To be fair, the lot itself is 7,841 sqft. If you're gonna spend that much, you might as well just build a new house or extend the existing dwelling. You're really buying the lot rather than the house, if it's true that it's a prime location.
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Undeveloped lot, little under a quarter acre … yeah seems like a steal for someone with that kinda money who wants to build their “I’m rich” house.
This is in Silicon Valley so the mortgage on 1.7 million dollars would be cheaper then renting the neighbouring houses.