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.

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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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.

• 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

A year ago California accounted for 96% of the top zip codes, this year…less than 50%. Of the California zip codes still on the 500 most expensive zip codes, 83% had median prices that stayed the same or declined.

Pebble Beach

Pebble Beach experienced an 8% decline in median price from the previous year with a ranking of 42 on the most expensive zip codes list. While this number gives a general idea of the health of the Pebble Beach market digging a bit deeper offers more insights.

First, Pebble Beach is a relatively small market, with properties of drastically different size, location (views and proximity to golf courses etc,) and list prices, that the addition or removal of a couple of homes can skew statistics dramatically. Nevertheless, one can see the trends. The graph below compares the last 12 months with the previous 12 months.

Even more dramatic than the recent trends in pricing is the continuing increase in average days on the market for Pebble Beach homes.

If you break down the average days on market, not surprisingly, you see that the higher end homes are taking the longest to sell. The average days on market for the most expensive quartile (the top 25% of homes by price) is just under 300 days. The lowest quartile of Pebble Beach homes (the least expensive) is averaging 220 days on the market.

Percent with a Price Decrease

Pebble Beach, and markets like it, tend to have more sellers that are able to withdraw from the market and “wait for a better day” or hold more firmly to a list price than other markets where seller’s are running out of resources to hold on.  The graph below shows the percentage of homes on the market, at each point in time, that have experienced a price reduction from their initial list price. It is interesting to note that the lowest percentage of price reductions is among the highest priced homes.

Forbes observed in the article,

“Potential buyers increasingly fall into one of two categories: Those who have seen their net worths damaged by the financial crisis and those who realize they could probably get a better deal in a year’s time.”

I concur with their opinion. I also believe, as do they, that the lack of liquidity in the credit market for the high value mortgages that are often needed to buy these homes has had a huge impact. I have clients that are supremely qualified that have gone through loan processes that required hours of document collection and multiple appriasals and reviews. It is clear that lenders would much prefer to make 5 smaller loans than 1 large one.

We need credit to flow again to bridge the gap between ready and willing buyers and sellers.

The AT&T golf tournament and other events such as the Concours d’Elegance in August are very important because they bring people to town and remind those who watch the events on TV or read about them in the media that the Monterey Peninsula is a special place.

While a few homes will go into escrow during this weekend, the reality is that most attendees who are here for the tournament are far more interested in the golf, restaurants, and other activities than they are in looking at homes for sale. What happens most often is visitors for an event such as the Pro-am have a great few days here and decide to visit again in a few weeks or months on a follow up visit. It is on their return trip that they are more likely to learn a bit more about the different communities and explore the possibility of buying a home here.

This year the tournament fell on the same weekend as Valentine’s Day which is unfortunate for local commerce and for real estate as well. A Valentine’s weekend that doesn’t have any other major event will bring folks to town who are interested in walking on the beach, a romantic dinner, and exploring Carmel’s art galleries, Pacific Grove’s coastline, playing golf at Pebble Beach, and…..visiting a few open houses.

With any luck, next year we can all take long romantic walks through town-without rain-on Valentine’s Day, and enjoy the AT&T tournament on an equally sunny but different weekend.

There are currently 5 Pebble Beach properties in escrow ranging in list price from $1,745,000 to a vacant lot listed for $300,000. (Current Pebble Beach Pending Sales) There have been 13 closed sales in Pebble Beach since October 1, 2008, ranging in sale price from $3,150,000 to $675,000 (Pebble Beach Sales since 10/1/2008).

As with other Peninsula markets, Pebble Beach remains firmly at the “buyer’s” end of the spectrum with 207 average days on market.

While Pebble Beach is certainly healthier than many other high end markets, a telling statistic is the percent of listed properties that have seen a price decrease, discussed below.

Pebble Beach Market Action Index

The market remains firmly at the “Buyer’s end” of the Market Action Index (MAI). An MAI above 30 typically indicates a Seller’s market with prices tending to rise. An MAI below 30 implies a buyer’s market with a great deal of inventory, increased days on the market and weakening prices. 

Pebble Beach Median Price

Pebble Beach has a range of housing stock (the lowest priced listing at the moment is a lot at $470,000  while the highest is a front line estate at $35,000,000). This fact makes Median price of limited value. One high end listing coming on, or going off, the market skews the numbers. 

By breaking the market into quartiles the data is a little more enlightening.

Most of the large fluctuations in list price occur in the upper quartile. However, if you look only at the bottom half (quartile three and four) you see that the lowest priced homes have trended downward since 2007.

As properties come and go the characteristics of these four quartiles changes. Each quartile represents 25% of the market, so Quartile 1 and 2 combined is the upper half, while Quartile 3 and 4 is the lower half.

Tracking Pebble Beach Properties

The easiest way to track properties of interest is to use the Private Client MLS tool which lets you select properties of interest and track them through the sales cycle, including their final sales price.  You can take a Quick Look at Pebble Beach listings on the MLS.

Insights

Buyers remain mostly on the sidelines. While many are concerned that the market may continue to settle, others are willing buyers  but unable to secure credit. There has been a decided uptick in showings and interest since the first of January.

There is a sense in our markets that we will settle into the bottom of the value curve over the next few months and then remain relatively flat for some time.

Buyers who find the home that fits their needs should act, and present a well supported clean offer. 
Sellers must do everything they can to make their home the “exceptional deal” for an “exceptional home.” Proper pricing, home staging, quality photography, and a strong internet presence are all imperative.

The folks over at golfvacationinsider.com  recently posted an insider tip that Pebble Beach is offering play at Spyglass Hill and the Links at Spanish Bay at a 50% discount and the Pebble Beach course at 30% without having to be a guest at a Pebble Beach hotel.

The discount is offered to members of the Northern California Golf Association (NCGA membership costs $25 a year) and residents of Northern California. Members of recognized golf associations elsewhere in the country can join the NCGA. Info at ncga.org.

Many of us, including my 9 year old and 6 year old, are members of the NCGA. Keep in mind that members can play Poppy Hills for between $55-70 versus the regular $200. In fact, the NCGA offices are at Poppy Hills.

According to golfvacationinsider.com the discounts are as follows:

Most importantly you don’t have to stay at the lodge to secure these rates and a reservation. There are blackout dates on January 16,17, and 18th.

The special only runs to the end of January. Pebble Beach reservations number is 800-654-9300.

I can’t vouch for how many spots are left over the coming weeks, but the weather is beautiful at the moment…

After your round of golf, give me a call and we can take a look at a few of the discounts on homes for sale in Carmel and Pebble Beach.

The story at golf Vacation Insider.

Carmel Valley

Carmel Valley saw only two homes go into escrow. Then again, in November of 2007 there were only three home sales in Carmel Valley in November. The difference?

This year list the list price of Carmel Valley properties were $699,000 and $550,000. Last year: $2,850,000, $1,650,000 and $1,475,000.

The orange line represents Median Price 1 Year ago, the black line this year. The plateau we saw from May through mid September of this year has faultered in the last few weeks.

Carmel

Three homes went into escrow in Carmel in November. $599,000, 799,000, and $1,995,000. In November of 2007 nine properties went into escrow ranging in price from $1,190,000 to $8,999,999.

In the case of Carmel, list price was climbing a bit over the last couple of months. However, in November prices began trending downward at the same price levels as this time last year.

Pebble Beach

Six properties went into escrow in November of 2008 compared with 4 in the same month last year.

This years sales had list prices ranging from from 1.1 million to 3.775 million. Three of the six sales were listed above 3 million.

Two of the November 2007 sales were listed at just above 1 million and two where between 3.5 and 4 million.

As with all our markets, the listing or sale of a high priced home can “pull” the data one directon or another. This is especially true in Pebble Beach.