Monterey Peninsula Water Credits and their Importance When Buying or Selling a Home

By mhodges | Published: October 31, 2010

Water Credits or Fixture Units Are An Important Part of a Home’s Value

We take water usage very seriously here on the Monterey Peninsula. In fact, we have a government authority that is in charge of water, called the Monterey Peninsula Water Management District (MPWMD) which was formed in June of 1978.

To use water on the Monterey Peninsula, including Carmel, Carmel Valley, and Pebble Beach, one needs a permit from the MPWMD. You can’t install a water meter on a lot without a permit, nor can you remodel a home and increase the number of water fixtures without a permit from the MPWMD. This is in addition to permit and zoning requirements of the municipality.

First, determine if your property, or the property you are interested in purchasing, is within the district.

The district, indicated in green, includes the following municipalities:

  • Carmel-by-the-Sea
  • Del-Rey Oaks
  • Monterey
  • Pacific Grove
  • Seaside
  • Sand City
  • Monterey Peninsula Airport District
  • and portions of Unincorporated Monterey County including Pebble Beach and Carmel Valley

Why Do Some Homes Have Lots of Credits and Some Very Few?

Often I will walk into a home with a client and be faced with a confused look when I explain that this 2,800 square foot home is limited to 2 bathrooms while a 1,000 square foot home we just visited could have 3 bathrooms if the buyer wished to add one during a remodel. Why is this the case? The number of fixture units in a house is set the first time an MPWMD inspector tours the home. So, a small home with a lot of water fixtures (a laundry sink, a vegetable sink, a bar sink, extra large bathtub, even a bidet) will have more water for future remodels than a larger home with no extraneous water credits.

A basic full bath typically uses 4.7 water credits and a typical kitchen uses two. Fixture units can be reassigned. For example, a vegetable sink in the kitchen can be removed and replaced with a bar sink elsewhere in the home. A master bathroom can have two sinks without the second sink costing any units, and a large bathtub “costs” three units while a regular bath only “costs” two.

View a list of Residential Fixture Unit Counts here.

For Sale: 3-bedroom, 2-bath, 14-water credit home

When you buy a home, you are buying a finite number of water credits. The number of water credits available limits what you can do with the property–when it comes to adding bathrooms, sinks, or anything that uses water.

There are a few nuances to this process. First, a few years ago the MPWMD acknowledged that today it is reasonable for any house to have at least 2 bathrooms. So, under Ordinance 98, they will allow you to add a second bath to a one bath home, even if the one bath home lacks sufficient water credits for the second bath. A couple of key restrictions with Ordinance 98. First, you can’t then go on to add a half bath. The second bath is “free” but any additional bathroom fixtures cannot be added. Second, the one bath home can’t be new. You can’t build a one bath home this year and add a second bath under Ordinance 98 a few years from now.

There are also a few unique areas on the Peninsula with other alternatives. In Pebble Beach at the moment, it is possible to purchase water credits from the Pebble Beach Company.

Properties located in the former Water West System (a water distribution system now run by Cal-Am) in Carmel Valley are entitled to water from an allocation that transferred with the water system. If your property is in this area it is possible to petition and secure water credits.

Liberating Water Fixtures with Low Flow Appliances

Another option is to “liberate” a credit or two by switching to low flow appliances. For example, you can replace your current dishwasher (2.0 units) with a low flow dishwasher (1.5 units). This will leave you with .5 credits you can put elsewhere. You might also replace your washing machine (2.0 units) with an extremely efficient model (1.0 units). Before making a purchase decision based on your ability to “squeeze” water credits out of what is in the home, make sure you fully understand the process. Any low flow appliances require a permit from MPWMD and a deed restriction.

Questions and Resources

As is probably clear, there are many aspects of these water regulations that can impact a home’s value. Feel free to send me an email with questions, as answering any possible scenario in this post is impractical. If you are working with an architect and considering a remodel be sure to discuss the water fixture aspect with the architect. If the architect is from out of the area it is imperative that he or she contact the district.

If you have the Assessor Parcel Number (APN) for the homes you are considering it will allow you to contact the water district and determine the number of fixture units on the property. If you are already working with a Realtor, he or she should provide you with the water district report during your negotiations to purchase the home.

If you would like to talk about aspecific property, or the concept of water credits, drop me an email or give me a call.

Water regulations are constantly shifting. Make sure you fully understand what you can and can’t do on a given property. If you are planning a remodel talk directly to water management and ask your architect and contractor to explain the steps involved. If you are buying a home, make sure your Realtor understands water credits and provides you with the current rules and reports.

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Carmel River School “Over Crowding” Back in the News

By mhodges | Published: October 4, 2010

The Carmel School District is recognized as one of the best school districts in California. (Great Schools ranking of the Carmel School District.) With the financial pressure on public schools given the California budget crisis, some neighboring districts are suffering with growing class sizes and reduced resources. We are lucky that the Carmel School district is well run and has a history of excellence along with a healthy tax base (although not as healthy as it once was.) We are also in a community accustomed to contributing time and money to the school. In fact, the schools are so well loved that folks in their seventies whose children attend the school 40 years ago still show up to voice their support at school board meetings.

Last year there was a great deal of concern on the part of parents, and discussion on the part of the School Board about overcrowding at Carmel River School, one of the three elementary schools in the district. One option under discussion was moving the River School Boundary. The Board of the Carmel School District reviewed a collection of options and arrived at a strategy to deal with the increased student load at River School.

In the end, no boundary changes were made partly because of California budget issues. Prior to this current crisis there was a state program that allocated “class-size reduction funds” to schools that maintain class ratio of just over 20 students per teacher. With those funds not available at the moment, the financial impact of having more than 20 students per class became negligible and the hardship of shifting the boundary on the community was such that no change was made.

In 2012/2013 the state funds are expected to again become available. Current classes at River School range from 21 to 25 students per teacher. Enrollement at the moment is 506 kids, up from 480 kids last year and 460 in 2008/2009.

The school board is slated to discuss the issue, and long term plans to address overcrowding, at their October 6th meeting.

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Pebble Beach and Carmel Short Sales, Complex Financial Transactions

By mhodges | Published: October 2, 2010

Short sales are occurring across all price levels on the Monterey Peninsula with the one home in Pebble Beach currently listed for sale at $5,950,000. These transactions can be complex with nearly always a “second” loan and often a third. In these cases the negotiation between the seller and the lenders is often the more challenging and time consuming than the negotiation between the seller and buyer.

As a buyer of a short sale it is imperative that your agent “qualify” the seller to determine the probability of a successfully transaction. By qualify, I mean try and determine the status of the current loans, the willingness of the seller to contribute cash towards the escrow, and if the seller is looking for full settlement language from the second and third lien holders.

Short sales can be frustrating for the buyer, and often for the seller as well, but if you are able to hold on for the weeks and months they often require, you may end up buying a home for a favorable price.

Pebble Beach Homes for Sale that are Short

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Number of Cash Buyers in Carmel, Pebble Beach, and Nationally Grows

By mhodges | Published: September 22, 2010

Buyers with cash have always been an important part of the buyer population on the Monterey Peninsula. All cash buyers can often secure more attractive terms, especially in the middle market where competing buyers must secure a jumbo loan to buy a million to two million dollar home in Carmel, Carmel Valley, or Pebble Beach.

A recent National Association of Realtor survey found that nationally 26% of transactions over the last few months have been closed by all cash buyers. Cash buyers represented 15% of buyers in October of 2008 and only 12% in May of 2009.

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Are Banks Changing Their Strategy on High End Foreclosed Homes in Carmel and Pebble Beach?

By mhodges | Published: September 19, 2010

Over the last six months the attitude of the banks selling REO (foreclosed properties) in Carmel, Pebble Beach, and Carmel Valley has certainly shifted. Initially, as the foreclosure wave began, the banks treated all foreclosed properties in much the same way. The key criteria was speed of sale. The banks would price the property to sell and hopefully even close escrow within 30 days of listing. Recent Carmel foreclosed homes range in the number of “Days on Market” but the higher priced homes are now on the market twice as long, or longer, as the lower priced homes.

Higher priced REO homes face the same issues as all higher priced homes, the limited loans available for purchase at price levels above $800,000. But that doesn’t explain the shift entirely. What appears to be happening is a combination of the following:

  • Banks are waking up to the fact that they are their own worst enemy. By discounting REO homes and using the “price ‘em, stack ‘em and sell ‘em” approach they are driving neighboring values down and forcing additional borrowers into foreclosure.
  • Most banks have decided to shift their focus on “high value assets” towards maximizing the value, or “retained value” of the asset.

If you are buying an REO home in Carmel, Carmel Valley, or Pebble Beach you should be aware of the following impact of this shift in strategy:

  • Properties used to appear in the MLS within days of foreclosure. It now takes as long as several months before the property is listed.
  • Initially banks would at best provide the buyer with a termite report. Now, on most of these high end asset homes on the Monterey Peninsula the selling bank is completing the section 1 work before close of escrow.
  • Banks will still consider paying a portion of closing costs, but the buyer’s agent must make sure that the bank’s commitment to pay those closing costs survives each of the counter offers.
  • In some cases, banks are undertaking some cosmetic repairs before putting the property on the market. Most are also making sure that there are appliances, bathroom fixtures, etc.
  • And, finally, as has always been the case, once the list price is set the bank typically switches to a formula for responding to offers. So, if the bank makes an error in pricing it may take months to get down to market value, no matter how eloquent the argument is supporting your offer.
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Small town Carmel; Golf, Car Shows, and Office Openings.

By mhodges | Published: August 29, 2010

Sometimes people ask me why I live in such a small town. I often tell them that I enjoy the relaxed atmosphere, and the slow tempo of  Carmel. Or that I really like the fact that when I walk the streets of Carmel going to our from the Carmel Realty office to the Post Office, I know a lot of the people I see. And, most of the time, Carmel is a small coastal town; however, there are a few times of the year that this little town turns into one of the busiest places on earth. (or least it feels like that!)

Awhile back we had the wonderful experience of  Pebble Beach hosting the US open. And we just finished enjoying the Pebble Beach Concourse De’ Elegance. One of the worlds’ premier annual car shows.  Not only did people come-in droves- but many brought their fancy new (or very old) cars for the rest of us to admire. Quite an experience when there are a dozen Ferrari masterpieces parked in front of the local Italian restaurants.

My boys love cars so there is no better way to spend a Sunday than walking around the 18th hole on the Pebble Beach golf course, looking at and reading about beautiful old cars. Not only did they have cars, but they had motorcycles and bicycles and even a few campers too.

Not only did we have the car show in town, but in the same week Carmel Realty opened a new office on Ocean Avenue.  I say “new” in that we haven’t had an office on Ocean Avenue in quite a while, having been at our Dolores location for dozens of years. We opened in the same building where we had offices in the 1920s. We opened during the chaos of the car show to a great reception from locals and visitors alike. The office is set up as a gallery of fine homes rather than a traditional real estate office with a line of agent desks. It is a great place to drop in and learn about the market, what is happening in town, and get a few restaurant recommendations as well.

So maybe after Labor Day, this little town will feel like a little town again, but for now we still have the small town feeling….with a a bit of “big town” energy as well.

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Market Value Versus Market Price

By mhodges | Published: July 23, 2010

I often get asked what I think the market value is of a home for sale in Carmel, Pebble Beach or elsewhere on the Monterey Peninsula.  If the person asking the question is a buyer, the next question is often if I think it can be purchased for less. Sometimes the answer is “yes,” sometimes “no,” and sometimes “let me see what I can find out.”  If it does sell for less, was I wrong about my estimate of the property’s market value.

Sometimes, yes. But, often there are other factors at play.

What is Market Value

Market Value is the price that a property could bring in an open market with both a willing buyer and seller. With neither the buyer or the seller facing undue pressure from outside factors. And, with the buyer and seller having perfect market information (only an economist could envision such a thing) and no barriers to entry or exit from the market. As you will remember from econ class, real estate is a beautiful example of an imperfect market.

Given its imperfections a property’s market price (the price at which the property actually sold) may be markedly different from its market value.

For example, a home may appraise for $950,000 but the seller is in the midst of a divorce or may have lost his or her job. When presented with an offer of $875,000 with a relatively quick close the seller may accept, regardless of the market value. Or more likely these days, a seller may be faced with growing monthly payments and declining income and a sense that the clock is running out on their ability to escape unscathed.

It can, although not often lately, work the other direction as well. There could be a buyer who is undertaking a 1031 exchange and has a limited period in which to purchase a property. She may opt to may a higher market price because the property she desires meets her needs, can be closed within the time limits, and the tax benefits of completing the exchange are sufficiently large to justify paying over market value to close the deal.

How Does Market Price impact Future Market Values?

Each time a property sells it becomes a comparable for the future sale of a similar property. This is where market price has its impact (beyond the impact it had on the seller and buyer of the specific property.)

For example, I know of a bank owned property that was listed at about $1,125,000 even though all indications were that its market value was under $1,000,000. The seller received highest and best offers from three different agents, all at $950,000. The seller declined those offers and remained on the market for two months before contemplating a price change. By the time the seller reached a list price of $950,000 those original buyers were long gone and no new buyers considered the property to be worth $950,000 given the several months it had been on the market.

Remember, to the market of buyers who originally thought the property was exciting at $950,000 it appeared that the bank had received no offers. Perfect information? Not at all. Those prospective buyers were shying away from the property figuring there must be something wrong with it. After all, it was bank owned and the banks wanted to get rid of inventory fast…so the fact that it was still on the market after so many weeks could only mean it was worth less than they thought it was worth.

Time passed and the property ultimately sold in the mid $800,000 range.

The buyer apparently got a great deal. By the time he came along he was able to buy a property for a $100,000 less than the market said it was worth a few months earlier. Buyers ultimately determine a properties value, and this property had 3 buyers all at the same purchase price.

Unfortunately the ultimate market price had a negative impact on all the neighboring properties market values. Over the coming months a future seller, buyer, appraiser or other Realtor would have no way of knowing what happened during the marketing of the property and would ultimately consider the $850,000 sale price as a good indication of market value.

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Recent Foreclosed / REO Home sales in Carmel, California

By mhodges | Published: July 13, 2010

Carmel Foreclosed Home Sales in Last Six Months

At the moment there are only three foreclosed homes listed for sale, but over the last six months a total of ten bank owned homes have sold in Carmel, California.

24802 Eastfield. $1,450,000 in 77 Days

On the high side there was a 4,226 square foot home at 24802 Eastfield Place that sold for $1,450,000 in March. The other extreme was a home on Canada Lane that sustained major damage when a tree fell through the roof. Some repairs had begun before the foreclosure but there was well over $50,000 worth of damage to be repaired….not including the desperately need improvements. It sold for $402,000 in February.

Two of the 10 homes were in Carmel-by-the-Sea versus the surrounding area of Monterey County known as Carmel. A property on Alta Avenue sold for $760,000 in February of this year. It was an updated but small home, 1,100 square feet. On Santa Rita a 1,553 square foot home, also updated, sold for $522,000 also in February.

In fact, of the 10 homes that have sold in the last six months, 2 sold in January, 4 in February, 1 in March, 2 in April, and 1 in June. There are three pending homes ranging from $979,200 at the high end down to $419,000.

The icons below will link you to a pdf of the 10 sold homes and 3 pending REO sales.

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Currently Listed Carmel California REO / Foreclosed Homes

By mhodges | Published: July 13, 2010

We do have foreclosed homes coming to market here in Carmel, California. While the number of foreclosures is well below the national average, they still have an impact on the market and are occasionally “deals” that are snapped up quickly once they are listed. Having said that, there are also times that investor (usually but not always a bank) lists a property at an unreasonable priced based on criteria other than market value and the home for sale will sit for months before it sells.

I often get calls from clients who have seen that a given property has received a notice of default and the foreclosure process has begun….asking if we can call the bank and make an offer. In an upcoming blog post I will review the steps in the process, but it is important to note that on average at the moment it takes 449 days for a property to progress through the foreclosure process from the 30 day late notice to listing of the foreclosed property. A property receiving notice today, that does not correct the situation or succeed with a short sale, won’t be on the market for over a year.

At the moment there are three foreclosed /REO homes on the market:

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National REO Inventory

By mhodges | Published: July 12, 2010

The Carmel and Pebble Beach markets continue to see foreclosures, but not at the rate of other areas of the country.  In a non scientific tracking of area foreclosures, it seems that lenders are not holding REO inventory for Carmel, Pebble Beach, or Carmel Valley. They tend to move quickly with these “higher value” properties with only a matter of weeks between foreclosure and assignment of an agent and listing of the home.  The strategy of when to bring a property to market varies by lender and location.

Nationally the banks do appear to be holding REO (Real Estate Owned) properties, sometimes for months.  The average time between 30 days delinquent notice to the ultimate sale of a home at foreclosure is at an all time high of 449 days. Most homes that are receiving notices today, and are unable to correct their position, will reach market over a year from now.

The number of properties repossessed by lenders was 1.13 million in May, up about 1 percent from April but up 21 percent compared to a year ago, according to Lender Processing Services (LPS)

Between April and May of this year the number of borrowers that were behind one mortgage payment went up by 10% to a total of 1.62 Million which was off 6.4% from last year and off 9.3 percent from this year’s high of 1.79 million in February.

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