, frequency, and publications), and online marketing. 6. Consider including clauses that reduce the commission if a particular price is not achieved or that increases the commission if the price exceeds a certain target. Following these steps will ensure clear expectations and mutual understanding between the sellers and their agent.
Six Tips to Crafting an Addendum to the Listing Agreement: 1. Address the expectations throughout the entire listing period, not just the first week. 2. Vague or general statements, such as the agent will “advertise the property aggressively” or “act diligently,” should be replaced by more specific commitments, such as the agent will “run a full-page ad in [a particular publication] every week until the property is sold,” or “produce and distribute 300 20-page flyers
© 2015 DeLeon Realty
- DeLeon Insight September 2015 17
2 0 L a n e P lace, Atherto n
185 Fair Oaks Lane, Atherton
O f f e r ed at $ 4 , 288,000
O ffe r e d a t $ 7 ,9 8 8 ,0 0 0
Dramatic Gated Property
Romantic French Estate
Fully remodeled, this impressive 5 bedroom, 3.5 bathroom home of 3,930 sq. ft. (per plans) enjoys automatic gates, a circular driveway, and a sprawling lot of 1.2 acres (per county). The sensational interior provides a host of custom touches and a free-flowing floorplan infused with warm, natural light. Outdoors, guests will love the paver terrace and immense backyard, and the converted garage boasts a flexible studio with an additional half bath.
This breathtaking custom home of approx. 5,494 sq. ft. (per plans) sits on a gated lot of over 1 acre (per county) and offers 5 bedrooms, 5 full and 2 half bathrooms, and an additional studio with 1 full bathroom. Hickory floors and intricate wall and ceiling treatments mingle with imported chandeliers, antique doors, and marble mantelpieces. Enjoy 4 fireplaces, a wine cellar, formal gardens, a columned loggia, a 3-car garage, and grounds with water-conserving landscaping.
For video tour & more photos, please visit: www.20LanePlace.com
For video tour & more photos, please visit: www.185FairOaks.com
1 Ho ms C ou r t , H i l l sboroug h
1 4 5 4 5 De e r P a r k Co u r t , L o s G a t o s
O f f e r ed at $ 9 , 888,000
O ffe r e d a t $ 3 ,9 8 8 ,0 0 0
Old World Charm with Modern Luxury
Private Estate, Panoramic Views
Be enchanted by the Old World charm of this 7 bedroom, 7.5 bathroom mansion in one of the most desirable pockets of Hillsborough. This home features almost 9,500 sq. ft. (per county) on manicured grounds of over 1.4 flat acres (per county). Period details accent the formal common rooms, while the flexible layout forms endless possibilities. Exciting features include a tennis court, 7 fireplaces, a pool, and gated lawns.
Astonishing views can be glimpsed throughout this sprawling 5 bedroom, 5.5 bathroom estate home of 6,172 sq. ft. (per county), which occupies a rustic lot of 3.72 acres (per county). An off-grid solar system powers this highly customized residence, which includes hardwood floors, 5 fireplaces, and a 4-car garage. Relax in the infinity pool, tend the vegetable garden, or explore the many nearby open space preserves.
For video tour & more photos, please visit: www.1Homs.com
18 DeLeon Insight September 2015 - © 2015 DeLeon Realty
For video tour & more photos, please visit: www.14545DeerPark.com
© 2015 DeLeon Realty
- DeLeon Insight September 2015 19
DeLeon Market Conditions Atherton Snapshot
Los Altos Snapshot
20 DeLeon Insight September 2015 - © 2015 DeLeon Realty
DeLeon Market Conditions Los Altos Hills Snapshot
Menlo Park Snapshot
Mountain View Snapshot
© 2015 DeLeon Realty
- DeLeon Insight September 2015 21
DeLeon Market Conditions Palo Alto Snapshot
Portola Valley Snapshot
22 DeLeon Insight September 2015 - © 2015 DeLeon Realty
DeLeon Market Conditions Redwood City Snapshot
Condos In Our Cities Snapshot
© 2015 DeLeon Realty
- DeLeon Insight September 2015 23
PRSRT STD ECRWSS U. S. Postage Paid Palo Alto, CA Permit No. 1
DeLeon Realty 2600 El Camino Real, Suite 110 Palo Alto, CA 94306
LOCAL POSTAL CUSTOMER
Finding a Bargain in Silicon Valley Real Estate Thursday, October 15th, 2015 6:30 - 8:30 p.m.
Please join DeLeon Realty at our October Seminar. Gain insight from Ken DeLeon, the founder of DeLeon Realty, on how to find a bargain in Silicon Valley and optimize the purchase of your home. Plus get the latest market update and learn how Ken handles his personal Real Estate.
Venue: Palo Alto Hills Golf & Country Club, Grand Ballroom 3000 Alexis Drive, Palo Alto
To RSVP, please contact Anastasia Koroleva at 650.543.8543 or by email: Anastasia@deleonrealty.com ®
24 DeLeon Insight September 2015 - © 2015 DeLeon Realty 650.543.8500 | www.deleonrealty.com | CalBRE #01903224
Published on Sep 18, 2015
The DeLeon Insight - September 2015 Insights into the real estate market in Silicon Valley (Palo Alto, Menlo Park, Atherton, Woodside, Porto...