An $800,000 Teardown And Other Tales From The Wacky World Of East Bay Real Estate

An inside look at the wild world of the East Bay Housing market

Fixer-uppers in Danville for $1 million? Pleasant Hill starter homes for $600,000? Bidding $100,000 over the asking price in Pleasanton? This is some thick-skinned bubble.

Home prices in the East Bay have just kept climbing—some as much as 40 percent—since last year. With a shortage of homes and a strong job market, the fight for houses is on. A growing number of families are paying top-dollar for a house, then tearing it down to start over. Empty nesters sitting on million-dollar properties are finding it pricey to downsize and still pocket a windfall for their golden years. It’s becoming increasingly more affordable to move to Tuscon than to move up to Walnut Creek.

How will it all end?

Bubble is a dirty word in real estate. Bubble is a dirty word in real estate. For four years, a fair number of economists and other prophets of doom have claimed that one hangs over our housing market like a big dark cloud threatening to burst into a downpour at any moment.

Yet dozens of real estate veterans we talked to say there is little sign that the East Bay’s turbocharged housing market is losing power, even in the wake of warnings from Federal Reserve Board Chairman Alan Greenspan that the market is slowing down. In fact, although the market softens from time to time—as appears to be the case among $2 million-plus homes—prices continue to rise with no obvious inclination to crash.

Bubble-phobic homeowners should know that the East Bay has several factors insulating it against plummeting property prices, not the least of which is a severe shortage of homes. “We don’t have a lot of new housing, particularly in the East Bay,” says Avram Goldman, president and chief operating officer of Coldwell Banker Residential Brokerage in the San Francisco Bay Area. “Over the past 15 years, California has fallen short, on average, about 100,000 units per year. So that means today, we are short about a million and a half homes. We have demand outstripping supply.”

Goldman believes the bubble theory is nothing but hot air, because real estate is not like a stock that can become worthless overnight. “Real estate is not about a bubble. Have there been cycles in real estate? Absolutely. Have properties’ values gone down at times? Yes, they have. But if you look at the numbers, prices in real estate have historically risen over the long term.”

They have certainly risen over the short term. Between July 2004 and July 2005, the median sale price of a home in Walnut Creek jumped 19 percent, from $570,000 to $680,000; in Pleasanton, 25 percent, from $650,000 to $815,000; and in Orinda, 40 percent, from $906,500 to $1.3 million.

As for homes over $2 million, Intero real estate agent Ron Rothenberg says he has noticed prices softening over the past few months. Some properties are sitting on the market for weeks, and their sellers are cutting their asking prices—although they still end up making a nice profit. Those sellers may have initially asked too much, he says. Meanwhile, buyers in this luxury category can afford to be picky and take the time to find a property they really want. “We were seeing homes that were $1.5 million two years ago being priced at more than $2 million. That’s just not realistic.”

Coldwell Banker real estate agent Kelly McCormick believes the overall market, like the luxury market, will dip, but not with any kind of explosion. “It tends to be more like a flattening than a bubble bursting,” he says. “Real estate is not nearly as volatile as the stock market, because people have to live somewhere. It has been a very enthusiastic market that’s probably going to have a little comeuppance at some time.”Let’s face it, a lot of people want to live here. We’re close to major traffic arteries. We have good schools, a low crime rate, and well-planned communities. As a residential hub, the East Bay is enjoying a four-year buying boom, thanks in part to tax cuts and low interest rates. And—hold on to your socks—the East Bay is still one of the more affordable places to live in the Bay Area. “On a macroeconomic basis, the East Bay represents an attractive bargain relative to equivalent housing on the Peninsula and in Marin County,” says Rothenberg. “Which way to the starter homes?” This is the question asked by many bewildered first-time buyers as they scour the streets for affordable houses. Many real estate agents can’t help but laugh. “If you’re looking for a real bargain neighborhood, I don’t think there is one,” says real estate agent Bonne Wersel, who specializes in the Danville area for Alain Pinel. “Our whole East Bay is where people want to be.”

Who would have thought that a 1,200-square-foot, 1950s home with three bedrooms and one bathroom in the unassuming Pleasant Hill neighborhood of Gregory Gardens could cost $600,000? That’s $500 per square foot. “The cruel and unusual part of the market is that the starter homes are so expensive,” says Coldwell Banker’s McCormick.A detached house in increasingly stylish Walnut Creek will burn a slightly bigger hole in your bank account. Around $750,000 might buy a house of 1,100 square feet with two bedrooms and one bathroom—and a host of home-improvement needs, anything from new wiring to all new landscaping. “It will be old and need work,” says McCormick.

"You will need a little bit of vision and energy. Buying Walnut Creek homes for $800,000 is still achievable, but it’s slim pickings, and you’ve got to be ready to pounce on it. You can’t be picky.”With lower-end houses in Danville around $700,000, in Alamo at $900,000, and in Lamorinda nudging $1 million, detached homes for less than half a million are most likely to be found in Concord, Martinez, and Benicia. But even old houses in far-flung neighborhoods are commanding cheeky prices. A “distress sale” in Livermore offered a house that admittedly “might need to be scraped from the lot” for $310,000. And Pleasanton and San Ramon homes, though generally newer and bigger, are no longer more affordable than those in Walnut Creek, prompting many first-time Tri-Valley buyers to move to Dublin and Tracy.

Whether they are using creative financing, such as interest-only loans, or creative thinking, first-time buyers are pulling out all the stops to break into the market. “Young couples are purchasing homes well before they are married, scared that if they wait, houses will be even less affordable,” says Prudential California real estate agent Cher Wollard, who sells properties mostly in the Tri-Valley. “I’ve even seen friends purchasing homes together because that’s how they can afford to get their foot in the door.”Adam Glimme, a 29-year-old fourth-grade teacher at Green Valley Elementary School in Danville, and his college buddy, Kurt Uhler, who is in sales at ValleyCare Health System in Livermore, are two such homeowners. As a first-time buyer, Glimme was particularly happy with the deal. “I was living with my parents in Danville, trying to save money. But everything seemed out of range,” he says. “I thought I was years away from any kind of homeownership.”

Willing to go as high as $650,000, the two friends looked for homes up and down the Interstate 680 corridor, from Pleasanton to San Ramon to Walnut Creek. “We looked at one house in the Buena Vista neighborhood of Walnut Creek,” says Uhler. “We got there, and basically the whole place needed to be burned down; it was that bad. The entire house was sagging to one side.”

The asking price? $500,000. Eventually, Glimme and Uhler beat several bidders for a 1,350-square-foot fixer-upper in Livermore with three bedrooms, two bathrooms, and a pool for $515,000. “The place smelled and had shag carpeting,” said Glimme. “But it was perfect for us.” They both wanted to earn sweat equity in the house through the work they would put into it. “We didn’t want to rely simply on the market going up.”

As for the legal implications of such a deal, the two drew up an agreement. They split all mortgage payments down the middle. Uhler, who put more money down, would have 57.5 percent ownership of the home; Glimme 42.5 percent. And they would live there for at least two years to avoid any capital gains taxes. “We’re college buddies, but we’re not planning on raising children together,” Uhler says with a laugh. “After two years, as soon as one of us wants out, the other buys the other person out or we sell. That is our standing agreement.”

Move-up buyers are a rare species in this market. Although homeowners would once move every seven years or so as their family and income grew, today’s “move-up buyer” isn’t moving much at all. Prices are too high to gain a few thousand square feet. More people staying in their homes means fewer homes on the market, which further widens the gap between supply and demand.

“Families who have outgrown their homes look at what it would cost to buy a new house and what their property taxes would go to, and they decide to stay where they are and remodel and expand,” says Orinda-based Coldwell Banker real estate agent Patti Camras. “They would rather go through the terrible inconvenience, annoyance, and intrusion of an expansion and remodel than risk the cost of moving.”

In the more established neighborhoods of Walnut Creek, Danville, and Lamorinda, homeowners are adding on—at $200 or $250 per square foot. “They’re happy in their neighborhoods, and better off adding an extra bedroom and bathroom to their home than trading up because of all the costs,” says Coldwell Banker’s McCormick.

“You will need a little bit of vision and energy. Buying Walnut Creek homes for $800,000 is still achievable, but it’s slim pickings, and you’ve got to be ready to pounce on it. You can’t be picky.”

With lower-end houses in Danville around $700,000, in Alamo at $900,000, and in Lamorinda nudging $1 million, detached homes for less than half a million are most likely to be found in Concord, Martinez, and Benicia. But even old houses in far-flung neighborhoods are commanding cheeky prices. A “distress sale” in Livermore offered a house that admittedly “might need to be scraped from the lot” for $310,000. And Pleasanton and San Ramon homes, though generally newer and bigger, are no longer more affordable than those in Walnut Creek, prompting many first-time Tri-Valley buyers to move to Dublin and Tracy.

Whether they are using creative financing, such as interest-only loans, or creative thinking, first-time buyers are pulling out all the stops to break into the market. “Young couples are purchasing homes well before they are married, scared that if they wait, houses will be even less affordable,” says Prudential California real estate agent Cher Wollard, who sells properties mostly in the Tri-Valley. “I’ve even seen friends purchasing homes together because that’s how they can afford to get their foot in the door.”

Adam Glimme, a 29-year-old fourth-grade teacher at Green Valley Elementary School in Danville, and his college buddy, Kurt Uhler, who is in sales at ValleyCare Health System in Livermore, are two such homeowners. As a first-time buyer, Glimme was particularly happy with the deal. “I was living with my parents in Danville, trying to save money. But everything seemed out of range,” he says. “I thought I was years away from any kind of homeownership.”

Willing to go as high as $650,000, the two friends looked for homes up and down the Interstate 680 corridor, from Pleasanton to San Ramon to Walnut Creek. “We looked at one house in the Buena Vista neighborhood of Walnut Creek,” says Uhler. “We got there, and basically the whole place needed to be burned down; it was that bad. The entire house was sagging to one side.”

The asking price? $500,000. Eventually, Glimme and Uhler beat several bidders for a 1,350-square-foot fixer-upper in Livermore with three bedrooms, two bathrooms, and a pool for $515,000. “The place smelled and had shag carpeting,” said Glimme. “But it was perfect for us.” They both wanted to earn sweat equity in the house through the work they would put into it. “We didn’t want to rely simply on the market going up.”

As for the legal implications of such a deal, the two drew up an agreement. They split all mortgage payments down the middle. Uhler, who put more money down, would have 57.5 percent ownership of the home; Glimme 42.5 percent. And they would live there for at least two years to avoid any capital gains taxes. “We’re college buddies, but we’re not planning on raising children together,” Uhler says with a laugh. “After two years, as soon as one of us wants out, the other buys the other person out or we sell. That is our standing agreement.”

Move-up buyers are a rare species in this market. Although homeowners would once move every seven years or so as their family and income grew, today’s “move-up buyer” isn’t moving much at all. Prices are too high to gain a few thousand square feet. More people staying in their homes means fewer homes on the market, which further widens the gap between supply and demand.

“Families who have outgrown their homes look at what it would cost to buy a new house and what their property taxes would go to, and they decide to stay where they are and remodel and expand,” says Orinda-based Coldwell Banker real estate agent Patti Camras. “They would rather go through the terrible inconvenience, annoyance, and intrusion of an expansion and remodel than risk the cost of moving.”

In the more established neighborhoods of Walnut Creek, Danville, and Lamorinda, homeowners are adding on—at $200 or $250 per square foot. “They’re happy in their neighborhoods, and better off adding an extra bedroom and bathroom to their home than trading up because of all the costs,” says Coldwell Banker’s McCormick.

Ten years ago, Colleen and Chris Wheaton bought their home in a family-friendly neighborhood within walking distance of downtown Walnut Creek for $429,000. Back then, they had one seven-month-old baby, and the 2,500-square-foot home with a glorious yard was right for them. Today, with three kids between 6 and 10, they’d love to upsize to 4,500 square feet. But with almost a full acre of terraced landscaping and a beautiful vegetable garden, the Wheatons’ property is proving difficult to beat. “We have found beautiful new houses, but they have very small, postage-stamp yards, and cost $1.5 to $1.7 million,” says Colleen. “Our yard is amazing, and I can’t give it up for a bigger home.”

Down past San Jose, the family found larger parcels of land, but the homes were older and needed as much work as it would take to expand their current house. They have even considered moving out of state. “We think about that all the time, because we know we could get a bigger bang for our buck,” says Colleen. “But then we remember how much we love it here. We can walk to school and the [neighborhood] pool. We can get to the movie theater in three minutes, and downtown to any number of incredible restaurants. The friends and neighborhood are terrific, so we want to stay.”

The Wheatons have drawn up architectural plans to add two more bedrooms, another bathroom, an entertainment room, and a new kitchen to their current home, spending—they hope—$650,000 to $800,000. They’ll live in a rental house for a year during construction. “It’s not a good thing, I know,” admits Colleen. “Every Sunday, we pull out the paper and think ‘Where can we move?’ But if we were to purchase our property now and the house that we want, we couldn’t afford it. It would be $2 to $3 million.”

If expansion doesn’t work, bring on the decrepit fixer-upper. A growing number of move-up buyers are so determined to remain in their neighborhood that if enlarging their existing home is impossible, they will opt to buy a dilapidated house nearby that has the room to expand.

Paul and Kirsten Cox live with their two children in a 2,500-square-foot, beautifully remodeled 1950 rancher with three bedrooms and a pool in the Castle Hill area southwest of downtown Walnut Creek. They bought it four years ago for $800,000. But the time has come for a bigger home. “With a new baby, we want more room,” says Paul. “We love our neighborhood, so we looked into doing an addition. But we felt like we were trying to shove a square peg into a round hole to make it work in a way that didn’t look like you were just sticking a box on top of the garage.”

A property with more land became available across the street, and the Coxes were able to buy it before it went on the market. Also built in 1950, the 1,200-square-foot house is in its original state and cost the same as the current home they are living in. “We paid $800,000 for [each] house,” says Paul. “One was beautiful and nice and the other, four years later, is a piece of junk. I never would have done this if we hadn’t been able to do a private sale, because if it had gone to market, it would have gotten too expensive.”

The Coxes plan to tear down the newly purchased house and build another of about 3,500 square feet in its place. “We don’t want to build a monster,” says Paul. “We want to keep in style with the neighborhood. Our goal is to build a house that we can live in forever. We have no intention of selling this new one. This is going to be it.”

Moving down isn’t as easy as it seems. People whose kids have moved out traditionally move from their big family homes into smaller properties. Some of today’s empty nesters and retirees might move up into the Sierra foothills or out of state, but others want to stay close. They don’t want to leave their friends, family, and community networks, or the Bay Area’s cultural amenities. They’re also not ready for a senior community.

Kelly McCormick says a growing number of his clients are retired Lamorinda professionals who are looking for one-story ranchers near downtown Walnut Creek. “They’re done with the 4,500-square-foot home with tons of stairs, but they still want to be in a prime neighborhood.” Another option for empty nesters seeking the proximity of Walnut Creek’s dining and entertainment scene is to buy a condo or a town house. “It’s all about the quality of life, and the downtown is a big part of that,” McCormick says.

But it’s no longer easy to find a reasonably priced condo in Walnut Creek. Ron Rothenberg says condo prices have appreciated considerably over the past few years. In fact, their prices have gone up more than those of single-family homes. In 2004, the average price for a Walnut Creek condo went up 17 percent, compared with 14 percent for the average single-family home.

Some downsizing wannabes are finding their hopes dashed in other ways. Consider the case of Dick and Robin Holt, who own a 2,200-square-foot, four-bedroom home on half an acre in the prime Hidden Valley neighborhood near the Lafayette Reservoir. They bought it 25 years ago for $80,000. Three grown-up children later, the Holts could reasonably put this house on the market for $1.2 million. But the Holts want to stay close by. They would like to buy a smaller house with fewer bedrooms and a smaller yard. “We don’t need all these kiddy bedrooms,” says Dick. “We could get by very nicely on 1,300 square feet. But both my wife and I like to garden, so I’m not ready for Rossmoor, where you get no garden.”

In addition, the Holts have reached the point in their lives where they’re not interested in spending time and money on a fixer-upper. But the scant number of homes for sale in Lafayette means that a smaller, decently remodeled house could easily go for $1 million. So if the Holts were to move, they wouldn’t reap any significant financial profits. Ultimately, they’ll probably decide to stay put.

There’s a touch of San Francisco in Walnut Creek. Funky lofts and deluxe condos are sprouting up, both downtown and near the Walnut Creek and Pleasant Hill BART stations, offering big-city solutions to the housing crunch. Over the past few years, Walnut Creek has green-lighted projects that feature high-density housing close to public transportation.

“It all started with the condominium townhomes that were built across the street from Andronico’s,” says real estate agent Ron Rothenberg. “They really hit a home run from a demographics and marketing standpoint. You’ve got a lot of baby boomers who still want to live in this area, don’t want the upkeep of a large home, and like to be able to walk to shopping. Those condos sold out very quickly, and appreciated at an astonishing rate.” A 1,427-square-foot unit recently sold for $1 million.

Holliday Development’s Iron Horse Lofts epitomize the trend. Located behind the Pleasant Hill BART station, the 54 units were created by the same company that introduced loft living to San Francisco more than 15 years ago. “There’s really nothing else like them in Contra Costa,” says real estate agent Teresa McKinney. “They’re ultracontemporary, with 15-foot ceilings and windows that go from ceiling to floor.” When they were first built four years ago, these units sold for between $350,000 and $425,000. Today, a new 1,400-square-foot, two-bedroom loft is on the market for $671,000.

George Martinez bought his two-bedroom Iron Horse unit in July for $605,000. “It’s the space. It feels so open,” he says. “There is nothing better than having a place where I can live and work but, at the same time, be a little bit stylish; a place where I can play and entertain friends without having the headache of maintaining a garden.”

And BART is but a stone’s throw away. “It’s the whole live/work concept and the transit village idea,” says McKinney.

Also in Walnut Creek’s development pipeline is the Mercer project. Under construction at the corner of Trinity and Cole avenues, kitty-corner from the Dean Lesher Regional Center for the Arts, the Mercer consists of 181 condominiums built on top of 21,000 square feet of retail space. The city is also reviewing a proposal to build 106 condos and three live-work loft units above retail shops at the corner of North Main Street and Ygnacio Valley Boulevard.

Walnut Creek Planning Manager Sandra Meyer says that condos and lofts are just what the city needs. “They contribute to the liveliness of the downtown area, and sometimes even provide the opportunity to live and work in the same structure, which is great for traffic congestion and for creating a pedestrian-oriented environment,” she says.

For details of other Walnut Creek housing developments, visit: www.ci.walnut-creek.ca.us/planning/CurrentProjects.htm.

Neighborhoods to Die For

If money were no object, where in the 925 would you go? Are you into Old Money charm? New Money opulence? Something in between? Do you want to be near the cultural high life of San Francisco, or do you crave 25 acres and a stable? The East Bay suburbs have an abundance of crème de la crème neighborhoods. Here are some homes in the crème-iest that were on the market when we went to press.

What’s the most coveted street in Lamorinda? Two words: “Rose Lane.” Located in Lafayette’s Happy Valley, Rose Lane is lined with grand homes that fetch jaw-dropping prices. One is a 6,580-square-foot, six-bedroom manor that looks like it was plucked from the green hills of England. It’s got a guest cottage, tennis courts, saunas, and a pool. It sits on an acre of land, behind stately gates. Asking price: $6.9 million.

Homes in Orinda’s gated Country Club and un-gated Orinda Downs easily command $2 to $3 million. But the traditionally less expensive Glorietta neighborhood cradles a cluster of desirable streets, including the quiet Daryl Drive and Glorietta Boulevard, where the stunning 12,300-square-foot former Lesher estate sits. Built in 1932, the estate—named Seven Oaks—has seven bedrooms, 12 bathrooms, a library, a ballroom, a movie theater, and a wine cellar. The house is nestled in 4.3 manicured acres that include fruit trees, a waterfall, two pools, a tennis court, a golfing area, and a Japanese teahouse. It went on the market in March for $8.95 million. Word is there were multiple offers, so it’s likely to have sold for well over the asking price.

Then there is the place where time stands still: Diablo. This community’s homes are generally more than 100 years old and range in price from $2 million to $7 million. Alameda Diablo is arguably the most prized street there. A 4,368-square-foot 1970s ranch sitting on that street and on the edge of Diablo Lake is on the market for $6.2 million. It has five bedrooms, a sport court, a pool, and a five-car garage. You can even fish from your deck.

The popular and very pricey west sides of Danville and Alamo capture an older charm. One beauty is a sprawling Danville home with four bedrooms, a pool, spectacular gardens, and a Mount Diablo view. Not far from playwright Eugene O’Neill’s Tao House mansion, which also was built in the 1930s, this one-story retreat has been gorgeously updated. Its four acres also could be further subdivided, which makes this house, at $4.7 million, not just an indulgence but also a shrewd investment.

To the east, the gated community of Blackhawk still lays claim to some of the most expensive properties in the area. There’s a 13,227-square-foot Mediterranean spread up for grabs for a cool $6.99 million.

Although there is the occasional Livermore château complete with its own private vineyard that might sell for close to $5 million, most of the Tri-Valley’s ritziest homes are in Pleasanton’s gated community of Ruby Hill. These modern, custom-made mansions can be as big as 10,000 square feet and fetch $5 million or more.

Such high-end homes often don’t wind up on the Multiple Listing Service (MLS), a database of homes for sale. And here’s one sale to top them all: There are rumors of a house in Alamo selling recently for $20 million. Real estate agents are tight-lipped about this one, but they did spill that it was a new home with 100 acres of land.

Selling like Hotcakes

Picture this: a quiet, well-established neighborhood tucked safely within the boundaries of a great elementary school district. Mature, leafy oak trees line the wide streets where children safely ride their bikes and neighbors hold block parties. And there, on a large, flat lot, sits a well-loved single-family house. It’s an older home, perhaps a classic California ranch, that’s been tastefully updated with hardwood floors, new bathrooms, a master suite with walk-in closets, and maybe a granite-endowed kitchen. There may be a pool, but it’s not too close to the house, so it won’t prevent a future expansion. You might find this house in a neighborhood near downtown Walnut Creek or Pleasanton, on the west side of Pleasant Hill, Alamo, or Danville, or tucked away in Lafayette’s Burton Valley or Orinda’s Sleepy Hollow area. If this is your dream house, we’ve got two words for you: Good luck! The minute this house appears on the market, it will be at the center of a real estate scuffle among multiple bidders, and will probably sell within a week, well over the asking price and possibly for well over $1 million.