Slowly but surely Central Menlo is being transformed as builders and buyers compete to purchase the older ranch homes that become available each year. Some sell on the market through the Multiple Listing Service, while others sell off-market, generally with local agents privately bringing the buyers and sellers together. Some of these homes are torn down and replaced with large, new ones that maximize the lot’s development potential. Others are taken down to the studs in a complete remodel.
One of the surprising trends that has emerged recently is the parity in prices paid for lots and for attractive homes. In a recent example, a 10,000 square foot lot on Holly with an old ranch house sold to a builder for $3.2 million just before it was to be put on the market. A month later a beautifully remodeled 2800 square foot contemporary style home on a similar sized lot two blocks away sold for just above this price. A leaseback not reflected in the selling price provided added value but did not significantly change the comparison.
While the builder’s pre-emptive offer may have been above market to secure the lot quickly and without competition, if the current market momentum continues, he will make it up on the sell side with the premium a well-designed new home brings.
Other buyers are also willing to pay a premium for the right size lot, in the right location—one where they can build their dream home, or completely remodel the existing home for the same result. These buyers have financial resources and prefer to buy a teardown that allows them to design their own home, rather than buy a livable home in the same neighborhood that’s not exactly to their taste. Local buyers know that most premiums paid for lots upfront are made up over time, given the long-term appreciation this neighborhood has delivered over the years. Since they plan to stay in the community for the foreseeable future, the need to secure the right lot overrides a premium in the price. As shown in the graph below, notwithstanding the volatility created by the 2008 financial crisis, Central Menlo’s median price on a rolling twelve-month basis is up 79% since 2005.
