I am writing to you on behalf of my clients, as well as my concern for your situation.

I have a very different approach than most realtors I have met in regards to valuation, our real estate markets, and the economy, and I would like to share them with you. Prior to my career in real estate I was a Certified Financial Planner (CFP) and I worked for Merrill Lynch, Morgan Stanley and my last employ was Bessemer Trust, a family office for very wealthy entrepreneurs and executives.

Most realtors I have spoken with believe that all homes are only worth what someone will pay for them at any one time. I disagree-- I believe that homes in Mill Valley, and Southern Marin in general, have an inherent value whether or not you can pull that value out of the house at any one point in time. We rely on market conditions for cash-out values in the short term.

One thing is absolutely certain: Southern Marin and Mill Valley real estate in particular was one of the last real estate markets in the USA to feel the pinch. What is unknown is how long this downturn will last. Here are a few economic principles that are pertinent that may help us determine how long this recession and downturn in Mill Valley real estate may continue:

Future selling and pricing activity for homes in your price range is dependent on the Bay Area’s employment market expansion and contraction, AND interest rate moves. There are a few things to consider here:

First, the Mill Valley Real Estate is extremely influenced by the technology sector of our local economy-- both the technology jobs themselves as well as the peripheral jobs in San Francisco that support the technology industry such as marketing, finance, legal etc.

If you look back at past recessions what you see is that hiring and firing  in the technology sector lags the greater economy. The reasons for this are numerous, but I will highlight 2:

• First, capital expenditures on technology by large companies are earmarked years before they actually happen. Example: In 2005 Procter & Gamble said it would replace 50% of its servers and 25% of its employee workstations in 2009. It sets money aside for this from earnings and then makes this capital investment.

• Second, large and medium size business tend to shed workers during downturns and invest in technology to make less workers more efficient.

For these reasons and others, profits in the technology sector lag the business cycle; and hiring and firing in our area lags the greater economy. It is quite likely that this trend will also be present in this recession; which means that our employment market contraction is only just beginning, and so is the Mill Valley real estate pull back.

Secondly, interest rates are at an all time low right now and that is stimulating demand. However, the net result due to interest rates to our real estate market is still very little selling activity. 

What this leads me to believe is that the bottom of this Marin real estate pull back is at least 1 year off.

Last, the next crisis that our county will face is an inflationary one and folks with variable rate loans are going to be in for a real unpleasant surprise.  

If you need to sell this home sometime within the next 5 years, there is a good possibility that we will see lower prices before they rise again; and there may be a real inflationary risk of trying to hold out for better times.

My clients  are very interested in buying your property but I can’t counsel them in good faith to spend more than $1,500,000 in this market given their financial, employment & health situation. My valuation of your home for them is as follows:

Valuation #1, Cost Approach:

• Lot Value: 750,000
• House Value: 1,000,000
• Total Valuation in normal (not hot nor cold) market: $1,750,000
• Adjustment for current market conditions: - 15% (Mill Valley real estate is down 17% year to date)
• Approximate Valuation #1 =  $1,500,000

Valuation #2, Price Per Square foot:

• The average price per square foot of homes that have sold in both Tiburon and Mill Valley so far in 2009 for homes priced between $1.5m and $2m is $672/sqft. The average price per square foot for the 35 other homes listed in this price range is also $672 (please see attached CMA). Your home deserves a 15% premium to those others on the market, and those that have recently sold due to the fantastic design and finishes.
• Approximate Valuation #2 = $1,500,000

I hope this helps you evaluate your options and perhaps reconsider my clients offer.