Wine Country And Horses

Pricing residential country property is very challenging-there are so many variables to consider beyond beds and baths, square footage and age, location and condition. The size and condition of the septic system, the condition of the well and its capacity and water quality, zoning, expansion possibilities and more. (If you would have told me back at Swarthmore that I would become reasonably expert in any of these issues –especially septic–I would have doubted your sanity. Since a good 70 percent of the properties in Sonoma County are on well and septic, one of the most valuable services I can offer my clients is my ability to work with them, along with a team of experts  to carefully ensure that a property will be suitable for their needs, now and the foreseeable future. There are many great resources and people available to assist in the process, and an agent knowledgeable in country property can streamline the search and buying process for their clients, and help them to avoid pitfalls.

But the true wildcard in valuation of country property is the setting. An exceptionally private, serene setting with pastoral or dramatic views, in a tranquil location of (name your pick) wild hills and orchards, vineyards, horse farms, quaint farmhouses, redwoods or oak-studded hills, or various combinations of these, have a perceived value to the buyer that is very difficult to value.  It seems that many out of town buyers coming to a wonderful destination such as the wine country of Northern California, all want the proto-typical vintage farmhouse with wrap-around porch in a scenic setting.  They dont’t want to see or hear neighbors close by, and they’d probably like to see (or own) a vineyard or two.

 Is the setting wild card factor worth $20,000 per acre, or more? Will a property be so gorgeous or secluded that someone will “overpay” by six figures?  Is it really over-paying if a willing buyer puts the money on the table?

A client and I  viewed a property priced at $1.1 million the other day that perfectly met my buyers’ needs for a weekend home in Sonoma county. By all rights, and based upon extensive touring, the property, in my opinion and the opinion of many agents I know, should have been priced under $1m, possibly closer to $950Kor $925K, even if in perfect condition. However, it was exactly a kind of property that would be a perfect weekend retreat for someone from the city, with privacy and views on a less than 2 acre parcel that would be difficult to match. The property was in apparently poor condition with an older septic system, unknown pest issues and in a low water area.   I told my client that even though the property was extremely overpriced, someone could come in from SF or the peninsula with an out of town agent and pay the premium, since, as one friend said, you can hardly buy an outhouse in Palo Alto  or SF for a million dollars, so what is the big deal if it meets the intangible need for peace and quiet on Sunday morning.

This is every sellers’ secret fantasy:  that Brad and Angelina (or a Google couple flush with exercised stock options) will fly in on their jet and fall so in love with their property that they will throw caution to the winds and over bid.  Sadly, that almost NEVER happens, and the property sits.  I guess every once in a while the exception proves the rule, though. Back to the country retreat I mentioned above.  This summer I have seen almost everything that meets that description in Sonoma County, and sold several country properties to buyers from the Bay Area and elsewhere, some for weekend homes and some for folks who moved up full time from San Franciscio, Belmont and the East Bay.   As we were preparing to write an (perhaps insultingly low) offer on the aforementioned shangri-la, the listing agents informed me that his sellers had accepted a one million plus offer from the SF buyer and his SF agent, and they were “going to take the money and run”.    The property is still in its contingent period, and the price may be negotiated down further once all the inspections are complete, but I learned a lesson–you can never truly put a number the intangible value that a fabulous setting brings to a country property.

Have you ever visited the US Army San Francisco Bay Model? It is really great to see when the model is running and you can view the really complex tidal patterns that circulate through San Francisco Bay–I had the chance once when I attended a sailboat racing lecture there–tides being really critical to your success racing on SF Bay. With Homescopes, I hope that we can use our informal network of agents on the ground, to help us as a region get a feel for the ebbs and flows of our inter-related Northern California marketplaces.

Many of us in the real estate market in the North Bay are fairly convinced that our market in Sonoma and Napa is very influenced by the strengths and variations of the Bay Area real estate market whether in terms of general trends (Hot, Cold or Indifferent) as well as localized effects such as the tides of Palo Alto and the Peninsula, San Francisco and the East Bay Insterstate 80 corridor. I spoke to my friend Izetta Feeny yesterday, a long time Coldwell Banker agent in Sonoma County and shared with her the 3 Ocean’s Real Estate recent post about rapid median price apprection in Palo Alto and other selected markets in the Bay Area.

“Oh! That’s good,” she said, “That means we’ll see the effect up here in 8 months.” As if the rising tide of the heart of the Bay Area’s market would eventually ripple north to Sonoma and Napa counties and lift our boat. When our boat is eventually lifted by the Bay Area high tide, we attract at least 2 types of buyers from out of town: entry level buyers who can’t afford to live where they work in Marin or San Francisco, and upper-tier buyers with equity in strong, competitive Bay markets that want a lifestyle change and move here full time, or who are looking for a weekend getaway or wine country estate. As the most desireable markets in the Bay Area are strong, then we see a more immediate impact on the markets that will serve the budding country squire (and squire-ess). Virtually all the buyers I have worked with this year fall into this category of new “lifestyle” immigrants to the wine country.

As you view the upper quartile median price points for many of Sonoma County’s cities (well, towns), the cities with the most cachet for out of town buyers: Sebastopol, Healdsburg, Glen Ellen, Kenwood and Sonoma, all have much higher upper quartile price points. Counter-intuitively, there are wide fluctuations in the upper quartile of some of our markets (Kenwood and Glen Ellen, Healdsburg) but that is because upper quartile price ranges are much broader, and with the small sample size of these areas, are subject to wider swings when a large vineyard estate sells for $4 to $6 million or so one month but not the next.

The greater majority of our upper tier markets hover in the $1M to $2M range, with increasing forays into the $2M range.

There are different tidal patterns and forces pulling these buyers to the North Bay. So a typical Palo Alto homeowner who wants to stop and smell the roses (or the grapes) can trade in their little rancher ($2 to $2.4 million) near Hamilton or Emerson and live like the landed gentry up here with 2 to 10 acres of privacy, views or room for horses or farming. Or a stunning retreat property for weekends and holidays. This Sonoma County potential buyer has been pretty immune to the ups and downs of the general market and the subprime lending crisis. They keep the upper and sometimes the 2nd quartile markets steady and strong. Which is why we see well-priced and presented country properties moving quickly (i.e within a month or two) while many many single family tract homes and condominiums in suburban locations in Petaluma, NW Santa Rosa and Windsor are languishing. The lower quartiles are currently more impacted by the uncertainties in the mortgage markets, plus the hordes of amateur investors are back in the stock market and not investing in real estate.

These are the types of homes (typically the bottom one or two quartiles) that will be snatched up by Bay Area renters and workers who will commute to their jobs from the North Bay. Yesterday I showed one of my listings to a young, first time buyer and his agent from San Rafael. He is on the hunt because he perceives value in the lower quartile of our market, and rates are down, affordability is up. So the currents ebb and flow.

These buyers have been staying away but seem to be cautiously returning. The Palo Alto potential country squires never really left. Many of the smartest buyers know that now is a good time to buy, with low rates and lots of choice. The real illusion that some buyers hold is that they can somehow divine the low point of the tide and time their entry into the water. That is even harder to do with real estate than the stock market. Just take a look at the San Francisco Bay model to see how complex these currents can be.

One of my colleagues asked me to accompany him to a home auction at the fairgrounds in San Mateo County last weekend. Now, when I think of auctions I think of the Keeneland Yearling Sales in Kentucky, the Napa or Sonoma Wine Auctions or livestock auctions. The concept of auctioning peoples’ HOMES, I found depressing and sort of difficult to imagine, as if the homes would be paraded around the livestock ring on a lead rope, with numbers stickered on them, and the happy buyers would roll them away in shopping carts. So last Saturday I decided to go, and to help Miguel and Cecilia, his wife, as their agent, and see what the scoop was.

The auction was run by LandAuction.com, a company which primarily has run land sales, but recently has started to move more homes due to the subprime mortgage situation and the amount of homes in default. The process of buying a home in this way is appealing to a lot of people (they think they are getting a deal, and the average time of a home on the block (2 minutes–or 500 homes a weekend) certainly shortens the sales cycle! In Australia, many homes are sold at auction. The process is fraught with risks however, and is about as different as can be from the “standard” California home purchase transaction as it can be, without completely disregarding California laws concerning seller disclosure and buyer investigations in real estate transactions.

In the case of the auction, the buyer generally must

do ALL of their investigation prior to bidding on the property

buy the property as is and with no contingencies

close within 21 days of the auction

Unless you are very familiar with an area, and have thoroughly investigated a property, you could find yourself in the position of losing your earnest money deposit if you change your mind after your “winning” bid and decide not to go through with a purchase. This is the reverse of the sequence and a vastly different process on a “normal” purchase where the buyer is in the driver’s seat during a negotiated contingency period and can cancel a purchase during their timeframes if the property does not pass their inspections or their loan is not approved, for example if the property doesn’t pass muster with either the bank or the appraiser. There is no loan contingency period unless you use the lender affiliated with the auction company, which might not be the most competitive. This did not stop hundreds of people of all ages, races and persuasions to turn out to find a deal. We had to wait five hours for the house we were interested in to come on line, and it sold for $25,000 more than we thought reasonable, so the day, while interesting, did not leave us with a full shopping cart.

By the way, 10 of the 500 homes were from Sonoma County. I don’t think there were any screaming bargains, but a few of the homes might have been 5 per cent below market, with most of the nicer homes coming in pretty close to market.