Palo Alto Weekly

Real Estate - January 10, 2014

Real Estate Matters

When is a comp not really a comp?

by Michael Dreyfus

We've all heard a version of the same story at a dinner party or on the sidelines of our child's soccer game. It goes something like this: Someone's neighbor/friend/coworker got a knock on his or her door offering $5 million cash for a house this neighbor/friend/coworker paid only $3 million for just last year.

Exciting? Yes! A serious offer? Ma-a-a-a-ybe. Did the market value of this house (and by the transitive property, all comparable neighboring homes surrounding it) just jump to $5 million? Absolutely not.

While this story may, as they say on TV crime shows, be "based on actual events," the instances of these offers actually panning out are few and far between. But let's assume for fun that the offer is genuine and that the coveted home is your home. The person knocking on your door actually has $5 million cash, is eager to hand it over and move into your house next month.

Now you need to ask yourself: Is the windfall worth pulling up roots? Are you ready to take on all the ensuing drama and hard work? Are you willing to possibly change neighborhoods, towns, schools, jobs? Are you prepared to say goodbye to your home? If you've weighed the pros and cons and decided to take the money, I say go for it and never look back. This windfall will likely never happen again.

Which leads me to my next point. This $5 million offer will likely never happen again. Did I just say that? In two or three years, when you are ready to sell, your home's market value is $3 million, not $5 million. Even assuming the $5 million cash offer was "real," it does not mean your home value shot up into the stratosphere overnight and never came back down. It came back down the minute you said "no thank you" and sent that $5 million wad of cash on his or her way.

Which is not to say you made the wrong decision in turning the offer down! You may have decided that it just wasn't worth it to you or your family to leave your home. I personally think this decision is often the best one. Your home is not simply an investment like stocks or CDs — it's your shelter, your holidays, your family and friend headquarters, and in reality it may make you a lot happier than any pile of money could. Turning down the extraordinary offer is not always a bad idea, even if it is a once-in-a-lifetime offer.

The reason this scenario is coming up a lot recently? I'll give you a hint. It rhymes with Puckerberg. As we all know by now, Mark Zuckerberg bought the four homes surrounding his Crescent Park property for a lot of money — roughly $30 million. As reported by the New York Times and virtually every other media outlet in the country, he paid a "whopping $14 million" for the house next to his, twice what he paid for his own much larger home a couple of years ago. While it sits in a lovely neighborhood and by any standard is worth a number in the many millions, this neighbor's home was not worth $14 million until Mark Zuckerberg decided it was worth $14 million. Yippee and bravo to Zuckerberg's neighbor for that lucky geographic fluke, or what I sometimes think of as an Act of God.

Light, anecdotal dinner-party conversation aside, I've seen people base their retirement plans on one of these Acts of God (aka extraordinary offers). This is a problem. If you decide to decline one of these Acts of God and to stay in your home, you do so with my absolute blessing. But please do not count on someone to come knocking again with $5 million burning a hole in her pocket, or for Mark Zuckerberg to move in next door any time soon. My sense is he's pretty well settled where he is for the time being.

Michael Dreyfus founded boutique brokerage Dreyfus Properties, with offices in Palo Alto and Menlo Park, in 2000. He can be reached at mdreyfus@dreyfusproperties.com.

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