Dozens of large-scale pot growers are hoping to reap profits in the city of Sacramento soon, but their gains may mean losses for neighboring homeowners.
The value of homes close to legal cannabis-growing operations could suffer, and sellers may have to disclose to would-be buyers the presence of cannabis cultivation sites in their neighborhoods, some experts contend.
Right now, the real estate situation is murky, with little direction from governments or trade organizations.
“This is a can of worms that is going to take us two to three years to figure out,” said Steve Galster, a real estate broker with The Galster Group of Weichert Realtors in Fair Oaks.
The commercial production and the sale of recreational marijuana will be allowed in California starting Jan. 1, and the city of Sacramento – with its ample supply of cheap industrial real estate and proximity to the San Francisco Bay Area – is a prime market for the so-called “green rush” of businesses eager to profit from growing legal weed indoors.
More than 100 businesses were seeking special permits from the city to run indoor marijuana growing operations as of July. (If the city approved them all, there would be more legal marijuana growers in Sacramento than McDonald’s and Starbucks combined.)
Many of the proposed locations are far from housing, notably in the industrial section of the city east of Power Inn Road and south of Jackson Road. But about one-third of the sites are in neighborhoods – including North Sacramento, Curtis Park and South Land Park – and close enough to houses to potentially cause headaches for homeowners and homebuyers.
Regulations call for pot growers to implement odor-control and security measures, but whether the new rules will control the pungent smell of marijuana or prevent crime remains to be seen.
Real estate appraiser Ryan Lundquist said such drawbacks could dissuade sellers and lower the price of homes.
“If it did end up being a problem with crime or a stigma associated with the cultivation of cannabis, that could be an issue,” Lundquist said. “Or if it really smelled that could be something people don’t want to live next to.”
Lundquist was recently asked to estimate the value of a house in the city’s Hagginwood neighborhood. The home is in an area where small, older homes sit across a tree-lined street from a tire shop, a metal-products manufacturer and other businesses that occupy light-industrial buildings made of concrete and corrugated metal.
Lundquist discovered that three marijuana growers had filed applications with the city to occupy several of the industrial structures. In his Sacramento Appraisal Blog, Lundquist said he had to ask himself whether the pot-growing operations could diminish the value of neighboring homes.
“Does it matter for value if there are a few legal marijuana grow operations in the neighborhood? That’s not really a question we asked much in the past, but it’s definitely a reality in many portions of California now since recreational marijuana was approved at the ballots last year,” Lundquist wrote.
The appraiser said he chose only to disclose his knowledge of the cannabis cultivation permits but not to use it as a factor in his estimate of the Hagginwood home’s value. Other real estate professionals will have to decide if nearby pot businesses need to be disclosed when a house goes on the market, he said.
“That’s something the real estate community has to grapple with, and not everyone will have the same answer, but asking the questions is very, very important,” he said.
Reporting on the effects of pot legalization on Colorado home prices, Realtor.com said, “homes within a half-mile of a marijuana business often have lower property value than homes in the same county that are farther out” and that “neighborhoods with grow houses are the least desirable, with an 8.4 percent price discount.”
Neither the California Association of Realtors nor the Sacramento Association of Realtors has taken an official position on the disclosure issue, spokespeople for the organizations said.
In a legal question-and-answer paper, CAR did recommend to agents that they disclose marijuana growing on properties next door to listings because marijuana cultivation still violates federal law, and “the buyer may have concerns or may wish to investigate if the activity is being lawfully or unlawfully done.”
Galster said he thinks the issue of whether to disclose a marijuana operation is a no-brainer. “If you even have to talk about should something get disclosed, it ought to get disclosed,” he said.
The broker compared the pot situation to the Megan’s Law notice that homebuyers receive. It tells them there’s a state database showing where registered sex offenders live, but it doesn’t require sellers or agents to disclose that sex offenders live nearby.
Homebuyers have to do their own research on the Megan’s Law database, and they may also have to do their own due diligence with regard to pot businesses, Galster said.
“Sex offenders are in every neighborhood,” he said, “and marijuana will be too, I guess.”