Land is a Key Basis for Wealth
The size, locality, characteristics and demand of such drives the value through time. Locally, we will continue to see the picture unfold as more residents find their way through the settlement process with PG & E’s Fire Victims Trust.
According to BAREIS, having just closed the books on November, Sonoma County had exactly 267 non-commercial parcels on the open market – 16 of which were newly listed this month. Our County saw 16 sites receive accepted offers during the period while another 13 lots formally traded hands at an average value of $599,000. Dating back to that fateful October of 2017 - having endured the Tubbs, Nunn’s, Kincade, Wallbridge and Glass wildfires - buyers have purchased 2,387 parcels at an average value of $438,830. This is indicative of slowing interest from buyer’s within the marketplace after coming through a multi-year period of strong demand for appropriately priced plots.
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. This submarket was showcasing 68 residential lots on the open market as we wrapped up November. New offerings from sellers accounted for three of those during this period with buyers dipping their toes in the water to capture four sites in new contracts. Sellers were locked out of managing to complete any sales during the month, though since October 2017 have sold a total of 1006 parcels – accounting for 42 percent of all non-commercial lot transactions in Sonoma County.
To put this in perspective, Northwest Santa Rosa has sold a total of 232 lots since October of 2017 for an average price of $283,988 while the greater Sonoma Valley region has seen 174 transactions at an average value of $840,213 and Healdsburg sellers consummated 145 transactions with an average price of $976,498.
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.
As markets progress from hyper-liquid to a more balanced playing field, especially with the average number of days to sell a parcel now hovering at 187, the only thing keeping the dirt from transacting is the price a seller is asking. This is a common theme in basic economics – a seller sets a price, but a buyer establishes the market value. The most recent data shows for every 30 days a parcel languishes on the open market during a 5-month period that transactions have been occurring at a value of four percent less than the original price in each successive monthly clip – which means an average of a 25 percent discount to the original offering price over a 187-day period.
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 dirt 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 $2,000,000 home to come to market, a builder or investor would be reluctant to pay more than $300,000 - $400,000 for the lot the home will occupy.
Having helped clients sell or purchase 91 parcels since the wildfires, it has become clear as to where fair values stands for each based upon a site’s unique characteristics, any detriments of note and the current tempo of the marketplace. At present, while also being typical for this time of year, we are experiencing languishing demand from both developers and consumers in purchasing just the right property - get in touch now to form the strategy for your success.
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