Money, Money Everywhere--and Nary a House to Buy
Silicon Valley's millionaires are engaged in epic bidding wars for a small supply of homes
It's Tuesday morning in Silicon Valley. And today, as every Tuesday, dozens of attractive, no-nonsense, upbeat women carrying computer printouts are about to burst out of real estate offices, climb into their Mercedes and Lexus sedans, and spread out into the Valley's neighborhoods. It is tour day in the hottest real estate market in the nation. And there is no time to waste.
Coldwell Banker veteran agent Chris McDonnell has agreed to let me tag along today. McDonnell has sold everything from condos to mansions here for 15 years. But never has she seen the kind of action that has been erupting lately. The combination of stock-option millionaires and a small supply of homes on the market has created epic bidding wars and skyrocketing prices. Median home prices, already among the nation's highest in San Mateo and Santa Clara counties, are up 23.7% and 15.9%, respectively, over the past year. But in some desirable enclaves, the stats are so amazing that, well, I'll just use the abbreviation NAT from here on to signify "Not a Typo."GOURMET SPREAD. McDonnell rattles off tales of tumultuous transactions and bidding bedlam with the relish of a baseball fan reliving Mark McGwire's 1998 home run slugfest. Buyers got so frenzied recently about a 1.5-acre parcel in posh Atherton--where the price of homes on average is up 50% (NAT) over last year--that a property listing for $3.5 million attracted 10 offers within a week. By the time the ink dried on the last offer, the winner paid just under $7 million (NAT). And no need to describe the place's cozy breakfast nook or great marble fireplace. The last McDonnell heard, the buyer's plan was to scrape it down to dirt and start all over again.
Tour day is the weekly coming-out party for new real estate listings, and today's "inventory" is once again light: 17 homes in the Menlo Park, Woodside, Portola Valley, and Atherton areas. By 9 a.m., McDonnell already has scoured the PC, matched up the interests of her current buyers, and found eight homes we must see. When inventory is fat, she'll hit as many as 20 homes in the 3 1/2-hour tour period. Today, her list includes properties ranging from about $500,000 for a two-bedroom condo (NAT) in Menlo Park to almost $4 million for an estate in tony Woodside.
Before we leave, McDonnell and a buddy agent, Barbara Childs, scan the listing printout for one more element. McDonnell assures me, stifling a grin, that we have "a very good food situation today." At one property, a chef has been imported from Napa to put out a breakfast spread. At another, the printout promises lunch will be catered by Draeger's, the local gourmet grocery. "I don't see any coffees on there," McDonnell says as we ponder whether to grab some. "We'll take our chances."
With all the salivating buyers out there, why bother with these fancy food spreads for the agents? I soon learn that for all the wealthy people looking for digs, sellers want the very best buyers bidding on the few homes that appear.
Soon we're on the road, traversing areas once home to orchards and summer estates for San Francisco's elite. Today, million-dollar houses abut the commuter railroad tracks. Construction workers are everywhere, remodeling and building luxury homes that rise from the rubble of two-bedroom cottages. Some of these nouveau, two-story monsters on small lots look like elephants trapped in circus wagons just barely big enough to hold them.
We join the agent cars parked every which way on narrow streets and wooded driveways. Clients do not come, so the agents let their hair down and talk shop. They zip through homes, casting a steely eye on whether a house will fit their buyers' needs. "What's with this floor?" one agent calls out, as we enter a million-dollar hillside home. The floor is sloped so badly that if you picked up speed, you might crash through the far window, and it has three-foot-long cracks along some walls. Later, the agents will delicately explain to potential buyers that the place has "some settling issues."REAL ESTATE ARTISTES. The majority of Valley agents are women. In McDonnell's Menlo Park office, the proportion is about 70%. Many, like McDonnell, got into the business because it offered flexible hours and extra income while raising kids. That was then. This is now the most competitive market in the country, and many of these seasoned pros easily rake in six figures in commissions annually. Some even top seven figures. After a marathon 16-offer bidding battle for a one-bedroom Palo Alto home, one of McDonnell's clients sent her a gift praising her "samurai" preparation and style--even though they lost. I perceive a genuine sorority among the agents, albeit one mixing the camaraderie of the World Cup soccer squad with the plotting of the witches of Eastwick. Silicon Valley is, after all, a small town. At one time or another, most of the agents have alternately found themselves adversaries, partners, and friendly consultants. So there's a running patter of girl talk as they go from house to house, asking about each others' kids, complimenting outfits. "She sure looks good!" somebody mutters unsweetly as a trim agent sashays by.
This is a stressful time for agents. There are so many well-heeled buyers toting buckets of Internet-generated cash that, in the right locations, sales are mostly a given. But what separates the so-so agents from the artistes is the set-up and orchestration of real estate's most cherished scenario: An emotionally charged, multiple-offer situation where a parade of agents troops in and out of an audience with a seller, presenting their position, nudging their clients upward in price and terms to win the deal.
Just ask Kim Taddeo about that. In the course of four months, she and her husband, Louis, both of them high-tech execs, scoured the Valley for homes in the $750,000 to $1 million range. They toured 125 homes and drove by 200 more. Kim spent every single day on the Web snagging new listings to check out, and they lost five deals they bid on. They became so desperate at one point that Kim, out of town on a business trip, told Louis to make a bid on a new house on the market even though she hadn't even seen it. They offered well over the asking price and threw in two free airline tickets to anywhere in the world. They still lost in a six-bid match-up. Ultimately, Kim says they paid "top dollar" for a place in "pretty tough shape" in Los Gatos. How tough? Well, "Everything that was stylish in 1963 is still there," she says, including a "Roman tub that looks like it was put in by the Romans."
It's mind-boggling that clients able to spend even $1 million on a house these days are so often priced out of properties. That's why agents practically become a member of the family while the hunt is on, bucking up clients' demoralized spirits after unsuccessful bidding wars, picking up McDonalds' "Happy Meals" for cranky kiddies sick of getting toted from open house to open house.BARRISTAS. On the selling side, meanwhile, Karen Trolan, senior vice-president for Coldwell Banker's Silicon Valley region, notes that while the Internet makes more information available, nobody thinks that point-and-click home buying will happen any time soon. "The commissions are more than made up for by what a good agent can get for a home. And the more people who see it, the better," she says. Thus, details, like food on tour day, matter. As the late-morning munchies start and an agent has not one but four or five three-bedroom, two-baths to look at--well--do I want fajitas on Middlefield or those to-die-for cream puffs on Avy Avenue?
My day's highlight is the Woodside spread. The irony is it could have been the set for The Waltons, complete with an antique car in the driveway. It's a 1905 farmhouse, and for added panache, the agent not only hired a barrista to whip up lattes in the front yard, she has old-time music blaring from the veranda. The house is very cute, very much in need of work, and very pricey: $3.75 million. It's also historic and can't be demolished. The promotional sheet suggests it could become a "delightful guesthouse" to a 6,000-square-foot luxury home to be named later.
On our way back to her office, McDonnell's cell phone rings. An agent friend who missed the Woodside showing quizzes her about the property. She smiles: "Oh, it's very cool. It's an old farmhouse. Shows very well. [The agent] did a coffee cart and old-time music. It's a real blast from the past. Unfortunately, though," McDonnell says, nonchalantly switching to samurai mode, "you can't tear it down."Questions? Comments? E-mail Dispatch@businessweek.com or fax (650) 372-3970By Joan O'c. HamiltonReturn to top