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.

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.

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.

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 18^th 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.

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.

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:

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.

• 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

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

As the Carmel real estate market has softened I have seen buyers shift their attention from areas such as Carmel Woods or south east neighborhoods of Carmel-by-the-Sea to closer to town and into the “golden rectangle.” Properties are still selling in all neighborhoods but buyers are looking for the perfect home or the near perfect deal.

This Week’s SnapShot

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Market Profile

Carmel remains firmly at the “buyer’s market” end of the spectrum. Since January first I have seen an uptick in buyer activity. The median list price has fallen $100,000 since the first of the year.  Successful sellers are those that adjust to the changing market by pricing their homes to differentiate themselves from the competition. If a home meets a buyer’s needs, they should submit a well prepared offer with supporting comparables.

The Market Action Index

The Market Action Index (MAI) measures available supply relative to the current level of demand. Index values above 30 indicate conditions favor sellers, below 30 favors buyers.

Median Price Per Square Foot

Homes in Carmel are not typically priced by “square foot” as there can be a 1,600 square foot home worth $900,000 a block from a home exactly the same size that might be worth $1,800,000. Nevertheless, median and average price per square foot are useful for tracking trends.

Looking at the market by Quartiles

To more accurately describe the sub-markets within Carmel, I report the median price in quartiles. The most expensive 25% of homes make up the first quartile, the next 25% the third quartile, the next 25% the third, and the least expensive 25% are the fourth quartile.

While the upper quartile is well off of what we saw in 2005, at the end of 2008 it was these higher priced properties that lifted the overall market.

Recent Sales

There were 25 closed escrows in Carmel in the last 3 months. They ranged in price from a low of $575,000 for the house on the corner of Highway 1 and Ocean Avenue to a high of $5,433,863 for a 3,100 square foot home on San Antonio Blvd and 8th Avenue. (Carmel Home Sales in the last 3 months) There are 20 Carmel properties currently in escrow. (Carmel Pending Home Sales)

Tracking Sales and Comparables

The easiest way to track comparables and properties of interest, is to use the Private Client MLS System to identify favorite properties. Once identified, the system will track and report on price changes, status changes, and the ultimate sale price when the property sells. You can also take a quick look at MLS listings for Carmel.