If you do not already know this, the secret to selling is to objectively evaluate what you have relative to other sold offering’s then price yours competitively, or not, and wait with hope - though you will realize the longer you wait the more of a discount your asset will likely trade relative to the open marketplace.
According to BAREIS, as October concluded, Sonoma County had exactly 353 non-commercial parcels on the open market – 54 of which were newly listed just this month. Our County saw 56 sites receive accepted offers during the period while another 52 parcels formally traded hands at a median value of $333,000. A broader perspective shows that, since the Tubbs and Nuns wildfires transpired three years ago, 1,555 bare lots have transacted at a median value of $260,000. This is indicative of a highly liquid marketplace with strong demand for the most appropriately priced plots, though the increase in interest is overshadowed by the number of vacant lots being held onto by owners who lost their homes in those and the subsequent Kincade and Glass fire events.
Specifically, within Sonoma County, Santa Rosa’s Northeast quadrant has been the primary catalyst for the increased activity levels. The Tubbs fire has reshaped the landscape and the marketplace as we know it. The region was showcasing 111 residential lots on the open market as we wrapped up October. New offerings from sellers accounted for 17 of those during this period with buyers dipping their toes in the water to capture 13 sites in new contracts. Sellers managed to complete 10 sales during the month at a median value of $257,000 and, over the last three years, have sold a total of 740 parcels – accounting for 48 percent of all non-commercial lot transactions in Sonoma County.
To put this in perspective, Northwest Santa Rosa has sold a total of 197 lots since October of 2017 while the greater Sonoma Valley region has seen 101 transactions. Sellers of lots should be readying them for market by making final clearings of dead or diseased vegetation, if not for the determination of holding their sites for years to come while trying to allow the natural beauty to return, to at least abide by county ordinances that require such abatement in order to limit further fire dangers to the surrounding areas - by the way, this is required every year to be completed by July whether you have a home on your site or not, and if not completed, you may receive a letter notifying you of this responsibility and warning that if you don’t then it may get done for you at a rather exorbitant cost by our local government for which you will receive a bill or lien on your property.
In a market as liquid as we are encountering, especially with the average number of days to sell a parcel hovering at 144, the only thing keeping the dirt from transacting is the price being asked by the seller. This is a common theme in basic economics – a seller sets a price, but a buyer establishes the market value. These recent data points show, for every 30 days a lot languishes on the open market during a 6-month period, that transactions have been occurring at a value of five percent less than the original price in each successive monthly clip – which means an average of a 30 percent discount to the original offering price over that period of time.
Along with this, as more parcels make their way to market, another metric comes into play – the elasticity of demand. This is the measure of the change in the quantity demanded or purchased in a product – vacant land in this case - in relation to its price, or required adjustment of such, so that it finds a willing and capable buyer.
Each month adds to the charted progress within our markets as we anticipate values on lots to be more strongly associated with the effective price of the newly built homes that surround it. A rule of thumb typically used by investors is that not more than 15-20 percent of the value of the total combined asset can be assigned to the underlying cost of the dirt. Thus, for a new $2,500,000 home to come to market, a builder or investor would be reluctant to pay more than $375,000 - $500,000 for the lot the home will occupy unless their cost to build is uncharacteristically below market metrics which would typically relate mostly to the ease of building on a specific site and the cost of labor. With the elevated costs of construction high, and further increases in costs for associated raw materials, these market forces are diminishing the value of a vacant lot – moving forward, expect lot prices for most sites to continue to fall in line with market requirements before being transacted on.
Having helped clients sell or purchase over 50 lots since the wildfires, it has become clear as to where fair values stands for each based upon a sites unique characteristics, any detriments of note and the current tempo of the marketplace. Let us show you the way to unlock the value of what you seek or already hold.
