HJ, here's what Incyte is doing for my backyard in Palo Alto:
vicious
cycle
As home costs soar, so
do prices for lots
BY SUE MCALLISTER
Mercury News Staff Writer
Three years ago, Annette Sanchez planned to sell 20
acres of her family's San Jose apricot orchard at
$275,000 an acre. But when the family began to get
much higher offers, its members decided to wait and
see how much hotter the land market would get.
Today, as the family prepares to put the same land on
the market again, it expects to receive the new going
rate for prime residential property: about $1 million
an acre. The increase could add more than $170,000
to the price of each home that will someday be built
there.
The swelling value of this Evergreen orchard --
along with a bitter lawsuit over control of the land --
illustrates the vicious cycle in today's tight real
estate market.
As home prices rise, so does the value of land. But
then builders pass along the increased land prices by
raising home prices. Of course, this drives up the
value of land even more.
Thus, the price of residential land has multiplied
two, three or four times in the past five years, far
outstripping increases in labor and materials costs in
building new homes.
``The land cost is bringing the value of the houses in
Silicon Valley just up to astronomical numbers,' said
Mike Evans, a managing partner with Ernst & Young
Kenneth Leventhal, which provides consulting
services to the real estate industry.
Now, Silicon Valley land that has the necessary
permits for residential construction sells for an
average of $1.5 million to $1.7 million an acre,
Evans said. Five years ago the average was just
under $450,000 an acre, he said.
``Land costs are the No. 1 challenge facing the
residential development community today, without
question,' said Mike Forsum, former president of
Ryland Homes' Northern California division, who a
few weeks ago moved to head up the company's San
Diego branch. ``Finding a consistent, reliable source
of land to bring to our land pipeline is very
difficult.'
Rising across region
Just how much are land prices increasing? Builders
and consultants alike point out that it is difficult to
give the true ``average' price for land, since so many
factors contribute to land's value: its topography,
existing infrastructure or lack of it, proximity to
environmental hazards.
But here are some examples of vacant residential
lots that have increased in price when they were
resold before development, according to Old
Republic Title Co. of San Jose.
In San Jose, a piece of land on Williams Road that
is just seven-tenths of an acre sold in March 1994 for
$650,000, then 2 1/2 years later sold for $905,000. It
changed hands again last December for $2.1 million,
a 223 percent increase in five years.
In Palo Alto, one property shot up by 172 percent
in just five months. This two-tenths acre plot on El
Camino Real sold in March 1999 for $250,000, and
again in August for $680,000.
In Milpitas, four-tenths of an acre on St. Andrews
Court sold in January 1996 for $185,000, and again
in November 1999 for $415,000, a 124 percent
increase.
In Mountain View, on Macon Avenue, 1.1 acres
surged by 287 percent in a little more than three
years. In August 1996 the sale price was $323,000.
In September 1999 it was $1,250,000.
Such increases in the price of land are what caused
Annette Sanchez and her brother, John Sorci, to hold
off selling the Sorci family land in 1997 to Santa
Clara-based Citation Homes.
Disputed land
Late that year, Citation Homes sued Sanchez and
Sorci over who would control the land, which had
been in the family since their father, Italian
immigrant Joseph Sorci, began farming apricots three
decades ago. It is now owned in a Sorci family trust.
Representatives for Citation Homes did not return
phone calls seeking their comments, but Citation
claimed in documents filed in Santa Clara County
Superior Court that Sanchez had led them to believe
that she had sole authority to sell the land. A letter
she had signed was, in effect, a binding contract
obligating her and her brother to sell the land to them
for $275,000 an acre, the builder claimed.
But the Sorci siblings felt that because they did not
sign the formal contract that was sent to them later,
they should not be held to the tentative agreement
with Citation.
In November 1999, after a one-week trial, Santa
Clara County Superior Court Judge Conrad L.
Rushing agreed with the Sorci family.
Sanchez and her brother were traveling and were not
available for comment on the lawsuit or their plans.
However, their attorney, Ron Rossi, said they expect
to sell it this year to a home builder for as much as
$1 million an acre. New homes are already being
built on most of the land surrounding their property.
When they do sell, the new cost of land will have a
huge impact on the price of homes.
$700,000 homes
If a developer built the maximum of 82 homes on the
family's 20 acres, and had purchased the land three
years ago at its original price of $275,000 an acre,
the land would contribute about $67,000 to the price
of each home. At $1 million an acre, that figure
climbs to $244,000 per home, or an extra $177,000
more for each home.
Builders estimate that homes on the Sorci land could
cost as much as $700,000 to $800,000 each.
Land price increases like these have sometimes
prompted builders to change how they use land once
they have it. Because land is so expensive, builders
try to increase their profits by building more homes
per acre than they might if land were cheap and
plentiful. Ryland Homes, for example, which will
build about 400 homes in Silicon Valley this year,
uses ``cluster courtyard' designs, in which homes
share a common, horseshoe-shaped driveway and
are on small lots.
The way builders buy land has also changed. Just the
way many home buyers in Silicon Valley are
competing with other buyers in ``multiple offer'
situations, builders also must vie with each other for
a diminishing number of parcels. Greenbriar Homes
Communities of San Jose recently beat out about 20
other builders to buy a five-acre Willow Glen site
formerly owned by Safeway, said Greenbriar vice
president Patrick Costanzo. The company will build
34 homes on the site.
``In the early 90s, if you were actively pursuing a
property, you were maybe competing against three or
four builders,' Costanzo said. ``In today's
environment, you may be competing with 15 to 20.' |
