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.

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.

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.

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:

24936 Valley Wy, Carmel, CA 93923 (MLS # 81020038)

(all data current as of 7/30/2010)

Price	$2,030,000
Beds	4
Baths	2 full, 1 part baths
Home size	2,600 sq ft
Lot Size	10,400 sq ft

Bank owned a Saroyan home meticulously restored to perfection. Hand hewned pecan/walnut floor, custom sinks, top of the line appliances, three fireplaces situated on approximate 11,000 sq ft lot totally fenced and gated. Bonus guest studio, electric gates, professionally landscaped, stone patios, outdoor entertainment area and more!

Property Type(s): Residential, Detached Single Family

Last Updated	7/20/2010	Tract	n/a
Year Built	2007	Community	Hatton Fields
Garage Spaces	2.0	County	Monterey
Total Parking	2

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Listed with Bill O/ Dave T, Keller Williams Realty

(view all details for MLS # 81020038)

25519 Hacienda Pl, Carmel, CA 93923 (MLS # 81015727)

(all data current as of 7/30/2010)

Price	$957,700
Beds	3
Baths	2 full, 1 part baths
Home size	3,077 sq ft
Lot Size	87,120 sq ft

REDWOOD RANCH STYLE HOME BEHIND PRIVATE SECURITY GATE. OVERSIZED MASTER BEDROOM SUITE WITH FIREPLACE. SEPARATE OFFICE, GAMEROOM AND SOLARIUMS. 1.5 AC. LNSCAPED YEAR ROUND BLOOMS INTERIOR HAS EVERYTHING FROM OFFICE TO GAMEROOM TWO SOLARIUMS, MANY XTRAS. Views of Pt. Lobos & Jacks Peak. All fenced - 2 greenhouses. Office, bar, lots of decks, huge garage -super private setting!!

Property Type(s): Residential, Detached Single Family

Last Updated	7/15/2010	Tract	n/a
Year Built	1980	Community	Carmel Views / Rancho Rio Vista
Garage Spaces	2.0	County	Monterey
Total Parking	2

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Listed with Hodges/ProtoRobinson, Carmel Realty Company

(view all details for MLS # 81015727)

We're sorry, but we couldn't find MLS # 81022683 in our database. This property may be a new listing or possibly taken off the market. Please check back again.

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.

Trading a Home for a Home, or a Boat, or a Plane, or ?

Every Realtor has heard a variation on the story of a buyer coming to them with an offer that goes beyond a creative financing proposal. Occasionally it is a straight trade for property elsewhere but on occasion the buyer might propose a trade for an airplane, a time share plus cash, and in at least one case I know of a race horse. While these deals can certainly be complex, they are becoming more common and may often be the only way a deal that is beneficial to both the buyer and seller can come together. With the increased difficulty in securing financing, well qualified buyers are looking at how they can convert existing assets into cash to make a purchase. With a trade, the buyer forgoes the step of liquidating the asset to create cash for the purchase, and offers the asset instead.

A proposed trade can be advantageous to both parties. In the best case scenario, the seller has a use for the asset. Even without a direct use, there are cases where a seller will prefer the offered asset over the real property they have for sale. For example, an income producing duplex in an urban center might be more attractive to a seller then the remote vacation home they are trying to sell, and rarely use. Even if the seller doesn’t intend to hold the duplex he may opt to accept it in trade based on an analysis that it will sell more quickly given its local market when compared to the market in which the vacation home is located.

Of course there are challenges with a trade deal. Some are obvious; what is the value of the proposed asset? And, some others less so; tax consequences? Is there enough cash in the deal to clear any outstanding loans against the property? If the buyer is offering an asset that is more valuable than the property offered by the seller, can the seller come up with the cash to cover the difference? And, if so, what about the loans if any on the subject property….might they be assumable?

And, A Real World Example of a Seller Willing to Entertain a Trade

My sellers of the property at 13 Long Ridge Trail are a prime example of a seller who would entertain a trade for their property. The sellers purchased the property a number of years ago while based on the east coast. They invested hundreds of thousands of dollars and worked closely with architect Eric Miller on plans and permits for a 5,000 square foot home with an attached 3 car garage and 1,700 square foot barn. The property is located within the Santa Lucia Preserve. An unmatched development where the homes are integrated within the 20,000 acre Preserve in which 95% of the native habitat is protected. It is also the home to an award winning Tom Fazio golf course.

The permits have been pulled to begin construction and Eric is excited to work with the new owners on modifying the plans for their personal tastes.

What Would They Consider in Trade?

This is a nearly ideal situation for a potential buyer hoping to build an estate home and looking to trade into the property. The sellers will entertain offers including real property (residential or income producing) as well as more exotic assets such as collectible cars or an airplane. The seller will entertain offers that include “assets plus cash” to arrive at a purchase price. The seller is a sophisticated and experienced finance officer who would also consider assets of greater value than the subject property with the seller contributing limited cash to close escrow.

If a trade is something you are considering, give me a call to continue the conversation.

A Poorly Priced Carmel by the Sea or Pebble Beach Home Can Cost You Money and Time

The table below shows all of the homes that have closed escrow between May 6th and July 3rd 2010 in Carmel, California. I have deleted the addresses from the table so we can focus on pricing as it relates to Days on Market and percentage of Original Price and List Price. I want to avoid a debate about a specific home and whether it was or wasn’t priced right based on location, square footage, etc.  The market spoke on the pricing of each of these homes.

Most Days On Market

If you look at the table and highlight the five homes with the greatest time on market (Days on Market, DOM) they are as follows: 681 days, 518 days, 454 days, 328 days, 228 days. If you then look at the five homes that sold for the greatest percentage below their original list price they match up with one exception.

Days On Market               Sold Price as Percentage of Original List Price

681                                                                  57%

518                                                                  58%

454                                                                 71%

328                                                                 68%

228                                                                 78%

The anomaly:

77                                                                   77%

Regarding the anomaly: this was a bank owned property that was initially incorrectly priced. The bank began adjusting their list price down within 20 days of going on the market and were continuing to drop it when they received an acceptable offer. [I will discuss how banks price their homes in a future post.]

If you exclude the anomaly, these properties sold for an average of 66% of purchase price in 442 days.

Least Days on Market

Now we will identify the properties with the shortest time on the market and see how they fared in terms of percent of original list price.

Days On Market               Sold Price as Percentage of Original List Price

2                                                                    88%

6                                                                  100%

10                                                                100%

11                                                                  93%

14                                                                  98%

These homes sold for an average of 96% of their original list price. And, they sold in an average of 9 days.

The Danger of Across the Market Averages

The ten homes we just discussed (excluding the anomaly) sold for an average of 81% of their list price after 225 days on the market. This statistic is valuable in tracking the trends in a market but is useless in trying to understand how to price a home and establish a strategy for selling it. It doesn’t have much value for buyers either.

As a seller, would you rather sell your home in 9 days and be in a position to negotiate towards 96 of your asking price, or struggle to find a buyer after a year and two months on the market and secure 66% of your original list price?

Selling a home in Carmel or Pebble Beach California can be challenging for a number of reasons, not least of which, this is a discretionary market:No one is ever forced to move here. There aren’t companies sending employees here or demanding that people live here to work for them. Many of the homes in our area are second homes.

How Most Home Buyers Approach Carmel and Pebble Beach

Proper pricing of a Carmel or Pebble Beach home is even more important because of the way most buyers enter the market. While it is dangerous to describe anyone as “typical” there are a few commonalities amongst the majority of buyers in our area.

• They have been here in the past on vacation, to visit a friend, attend a wedding etc.
• During their visit they started thinking about how great it would be to live here full time or own a second home.
• Maybe during that visit, or follow on visits, they picked up magazines, attended a few open houses and started to explore the different neighborhoods and communities.
• Eventually that process (which can take years) lead them to get more serious about looking for a home.
• And then on their next trip, they dedicated a day or two to work with a Realtor and tour homes with the intent of finding a home and making an offer.

This is where the seller’s pricing decision impacts the buyer.

• Very few buyers have the luxury to spend endless days looking at homes. They quickly (hopefully working with a Realtor…such as myself) reduce the list  to between five and ten homes to tour and consider.
• If a home is not correctly priced it won’t make the initial cut!
  • I cannot stress the importance of this fact. If a Realtor has a client in town for a day they will select properties where they expect there is a reasonable chance for a meeting of the minds between their buyer….and you.
  • If you are listed at well above market value and they have no way of knowing what offer you might entertain, what are the odds that they will spend their limited time showing your home to a prospective buyer?
  • Furthermore, even if a Realtor suggests an overpriced home many buyers will strike it from the list with the same logic as above. Why invest the energy in looking at a property that is priced well above what I am willing to pay for it?

There are lots of different ways to depict this reality graphically.

Half way up the pyramid is the “Market Value” line. As your price moves above this market value, you attract much smaller percentages of prospective buyers, greatly reducing the chance of a sale. Conversely, as you move below market value, you attract a larger percentage of potential buyers.

I realize this may sound theoretical but it is confirmed time and again in national pricing surveys and experience in our local market. My next post will look at a snapshot of sold homes in the last 60 days…..and you will see that there is a real world consequence of pricing in terms of days on market and ultimate sale price.

As a bit of a “first adopter” when it comes to technology I stood in line on Friday to buy a 3G Ipad. There are lots of reasons, but professionally the aspect I am most excited about is being able to call up real time data and maps when out with clients looking at properties. There are lots of communities in the Carmel, Pebble Beach, and Carmel Valley area and often I set out with new clients to look at homes for sale and over the course of the first hour together we revise the criteria based on what they have seen and head off in a different direction. Having the IPad with me will allow me to call up showing instructions, photos, etc. on the fly as we tour.

So, Why the reference to post office boxes in the title? We don’t have street addresses in Carmel and it turns out that AT&T requires a physical billing address in order to activate the 3G phone. There are thousands of folks right now not able to activate the 3G because of this requirement.

This post is aimed at those frustrated souls who are searching the internet for an answer:

When you enter a Post Office Box in “billing address” for AT&T it will “kick you out” and tell you that PO Boxes are not allowed.

Several of us called our credit card companies and changed our “billing address” to our physical address in hopes of making it work. Still we were kicked off, even though the physical address is correct.

This is what appears to be happening:

1. The credit card fraud system is checking the zipcode you entered against the zipcode for your credit card.

2. AT&T is checking YOUR ADDRESS against the US Postal Service database of addresses.

So. If you live somewhere like Carmel and change your credit card info to your legitimate Physical address thinking that will work, it will but ONLY if your physical address is in the USPS database. My address for example, 3SW Santa Fe and 3rd is a real “physical address” which is what AT&T says they want, but it isn’t in the USPS database so they don’t accept it.

Therefore:

1. Make sure the zipcode you enter in the IPAD screen matches your credit card billing zipcode. AND

2. Make sure the physical address is one that the USPS accepts. You can confirm the existence of an address at http://zip4.usps.com/zip4/welcome.jsp

3. In the case of Carmel-by-the-Sea there are NO USPS addresses in 93921, ALL of the 93921 zip is PO Boxes and therefore not acceptable to AT&T.

4. So, I had to pick an address in the nearby zipcode of 93923, change my billing zip code with AMEX and then enter the 93923 address for AT&T. I will now change it back to the real billing address.

I hope this helps everyone else in the same predicament.

Cheers,

Malone

PS. AT&Ts’ explanation is that they need a physical address so they know what city/state etc to send a portion of the taxes they collect.

The water situation on the Monterey Peninsula (Carmel, Carmel Valley, Pacific Grove, Monterey, Pebble Beach) is about as clear as mud– so stay with me for a quick synopsis and an update.

• Cal-Am, the local water company, is violating a number of orders/laws/regulations by “over pumping” the Carmel River. Most of the restrictions have to do with protecting the Steel Head breading that occurs in the river.
• This over pumping/water shortage is the basis for the existence of the Monterey County Water Management District.
• This agency is a “super” agency that has authority above the authority of cities or the county when it comes to water usage.
  • For example, you can receive a permit from a city to install a third bathroom which is allowed under the zoning rules of a given property but NOT be allowed to add the bathroom because you have insufficient water credits (or fixture units) and the Water District won’t stamp the permit.
• To get more of an explanation of how the credit process works, visit www.malonehodges.com/water for an explanation.

So, in November a state wide agency known as the California State Water Resources Control Board issued a Cease and Desist Order that put extreme rationing on the table and ordered Cal Am to not install any new water meters or enlarge water meters for remodel projects.

This was clearly a catastrophe for anyone on the verge of getting a permit to build a home.

Immediately after the issuance of the order a Monterey County Judge issued a stay.

The State Resources board moved to transfer the case to a judge in another county in hopes of getting more sympathy. They succeeded. A Santa Clara county judge this week lifted the stay.

Effectively immediately Cal-Am is under orders to not install new meters. The rationing hasn’t kicked in because our water consumption so far this year is below the limits that trigger rationing.

If you have ever heard of “The Onion” a satirical online newspaper, this story could appear on their pages. Our area uses water well below the national average and well below the average water usage in California. We are extremely sensitive to water usage. There are a number of possible solutions to the water problem, including desalination plants and water reclamation projects. All of which require state approval….from the same state that is inflicting the cease and desist order but has dragged its feet on approving any of the solutions.

If you are considering buying a home in Carmel, Pebble Beach, Carmel Valley or the other peninsula communities and think you might want to add or modify your water fixtures please make sure you understand the water credit system during your contingency period. Request, and understand, what the water fixture report says about your property.

By the way, Pebble Beach has a bit of a unique side story. The Pebble Beach Company has been able to sell water credits from its “bank” for years meaning you could add that third bath, if your home was in Pebble Beach and you could afford to buy the credits. The original intent of the Water Resources Board was to include Pebble Beach but it was “carved out” so those purchased water credits are still valid (and valuable) for the time being at least.

Malone
malone@malonehodges.com
831-601-4740

Carmel has a surprisingly long list of restrictions for a town of only one square mile. Of course, it is that same list of restrictions that assures that Carmel remains a quaint village of small homes with more trees than full time residents.

Most lots in Carmel are 4,000 square feet. Not the house, the lot. These 40X100 lots are sometimes combined into 1 and half lots or double lots and in a couple of rare cases even triple size lots. City zoning does not allow for a guest house or “subordinate unit” on a 4,000 lot. If you are looking for a detached guest house you are going to be looking at larger lots….and with the larger lots comes more total square footage and a big step up in price.

In the 1980s it became clear to city hall that there were a great number of “duplex” homes that were in fact single family homes that had surreptitiously had second kitchens added. Some of these “subordinate units” had been added years before and some were being added as the topic was under discussion at city hall. The city was most concerned about the quality of these remodels as most were being done without permits.

The city elected to offer an amnesty. If residence would inform the city they had a subordinate unit and agree to bring it up to code, the city would allow them to keep the subordinate unit with a few restrictions.

In some cases, as with the house described below, a permitted addition was added to a home and a “utility area” would be transformed into a kitchen sometime months or years after the final inspection. These homes didn’t require any work to bring them up to code. At the other extreme were converted bedrooms with hotplates and overloaded circuits that needed quite a bit of work.

The primary restriction on these units is that only one unit can be rented at any time. As an owner you can live in one part of the home and rent the other. You can lend the “owner’s area” to friends, you can use it as a second home, but you cannot rent it if the remainder of the home is occupied by a tenant.

This property is located in the golden rectangle at 7th Avenue and Casanova. A couple of short blocks to restaurants and coffee shops and a few short blocks to the beach as well.

The east unit is two small bedrooms, a bath, a small office, and kitchen/livingroom. The newer portion of the home, to the west is a one bedroom, one bath, with its own kitchen. Both units have fireplaces and the west unit has a deck.

The property is listed for $1,295,000 and is easy to see. The owner lives in one unit and a tenant in the other. The tenant would love to stay. Give me a call if you would like more information or to arrange for a tour. Malone 831-601-4740