Building a new house in Palo Alto

Building a new house in Palo Alto

Wednesday, December 28, 2011

Verifying square footage and how not to waste $400

When we bought our house the lot was advertised as 8514 sq ft.  At the bottom of the brochure, in tiny eight point font was the disclaimer: Information deemed reliable but not guaranteed.  These six little words are a get-out-of-jail free card for the seller in case any of the data is inaccurate (which it often is).  We had two conflicting reports on the lot size:
Santa Clara County assessor records: 8514 sq ft
City of Palo Alto parcel report: 8383 sq ft
The reason square footage matters is because the city uses lot size to determine the maximum allowable floor area of your house.  The footprint of your house is also bound by setbacks which mandate the distance the house must be from the edges of your lot.
Palo Alto Allowable Floor Area Ratio*:
45% of the first 5000 sq ft plus
30% of the balance of the lot
Standard front & rear setbacks: 20 ft
Standard side setbacks: 6 ft 
This maximum allowable floor area includes the square footage of the garage, so if you want a two-car garage, you have to subtract 400 sq ft from the total.  (However, when you go to sell your house, the garage is technically not supposed to be counted as part of your livable square footage).

Here are the two calculations for our allowable floor area:
8514 lot = (0.45 x 5000) + (0.30 x 3514) = 3304.2 - 400 garage = 2904 sq ft house
8383 lot = (0.45 x 5000) + (0.30 x 3383) = 3264.9 - 400 garage = 2865 sq ft house

We decided that 40 additional square feet was material to us, so I started looking for ways to verify the lot size.  Apparently, inaccuracies are common when land parcels are irregularly shaped like ours.  I was told that in order to change the official records, the city requires a report by a licensed land surveyor and was referred to a civil engineer who works in Palo Alto.

Our $400 big fat yellow sheet of nothing.
In retrospect, this is probably where I should have slowed down and done a bit more research.  But no, I was on a mission to get my precious, precious square footage so I didn't ask questions, I simply sought an expert to fix the problem and the civil engineer seemed to fit the bill.  I explained to him the situation and the conflicting reports.  A jolly yet garrulous fellow, he rambled on for a while then offered to do an area survey for $300-$350.  Not really knowing what I was signing up for, but wanting it to be done already, I said go for it.  A few days later I received a bill for $400 along with a hand-typed document on yellow bonded paper with green letterhead certifying that our property is 8,383 square feet.  Wha wha.

Feeling certifiably stupid, I decided to learn more about what you can do to avoid paying $400 for big fat sheet of nothing.  Here are my recommendations:

1.  Gather all public records for the property
You can access Santa Clara County property records and parcel maps online.  The county's parcel map doesn't have square footage but it does show the dimensions which you can compare against city records.  Palo Alto allows you to request a parcel report online.  The Palo Alto report includes the lot and house square footage as well as details on what you're allowed to build on the property (maximum floor size, height allowances, setback information, etc).  I would do this before making an offer on a property to ensure that there are no surprises.  By comparing the records, you might find the source of any errors.

2.  Talk to the city planners
Visit the building department to get as much information on the property as possible.  Ask for any background on how the square footage was calculated and their confidence level in it (it's quite possible that the city or a previous owner has already done an official survey).  Gathering this information is free and it gives you a chance to get to know your city planners.

3.  Call the county assessor
Call the county assessor's office and ask to speak with the assessor assigned to your property.  Ours was very friendly and helped me understand the tax implications of remodeling vs. building a new house.  He also explained that property tax is calculated based on the market value of a parcel, not the square footage, so their records are often just rough approximations.  In our case, they likely took the average length and multiplied it by the average width to come up with 8514 sq ft--not exactly precise, but close enough.  When I told him we calculated it at 8383 sq ft he agreed that it sounded correct and made an update to the county's record.  Unfortunately errors of less than 1000 sq ft do not lead to a property tax adjustment, so we didn't really gain anything here.

4.  Get a topographic survey done first
The city of Palo Alto requires a property survey performed by a licensed land surveyor for new homes or any construction done near setback lines.   The surveyor goes onsite and records property lines,  placement of the fences, trees and easements, so you will get actual measurements of your usable lot.  Since it's required, you might as well get it done before ordering a square footage calculation.    It turns out Alan's yellow paper certification was simply a calculation based on the lot measurements from a publicly available sub-division map.  Had I realized this at the time, I would've ordered a topographic survey then hired my husband to do step #5.  [Update: No need to hire husband.  The topographic survey includes a lot area calculation. Skip to step #5 only if you don't plan on ordering a topo survey.  Click here for a referral to a great Bay Area land surveyor.]

5.  Do your own rough estimate
Once you have accurate measurements for the property, brush up on your geometry skills and do your own estimate.  Divide the property into rough triangles and squares and calculate the total area this way (or bake cookies for someone who will).  If your calculation comes close to what the city has, skip the yellow certificate step and save yourself $400.  If it's significantly more than what the city records have, it probably now makes sense to shell out for an official report.

Bonus tip:  If you do decide to hire someone, get a project quote in writing.  The yellow certificate cost $400 as opposed to the anticipated $300-$350 because the civil engineer and I had differing recollections of what we agreed on.  In the end, I chalked it up to a fifty dollar dummy tax and a lesson on what to look for when hiring contractors (more on this later).

Update: Out of curiosity, I just had the husband do a rough estimate.  He came up with 8165 sq ft confirming that I shouldn't have ordered the yellow certificate.  Now I'm out $400 *and* a plate of cookies.

* Addendum: You can find the full specification for allowable home square footage in the Palo Alto Zoning Ordinance Technical Manual for Single-Family Residential Zones:  
1. FLOOR AREA RATIO (FAR) Existing Regulation(s): The total gross floor area on a single family lot shall not exceed 45% of the first 5,000 square feet of lot area plus 30% of lot area over 5,000 square feet.  The total gross floor area for the principal structure on an R-1 lot cannot exceed 6,000 square feet.  Included in the FAR calculation are all floors of the main residence, stairs at all levels, covered parking, accessory buildings of more than 120 square feet, and attached or detached exterior spaces more than 50% enclosed  and covered (e.g. enclosed porches).  Floor area is not counted for basements where the first finished floor is no more than 3 feet above grade.  Additional floor area is also counted for tall building volumes, as follows:
• A second floor equivalent area is added to the total floor area where the distance from the first floor level to the top of the roof directly above is 17’ or greater.
• A third floor equivalent area (third floor equivalency) is added to the total floor area where the distance from the first floor level to the top of the roof directly above is 26’ or greater; however, up to 200 SF of third floor equivalent area is exempt.
"Gross floor area" (18.04.030) (65) (A) means the total area of all floors of a building measured to the outside surfaces of exterior walls.

Wednesday, December 14, 2011

Making an all-cash offer and getting a mortgage

One of the first rules of buying Palo Alto real estate is cash is king. For our bid, we made an all-cash, no contingency offer with a three-week close.  Because so many things can go wrong with a mortgage, sellers prefer buyers who can simply plop down the cash and close the deal quickly.  Sometimes they will accept a cash offer even if it's not the highest bid.  Unfortunately, this was not the case for us. There were five offers on the house and three were all-cash.  The sellers ended up giving us a counteroffer 10K above our offer price which we gratefully accepted.  We then started hustling to find a loan.  With rates being at an all-time low, we decided it made good financial sense to carry a mortgage.

For our last couple of loans, we've used a broker, whom I affectionately refer to as the Mortgage Nazi. She's a shrewd Chinese tiger mom who has terrible customer service skills, but always manages to offer the lowest rates with no closing costs.  The experience leaves something to be desired, but as the person who referred her to me advised, "If you want to save thousands of dollars, call her, if you want to feel good afterwards, spend $200 and go to the spa."

When we decided to buy the house in Palo Alto, I gave the Mortgage Nazi a call.  It went something like this:
Kay:  Hi MN, we'd like to buy a home and want to get a loan.
MN:  How much?
Kay:  The maximum amount we can get.
MN:  How much you make?
Kay:  Well, I'm mainly consulting these days and...
MN:  No job?  No mortgage for you!
Kay:  But I can pay with my LNKD stock.
MN:  Doesn't matter, you no good.
After a little bit of begging, she conceded that we could get a mortgage if we put it in my gainfully employed husband's name only.  However, we encountered the next hitch--getting it done in time for the close.  None of the banks could close the mortgage in less than three weeks right before Thanksgiving.  No problem I said, we can pay cash at the close and get the mortgage afterwards.  But that was no good either.  In order to qualify for the lowest rates, it has to be a "new home loan" which means it needs to be done by the close of escrow.  Doh, no mortgage for us.

That's when our real estate agent, Erika recommended we call Derrick Yee at First Republic (dyee at  Derrick had helped another one of her clients qualify for a mortgage despite being self-employed (quite a feat given how much lenders hate entrepreneurs).  First Republic is a private bank that actually uses common sense in qualifying people for loans.  They don't just look at your pay stub, they look at all of your assets when determining whether you can afford a loan.

When we described our predicament, Derrick not only said it wasn't a problem for them to do a mortgage post-close of escrow, but he also called his buddies at other banks to see if anyone could give us a loan in time for our close.  While First Republic was able to offer the same rate before or after close of escrow, the main disadvantage of getting the loan afterwards is that you have to pay certain title fees twice, amounting to approximately $600 in additional charges.  Hoping to avoid this, we decided to keep looking.  Derrick managed to find us someone at Wells Fargo who thought they could turn it around before our close date at a similar rate.  In the end we decided we didn't want to deal with the stress, so we went with the loan from First Republic.  Derrick's unprecedented customer service and their super competitive rates made it a no-brainer.

In the end, we (the loan is in both of our names) are getting a 15-year fixed rate jumbo mortgage at 3.45% (3.6% base rate plus an additional discount of 0.15% for the entire loan as long as we keep a 50K balance in a First Republic checking account for two years).  They also have additional discounts if you put more in more (0.25% for 100K and 0.35% for 150K).  Side note: When I called the Mortgage Nazi to ask if she could match the rate, she said no and recommended that we take it.  That's when I knew we were getting a great deal!

[April 2012 update: We ended up lowering our mortgage rate to 2.9% by putting our funds for the construction of the house into a First Republic bank account.  We'll drain those funds in the next 12 months but we'll get to keep the low mortgage rate for the life of the loan.  Sweet.]

I generally find corporate mission statements to be quite hokey, however I really believe that First Republic has lived up to everything in their promise to "change the way you feel about banking."  This is the first time I've left the mortgage kitchen without needing a spa appointment.  Woohoo!

[Dec 2011 Update:  Many of you have requested Derrick's contact information.  He can be reached at: 650-470-8859 or at dyee at firstrepublic dot com.  Many of you have also asked whether I'd recommend the Mortgage Nazi and the answer is yes!  If you meet her demands, she may be able to get you a great deal.  Send me a note if you'd like her contact info.]

Tuesday, December 13, 2011

The Beginning

This is the start of my blog on our new house.  In Nov 2011, we purchased this charming little 1950s home in Green Acres, Palo Alto.  If you look closely you'll see our dog Astro marking his new territory. He was really excited because we bought the house on his first birthday.  We plan to spend the next year+ turning this into our dream home and will try to capture as much of the process as possible here.

We discovered this hidden gem of a neighborhood after using Google Maps satellite view to search for large green areas on the map.  As dog owners and future parents, one of the most important features of a home to us is proximity to open space and neighborhood parks.  Our new home is walking distance to Juana Briones ParkBol Park, and great open space areas and trails located behind Gunn high school along Matadero Creek.  An added bonus is that it is also walking distance to Juana Briones elementary, Terman middle, and Gunn high school.  No driving for us!

Here are the stats on the house as listed by the selling agent:
Type: Detached Single Family
Bedrooms: 3
Bathrooms Full: 2
Approx. Sq. Ft.: 1559
Approx. Lot Size: 8,514 sf
Year Built/Age:  1952/59 years 
The fine print reads: "Information deemed reliable but not guaranteed to be accurate."  More on this later...

The Green Acres neighborhood in Palo Alto, nestled between open space, local parks & schools.