Appreciation in Silicon Valley

SAN FRANCISCO—In a seller’s market like the Bay Area, even buyers with capital have a hard time landing a home—to the extent that buyers’ ads may even be a good idea.

“This nice young couple, two Stanford grads, working now—one at Google and one at a startup—they were putting in good offers, $300,000–400,000 above list price, and not getting it,” says realtor Ken DeLeon. “They were very frustrated, so I put out big, full-page ads saying ‘Charming couple seeking beautiful home’ and gave the criteria—$1.8 million, three bedrooms, in this area of Palo Alto.”

“We ended up getting three people, three sellers, and one of those three worked perfectly and we ended up getting the sale,” DeLeon said.

DeLeon, the founder and head of DeLeon Realty, grossed the highest out of any real estate agent in the nation in 2011, topping Wall Street Journal’s charts with over $275 million in sales.

“Some people would say that being number one in the nation, that’s the time to relax,” DeLeon said. “I would say that that’s the next launching pad. I always want to do more.”

Real estate is all about location, and DeLeon is in the right place. The thriving tech sector has boosted the housing market tremendously, leaving other areas of the country far behind.

“The American market might not do that well, but Silicon Valley is unique,” DeLeon said. “So much wealth creation, so much job creation, a lot of capital coming in from China, and a very limited supply [of houses], a fixed supply—and low interest rates because we’re benefitting from the nation’s kind of economic downturn.”

“Prime Silicon Valley, and then San Francisco, and then Manhattan … those will be the three markets that have the most appreciation in the next ten years,” says DeLeon, who has a background in economics, mathematics, and optimization. And being in Silicon Valley, his buyers are largely from the high-tech sector and appreciate the data, charts, and appreciation analysis he can provide.

“To some degree I trust the market more than I trust my marketing. So you get the word out and you let everyone know about it, and the market will take care of yourself,” DeLeon said. This, coming from the realtor famous for catered open houses complete with lattes and jazz bands, 24-page home brochures, walk-through home-tour videos, and soon a luxury tour-bus for neighborhood tours. DeLeon has absolute confidence in the market.

“This market is really strong,” DeLeon said. “I recently traded up—I thought my house was worth $2.3, $2.4, but I priced it at $1.99 million, and it sold for $2.55.”

This got him thinking—getting so many multiple offers probably wasn’t an uncommon thing.

“Let’s just go to the next level—let’s do an auction,” was his next thought, DeLeon said.

“I figured a condominium was better than a home because it was easier to determine market value because you could look at all the past sales,” he said.

He priced an investment property he owned, a condominium, and then listed it at one dollar.

“I said, whatever it sells for, even if it’s two dollars, whatever it sells for in two weeks after my marketing, I’m going to accept,” DeLeon said. “I thought I might lose a little money because I was an innovator, but instead it sold for 10 percent more than the highest sales price [in the area] in the last five years. So the auction really paid off, and that might be the future.”

The phone was ringing off the hook, and the condominium sold for $385,000 in an area where the highest condominium sales price was $360,000 in the last five years.

“Your confidence is key,” DeLeon said. “If you’re confident you should convey that confidence to your client. … I wouldn’t advocate a client taking a risk unless I was willing to take that risk as well.”

It’s not enough just to tell the client you’re on their side. DeLeon felt he could show his clients how confident he was in the market—that he could quantify it.

“I want my clients to know I’m on their side. I thought for listings, it’s pretty easy because you get a percentage of the sales price. The more you sell it for the more you get,” DeLeon said. “But for buyers, it’s a bad incentive because the more they pay the more you get, so in some sense you’re inversely aligned.”

“I want to always align incentives,” DeLeon said.

He came up with a “broker guarantee package,” where clients who buy single family homes in one of the five cities and neighborhoods DeLeon believes have the greatest appreciation potential will have their home sold and marketed by DeLeon for free if the price has dropped when it comes time to sell.

“They buy a home for $2 million, when it comes time to sell, if their sales price is below $2 million, then my analysis that this market was going to appreciate was incorrect,” DeLeon said. “If my clients are going to lose money, actually I want to lose money as well because I believed in it.”

“If it sells for below what they paid for it, they don’t have to pay my commission,” DeLeon said. “I’m still going to invest my $15,000 in marketing, but I’m going to sell their home for free, because I want to be on their side.”

“Obviously my goal isn’t to work for free, so I’m going to put them in the homes in the cities and neighborhoods with the greatest appreciation potential,” DeLeon said. “Nobody in the nation’s ever done that before.”

“I’m very optimistic in this area, that’s why I have the confidence to do so,” DeLeon said.

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