The above graph shows a very startling number which should make every buyer of Sonoma County "Bare" sit up and take notice. This graph show the MSI or Month's Supply of Inventory of land currently available. When we talk about MSI we need to put it into context. Most all real estate experts page MSI into three categories: Seller, Normal, and Buyer Markets. A “Seller’s” market would be an MSI of under 4 months. Here in Sonoma County are “residential” home MSI is 1.8. So this is a big time Seller’s market.
However, the $1million+ price point now has an MSI of 5.2 months’ supply. This is down 20% over last year. So a “normal” market but leaning to a “Buyer’s Market” A “Buyer’s” market is in excess of 6 months’ supply.
Our “Land” listings MSI is over 17 months. Wow! This is a super “Buyer’s” market. In October we had only 11 Sales of land in the entire county of Sonoma, a population of 500,000. So WHY is Land taking so long to sell? Historically in our market land is the last segment of the real estate industry to recover. But you can see it is taking a long time to get back on the track of recovery. The recent passage of proposition 64, legalization of Marijuana, here in California may bode well for a speedy recover as many entrepreneurs are in this market ready to set up the next, big “weed” farm.
But what also stops the developing of homes on land is the ability to secure funding and a “construction loan”. The procedure can be costly and tie up hundreds of thousands of dollars. Our median price Land lot is $250,000. You will be hard pressed to find land financing so a 30-50% down payment is required with owner’s carrying a short-term note secured by a deed of trust on the subject property. The trouble is most owners want to be cashed out. So it is a Realtor’s job to convince the owner that the best way to “cash” is by being the bank for a few years. Rates of 5-7% are not uncommon so it is not a bad deal for the Seller. These are usually “interest only” loans either repayable monthly or in a large balloon at the note’s due date (always consult with your attorney for the pitfalls of owner financing)
But before your down payment is due expect to pay thousands on “due-diligence”. Determining ground water availability or intrusion, septic system or sewer hook-up fees and tests are be very expensive. Also, you may wish to get a “phase 1” toxic report or pay for a report to determine if the property is in an environmentally sensitive area (tiger salamander and vernal pools to name two) and how much will this may cost to mitigate. For many this is too time consuming and just too darn expensive.
What this also means is there is opportunity for the shrewd investor or homeowner who can get through the permit process and come out the other end with a custom home on acreage to full-fill their dreams. The road there is fraught with danger. The savvy Realtor with great resources is an invaluable tool in the acquisition of land.