Volume 4, Issue 1 Nicholas French, Broker Associate, CRS

March 1, 2009

Quarterly Review
Selling? … Patience is a Virtue
There’s no silver bullet or blue pill to remedy the current economic climate, so if you are planning to
sell your home the first piece of advice is to be patient. It has taken many quarters of my newsletter
Nicholas French
to get where we are in 2009. I went back through my archives (which can be found on my website)
Broker Associate, CRS to review my various articles about the changing market. The signs were getting closer and not all
parties wanted to acknowledge the changes, but now it is staring us all in the face. A good example
369 S. San Antonio Road
was an offer I made last year – we knew the market was changing and our offer reflected the cli-
Los Altos, CA 94022
mate, but in the eleventh hour another agent brought an offer over fifteen percent higher than ours.
650 773 8000 (cell)
I told my client the seller would not take our offer and the comparable value was not there, so we let
650 247 2999 (office)
the property go. The moral of the story is that the other party didn’t recognize the changing market
650 947 3099 (fax)
[email protected] and aggressively pursued a property paying fifteen percent more than the next closest offer. I’m
www.realtornickfrench.com sure the seller smiled ear to ear all the way to the bank. Unfortunately for sellers those buyers are
not currently in the market.

We have now shifted to a new stage in the cycle – a buyer’s market. Until recently it could be ar-
Inside this issue: gued that a few zip codes were still holding their own, but now pretty much every zip has come
down or is in the process. From Atherton to San Jose, I do not see any region that is immune. So if
Selling? … Patience is a 1
Virtue
you are planning on selling what is the best strategy? First and foremost it is crucial to have repre-
sentation that understands market conditions, consumer rational and works well with people. Dur-
Client Testimonial— 1 ing the boom I would hear people tell me all Realtors are the same, or I find my own houses, or I can
Cooper/Yang Family
just put it on the internet because everything is selling with multiple offers. Selling a home takes
BLOGGING 2 careful negotiating, understanding pitfalls, financing, consumer confidence, risk management, the
list goes on. You may think your house is sold when you have an accepted offer, but nothing is cer-
Property Notes/ 2 tain until the green dollars are in the bank (and hopefully a safe one). You may think you have nego-
Dashboard tiated the price, terms, conditions, but in this kind of market there may be post-ratification negotiat-
Humpty Dumpty 2
ing and a quality agent can help mitigate these issues and often recognize them before they occur.

The coming quarters should bring continuing uncertainty amongst our marketplace, specifically the
Humpty Dumpty (cont) 3
higher end areas. The lower range of Santa Clara County has already experienced a significant de-
cline, which in turn is facilitating transactions because of the new price point. As the higher end
Stimulus Aid—Will You 3 market slows there will be a give and take from all sides to find the equilibrium. Some may feel a
See It?
house in Cupertino should sell for fifty percent under asking because the Mercury News says homes
Updated Neighborhood 4
in San Jose are selling for fifty cents on the dollar, but the reality is we have to know each market
Statistics and make decisions accordingly. As we progress it is important to accept the market shift and un-
derstand our goals and strategy to best facilitate the sale of a property.
Property Taxes Due Apr 4
10— Temporary Relief
Client Testimonial—Cooper/Yang Family
Share The Newsletter 4
Nick helped us buy an investment property in the South Bay. He showed us a number of areas and
zeroed in on the property we thought was best. Nick guided us through the offer process and we are
really pleased with the outcome. He even helped us prepare it for rental and find a tenant!
Quarterly Review
Page 2

Nick French is Humpty Dumpty

BLOGGING Many of you may be asking yourself whether or not to jump into the market at this time. It is a le-
gitimate question and not necessarily a simple answer. It is easy to sit on the fence and wait for the
With my new website dust to clear, but what opportunities will be missed by waiting? You may be one of many out look-
ing, but unconsciously finding reasons not to buy. This article is intended to speak to those consider-
comes my new BLOG. I
ing buying a home or investment property and not sure if now is the right time to buy. During the
am working to keep boom times the most common reason I heard for buying a house tomorrow was that people felt
clients up to date with they would get priced out. Even at that point I counseled my clients to find the right property and
my thoughts on the not feel trapped by the hype of the moment. During this period some paid ridiculous prices for
market, financing, and homes that even to this day have not been reached and this market was fueled by a false belief that
other important info: values never decline. In my March 2007 newsletter I discussed the cycles in our local market and
how even the best areas have periods of decline. Today the feeling of invincibility has vanished and
www.realtornickfrench.
we may have been the kryptonite.
com
Prices are down but are they at the bottom? The reality is that no one knows this answer, but I think
I am continuing my
we can make educated decisions based on the data, market conditions and confidence. I think one
leadership role as a of the best buyer scenarios in the current climate is a first time buyer, currently renting, income
State Level Director, so $70,000-$100,000+, good credit and looking for a good neighborhood. In some instances you can
I will keep you updated suggest simply closing your eyes and buy a house. The neighborhoods for this range will typically
on the issues from the have a market correction of approximately twenty to forty percent from the peak and you will find
state and national yourself paying about the same amount for home ownership as you were paying for renting a similar
property. There are parts of the county that are experiencing prices up to seventy percent off the
levels
peak, but needless to say the neighborhoods may not be the kind that you want to call home. Even
This video should be a if the prices are down thirty percent you may ask yourself why not just wait because what if it con-
tinues another thirty percent. Another legitimate question but considering the attributes of our
must-watch in schools: region such as demand, number of available housing units, education and industry it is unlikely that
we will see another thirty plus percent drop. Even if the market has not bottomed and we experi-
www.crisisofcredit.com
ence additional decline the strategy is to have our purchase price reflect an additional market de-
cline. By hedging the market we can leverage the emotional climate and have a great property for a
long term investment. Especially now any buyer should have a time horizon of 7-10 years. The equi-
Property Notes/ librium of real estate is the point which renting and owning is equal. This stage is historically short-
Dashboard lived because people find value in home ownership as a long term investment and to maintain a
certain lifestyle. In some circumstances it is not only equal, but actually cheaper to own than rent
There’s a great new which is a specific point in the cycle.
website created from Urgency does not exist in the current climate, so the fence is getting filled
a friend of mine that with people sitting and watching. One point I make to clients is that even
empowers users to though there is a glut of inventory available, when you start looking at the
track and make notes actual homes many are not that exciting: poor location, condition, floor plan,
and neighborhood. There may be plenty of choices but when people get off
on specific properties the fence the choices may be the scrapings. When you go to the 75% off sale
across the multitude at Macy’s what is left—the wrong sizes and clothes that are out of style. It is
of websites such as: similar with real estate: most of the deep discount properties are those in the
wrong location or the homes just don’t work for you, so I suggest looking at
mlslistings, ziprealty,
properties on sale (maybe not the final sale) but at least you should have
redfin, zillow & trulia better options than the going out of business prices. I’ve learned that buyers
don’t necessarily want the best value, but a property that works for them at a
It connects users and good value. My point is that you may see a house that is a super value un-
agents for better equivocally, but if it doesn’t work for your family you will not buy it. We are
communication: looking for an investment, but also a home so every day when you drive
home from your busy job you have a sense of comfort and satisfaction.
www.myfonz.com “My friends tell me I can’t get financing.” This is partially true; financing is difficult to obtain and for
some people practically impossible, but for qualified income with good credit under $800,000 it is
 Volume 4, Issue 1
Page 3

Humpty Dumpty (cont) Stimulus Aid—

Will You See
fairly easy. The good news is many people aren’t trying because they think it’s Price $432,124
not available or worth the trouble, but that is the time you want to take ad- It?
Down Payment $15,124
vantage of it because many people are doing the opposite. What many people Loan Amount $417,000
don’t know is that lending institutions currently have an approximate three
We are now at
percent risk premium spread where historically the spread is about one and a approximately $3
half. This means banks are making twice as much on a loan for their perceived Interest Rate 5.13% trillion dollars
risk. As the index rates increase and confidence grows we should see this Wells Fargo worth of bailout
spread revert to historical figures, but we will see. If you are borrowing one Fee $4,170 and growing and
million plus loan then yes, you have to give your DNA before getting qualified. yet the
This is one of the reasons I mentioned last year that the higher end markets Monthly Costs government is
would see a decline in 2009, which the Mercury News is now mentioning. You Mortgage $2,270 still considering
may not get a loan for free like the golden days, but rates are low and you can Property Taxes $450 additional taxes
get financing with low down payments for owner-occupied properties. I had
Insurance $55
Wells Fargo put some numbers together for financing a home with 3.5% down
making $83,000 per year and a credit score of 620:
Mortgage In-
surance $185
What would you say is a healthy return on your investment? I’m sure many of Tax Savings
you are receiving about one percent in a money market and up to three per- (deductions) ($850)
cent in online deposits. What if I suggested a 6-8% return on a local real es- $2,110
tate investment plus the future growth of your asset? I think another real
estate purchaser in this market should be investors. Your $300,000 investment is currently returning
about $750 a month taxable income. What if instead you received about $1,500 and had paper losses to
offset the income? These are the kinds of strategies I’m helping clients achieve that are taking advantage
of the opportunities and adding to their portfolio. The prices may not be at the bottom but it makes in-
vestment sense if the rental income can offset most or all of the expenses. Almost daily I am seeing and to small
hearing about more investors coming out of the wood work to accomplish just this. Fortunately, for my businesses and
clients we are picking up the few good properties where most of the distressed properties are in the same the higher
neighborhoods. For example, East San Jose transactions have really been picking up and selling with multi- income bracket
ple offers, albeit prices are flat. They have reached a price-point where it makes sense to buy and inves- taxpayers (i.e.
tors are picking them up. However, instead of buying an East San Jose home for $350,000 as an invest- mortgage interest
ment you can spend the same money in a different neighborhood and obtain the same return on your
deduction for
investment with hopefully a better vacancy rate; this is my strategy and I am employing it with my clients.
The issue is that there are only a limited number of properties in the more desirable areas so once the bus incomes over
loads of investors come to the market it will be more difficult to accomplish. You may get a property $250k). From
cheaper but it will not necessarily be a better property. Let me help you make a strong real estate invest- bank
ment with a good property this year. I think you will look back (maybe not for a few years) and see it was nationalization
a good value and time to buy even if not at the bottom – time will tell. conversations, a
frozen Wall Street
I anticipate the market to have continued uncertainty with many buyers finding reasons not to buy and and continuing
sellers thinking they are selling too cheap. The higher end markets like Atherton, Palo Alto, Los Altos, Cu- disappointment
pertino and Saratoga should see a year of fewer transactions because these regions have only recently felt
from corporate
the slow down caused by individual portfolio meltdowns, financing issues, job losses and confidence. We
will see more of the high end properties having distressed sales because of financing and some will go
earnings, this
back to the bank. The median prices should continue to fall because the continued sales and transactions year should be
in the lower price range will overpower the statistics. We should see the antithesis of the boom—during full of drama and
the boom some buyers would arbitrarily pay more for a house such as 10% over the last sale and rational emotional swings
buyers just couldn’t compete with this emotion and now I am starting to see the opposite – buyers taking
a random percentage off of a comparable sale or just a number out of thin air because “the market is — pull out the
slow”. This is the reality and I am working with Buyers and Sellers to help facilitate parties through this popcorn and
market. I mentioned last year that cash is king; I think we will continue to see the value of cash through enjoy the show
2009 since inflation has buried its head in the ground. We will have to watch the market closely because
with the amount of liquidity that has been pumped into the economy, once it actually gets out into the
streets we will need to be careful of inflation at which time owning real estate should be a great hedge.
Page 4

DON’T FORGET Updated Neighborhood Statistics

No. of Closed % of List
PROPERTY TAXES City Year Qtr
Sales Price
Median Price Average Price DOM

ARE DUE APR 10 Campbell 2008 Q4 43 96.55 725,000 770,930 87

Campbell 2008 Q3 56 97.45 775,000 785,344 58
Santa Clara County Campbell 2008 Q2 44 97.82 729,500 786,472 60

Assessor Proac- Cupertino 2008 Q4 33 96.42 1,035,000 1,125,732 68

Cupertino 2008 Q3 95 98.47 1,180,000 1,221,998 41
tively Lowers
Cupertino 2008 Q2 112 100.76 1,218,000 1,255,704 36
45,000 Homeown- Los Altos 2008 Q4 38 97.85 1,605,000 1,758,841 42

ers Los Altos 2008 Q3 68 99.04 1,950,000 2,017,432 48

Los Altos 2008 Q2 98 99.52 1,722,500 1,977,578 25
For the previous tax Los Altos Hills 2008 Q4 6 93.81 1,762,500 1,769,166 53
year Larry Stone, Santa Los Altos Hills 2008 Q3 18 94.23 2,425,000 2,743,647 78
Clara County Tax Asses- Los Altos Hills 2008 Q2 26 95.36 2,587,500 3,227,576 148

sor, proactively tempo- Los Gatos 2008 Q4 39 93.55 1,200,000 1,617,761 69

rary lowered property Los Gatos 2008 Q3 76 95.71 1,265,000 1,577,520 74

Los Gatos 2008 Q2 93 97.38 1,400,000 1,640,783 57
taxes to approximately
Menlo Park 2008 Q4 59 97.46 1,010,000 1,155,194 49
45,000 homeowners by
Menlo Park 2008 Q3 77 98.88 1,340,000 1,385,125 53
$75,000. Most of these
Menlo Park 2008 Q2 108 100.75 1,637,500 1,776,388 35
adjustments were in
Monte Sereno 2008 Q4 5 86.58 1,850,000 2,479,000 75
North, East and South Monte Sereno 2008 Q3 8 96.75 2,505,000 2,768,000 74
San Jose, Gilroy, Monte Sereno 2008 Q2 11 96.25 1,780,000 1,888,181 65
Milpitas. Very few Palo Alto 2008 Q4 67 98.89 1,350,000 1,473,550 37
were in Cupertino, Los Palo Alto 2008 Q3 99 101.10 1,700,000 1,793,510 32
Altos, Palo Alto, etc. Palo Alto 2008 Q2 124 101.38 1,550,000 1,780,321 30

They anticipate an in- Saratoga 2008 Q4 30 94.77 1,600,000 1,714,317 75

crease this year. Re- Saratoga 2008 Q3 72 96.41 1,676,500 1,938,044 57

Saratoga 2008 Q2 74 98.57 1,656,944 1,814,243 53
member the reduction
Sunnyvale 2008 Q4 90 98.31 656,500 712,863 47
is based on assessed
Sunnyvale 2008 Q3 175 99.43 875,000 835,940 47
value, not market value
Sunnyvale 2008 Q2 175 100.20 905,000 914,567 35

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