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Facebook and Real Estate

Facebook’s recent IPO may be one of the best case studies of real estate market dynamics and seller psychology that we’ve seen in a long time. It was hard to miss the anticipation, media hype, and fanfare that preceded the event. Wall Street, journalists and investors alike made countless predictions about the fate of the stock long before the company IPO-ed. However, one matter related to Facebook’s IPO aligned everyone: the commonly held belief that Silicon Valley’s real estate market would flourish.

And why wouldn’t it? The IPO would establish a newly minted class of millionaires flush with cash who now could afford homes in coveted neighborhoods, like Palo Alto, and the associated price tags. Demand would soar with buyers eager to buy, sellers inferred, and so homeowners looking to sell kept their homes off the market in anticipation of Facebook’s IPO.

In the beginning of 2012, housing inventory in Palo Alto declined 57% while the median price for a single-family home went up 11%, reported CNNMoney. Sellers were sitting tight, feeling confident that the bigger pay off would come if they waited until after Zuckerberg rang the bell, signifying Facebook’s first day of trading.

However, they were mistaken. Since Facebook’s IPO in May, Palo Alto has been flooded with inventory, fueled by a flock of sellers who subscribed to this belief. The surplus of supply combined with the stock’s lackluster performance has left sellers regretful of their decisions. The old bird-in-the-hand proverb rings true here – Had sellers not held out for the possibility of a greater outcome, they could have benefitted from the healthier seller’s market prior to the IPO.

While hindsight is always 20/20, the Facebook IPO teaches us that making big financial decisions, especially with real estate property, based on predictions driven by external forces can be risky. This doesn’t mean you shouldn’t do your research and examine all relevant data; by all means, you should. But it also means that the most important factor in making your decision should be your own financial profile, especially if money is tight or if you have real financial obligations. If you need support when it comes to making these tough decisions or have other real estate troubles, consider reaching out to McFarlin LLP. Facebook’s IPO is a good reminder to consider yourself and your immediate needs first.