Friday, January 17, 2014

Happy New Year!

I hope you've filled out and returned your Piedmont ballot, if you vote early (and have Feb. 4th's Election Day on your calendar, if you don't).  There's lots of change scheduled for Piedmont this year--various high-level retirements in the city's government, together with leadership turnover at the City Council and the School Board.  But so much of our small town's essence will remain exactly the same.  That's why we all moved here, and why Bay Area buyers continue to highly value our great schools, rapid emergency services, and ''it takes a village'' look and feel. 

Driving around town as I do, I've noticed a lot of home renovation and improvements going on (particularly in that unit block of Highland Avenue!).  We seem to have a bit more free cash, and our increasing home values certainly justify some added investment and preventive maintenance.

In fact, the average price of a Piedmont home increased from $1.457 million ($542/sf) in 2012 to $1.614 million ($620/sf) in 2013, a jump of 10.7%.  We're now a bit above the average home prices at the height of the pre-Great Recession (11/2005 was our ''old'' zenith, at about $600/sf).  If you've been postponing retirement and a sale, now may be your perfect moment!

Like last year, our total number of sales was modest, compared to the mid '00s--only 113 total sales in 2013 compared to about 140 per year back then.  Nevertheless, the velocity of our sales is very brisk.  Both last year and this year, the median days-on-market for a sale was 13 days--two weekends of open houses.  Sales prices averaged about 9.1% over the original asking price, and about a quarter of all sales closed at 20% or more above the asking price.  Prices ranged between $4.9 million at the high end, and $635,000 at the low end.

This quarter's activity was quite strong, and open house traffic this month--a proxy for serious buyers--appears very strong based on feedback at our staff meetings.  While only 20 home sales closed, the average price for those was $1.68 million (9.3% over the asking price), and $634/sf.  The average days on market lengthened a bit, most likely because of the holidays sprinkled through the quarter.  [3Q13 was softer, perhaps because interest rates drifted up in anticipation of the end of QE2:  the average sales price then was $1.486 million ($591/sf).] 

Turning to Oakland and Berkeley, both markets also saw about 6% fewer sales in 2013 compared to 2012.  But both markets saw remarkable rebounds in prices over 2012--the average Berkeley price rose 28% to $840,870 in 2013 from just 656,860 in 2012 (and final prices were 12% over the asking on average).  And correspondingly, the average Oakland price rose 34.5% to $491,400 in 2013 from $365,640 in 2012 (and final prices were 7.5% over asking). 

This is a far cry from the prices we saw when way too many sellers were distressed and forced to sell into a dysfunctional market, and the vast majority of sales prices were at a discount compared to the asking price.  Those markets were twisted out of shape to a much greater degree than was the Piedmont market, and they have reverted back into shape.

Imagine two sloped lines that cross in the middle, representing asking prices and sales prices.  We shift from a buyer's market to a seller's market as that at-first lower sales price line rises and then crosses the asking price line.

If we look only at Oakland homes that share the three zip codes with Piedmont, the picture is more attractive and stable: The total number of home sales actually increased a tad, and sales prices rose 15.5% between '12-'13, from $782,200 to $903,500 (8.2% over asking). 

I've been feeling like the mid-priced Piedmont home is selling at an even greater premium compared to a similar Oakland home, and the data support this.  Comparing only 3 bedroom/2 bath single-family homes in those Oakland zips to 3/2 homes in Piedmont, the Piedmont premium has risen to $500,000 (from about $250,000 about 8 years ago and $350,000 a couple of years ago).  This might be in reaction to Oakland's recent crime issues and continuing concerns about its public schools (though API scores of nearby schools, including Peralta in Temescal, continue to be very strong), but interest rates also appear to be a driver.

I have a factsheet I provide to my buyer clients that looks at this incremental house price paid for Piedmont (including its schools) compared to the cost of buying in Oakland and paying private school tuition (since that's the frame through which many buyers look that their choices).  The data are quite clear:  Buyers essentially leverage their static resources (savings and paycheck) with today's low interest rates, and bid the Piedmont house price up. 

We might expect this differential between Piedmont and Oakland prices to narrow--that is, the amount a Piedmont seller could bank when relocating to Oakland would drop--once interest rates start to rise. 
That's a good reason to consider selling now rather than in a high interest-rate environment--give me a call if you're considering a sale in 2014.  I'd love to compete for your business!

Planning a Makeover--Or Renovation?  Read This!

We normal people only remodel, or redecorate every decade--or two!  How would we know how do to it right, or to protect against cost overruns?  Measure twice, cut once.  But what else?  Browsing recently, I came across this nice list of things to consider when planning a serious re-decoration effort.  Years ago, a local contracting firm, Winan's Construction, developed a great roadmap to planning and managing your renovation project effectively.  Don't want cost overruns?  Don't change your mind (my point, not theirs....).  Read my copy of their package.

Don't forget, I'm happy to review your draft plans for thoughts and insights on re-sale angles--did so just this month for a remodeling buyer and for a local high-end renovation firm that used me to purchase their Piedmont fixer.  With one whole-house and one half-house renovation under my belt, it's easy.

Private Sale Anyone?  Not!

Those sales above summarize above comprise those reported by our local MLS; we are seeing a few more off-market sales these days, as ''private'' MLSs and some for-sale-by-seller situations seem to be the rage among unsophisticated sellers.  A story on the topic in the New York Times in the spring spent a lot of time interviewing a Manhattan seller who had done all the marketing, property prep work and (many) open houses himself.  He was very positive about the experience, yet he hadn't actually sold his home.  And when you're selling what is likely to be your largest asset, let's be clear:  Selling the house and getting the check is what it's all about. 

Most sellers want the highest price with best terms they can secure--for instance a typical term would be agreement that the sellers can stay in their home for a couple of months after close so they can find and close on a new home themselves.  The best way to accomplish this is by prepping the home until it shines, getting into the DNA of the home to make sure buyers understand the value there, and then showing it to as many serious buyers as possible.  It's basic economics:  Our supply of available homes is constrained now, and you want to maximize demand to generate the highest price.  Private sales violate all of these tenets. 

(And they also open brokerage firms to seller lawsuits.  In fact, the Ca. Assoc. of Realtors responded to the recent spike in ''oh, now I understand'' litigation on this point by adding several paragraphs to our listing contract to ensure that sellers are crystal-clear about the many downsides of private sales.) 
Sure, there are unique situations where a quiet and private sale will best meet a seller's preference for privacy or other priorities--essentially, the seller is willing to pay for privacy, and does so by accepting a lower-than-market price. 

Speaking of selling, this past year was a very good one for me.  I managed about $15 million in sales for my seller and buyer clients--about 80% of my work last year was for sellers, and about two-thirds of my work was in Piedmont.  My Piedmont buyers purchased at prices lower than the average premium over the asking price, and my sellers sold at prices substantially higher than the average premium over the asking price.  That track record reflects strong strategy and negotiation skills, and a calm, pragmatic and creative approach to dealing with colleagues in the local real estate community.   And remember, there are many!  Last year's 230 real estate ''sides'' in town involved 230 different buyers and sellers, dozens of different real estate firms, and probably 140 different real estate agents (some of whom are dabblers rather than active professionals).

We also sold our Pala Avenue home (we rented it for a while after we bought the Pacific Avenue home), and plowed that cash--minus the $500,000 we pocketed under the capital gains tax exclusion--into a couple of new investment properties.  The strategy took some time, involved renting the house, and required that we were willing to put those resources (beyond the $500k) into rental property rather than index funds, but resulted in deferring about $275,000 in capital gains taxes that would have otherwise been due.  Let me know if you want a factsheet on this strategy.

Worried about Water?

My spouse lived in Marin during the great drought of the '70s--he was telling the boys over their college break about a large temporary water pipe that took up one lane of Rt. 101 through Mill Valley back then.  On the East Coast, those news reports marked the first time I'd ever thought of a water shortage. 

These days, we're reminded of the lack of water every time we drive out to the Inverness house--the Nicasio Reservoir is so low that not only can you see the railing of the old road and bridge that were inundated--that bridge is now fully visible and about 100 yards from the current shoreline. 
Across the state, we're so water-wise these days that the water companies are feeling the pinch.  Water consumption is down due to all the low-flow toilets, washers, dishwashers, and shower heads we've installed, so water utilities have been having trouble covering their fixed costs.  But even all that work won't solve the problem if the drought continues.

See this factsheet for ideas on how to save money and water at your home, consider this discounted book to help you change out your water-hungry plants for plants appropriate for our Mediterranean climate, and consider installing a graywater system to divert laundry and/or shower water to your watering system.  Craig at the City says it requires a permit, and there are already two or three in town.  A drought regime can't order you to turn that off!  I'm scoping it out and will keep you updated.

Who Cares about the Change of Housing Characteristics Form?  You Maybe Should....

About three to four times a year, I put together estimates of value for recently widowed Piedmonters (no charge--why would I ever charge?).  Last month, we realized that the house in question was bigger than the tax record suggested.  The city and county knew the house had an original family room, fourth bedroom and third bath on the lower level, but didn't reflect any of that square footage in the tax record.

Why should you care?  Post-crisis (I can't believe I'm using that word about the American economy...), new appraisal rules say that appraisers can count the space reflected in a public record--usually the tax record.  So if your 4 BR/3 BA home is listed by the county as a 3/2, your appraiser is telling your buyer and buyer's lender it's worth a 3/2 price, not a 4/3 price. 

Some web-savvy buyers might not make offers because ''that seller's lying!  it's a 3/2 not a 4/3!''  (Remember, all buyers are web-savvy today.....'').  If there's an appraisal contingency, the buyer might use it to negotiate down the price. 

Some agents don't ''get'' this, or say ''not my problem.''  But it's easy to fix and I do it for my clients all the time. 

Check to see how the county describes your home.  If it looks right, you're done.  If space or bedrooms are missing, that's missing value!  Track down your permits or plans to demonstrate the space or bedrooms/baths are legal.  Find an old re-fi appraisal and grab the floorplan and square footage analysis that's in all appraisals. 

Write a succinct cover memo explaining the problem and your backup:  ''The tax record says x, but see the attached docs that confirm y, and the appraisal that says the correct square footage is z.''  Attach a filled-out Change of Housing Characteristics form at the assessor's website, and then call the office about a week after you mail the package to confirm they have what they need.  Eventually, they'll send you an updated characteristics document, and eventually Zillow and Trulia will start reporting the updated information.  And then, whenever you decide to sell, you'll get full value for your home!

If all this is just too much, give me a call and we can do it together.  If your added bath really is illegal?  Now that's a different question, but there are ways to work through that too---

Skirt Those Spare the Air Days

Speaking of drought repercussions, all those spare-the-air days lead us to be thankful that we installed gas fireplace inserts in our living and dining rooms shortly after we moved into the Pacific Avenue house.  They look ''real'' compared to those old gas stoves that didn't quite fit into fireplace openings, and even though I was a longtime Girl Scout and can start a fire multiple ways in under five minutes, I love the zapper. (Update:  today I came across a $600 off coupon good through 2/24 for a Regency fireplace--)

O'Kell's in San Francisco, Shamrock in San Rafael, and Berkeley Heat (they also sell hot tubs as Tubmakers) on Ashby all can help you out.

Maybe the Last Squib on Solar

All this sunshine means our solar panels are generating way more energy than expected.  I hear through a client that Solar City is beginning to offer an energy storage arrangement that offers a few days of electricity during a power outage or natural disaster, and can provide electricity adequate for basic needs indefinitely if you have solar panels installed. 

Solar City  also sparked breakfast table conversation yesterday after they announced that they will be offering financing opportunities to individual investors who want to support solar (they currently source their lease financing through major lenders).  Full disclosure:  We're happy with our Sungevity system.

Well, Maybe One More Solar Story:

Lawrence Berkeley Lab asks the question, but then ignores a key element!  See this story in a December Chron story for details--

According to LBL, solar generates about $6,000 in added value at sale per kilowatt of production capacity (most houses generate between 2 and 5 kW they say; we generate 2.6 kW).  Of course you might generate that capacity on the roof of a $400,000 home, or on the roof of a $4 million home.  But the analysis ignores the ongoing savings resulting from the installation itself--in our case a promised $115/mo in electric bill savings, which has turned out to be about $300/mo in practice [perhaps due to more drought/more sun this year compared to most].

My biz school background says you need to reflect the installation charge, capitalize the value of those monthly utility savings, and add them to the net present value of the incrementally higher sale price in the future.

It drives me nuts that so many analysts of, for instance, double-paned windows, look only at utility bill savings, but ignore incremental sales price premiums, while others look at the sales price premium and ignore the utility savings.  The former tend to be environmentalists and the latter tend to be contractors.

Start talking to each other guys!

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