Home Selling in Palo Alto>Question Details

Cala, Both Buyer and Seller in Palo Alto, CA

Is this a good time to sell and upgrade to a bigger house now?

Asked by Cala, Palo Alto, CA Mon Mar 23, 2009

We live in a 3BR/2BA house in old PA and wonder if it makes more sense to sell now and buy a bigger house in mid-town or just expand our house?

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Answers

8
As a longtime Palo Altan (attended Addison, Jordan and Paly) I'm much more drawn to old PA than mid-town. I'm going to vote for expand your current house. You keep your tax base; you control your spending; and you don't have to prepare your home for sale. In addition, you could be in a stronger equity position with a home worth more than you paid for it -- than if you buy up. If you buy up, it will take time to build equity and since none have a crystal ball, you could actually lose equity and be in a slide situation. Where as if you increase your current home, you could change your plans midstream and narrow or expand your focus as time and the economy progresses.

You could also have fun (and use a lot of energy) walking down both roads simultaneously.

1. Prepare your home for sale. Get a pest and property inspection and make all repairs wise for a smooth home sale (should you go that route). Invite a realtor or a few to come over and share how the home could best vie for strongest market price (sprucing up? hardwood flooring? granite?).
2. Look at bigger homes. Get ideas for expansion at the same time!
3. Contact a construction expert. I highly recommend Dean Axtell and company in Palo Alto, specializing in custom home expansion and construction (650) 493-6136. Get an idea of what it will cost to do the expansions you envision.
4. Identify what you are trying to fix. Is it just bigger home? Or do you want a different location and neighborhood mix?
5. You can go as far as to list your home for sale and then reject all offers if they don't do what you want the offers to do (provide enough capital to comfortably make the move). However, this is kind of painful as far as disappointed buyers and stressed out real estate agents, so I don't actually recommend it. It's just an option if the amount you would sell your present home for in today's market is the determining factor in your decision.
6. Speak with a financial advisor regarding long term financial repercussions of both pathways.

As far as the timing, it is a better time to buy than sell, as everyone is sharing. Even in Palo Alto, the numbers of buyers approved at the level to purchase your current home has shrunk from years past. So, we aren't seeing the huge number of multiple offers that we have seen in the past. Strong offers, yes. It's just the numbers that have diminished some.

Good luck!

Erica Nelson
http://www.EricaNelsonEstates.com
408-416-7090
0 votes Thank Flag Link Tue Mar 24, 2009
Cala,
Mathew's answer is great to give you some things to think about. I anly have 2 other things to add. Is your current home in the flood area of Palo Alto. If so, expanding becomes much more expensive and complicated. You will be required to raise the addition, and possibly the whole house depending on how large the expansion is. Also, if you add a second story a lot of work needs to be done to upgrade the foundation in order to support the second story.

Marcy
Web Reference: http://www.marcymoyer.com
0 votes Thank Flag Link Tue Mar 24, 2009
Cala,
If you are going to move up this is a good time to do it. In Palo Alto the lower end is selling much better than the higher end. I blog about this every week. Also, right now there is a lot of new construction in Palo Alto, which is an unusual situation, and one I do not expect to be repeated for a long time. You could sell your smaller, older home, and get a bigger newer home if that is what you want. One of the problems with sales in Palo Alto has been the difficulty in getting loans in this price range. Bank of America just announced they are offering 30 year fixed jumbo loans up to 1.5 million in the high 5's, with just 20% down and 6 months of reserves for piti (pricipal, interest, taxes and insurance). This is a huge improvement over rates in the 7's, 30-35% down, and a year of reserves. It is very possible that his may help the under 2 million market in Palo Alto as well.

Marcy
0 votes Thank Flag Link Tue Mar 24, 2009
It's always smart to buy up in a down market. Yes, you will get less than what you would have for your home, but because you are buying up, you will make it up and then some on the purchase. The high end is starting to feel it now.

Don't forget about the cost of money. That alone should get buyers off the fence. There has never been a better time to buy in the last 30 years.

Best,

Dave Tap Tapper
Realtor
Cashin Company San Mateo
http://www.DavidTapper.com
650-403-6252
Web Reference: http://www.TeamTapper.com
0 votes Thank Flag Link Tue Mar 24, 2009
Cala
Inventory has increased significantly in Palo Alto over the past few months.
Generally when the market softens, it is a good time to move up.
In the current market, entry level homes have held up a little better than the more expensive homes.
So as Carl indicates below, it is the difference between the two property values that count.
Old Palo Alto is a fabulous place to live which might argue towards staying put and adding on.
Adding on is very expensive and depending on what you want to do and how your current house is laid out and what condition it is in, the cost to add on could be significant.
Right now you could get a pretty nice large home in midtown or south Palo Alto for under $2M.
So my sense is you could sell and move to midtown for maybe a couple hundred thousand additional expense. A major addition to your Old Palo Alto residence will probably cost more but then you will have a more valuable house in a more desirable location.
Hope this makes sense.
I think you need to sit down look at the numbers, look at some houses, figure out what yours is currently worth and then make a decision.
There is no right answer - it is all personable preference.
I would be happy to help you with analysis.
Arn
0 votes Thank Flag Link Tue Mar 24, 2009
Cala:

It’s all about the spread – the difference between home values now and what they might be in the future.

Let me demonstrate with some fictional numbers: if your home is worth $100,000 in the current market and the home you wish to move up to is $200,000, you have a spread of $100,000. If the market increases 10%, then your home will be worth $110,000 and the home you are buying will be listed at $220,000, or a spread of $110,000.

In this scenario, if you wait until home values increase 10%, it will cost you $10,000 more to move then than if you do so now.

Another factor to add to the equation is the cost of the money required to make the move. Again, it’s about the spread, but the spread this time has to do with loan percentages. Let’s imagine that you financed the entire existing $100,000 for your existing home and the going rate at the time was 6.5%. If you move up and secure a larger home at $200,000 and finance at the same rate, you would simply double the mortgage amount for a payment of $1,264.14.

If you managed to finance your new purchase at 5%, you would have a differential of 1.5% a payment of $1,073.64 and an actual spread of $190.50 a month. Over a five year period of time, this spread would add up to $11,430 of savings.

The last spread to consider is property taxes. If you bought your existing home for $50,000 and it is currently worth $100,000, in California, because of Prop 13, you are still only paying yearly property taxes of $625.00 a year. If you purchase a new home now for $200,000, your yearly tax bill will shoot up to $2,500.00 for a spread of $1,875.00 a year. This spread will exist for as long as you own your new home. However, if you wait to move up until the new home is worth $250,000, your new tax bill will be $3,125.00, or a spread of $2,500.00 a year. Every year for as long as you own the home. That is quite a spread.

When you consider that the actual numbers involved in a move-up are much higher, the spread numbers become truly significant amounts of money. Wise investors look at all the options and then manage the spread to their advantage. I’d recommend that you put all the numbers on a spread sheet and crunch various scenarios.

And you may discover that with current low prices, low interest rates AND lower taxes, the spread may be saying that now might be a very good time to move indeed.
.
Web Reference: http://www.carlmedford.com
0 votes Thank Flag Link Tue Mar 24, 2009
Hi Cala,

Now is a great time to buy real estate. Although you will not get the same price you would have a few years ago, the good news is you won't have to pay as much to move up. That said a lot depends on how much you currently owe on your home, how much the new home will cost you etc. And the most important question of all is Why, what's the motivation for a larger home? Is the family growing, is someone moving back into the house? Make sure you move up for the right reasons.
Web Reference: http://www.timambrose.com
0 votes Thank Flag Link Tue Mar 24, 2009
Great Question. Right now is a good time for many people considering buying up because prices are softer both ways in PA, which CAN mean that even if the price you receive for your current home is lower, that money's buying power is effectively higher. If all you want is to add 1 bedroom, or a similar smaller project, expanding may be more efficient. However, you're considering moving areas--are their compelling reasons you'd prefer to be in Mid-Town?

Contractors need money, so you may get a good bid on expanding - however, many are hurting for money, which can get you into sticky situations - contractor can't pay the subcontractors to complete the work, subs put a lien on your home, etc.

As far as appreciation, ask a trusted advisor to show you the statistics on 10-Yr trends for the kind of home you currently own, the type/size of home you'd consider in MidTown, and also (a bit harder), research expanded homes in your area for the 10 Yr trend data. Expansions can be tricky - buyers are sensitive and simply adding a giant bonus room may be cheaper and work for your space needs, but the future buyers would prefer a family rm, bedroom & bath and value the SF at a lesser rate than other homes the same size.

Let me know if you'd like to see data on these.
0 votes Thank Flag Link Mon Mar 23, 2009
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