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2025 San Carlos Real Estate Report

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Senior Salute Is Set To Return

I am thrilled to announce that our Senior Salute is making a return! The Dwell Senior Salute made its debut in May of 2020, when myself and my partners were trying to come up with a way to honor all of our graduating high school seniors who had graduations canceled because of the pandemic. It was an overwhelming success and the demand was so high, we had to start hanging some of the Salute posters from the steel beams outside of our building.

This year, in association with the San Carlos Education Foundation, the Senior Salute is back. If you have a high school graduating senior and would like them honored on our glass walls on Laurel Street, please follow the link and instructions below:

Complete the Google form and submit a photo of your student here. 

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As with all of my articles, I always try and give a very balanced approach to my opinions. Some will say that I have a vested interest in a particular viewpoint on the matter, which I can certainly understand. That being said, I hope that you will see the effort in this article to truly examine all sides and see that the conclusions drawn are logical and supported by facts and principles of common sense. Finally, while this is a serious issue for our industry, I also believe agents such as myself cannot take ourselves too seriously. It is the perfect time for some introspection and to simply see how we can be better for our clients.

The NAR Settlement

NAR recently settled lawsuits filed across the country which awarded plaintiffs nearly $1.8B in damages. The genesis of these lawsuits alleged that listing agents essentially engaged in price-fixing, or keeping prices of homes artificially high by offering cooperating compensation in the amount of 2.5-3.0% via the MLS to the brokerage that represented the buyer. To break this down further, cooperating compensation is the portion of the listing commission that is split with the brokerage representing the buyer for a transaction. This amount, normally 2.5%, is offered via the MLS to indicate to buyer brokerages exactly how and what they will be paid for a successful close of escrow on the particular listing. Normally, when taking a listing in San Carlos, a listing agent will charge a 5% listing fee. 2.5% remains with the listing brokerage and 2.5% is offered as cooperating compensation.

The settlement reduced the amount owed to plaintiffs to $418M in damages, but more importantly, it also put forth two key changes to the home selling process for agents to follow:

• Agents must now have signed agreements with the buyers they are representing. Currently, only about 20% of agents have written agreements with their buyers. Further, the agreement must clearly state how much the agent will be paid and what circumstances trigger the amount due.
• Listing agents are no longer allowed to offer the cooperating compensation via the MLS. However, they can still offer it through other documentation, verbally, on their own website, or through an addendum submitted through the offer process by the buyer, which asks the seller to pay some or all of the buyer agent fees.

The Background

The cooperating compensation, or buyer-side agent commission, has been under fierce attack since the 1990s. Hundreds of companies have tried to build a discount business model that offered buyer agent services with a refund of a portion of the commission at the close of escrow. That effort was amplified over the last 15 years as the tech world put a bullseye on the residential real estate market, especially the buyer side portion of the commission. None of those companies managed to gain even a 1% market share in San Carlos after all of that time.

Back in 2003, I was an outsider to the real estate world, and I understood the thinking that the cooperating compensation seemed like it could be reduced and more efficiently put to use. At the time, I had a tremendous amount of trepidation of leaving my law practice to sell residential real estate. I saw agents as mostly nice people, but generally a little lazy, lacking in education and sophistication in many instances. I thought many were between careers and generally just looking to justify a somewhat professional existence. 20 years later, I have a vastly different opinion.

How Buyers Agents Really Work

When most buyers or outsiders look at the cooperating compensation, they envision an agent showing up to meet a buyer, writing up a contract with no contingencies, and three weeks later that agent is walking away with 2.5% of the sales price of the home. While this imagery works well for most articles you will read on the matter, the reality is something far different.

There is an old, light-hearted expression in real estate, “buyers are liars”. I am certainly not casting buyers as individuals who try to misrepresent their intentions to their agents, but for every 2.5 buyers a good agent works with, one will end up actually purchasing real estate. These are relationships that are fostered for months and sometimes years before a buyer actually makes a purchase, if at all. The hours involved for an agent on zooms, showing countless houses, losing on 5-10 offer presentations, conversations on the market, strategy, bringing in specialists for disclosures and working the oddest and most unpredictable hours imaginable are all part of the process. For all of that, you are doing well as an agent if 50% of your buyer clients actually end up purchasing a home at some point. So, when viewing the cooperating compensation within the context of a single purchase, it is understandable to view the compensation as a bit over-the-top. However, taking 1,000-foot view to see what is truly involved on these transactions yields an entirely different opinion.

Other key factors for consideration: the buyer’s agent does not keep 2.5% of the commission. That amount is subject to a split with the brokerage. Agents have assistants, transaction coordinators, MLS dues and insurance to pay before any portion of their check finds its way to them. Agents are 100% commission based. There is no salary from the brokerage. They are not eligible for any benefits or medical insurance and pay for all other expenses and taxes that come with being self-employed. Once a closing check has been passed through the gauntlet of participants, the agent is left with the remainder.

A few other facts that help round this description a bit further into form: There are roughly 22,000 agents in San Mateo County. Roughly 54% of them will not complete a single deal this year. The next 20% will complete 1-2 transactions. The top 26% will complete the remaining transactions.

The Impact of the NAR Settlement

The NAR Settlement went into effect on August 17, 2024. Now, we wait for a world of chaos and confusion. For a visual, if you have ever watched the battle scenes in Braveheart or Gladiator where there are hundreds of warriors fighting each other with swords and clubs with seemingly no real way of who is distinguishing who is actually on their side of the battle, I bring to you the second half of the 2024 San Carlos real estate market.

The good news is that the listing agent’s duties and commission structure remain largely unchanged, with a few exceptions that we will discuss below. However, buyer representations are about to be something similar to the Gunfight at the OK Corral.

The second half of 2024 will feature the following batting order of individuals and agents lining up to make offers on homes. While they are not exactly the Murderer’s Row of the 1927 Yankees, they will be at your front door, should your home be for sale:

1. Buyers represented by a traditional agent, compensated by either the buyer or the seller.
2. Buyers represented by an agent who will work for less than the traditional cooperating compensation.
3. Buyers represented by an attorney.
4. Buyers requesting the listing agent to represent them free of charge.
5. Buyers represented by a flat-fee agent of $5,000.
6. Buyers represented by a flat-fee agent of $1,000.
7. Buyers representing themselves.
8. Buyers representing themselves and wanting the cooperating compensation for themselves from the seller.
9. Buyers representing themselves and wanting the cooperating compensation for themselves, while secretly bidding on more than one property at once.

Chaos. Total chaos.

What Most Sellers Do Not Understand About an Excellent Buyer’s Agent

Anyone who has sold real estate with some success for a long period of time will tell you that a truly seasoned buyer’s agent is worth their weight in gold. While the seller may only see the offer in front of them, it is what they are not seeing that truly matters. Really good buyers’ agents have clients that are savvy, knowledgeable, informed and understand the timeline and process. Why? Because they have been expertly educated and coached on value and the process by their agent. The process has been synthesized into a tightly wrapped package which offers a very high degree of predictability. Predictability in offer situations is, outside of the offer price, the best thing a buyer could offer a seller. I would tell you that you are dealing with a success rate (transaction closing) that is between 98-99% with these types of agents.

Now, fast forward to a situation where the buyers are paying a flat fee of $5,000 to a buyer’s agent, representing themselves or being represented by an attorney. The education on the market will not be present. The knowledge of the process and what is acceptable and not acceptable will disappear and the odds of a successful closing on the house will drop dramatically. Suddenly, that 2.5% that the seller is saving will look like a drop in the bucket when compared against the market damage done by a property coming on and off the market.

I have always told my sellers to view the cooperating compensation with a good buyer’s agent as an insurance policy for their sale. In other words, is it worth 2.5% for them to adopt a success rate of 98%-99% once their home is in escrow? For homes that fall out of escrow during the escrow process, the likelihood of being able to come back on the market and recapture their same price and terms would be characterized as remote. This is exactly what is going to happen with many of the players in the batting order mentioned above. The percentage of homes falling out of escrow will skyrocket. Not only that, but buyers who are better represented also can cut down on issues that arise after the home is sold. At the very least, it is worth a detailed discussion with your listing agent.

Ramifications of the Settlement

The irony with the settlement is palpable. The very things the plaintiffs in the suit were trying to protect against, will now be worse than before in many regards. Sellers will suffer a higher rate of lawsuits from purchasers of their homes, a far greater chance of their home falling out of escrow and ultimately, noticeably lower purchase prices. Buyers will be given representation in many cases that will be less than ideal. More buyers will end up making serious errors in strategy, purchases and resale because the advice many rely upon will fall well short of the standard. In the end, everyone loses.

I am the first one to stand up and say that the real estate industry needs some serious changes. I think we have way too many agents, too many bad agents and our barrier to entry is almost non-existent. This settlement will go a long way toward weeding many agents out of the business entirely. Making changes in the real estate industry and its practices is like asking a cargo ship to turn on a dime. Changes take a long time. That being said, we are overdue. I am also the first one to say that our tools are dated. The fiduciaries we have with our clients are counterintuitive with some of the tools at our disposal, such as the MLS rules. Change is needed, but this is entirely the wrong way to go about it.

Predictions

We will experience 6-8 months of chaos. During that time, you will see the highest rate of properties falling out of escrow in San Carlos than we have seen in the history of recorded sales.

There will be heavy pressure on listing agents to double end transactions.

The MLS will struggle to hold onto the level of relevancy that it currently has because agents are no longer allowed to advertise a cooperating compensation.

Off-market property sales will skyrocket.

Agents will organize with other local agents and market properties between themselves.

You are going to get endless mailers from agents claiming to have this all figured out. Be extra cautious of mailers from agents outside of San Carlos.

Finally, at some point toward the end of next year the chaos will diminish. There will be more than enough horror stories to go around and the market will ease back into understanding the value of having very solid agents on both sides of a transaction.  Simply stated, buyers and sellers do better when both are properly represented.

In the meantime, the real estate industry has to look at itself in the mirror and simply be better. We need to have a much higher barrier to entry, rid ourselves of some archaic real estate principles and become more open-minded to modern approaches and technology.

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Each year, the San Carlos School District finds ways to to more with less. It is a constant reshuffling by folks who are doing their very best to make our schools the very best that they can be each and every year. However, in some instances, there is nowhere else to go except to ask for some assistance from the San Carlos community.

Measure H will appear on your March 5th ballot and it is worthy of your support. In short, approving Measure H will approve a bond measure worth $176M that will go toward much needed facility improvements that are long over due, such as:

• PROVIDING secure, healthy, and safe learning spaces for all students.
• REPAIRING or rehabilitating classrooms, restrooms, and roofs.
• IMPROVING fire safety, school security systems and accessibility for students with disabilities.
• UPGRADING infrastructure such as heating, cooling, plumbing, electrical systems, and gas lines.
• UPDATING science, technology, engineering, arts, and math classrooms.
• PROVIDING facilities needed for Transitional Kindergarten to all four-year-olds by 2025 – required by new state mandates.

San Carlos students are worthy of this investment in their schools. If that is not enough to convince you, perhaps view the approval of Measure H as one of the strongest investments you could ever make in your property value. I can confidently tell you that, by far, the number one reason buyers choose San Carlos is the schools. Our San Carlos schools are the sole reason your property is worth 10-15% more in value.

Approval of Measure H will support our schools, students, faculty and property values. For more information on Measure H, please click here.

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I was honored to be selected as the 2022 One Life Counseling Center Business Partner of the Year. As you may have read in previous posts on this site, in 2020 I had some who are close to me have very real struggles with their mental health. It was an eye opening experience for me and the more I familiarized myself with the services available and the stigma attached to mental health, the more eye opening it became.

Earlier this year I made a commitment that was two-fold: (1) do everything I could through my platforms to help erase the stigma for those seeking to improve their mental health and (2) pledge financial support through my business with every San Carlos house listed and sold for the next ten years. I would encourage anyone to educate themselves on mental health and help spread the word on this most undervalued and misinterpreted aspect of our healthcare system. Finally, while it was certainly nice to be honored, those that really need to be honored are the therapists and staff at One Life Counseling Center that have dedicated their lives to assisting others. Thank you for all that you do.

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It’s time. The last two years have been eye-opening for me. Honestly, I am embarrassed that it has taken me this long to act on it. I am embarrassed that it took a pandemic to shine a more illuminating light on it.  Finally, I am embarrassed that I have long-time friends and extended family members struggling and I failed to recognize it or inquire further. But, no more. After extensive thought and self-reflection, I am devoting the next ten years in my real estate career to bringing awareness to, and ending the stigma of mental illness.

I have learned a lot over the last eighteen months and two things are certain in our society: (1) our mental health is at an all-time low. Depression, anxiety, stress and many very serious mental illnesses are pervasive and getting worse; and (2) even in 2022, there is still a stigma attached to those who are waging a war against their illness every hour, of every day. Many who are in better health wonder why those affected simply cannot “get over it” or “toughen up”. It is time to get beyond the unintentional ignorance of those responses. The other important factor to recognize is that those suffering from mental health issues are not of a particular socioeconomic class, gender or ethnicity. Many struggle privately and fear that they will be viewed as weak or perhaps be talked about poorly if their issue is known.

It’s time.  It’s time to evolve and view mental illness the same way we view physical illnesses. We have to learn to protect our mental health the same way we protect our physical health. We likely live in one of the most educated and progressive areas of the world. We, as a community, can lead this fight by setting the example. I realize that I am fortunate enough to have a large platform in San Carlos.  It is time to put that platform to work for a cause that goes well beyond real estate.

I spoke in detail to several doctors and therapists leading the charge against mental illness in San Carlos and our surrounding community. They are overwhelmed. There is not enough help. Not enough support. Not enough money. One of the scarier thoughts for me is thinking about those who desperately need mental health support for themselves or a child, but cannot afford the support they truly need. One therapist told me that the number of children in our own San Carlos Schools suffering from some degree of mental illness (mostly depression and anxiety) is at a level that would shock the community if it was truly put on display. Our community does not have a backstop and too many are falling through the cracks.

I am planning on attacking mental illness on two fronts: (1) ending the stigma with better awareness; and (2) financial support for those who need it most.

All of my sites, including the San Carlos Blog, and all of my For Sale signs around town will now proudly display a green ribbon.  For those unaware, the green ribbon is regarded as a symbol of hope and awareness for mental health.  Next, for every home I sell in San Carlos, I will contribute $2,000 per home, up to a maximum of $50,000 per year to One Life Counseling Center in San Carlos. OLC is at the forefront of this fight and they are worthy of your support. I hope you will join me in this fight.

San Carlos, it’s time.

Bob Bredel

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Even for those of us who do nothing but San Carlos real estate on a daily basis, the past five months have been difficult to understand, hard to fathom and in some instances, tough to watch.

A Startling Milestone

Let this statistic sink in:  The average sales price for a San Carlos home for our spring market was $2,468,361. Just nine years ago the average price for a San Carlos home was $965,103, which was still an incredible amount of money. A current average purchase price of $2,468,361 means that the average buyer would need to have a minimum of $600,000 as a down payment and be able to afford a $1,900,000 mortgage and property taxes of $28,000 per year. Or a monthly payment of $8,297 (mortgage) and $2,333 (property taxes) for a total housing payment of $10,630. This figure obviously does not include insurance and other expenses of owning a home.

Earlier this year I had a buyer group where one buyer was a doctor and the other a nurse.  They had a combined income of just over $500,000 per year. They had been renting for three years and managed to save just over $400,000 toward a down payment. After getting outbid left and right, they finally threw in the towel about three weeks ago. I could not blame them. They had worked a ridiculous amount of overtime to get their hospital through the pandemic and were unable to afford a simple two bedroom starter home in one of the communities they served.

The scary part is that this was a family with an outstanding income and they still couldn’t make it work. What about teachers, police officers, firefighters and other critical personnel to our infrastructure? How could they possibly stand a chance? Many of them already commute to San Carlos from long distances.  This very dire situation will be the single biggest issue facing San Carlos and the mid-peninsula over the next 20 years. It has been festering and reluctantly growing over the past decade and now it is on full display. How can a town have an infrastructure and a bonded community if the key components to in the infrastructure cannot live here?

The scarier notion is that for the buyers who are purchasing a home, the majority are not purchasing the home with $600,000 down and a $1,900,000 mortgage. The reality is many of them could pay cash outright if they chose to and many put down up to a 50% down payment.  This, more than anything, illustrates the true financial strength of those purchasing in the San Carlos housing market.

 We Will Not See A Substantial Correction Like We Did in 2009/2010

Unlike in 2009 when the market went down, many of those homes purchases in 2002-2008 were purchased with 10% down, 5% down 0% down and my personal favorite, negative amortization loans. The bottom line is that there was no room for error on a market correction.  Now, even if the market were to correct significantly, the vast majority of sellers will not feel the financial strain to sell and get out.  They will simply ride it out. Economic pressures will not force the vast majority of sellers to get out from under a mortgage given the substantial equity positions.

How Did We Get Here?

The pressure on the San Carlos market has been building for some time.  The first year of real pressure after the Great Recession started in 2013 and saw five successive years of substantial appreciation. 2018 & 2019 saw even returns to minimal gains at different times of the year. 2020 started off strong and the pandemic wiped the two busiest months for real estate in San Carlos (April and May) completely off the books.  Homes that were selling early on in the pandemic had a noticeable edge taken off their pricing. What we did not know early in the pandemic was that a perfect storm was brewing.  The buyer frenzy that would take hold by the end of 2020 and through the spring of 2021 was so strong and impactful that it will likely be characterized as the strongest market of our lifetime. And it is not even close to being done.

This market-of-a-lifetime cannot be chalked up to the typical Big Three combined forces that are usually in alignment for a strong market on the peninsula: low interest rates, a record stock market and outstanding employment figures.  What has happened here is deeper than that and is worthy of a closer look. In addition to the Big Three mentioned above, there is a fourth tributary that is joining the fast moving river of property values.  For the first time ever in significant numbers, please welcome the Millennial Buyer.

As noted in Caroline Mimbs’ The Atlantic article of June 1st, 2021,

“Millennials are, as my co-worker Robinson Meyer poetically put it, “passing through the U.S. economy like an elephant being digested by a boa constrictor.” Perhaps nowhere is that stretch more apparent right now than in the housing market.”

For the first time ever, Millennials have finally decided to enter the housing market.

“The generation’s delayed entry into home-buying is helping drive prices to historic highs and inventory to record lows, our staff writer Derek Thompson reports: “Pick a housing statistic at random, and it’s probably setting an all-time record.” To borrow from the pop album du jour, it’s brutal out here.”

 Consider the following: The largest Millennial group is ages 30-39.  Never before in the history of the United States has this age range been as numerous as it is today. Further, this is an age range that largely stayed out of the home purchasing process until now. In previous generations, this would have been an age range that was largely settled with a home purchase prior to reaching 30. The pandemic changed all of that.

Many Millennials emerged out of the pandemic realizing that the stability, especially in the single family residence market, had benefits that were not fully considered pre-pandemic.  This rings true with everything I have seen with my buyers this year. Almost all are exactly in this age range and when they first meet with me, they quickly state the reason they finally decided to enter the housing market: The Pandemic.

The pandemic changed so much about how we work, see our home life and how we use our properties.  In almost every instance, these changes led prospective buyers and long-term renters down the road of pursuing single family home ownership.

Where do we go from here?

The San Carlos housing market is the ultimate double-edged sword. Aggressive asset appreciation for property owners, but at a cost of key personnel to our infrastructure and ultimately a less cohesive community.  There are secondary challenges as well. Many current property owners have family financially blocked from being able to live close by.  This can be  especially challenging for those trying to move parents closer or find a home for a child who is now a young adult starting their own family.

Towns like San Carlos up and down the peninsula have made a concerted effort to organize affordable housing and make Below Market Rentals a part of almost all development.  The reality it is that it is not even close to being enough.  We are just starting to see shades of a crisis the has the potential to drastically and forever change our community.

I am certainly aware of the mountain of irony behind an article of a real estate agent sounding an alarm for the market-of-a-lifetime. However, as I have said in this blog since 2007, I would always report the good and the bad, regardless of the effect on the real estate world. Only reporting one side is a quick way to lose your audience’s trust.

As always, I appreciate your readership. I will publish further details and movement on the San Carlos market in the months to come.

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