I find it hard to believe this costs so much. I mean, I believe it, but it looks like it should be much cheaper.
All depends on what you're used to I guess. In most of the more desirable parts of the Bay Area $1M won't buy you much more than a shack, so if you've lived there it looks very reasonable. If you haven't lived there or somewhere similarly expensive it looks insane. Pretty much the main reason I don't live there at the moment actually.
You're probably right. In this case one is clearly paying for the location, because that house alone just doesn't look like it costs over $1 million.