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.Ready, Set, Go – The Value of Your Land
According to BAREIS, as January concluded, Sonoma County had exactly 369 non-commercial parcels on the open market – 59 of which were newly listed during the month. Our County saw 38 sites receive accepted offers during the period while another 21 parcels formally traded hands at a median value of $227,000. A broader perspective shows that over the prior two years 1,066 bare lots have transacted at a median value of $259,541 – though this price has been sinking as the market generates resale data points of new homes. That said, this still indicates a strong demand for the most appropriately priced plots, though the increase in interest is overshadowed by the consistent supply of new lots being brought to the market as the chasm between sold and available properties is expected to widen as spring approaches.
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 125 residential lots on the open market as we wrapped up January. New offerings from sellers accounted for 24 of those during this period with buyers promptly capturing 23 new contracts on parcels. Sellers managed to complete just seven sales during the month and, since the fires, have sold a total of 574 parcels – accounting for 54 percent of all non-commercial lot transactions in Sonoma County.
To put this in perspective, Northwest Santa Rosa has sold a total of 169 lots since this time two years ago while the greater Sonoma Valley region has seen only 63 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 will likely 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 shooting up to 273, 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.
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 closely associated with the effective price of the newly built home that rises in its place. 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 $1,000,000 home to rise, a builder or investor would be reluctant to pay more than $150,000 - $200,000 for the lot the home will occupy unless their cost to build is uncharacteristically below market metrics. With the elevated costs of construction, 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.
If you are trying to understand how this impacts your situation, reach out and we will set up a time to discuss this with you while giving you a specific strategy for your goals.