Thursday, May 04, 2017

These do make sensational headlines.

This Silicon Valley 'teardown' just sold for $2.6 million.

"Another day, another postcard from the increasingly bizarre alternative universe that is Silicon Valley.  

This time, it's the eye-popping story of a 908-square-foot, lovely-seeming home in Palo Alto, California, that hit the market in February for an asking price of $1,927,000. 

Not only did the Stanford Avenue home, built in 1937 and described by Curbed San Francisco as a "teardown," sell, the site reports it brought in $623,000 over the asking price — that's a final sale price of $2,550,000."

If there was a nice looking house on this lot - no one on earth would have written this story. But because it's a tiny 908 sqft tear down shack - all of a sudden internet hysteria ensues. Despite the lot being big enough for a 3-4 bedroom home.

What I really don't understand is how people who write about real estate and business don't understand that the land is 90% of the cost. Maybe they don't have a house or carry insurance. That's where you find out how much it costs to replace your house if it were to burn down or whatever, and it's a tiny fraction of of what you owe the bank because most of the cost is in the land.

So what if this has a tiny tear down shack? Are they making more land in Palo Alto? No. Or anywhere else.

The article goes on to say:

"The house on Stanford Avenue is only the most recent, and hardly the most egregious, example of the burgeoning bubble on the Bay."

These people are going to be waiting a very long time for their echo bubble to pop. That is a once in a generation type event. You are not going to get people to leave their houses in the droves they did during the recession. It was basically a run on the banks. But with houses. Do you know how hard it is to make a run on a bank?

Additionally we have under building for a very long time. The longest on record. It's not enough to keep up with population growth. Some people estimate we are a million houses short. But I guess people always want to be on "record" saying this was a bubble.

Can prices go down? Sure - that is called a market. Prices go up. Prices go down. But a bubble popping scenario this isn't.


  1. There is definitely value in the land, but there is also value to the house. The press will call it a teardown, the owner will call it a rehab. If you leave the foundation, you get grandfathered in for many of the weird california building laws. This means that someone who is wealthly can have the luxuries like a fire place and large windows while they would be restricted if they built from the ground up. Who knows what value these exemptions have, but if you compared the price of teardowns to raw land, i bet you could almost attach a dollar figure to what the California building codes cost properties in value. DF

  2. Good point. I think you have to leave the slab and a "portion" of a wall. Usually people just keep the section of the wall where electricity enters the house. These tear downs are a pretty popular thing right now. Commodities are still really cheap. If you had the money why wouldn't you build new?

    Doing that classifies the house as an "add on" instead of full new construction. which helps with your future property taxes.

    Does California limit window size now? I haven't heard of that one. If that tiny house doesn't already have a fireplace though, the State will definitely not let you have one.