The DeLeon Insight - November 2014

The DeLeon Insight Silicon Valley Real Estate Nove m b e r 2014

EFFICIENCY

drives the blueprint for DeLeon Realty How Ken DeLeon formulated the plan for DeLeon Realty – See page #3 www.deleonrealty.com

Market Trends

Change in Average Sales Price 2013-2014 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Atherton

Cupertino

Los Altos

Los Altos Hills Menlo Park Mountain View Palo Alto 1/2013-10/2013 1/2014-10/2014

Portola Valley

Woodside

Average sales price for single family residential homes from 1/2014 to 10/2014 increased when compared to the average sales price during the same period in 2013, except Portola Valley.*

Change in Average Price/Square Foot 2013-2014 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0

Atherton

Cupertino

Los Altos

Los Altos Hills 1/2013-10/2013

Menlo Park Mountain View Palo Alto

Portola Valley

Woodside

1/2014-10/2014

Average price per square foot for single family residential homes along the Peninsula increased from 1/2014 to 10/2014 compared to the same period in 2013, except Woodside. *Data gathered from the Multiple Listing Service on 10/27/2014.

1  DeLeon Insight  November 2014

Legal

Liquidated Damages, Initial with Care!

By Kevin Chiao, Esq., DeLeon Palo Alto Specialist

T

hese days, it seems like every small transaction requires long and complex forms filled with legal jargon. It is often difficult to tell exactly what certain contract provisions mean, and even harder to understand how the provisions operate.

This may be somewhat acceptable if you are purchasing the newest cell phone, but much riskier if you are purchasing real estate.

Buyers and sellers of real estate often sign provisions of a contract simply because their agent has instructed them to do so. One such provision is the liquidated damages section. As agents in real estate with legal backgrounds, we often find that clients lack knowledge of the repercussions of initialing this provision.

At the simplest level, a liquidated damages provision operates to quantify monetary damages at the beginning of a transaction if a buyer breaches a contract. Rather than having to prove damages at trial, initialing liquidated damages provides for a payment of three percent of the purchase price if a buyer backs out of a deal. Theoretically, a seller then only has to prove that a buyer breached a contract and not the amount of damages the seller suffered. Generally, whether or not a liquidated damages clause is enforceable is a question of law. In practice, whether or not liquidated damages will apply turns on the facts of a transaction and if there is a specific statute that would govern that type of transaction.

With respect to residential purchase agreements, the applicable California statute provides that the reasonableness of enforcing a liquidated damages provision shall be determined by taking into account both the circumstances existing at the time the contract was made, as well as the price and other terms and circumstances of any subsequent sale of the subject property within six months of the buyer’s breach. See Cal. Civ. Code section 1671. Additionally, a liquidated damages provision must be

Neighbor hood Spotlight

separately signed or initialed by both the buyer and seller, and set out in either minimum 10-point bold type or 8-point bold contrasting red type. These technical requirements were intended to make the parties appreciate the consequences of initialing the provision.

From a seller’s perspective, a liquidated damages clause relieves the seller from the often difficult task of having to prove actual monetary loss. Rather than introducing appraisal evidence and other evidence of loss at trial, the seller would only have to prove that a buyer breached the contract.

For a seller, the risk of initialing a liquidated damages provision is minimal. However, in a depreciating real estate market a seller may face the possibility that actual monetary loss may exceed the three percent amount provided by a liquidated damages clause.

There can be some benefits of a buyer initialing the liquidated damages clause.

It can operate to fix the amount a buyer is liable for in the event of his or her breach.

Additionally, in a fiercely competitive real estate market, initialing the liquidated damages clause can usually make an offer more competitive. In certain instances, a buyer may be able to overcome enforcement of a liquidated damages clause if he or she can demonstrate that it was unreasonable under the circumstances existing at the time the contract was made. However, when a liquidated damages clause does not exceed three percent of the purchase price, the provision is presumed valid and reasonable.

Thus, buyers should initial liquidated damages with care as they may be at risk for much more than being stuck with a dumpy cell phone.

Portola Valley Celebrates Its 50th Anniversary

By Kristen Watson, J.D. DeLeon Portola Valley Specialist

1

964 marks the year that local residents decided to incorporate the small town of Portola Valley.

50 years have passed, and not much has changed: an extraordinary legacy achieved by prohibiting urbanization to keep Portola Valley beautiful, serene, and rural. In honor of that rural tradition, Portola Valley has 7 open space preserves that are laced with trails reserved for hiking, biking, and horseback riding. As such, residents benefit from the many outdoor activities they can engage in right outside their doorstep, a rarity for Silicon Valley dwellers. The Town of Portola Valley celebrated its 50th anniversary on September 21st by hosting several events, which included raising an anniversary flag at the town’s Historic Schoolhouse, scavenger hunts, a 1960’s dance, a concert, and the placement of a time capsule.

November 2014 DeLeon Insight 2

Changing the Industry

Efficiency Drives the Blueprints for DeLeon

By Ken DeLeon, Esq. Founder of DeLeon Realty

T

hroughout my entire life I have been drawn to efficiency. While I enjoyed all of my Mathematics and Economics classes, my favorite class was Operations Research. A simple summary of Operations Research is that it uses mathematical algorithms to find the optimal solution to a complex problem. My love of efficiency and economics led me to consider getting my Doctorate, and I was accepted into the top ranked Economics Ph.D. program in America. However, after careful consideration, I decided that law school at U.C. Berkeley would better equip me for the entrepreneurial future I envisioned.

Because of my unique perspective, I am also acutely aware of inefficiency.

During my time as an intellectual property attorney at Wilson, Sonsini, Goodrich and Rosati, I saw little inefficiency in a law firm full of bright attorneys who specialized in one area of law and solely focused in their area of expertise. Conversely, when I entered the real estate market to purchase my own home, inefficiencies glared at me from every angle. While others might have become frustrated, I was inspired and then excited about the chance to improve and eventually optimize an entire industry. This vision has become my mission.

perspective as a very young man. Having lost a loved one, overcome a nearly fatal hit-and-run accident by a drugged driver, and beaten cancer, I gained a heightened awareness of what matters in life. My goal now is to leave a positive legacy both personally and professionally, and with DeLeon Realty I hope to do just that.

Formed just three years ago, here are some of the innovative changes DeLeon Realty has made or is making to the existing model for buyers. Expect more innovations to come!

Buyers Team as Salaried Specialists In most professional industries such as law or medicine, practitioners wisely specialize and focus on leveraging their expertise in a niche area. In real estate, however, most agents chase the deal and clients wherever they may be, with some agents selling property from San Jose to San Francisco. I never wanted to dilute my expertise, so I started in Palo Alto and slowly expanded my focus to nearby cities. Yet with the growth of my sales volume and territory I saw my local insight lessening. At DeLeon Realty,

“First you master the game, then you change it.”

While the genesis and mission of DeLeon Realty was formed before I entered the real estate industry, I first wanted to fully understand the industry I sought to change. After nine successful years as an agent, culminating in being named the top agent in America by the Wall Street Journal, I took the entrepreneurial leap to form DeLeon Realty. Few would foolishly disrupt a business model that put them at the top, but I have always been motivated by more than monetary success.

Three tragic life events changed my

3 DeLeon Insight November 2014

I crafted a model with the client in mind and the optimal result is the salaried specialist!

All of DeLeon Realty is on salary. There are no traditional, commission-based agents at DeLeon Realty, and there are no bonuses tied to sales volume. Thus, buyers do not have to be concerned about being pressured to buy a home, increase their price range or up their offer as our talented agents are on salary and their future raises are tied to clients’ positive experiences.

This model provides for more candid and objective insight from the agent, and a higher degree of trust from the client.

Our agents are specialists and focus solely on their own city or neighborhood. For example at our company, one agent focuses

solely on North Palo Alto, while another focuses solely on Midtown and South Palo Alto. By knowing their neighborhoods so well, our Specialists have a strong grasp on market value, and their honed analysis prevents our buyers from overpaying.

Changing the Industry

DeLeon Total Sales By Year DeLeon Total Sales By Year Knowing a narrow territory and focusing solely on buyers, our Specialists provide buyers with the depth of analysis they deserve and demand. By teaming up with a Specialist on each purchase, providing my insights on market trends and appreciation, and crafting a targeted offer, our buyers receive optimal insight and outcome. Plus, our unique salary system encourages collaboration, a key element that ensures deep cumulative knowledge of the whole area.

Striving to be the Google of Real Estate

by Solving Our Clients’ Problems I have great admiration for Google, which clearly is one of the most impressive and well-run companies on the planet. Google has done an exceptional job of identifying their employees’ problems and solving them by providing free meals, free transportation, and many others solutions.

I have also sought to identify my clients’ problems and solve them. We have employees whose job is to save clients both time and money, and these services are provided for free. We have a Construction Consultant on staff who assists buyers in assembling an excellent team of contractors to remodel homes,

$400,000,000

$450,000,000

$350,000,000

$400,000,000

$300,000,000

$350,000,000

$250,000,000

$300,000,000

2014 YTD

$200,000,000

$250,000,000

2014 YTD

$150,000,000

$200,000,000

2013

$100,000,000

$150,000,000

2013

$50,000,000 $100,000,000

$50,000,000 $0 2012

$0

2013

2012

2014 YTD

2012 Sales $177,295,750

Sales $277,062,139 * $203,836,250 $392,256,392 *

2013

$332,282,489

2014 YTD

$415,482,392

**

and then negotiate the cost down for our clients. Our buyers also get complimentary time with our accredited interior designer. Additionally, with over 10 law degrees in-house, we can help our clients identify legal issues when they arise. These services, all at no cost, help our clients successfully navigate the entire home buying and selling process with little stress and a lot of support.

2012

* Data derived from REALTrends ** Data derived from Terradatum Does not include off-market sales or pending sales (approx. $121,000,000)

Becoming the First Full-Service Real Estate Corporation While there are several strong real estate companies in Silicon Valley, these companies are more of branding opportunities, where individual agents pay for the right to use the company’s name. The salespeople are independent contractors rather than actual employees.

Thus, all marketing and other services are provided by the individual agents, resulting in a wide disparity in what services are rendered and usually are limited by the agent’s resources. In contrast, DeLeon Realty stands behind each home, with our expertise which include our multimillion dollar marketing budget, our 42 employees, and fleet of 13 vehicles and a plane.As DeLeon Realty continues to expand, we will utilize economies of scale to provide clients with an ever expanding suite of services.

Look for continued innovations in 2015.

Building an optimized and highly efficient business model is the goal of DeLeon Realty, and I thank Silicon Valley home buyers and sellers for embracing these continued innovations.

November 2014 DeLeon Insight 4

Local Market Trends

Risk Taken By Buyers Investing in the Willows Has Paid Off

By Alex Seroff, J.D. DeLeon Menlo Park Specialist

M

uch like “Risk,” the famous board game and source of intense family discord, purchasing real estate always involves the investment of limited resources – armies in “Risk,”equate to personal savings in real estate. In addition, people must decide into which defined territory they wish to make their investment. Outside of board games, those territories are the cities and neighborhoods that buyers can choose to call home.

For the past half century, home purchases in cities, and specific neighborhoods in Silicon Valley, generally have had excellent returns in the form of high appreciation and quality of life. However, the amount of risk buyers have taken when choosing which neighborhoods to invest in has varied greatly. This is especially true for Menlo Park, which has neighborhoods that have enjoyed stable reputations and appreciation through the years, as well as neighborhoods that previously had poor reputations but later yielded far greater monetary returns if the home purchase was made prior to the gentrification of the neighborhood.

Several of the older and well-established neighborhoods of Menlo Park have seen solid, consistent appreciation over the long-term due to their continuously strong reputation and high quality of life.

Central Menlo, home to the wealthiest citizens of Menlo Park, with large lots and close proximity to downtown, is an excellent example. Since 2005, Central Menlo has seen 4.5% average appreciation year over year. Beside the large lots and proximity to downtown, the residents’ loyalty to the neighborhood has reduced inventory gradually, further contributing to the price increases.

In contrast, the Willows neighborhood had a less than stellar reputation in the past. Its proximity to East Palo Alto, higher crime rates, and low quality of original construction all served to keep residents

from seeing much appreciation. From 2005 to 2012, the Willows appreciated just 1.5% on average year over year, with fairly volatile swings relative to Central Menlo.

However, everything changed when Facebook moved into Menlo Park and other high tech companies began expanding their campuses, creating an influx of buyers with entry to mid-level high-tech jobs into the local housing market. As a result of the limited housing supply and their budgets, these buyers decided to purchase homes in the Willows as they are relatively affordable and are within an easy commute to most workplaces. Some of these new homeowners had children, which contributed to the increase in school performance scores in the area, and further increased the desirability of the neighborhood. As their family grew in size, these homeowners expanded and remodeled their homes. The combination of influx of buyers, limited supply of homes, improved schools, and new construction have greatly increased appreciation in recent years. In 2012, the Willows appreciated 24.11%, and 18.13% in 2013, marked increases that have only strengthened the desirability of investing in the neighborhood.

5 DeLeon Insight November 2014

US 101

O’KEEFE ST WILLOW RD MENALTO AVE

EUCLID AVE WOODLAND AVE

UNIVERSITY AVE MIDDLEFIELD RD

Just as in “Risk,” where couples and families may debate what territories to send their armies, those who invest in riskier locales will see either significantly higher or significantly lower payoffs than those who take the more conservative route. Couples who decided to invest in the Willows in 2005 may have been pioneers, but their risk-taking has paid off handsomely, and that upward market trend is set to continue for the foreseeable future.

This DeLeon property in the Willows sold for $400K over the listing price.

Interior Design

Coping With Your Contractor

By Curt Sramek, D.O. DeLeon Construction Consultant

W

hether the goal is to accent the height of the ceiling in a formal dining room or to create a sense of intimacy in a home office, the likely answer involves the thoughtful use of decorative moldings to divide the vertical and horizontal planes of a room. However, the whole effect will be ruined if your eyes are drawn toward the dark shadows created by poorly executed joints. An experienced

carpenter will suggest a beautiful and sophisticated alternative to the conventional miter joint called, “coping.”

The coping of molding involves shaping the end of one piece with a square cut so that it rests in the corner against the wall, then shaping the end of the other piece so that it fits perfectly over the profile of the first piece, before joining the pieces together. The result is a compressed fit, which significantly reduces the possibility of misalignment and separation. In contrast, a miter joint is formed by joining two pieces

that have been beveled at a 45 degree angle each, much like the way a picture frame comes together at its corners. Mitered joints can separate and misalign due to the natural contraction and expansion of molding. A coped joint is preferred for moldings, but it does take considerable skill to master.

The mastery of coped moldings can serve as a litmus test of quality and attention to detail. Buyers should ask contractors if coping is within their skill set. If they have mastered coping, then it likely demonstrates they take quality and the details seriously.

Tips for Creating Personal Style

By Brittney Andrews, DeLeon Interior Designer

S

tyle is the expression of an aesthetic, whether in writing, film, music, or interior environments. Ideally, the style expresses the personality of the inhabitant.

Below are 5 design principles you can use to create spaces that are personally congruent and visually impactful.

1. Identify What Resonates Identify a few aesthetic qualities to which you are drawn, such as certain color combinations, shapes, materials, finishes, or other elements. You might read a book like “Style Statement” by Carrie McCarthy & Danielle LaPorte, or take quizzes on HGTV’s website to help you get started. Or you may analyze the styling in your favorite films or note the brands that you gravitate towards; for example, your preference for Ralph Lauren or Calvin Klein will help you hone in on your personal taste.

2. Focus On A Concept Choose a concept that you relate to, such as “country modern” or “art gallery.” Hold every design idea to your concept, as you would if choosing an outfit for “cocktail hour.” When something does not fit the look, decide to exclude it or change it to make it feel like it belongs. Do not attempt

to use too many ideas. Rather, keeping things simple will create a cohesive look.

3. Allow for Organic Development Meaningful items chosen over time will be personal and tell a story, creating a look that is both unique and naturally timeless.

4. Take A Risk Once you know your aesthetic comfort zone, take two steps beyond it to add an element of surprise to the expected. For example, you can paint the exposed brick walls of a room black, which can create a Zen-like space, or give new life to an original piece of furniture by painting it a bright and unusual color such as chartreuse.

Interior designer David Bromstad refers to this as adding “drama.”

5. Repeat Repetition amplifies the cohesion and perceived sophistication of a space, perhaps because the human brain is an “evolved pattern-recognition machine”. For example, series of white columns at the font of the White House create an iconic visual, whereas two columns alone would not.

Layer colors, shapes, textures or other elements to establish a rhythm in a space, which will create visual “conversation.”

Use any one, several, or all of the 5 principles above, in any order that you wish, to create a look that is truly stylish!

November 2014 DeLeon Insight 6

Sample of 2014 Listings

30 Southgate Street, Atherton Sold for 27.37% over list price List price: $1,688,000 | Sale price: $2,150,000 | Days on market: 10

171 Tobin Clark Drive, Hillsborough Sold for 9.89% over list price List price: $7,998,000 | Sale price: $8,788,888.88 | Days on market: 10

7  DeLeon Insight  November 2014

Sample of 2014 Listings

510 Alicia Way, Los Altos Sold for 22.62% over list price List price: $1,998,000 | Sale price: $2,450,000 | Days on market: 8

510 Laurel Avenue, Menlo Park Sold for 21.13% over list price List price: $1,988,000 | Sale price: $2,408,000 | Days on market: 10

  November 2014 DeLeon Insight 8 

Sample of 2014 Listings

1840 Valparaiso Avenue, Menlo Park Sold for 38.77% over list price List price: $1,398,000 | Sale price: $1,940,000| Days on market: 10

134/138 Park Avenue, Palo Alto Sold for 12.19% over list price List price: $3,298,000 | Sale price: $3,700,000 | Days on market: 8

9  DeLeon Insight  November 2014

Sample of 2014 Listings

1473 Dana Avenue, Palo Alto Sold for 20.48% over list price List price: $2,988,000 Sale price: $3,600,000 Days on market: 16

1302 Channing Avenue, Palo Alto Sold for 26.02% over list price List price: $2,698,000 Sale price: $3,400,000 Days on market: 9

2071/2081/2091 Hanover Street, Palo Alto Sold for 17.29% over list price List price: $2,498,000 Sale price: $2,930,000 Days on market: 11

433 Guinda Street, Palo Alto Sold for 22.28% over list price List price: $2,388,000 Sale price: $2,920,000 Days on market: 9

  November 2014 DeLeon Insight 10 

Sample of 2014 Listings

1820 Channing Avenue, Palo Alto Sold for 40.25% over list price List price: $1,888,000 | Sale price: $2,648,000 | Days on market: 9

812 Los Robles Avenue, Palo Alto Sold for 28.27% over list price List price: $1,988,000 | Sale price: $2,550,000 | Days on market: 9

11  DeLeon Insight  November 2014

Sample of 2014 Listings

340 Kipling Street, Palo Alto Sold for 31.72% over list price List price: $1,898,000 Sale price: $2,500,000 Days on market: 9

3611 Lupine Avenue, Palo Alto Sold for 25.75% over list price List price: $1,988,000 Sale price: $2,500,000 Days on market: 9

2202 Greer Road, Palo Alto Sold for 25.75% over list price List price: $1,988,000 Sale price: $2,500,000 Days on market: 9

479 Ferne Avenue, Palo Alto Sold for 21.12% over list price List price: $1,998,000 Sale price: $2,420,000 Days on market: 9

  November 2014 DeLeon Insight 12 

Sample of 2014 Listings

2040 Edgewood Drive Palo Alto Sold for 28.64% over list price List price: $1,788,000 | Sale price: $2,300,000 | Days on market: 9

3556 Middlefield Road, Palo Alto Sold for 36.42% over list price List price: $1,488,000 | Sale price: $2,030,000| Days on market: 9

13  DeLeon Insight  November 2014

Sample of 2014 Listings

678 Webster Street #2, Palo Alto Sold for 44.07% over list price List price: $1,298,000 Sale price: $1,870,000 Days on market: 9

3724 Feather Lane, Palo Alto Sold for 64.88% over list price List price: $988,000 Sale price: $1,629,000 Days on market: 9

160 North Balsamina Way, Portola Valley Sold for 28.48% over list price List price: $1,798,000 Sale price: $2,310,000 Days on market: 10

862 Blandford Boulevard, Redwood City Sold for 65.64% over list price List price: $1,298,000 Sale price: $2,150,000 Days on market: 10

  November 2014 DeLeon Insight 14 

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