That place where marijuana & real estate meet

Marijuana is on my mind. In recent weeks Californians voted to make recreational marijuana legal, and I can’t help but consider the impact it might have on real estate. Here are a few things I’ve been mulling over. Anything you’d add?

44200664 - cannabis leaves on old wooden background

1) Land Value: All of a sudden land that is ripe for marijuana growing is looking pretty attractive. I’m not talking about tiny postage stamp lots in subdivisions, but rather larger-sized parcels in outlying areas. The truth is many savvy land buyers have already been making their move on large parcels in surrounding areas to Sacramento, but there are going to be more opportunities out there. I saw one listing recently where an agent said, “Good for ‘income-producing crops'” (code for pot). For further reference, here is an article discussing a “green rush” in Yolo County (people setting up marijuana businesses). 

2) Home Experimentation: I expect to see more owners and renters trying to grow their own weed at home. Some will grow a few plants, but others will aim to start a business to make some money in an economy that still isn’t all that vibrant.

3) Commercial Vacancies & Rents: If California ends up being anything like Denver, which has nearly 4 million square feet of commercial space used for cannabis production, I’m guessing we’ll see more interest in industrial properties and higher rents in certain areas. Goodbye commercial vacancies. Here is an image from The Sacramento Bee to show all the locations where pot can be grown in Sacramento. Image created by Nathaniel Levine.


4) Disclosures: Talking about marijuana in contracts, listings, and appraisals isn’t anything new in real estate, but my sense is if it becomes more common to see pot growing in homes, we’ll need to hone our skills and consider what disclosure needs to look like. By the way, could the smell of a nearby pot farm need to be disclosed? As an appraiser I’m concerned with the condition of the house. There is obviously a huge difference between a massive grow operation with hundreds or thousands of plants and a home owner with a few plants. What I’m going to be looking for is anything that might make an impact on value or a health and safety issue – exposed wiring, over loaded plug-ins, poor ventilation, mold, etc… I’m not there to nark or judge by any stretch, but only figure out the value (and discuss and photograph anything that impacts value).


5) Advertising: I took my family to Portland last week to enjoy Thanksgiving, and it was amazing to see how much advertising there was for pot (because it’s legal there). Everywhere I turned Downtown there was another weed billboard, A-frame sign, or a green cross (the symbol of a dispensary). Please don’t think I’m dissing Portland because I love the city and can’t wait to go back. I’m just saying we might expect to see the same thing in California when it comes to advertising. Can signs impact the feel of a city or neighborhood? Will there be more signs in certain areas than others? Time will tell.

6) Marijuana Branding: I’m waiting for more in the real estate community to go public with their MJ branding. Last month a Sacramento law firm announced its marijuana practice. Ironically one of the partners has the last name Kronick, which is oh so close to Chronic. Anyway, there is still available shelf space for weed branding such as “Marijuana Realtor”, “Cheebah Appraiser”, and “Mary Jane Lender.” I’m kidding. Sort of.

7) Loans on “Grow” Properties: Some lenders don’t want to lend on properties that are being used for marijuana growth (keep in mind this likely doesn’t mean just a few plants). Here is some direction from a certain bank I sometimes work for when it comes to this issue. This unnamed bank sent out a message to its appraisers regarding grow houses:

####### Bank is currently unable to lend on any property with marijuana grow operations. The marijuana industry is state regulated and ####### Bank is federally regulated. Therefore, we are not in a position to lend to borrowers with income from that source nor can we lend on properties with active marijuana grow rooms or facilities. 

If you encounter a property with an active marijuana grow operation, please take at least one descriptive photo, complete your inspection of the property then cease work on the file and immediately contact your ####### Bank Appraisal Coordinator. Please do not attempt to quote ####### Bank lending policy. We will take care of that and you will, of course, be compensated for the time you’ve already invested in the appraisal.

I hope that was interesting or helpful.

Questions: Anything to add? Did I miss something? What impact do you think the legalization of marijuana might have on real estate? If you are located in a state where marijuana has been legal, what advice do you have for Sacramento? I’d love to hear your take.

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Is it okay to compare two detached units with two attached units?

Is it okay to compare two detached units with two attached units? Or in other words, can we compare a traditional attached duplex with 2 detached houses on one lot? I find sometimes the answer is YES, but other times NO. Let’s consider a few ideas together. I’d love to hear your take in the comments below.

attached duplex vs detached duplex - sacramento appraisal blog

Four things to consider about detached vs. attached:

  1. Two  Units: This sounds basic, but let’s remember an attached duplex (sometimes called a “duet” in other parts of the country) is two units, which is the same number of units as two houses on one lot. This naturally helps us lump both types of properties into a similar pile, though we still have to ask a few questions when it comes to value.
  2. Difference in Rent: One of the questions I ask is whether the attached units and detached units are commanding the same rent (assuming the locations are equal). This could be a clue whether there is a value difference or not. If all units are attracting the same rent and the lot cannot be split, we could be looking at properties with a similar value. On the other hand, if the detached units are commanding higher rents, that might be a clue of a value premium. Of course the only way to discover a value difference is to study the market (this is one reason why there is no such thing as a quick “comp check”). As an example, I recall a “fourplex” where there were four detached tiny single family homes on one lot in Sacramento. While the owner’s property was special, the lot could not be split and the rents were exactly the same as other traditional attached fourplexes. Moreover, the property sold previously on the open market and did not command a price premium during its previous sale, which also helped show there was no value premium for being detached.
  3. Lot Split: One of the big issues to consider when making comparisons is whether the lot can be split. If there are two detached homes on one lot, an investor might purchase the property to split the lot and sell the individual properties. I saw this happen recently in Midtown where there were two houses on one lot that were side-by-side on the street. The owner purchased these units a few years ago as a duplex (technically that’s what it is since we are talking about two units), but after the lot was split the owner sold off one unit and kept one for himself. In many cases it’s common to see one house in front and the other in back, so a lot split might not be possible with that set-up (or maybe it is possible, but awkward). However, if the possibility of a lot split exists, it could be worth something in the market, right?
  4. The Buyer Pool: There are some duplexes that are best for investors because they simply look and feel like rentals. It’s hard to describe this without sounding pompous, but you probably know what I’m talking about. On the other hand, some multi-unit properties might attract more owner occupant buyers than investors. When this happens, the units might actually command a price premium because of the larger pool of buyers. This underscores the importance of considering who the potential buyer might be and researching the market. What have buyers actually paid for similar properties in the past? What are current listings doing?

duplex comparison by sacramento appraisal blog

Conclusion: In short, it is technically okay to compare two attached units with two detached units, but for reasons listed above we ought to be cautious to be sure we are making an “apples to apples” comparison. What I mean is we need to give strong weight to the properties that are most similar and let the market speak to us instead of our assumptions.

surfer on my cup - photo by ryan lundquist

By the way, I just got back from visiting family this weekend in Southern California. I snapped this shot at Sunset Beach. It’s called “Surfer on my Cup.”  🙂

Questions: Any stories, insight, or ideas to share? Did I miss anything?

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A heavy decline in the Vallejo residential-income real estate market

Here is a trend graph of all 2-4 unit sales in the city of Vallejo, CA over the past five years. The information is based on data in Bay Area MLS. The residential-income market sure has been impacted. It’s amazing to see the low point around $250,000 several years ago has now become closer to the higher end of the market over the past few months for 2-4 unit properties.

If you own a duplex, triplex or fourplex in the Vallejo market (or Greater Sacramento region), I’d be curious to hear what has happened to your rent levels over the past five years. Also, has the Assessor decreased your property taxes?