Real Estate

Are cash-rich homebuyers impacting the market?

Home prices on the rise as technology companies go public

In May, Mountain View-based professional-networking website LinkedIn went public -- and cashed in big time.

In its first day on the New York Stock Exchange, the site saw share prices rise from $45 to $94.25, according to Reuters. In total, the 7.84 million shares sold raised $352.8 million.

And Silicon Valley homebuyers took note.

As a number of Bay Area tech companies have filed for initial public offering (IPO), home prices have begun to climb steadily. According to the Silicon Valley Association of Realtors, the median price of single-family homes in Palo Alto for the first six months of 2011 jumped 7 percent in the past year to $1.55 million -- the highest jump since 2008.

This marks a return to pre-recession prices in Palo Alto, according to Keller Williams, Palo Alto, real estate agent Gloria Young.

The resulting question is: Do the upward-moving home prices stem from the cash crop that technology employees at the likes of LinkedIn, Pandora, Zynga, Twitter and Facebook have reaped from selling company stock?

Pandora, an Oakland-based Internet radio site, went public on June 15, earning $234.9 million in its first day. San Francisco social games designer Zynga filed on July 1 for a $1 billion IPO and expects to receive notice in November. Fellow San Francisco startup Twitter and Palo Alto-native Facebook are expected to go public in the next two years.

According to Bloomberg, nearly 300 companies have filed for IPOs in 2011, with more than 10 percent of those in California.

Ken DeLeon, a Palo Alto-based Keller Williams agent who works with multiple clients at Facebook, Twitter and LinkedIn, regularly sees homes go for $100,000 to $250,000 over the asking price.

Three weeks ago, one of his listings sold for $400,000 over. The bidding war, he said, was waged between a Google and a Facebook employee.

"I think there's a very strong connection" between escalating home prices and big-name IPOs, he said.

Usually, employees must endure a waiting period after their company goes public before cashing in. But for today's hottest tech spots, venture capitalists come hungry even before the IPO. The Silicon Valley alone received almost 40 percent of the $23.3 billion invested by venture capitalists last year, according to Bloomberg data.

"(My clients are) actually selling their shares on the secondary market and then using that to buy homes with all cash," DeLeon said. "They're trying to diversify and also get in (to the housing market) before next year when Facebook goes public."

Following huge investments from Goldman Sachs, Palo Alto's social media maven announced in January that it "expects to start filing public financial reports no later than April 30, 2012," according to Forbes. Many, like DeLeon, immediately speculated that they planned to file for IPO -- sending an enormous financial waterfall cascading over its employees, shareholders and the surrounding real estate market.

Others, like Coldwell Banker, Menlo Park, agent Tom LeMieux, disagree.

"I spent a fair bit of time tempering people's feelings about this," he said. "Sometimes sellers expect too much out of that phenomenon, thinking that prices are going to change overnight."

LeMieux recalled Mountain View search engine giant Google's IPO in 2004, which contributed "a more gradual improvement to the market," he said.

"It was not an instantaneous overnight correlation with real estate sales or prices, but an overall positive long-term trend," he explained.

Similarly, Facebook's possible IPO will "not (be) a rocket ship up, but a gradually improving trend."

"Don't expect Facebook employees to arrive on their doorsteps with suitcases full of cash," he said.

Fellow Menlo Park Coldwell Banker agent Keri Nicholas also ignores the hype.

"The dynamics of our market just don't change," said Nicholas, who grew up in Atherton and has sold real estate in the area for more than 20 years.

"I think inventory levels have kept our market very strong," she explained. "We live in an area where there's nowhere to build ... (but) at the end of the day this is where people want to be."

Nicholas has not seen many cash buyers except a few in higher, unreported price ranges above $2.5 million. Those who do purchase homes often take out loans rather than pay with cash because interest rates are so low.

Even with rising prices and a good deal on interest rates, LeMieux advised caution to forward-looking Silicon Valley buyers.

"I don't think it makes sense to rush out and buy a house now that may not fit your criteria solely on the basis of, 'Gee, if I don't buy now, prices are going to be higher,'" LeMieux said. "I think there are many other factors involved that a buyer needs to consider. ... You don't go out and stray away from those basics simply because you're assuming that some IPO is going to dramatically change the market."

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