The drought, fake turf, and a sign project with my kids

How is the drought impacting real estate? What are you seeing neighbors do with their lawn in light of the drought? I’m seeing a combination of some brown lawns by choice, definitely more xeriscaping, fake turf on occasion, as well as some lawns that are as green as ever. Overall it seems locals are slowly beginning to scale back how much they water their lawns, which can potentially change the way a neighborhood looks if done on a large scale. This begs the question, is the drought beginning to shape what buyers want in a front yard? Are we to the point yet where buyers will pay a premium for landscaping that saves water? What do you think?

Let me share a couple photos today and then tell the story of what we did for our front yard (which ended up taking an unexpected turn).

Fake Turf: Here is an example of fake turf I saw recently in Roseville. This may be commonplace in other parts of the country, but it has definitely not been common here. I have seen fake turf also in Folsom. The owner said the “lawn” was well received by mostly every buyer beyond one prospective buyer who wondered if the turf would get too hot and burn her feet. What do you think?

fake turf - photo by sacramento appraisal blog

Xeriscaping: This is an example of xeriscaping I came across in Rancho Cordova. Xeriscaping is a “landscaping method developed especially for arid and semiarid climates that utilizes water-conserving techniques” (Merriam-Webster). This is becoming more ordinary, and if the drought persists beyond this year, I suspect we will see many more lawns go this direction.

xeriscaping example in rancho cordova

My Lawn Status & Our Sign Story: I decided to completely stop watering my lawn to conserve water. Yeah, I’m that guy. On a serious note though, after seeing how low Lake Shasta was a few weeks ago, it really made an impression on me. This is no judgment against anyone if your lawn is green, but for my household we decided it was time to let the grass die (we’ll still water our trees though). Since not everyone has a brown lawn in my neighborhood, I wanted to make a sign for the yard to help explain why our lawn is brown. This is what I came up with because I thought it would be both funny and provocative.

brown grass is sexy sign

As soon as I posted a photo of the sign on Instagram, people began telling me I should sell these signs. That definitely wasn’t anything I was thinking about, but I asked my two sons (8 and 10) if they wanted to do a little sign business for the summer. I talked to them about water conservation, and then risk, capital, hard work, potential profit, customer service, etc… and they were game. The deal was for me to be the investor, we would make the signs together, and they would keep any profit once I was paid back. We’ve been selling the signs for $15 each.

IMG_20140720_161101

IMG_20140724_075800

My garage has been chaos these past two weeks, but it has been so much fun watching my boys go to work, and to have some amazing conversations about business. Granted, this sign is not for everyone because of the word “sexy”. In fact, some people have complained a bit about the word, but it’s only meant to get conversation going. My hope is people will be more inspired to action rather than stuck on one word. We may do a different slogan at some point though.

brown grass in land park

Marketing a Dead Lawn: An investor friend bought one of our signs to put in the front yard of a current flip in South Land Park, and another real estate friend bought one yesterday to do the same for one of his listings. I did not expect for our sign to collide with my world in real estate, but then again, how to market a dead lawn is something on the radar in today’s real estate landscape.

Questions: How is the drought impacting neighborhoods and real estate? What do you think about fake turf? I’d love to hear your take.

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Does a bedroom need a window to be considered a bedroom?

Can a room be considered a bedroom if it does not have a window? I had a real estate agent ask me this question recently, and here is my response.

does a bedroom need a window

Question: We are selling a 3BR home, the third bedroom does not have a window. I am pretty sure code says that all bedrooms should have windows. Can we accept FHA financing? Can we call the third bedroom a den?

Answer: If the “bedroom” does not have a window, it cannot be considered a bedroom. Well, technically a bedroom should have at least two methods of egress, which means in addition to the interior door it must have either a properly-sized window or a second door to the exterior. According to the International Residential Code, a bedroom window can be no more than 44 inches from the floor, it needs at least 5.7 square feet for the opening, and it must measure no less than 24 inches high and 20 inches wide. If a room does not have a window (and no second door), it’s not a bedroom and is best considered something else. Financing shouldn’t be an issue since this is not a bedroom. The real issue is marketability. Will buyers pay less for this set-up compared to a traditional 3-bedroom unit that has windows in each bedroom? That’s the real question. It’s probably best to call this third area whatever the market would call it – maybe a den or potential bedroom, etc… 

Any further thoughts or insight? I’d love to hear your take.

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How to spot shady real estate graphs

If you don’t like what the numbers say, make them say what you want. That’s not okay, but it’s something that happens in politics, the business world, and even real estate. Do you know how to spot some of the shady tactics used to stretch the truth about numbers? Let me show you a few examples to help illustrate how small tweaks on a graph can make a big difference. I hope this will be interesting, but most of all I hope for some it will forever change the way you look at graphs. Comments and stories are welcome below.

1) SHADY TACTIC: The Y-Axis does not start at zero

fake trends - manipulated graph to show false trend - by sacramento appraisal blog

TRUTH: The market has seen a normal seasonal uptick this year, but overall it’s very flat right now – unlike what the graph above shows. Notice how I began the Y-axis at 250 instead of zero. There may be some good reasons to do that on occasion, but otherwise it’s a common tactic used when trying to make a trend look more dramatic than it actually is. Keep in mind the graph below shows the same data, but with a proper Y-axis.

median price trend - by sacramento appraisal blog

2) SHADY TACTIC: Compacting the second Y-Axis changed the trend

inventory in sacramento county 2 - by sacramento appraisal blog

TRUTH: Inventory actually increased by 10% during this time period, but it only looks flat because I included 20 months of housing supply on the Y-axis, which essentially flattened the trend. When you manipulate the Y-axis, it can help information look much more dramatic or change the trend altogether. The image below shows that inventory is actually increasing.

inventory in sacramento county - by sacramento appraisal blog

3) SHADY TACTIC: The X-axis only has a few months of data (too narrow)

sales volume in sacramento county - fake graph - manipulated to show false trend - by sacramento appraisal blog

TRUTH: Technically sales volume has increased since January, so this is sort of a half-truth. Rather than saying volume is increasing though, the real trend is seen when we compare last year with this year because sales volume is actually down by 14% this year. When we limit the X-axis to only a few months, it can really change what we see about the market.

sales volume in Sacramento County since 2008

4) SHADY TACTIC: Data without a context can look more powerful

REO Fake Trends - manipulated graph  in Sacramento County

TRUTH: It’s true the number of REO sales has seen an increase over the past three quarters as shown with the graph above, but we’re talking about an increase of 1.3% over 9 months when looking at the total percentage of REOs vs traditional sales. This underscores how important it is to look at numbers in context of the entire market. It’s easy to think REO sales have seen a dramatic increase when viewing them in isolation, but then we see the increase only constitutes 1.3% of the market, which isn’t much to write home about.

REOs and Short Sales Percentage and Volume in Sacramento County

5) SHADY TACTIC: Using quarterly or annual data to hide current trends

median price by quarter in sacramento county

Median Price in Sacramento County Annual

TRUTH: It’s definitely a good thing in real estate to look at quarterly and annual figures, and I do this all the time. But if we’re not careful, we can use larger sets of data to help obscure current trends. In the case above, the quarterly chart makes it look like values have increased the entire year in 2014, and the year-end annual stats makes it look like the market has done nothing but increase for a few years. However, when looking at monthly data below, we see a recent trend that the market has been flat for the past two months and it definitely had a lull at the end of 2013. This isn’t just about presenting data on graphs though because it’s easy to say things like, “We’ve seen incredible increases in value since 2013″, or “The median price has increased by 68% since we hit bottom in 2012″. Both statements are true and can be useful, but sometimes statements using older data are designed to help the market sound more glamorous than it is currently. Again, quarterly and annual stats are extremely valuable, but if monthly data is ignored because larger sets of data tells a more positive story, that’s not good.

median price by quarter in sacramento county 2

Ask yourself these questions when looking at a graph:

  1. Does the Y-axis start at zero? If not, why not?
  2. Does the X-axis show enough time or is it too limited?
  3. Does the Y-axis crunch data too tightly or broaden it too much?
  4. Is there enough data on the graph to be meaningful?

Action Step: Pay very close attention to graphs you see in newspapers, on television, and online. Ask the questions above so you can think critically about the way the numbers are being presented.

Question: Any insight, questions, or stories to share? I’d love to hear your take.

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Parenting and watching real estate unfold in Placer County

Being a parent is a bit like being a private investigator. When problems come up, I often get different stories from my kids or neighborhood kids about who said or did what. It’s then my job to listen (hopefully), gather evidence, and then sift through bits of information to maybe uncover the truth. Can you relate? The same thing happens in real estate because you get different stories depending on who you talk to. One person might say, “the market is on fire and values are increasing”, while another says “the ‘bubble’ is about to burst”. This is why it’s important to pay careful attention to trends so we can be informed and offer accurate information to clients. Today let’s take a look at the latest stats for Placer County, and also touch on what is happening in Sacramento’s regional market. I hope this is helpful.

Two ways to read this post:

  1. Scan the highlighted text and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

placer county real estate trends june 2014

PLACER COUNTY:

1) Prices have been flat in Placer County:

Placer County median price and inventory - by home appraiser blog

median price in placer county and sacramento county by sacramento appraisal blog

There was a small seasonal uptick in the Spring in Placer County, but prices have been more or less flat lately, which is in part a byproduct of increasing inventory. The median price in Placer County is $380,000. Prices are more or less flat in Sacramento County too, though the median price is about $100,000 less compared with Placer County. Remember that sales stats show a flat market, but these sales got into contract 30-60 days ago. I bring this up because there is even more inventory in the current market, which is really softening values beyond what mere sales stats might tell us.

2) Housing inventory is increasing:

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Monthly inventory increased from 2.52 months to 2.76 months between May and June. It’s normal around this time to see an increase of inventory, but this is still important to keep in mind when pricing properties in certain price segments. Less competition tends to cool values. When considering all price segments, the higher the price, the more inventory there is.

3) Houses are taking an average of 37 days to sell:

days on market in placer county by sacramento appraisal blog

On average it is taking 37 days to sell a home in Placer County as opposed to 35 days in Sacramento County (minor difference). Generally speaking, the higher the price, the longer it is taking to sell (which is normal). There were only 7 sales above $1M, so take the “10 days” stat with a grain of salt since properties above $1M generally take much longer to sell. Overall it took less days for homes to sell last month compared to previous months, and if the market unfolds like it did last year, expect to see a longer listing period over these next few months.

4) Volume is down by 11.5% from last June:

Placer County sales volume - by sacramento appraisal blog

Sales volume has been down in the entire Sacramento region. Why? In large part it’s a reaction to investors stepping away from the market one year ago. There were 11.5% less sales in June 2014 compared with June 2013. The same trend is showing up in Sacramento County also. The market is simply trying to figure out how to normalize or adjust now that investors have taken their foot off the gas pedal.

5) Listings increased by 6% from last month to this month (normal):

number of listings in PLACER county - june 2014 - by home appraiser blog

Listings increased by 6% from last month to this month. At the beginning of June there were 1303 active listings on the market, and at the beginning of July there were 1387 listings. This isn’t earth-shattering news, but the number of listings is something important to watch because the market tends to soften as there are more listings (assuming the number of sales does not increase).

6) “Layers” to watch over the next two quarters:

interest rates inventory median price in placer county by sacramento appraisal blog

What is driving value in Placer County? Low interest rates and low inventory are two of the bigger “layers of the market” right now. In light of less cash investors playing the market (especially in Sacramento County), local real estate is more sensitive to interest rates and upticks in inventory. Rates are still flirting with the low-to-mid 4s, and that is helping buyers afford higher prices for the time being. Yet it will be interesting to see how the market is able to cope with higher inventory and presumably higher rates in the third and fourth quarter of the year.

THE SACRAMENTO REGION:

7) Inventory is increasing in the Sacramento Region:

months of housing inventory in region by sacramento appraisal blog

number of listings in Placer  Yolo El Dorado Sacramento - by home appraiser blog

Real estate trends are sort of like neighborhoods at times. What happens on one parcel can tend to impact a property next door (even though we’d like to think we live on “parcel islands“). That’s why knowing what is happening in Sacramento, Placer, Yolo, and El Dorado County can help us see where the market as a whole is going. Overall inventory increased from 2.23 months in May 2014 to 2.43 months in June 2014.

8) It’s taking 37 days on average to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blog

Properties are not sitting on the market for very long since 37 days is still fairly quick. However, if they are not priced correctly, they are DEFINITELY sitting. Buyers have been gaining more power in the market, so they can afford to be a bit more picky. My advice to sellers? Remember, the market is no longer as aggressive as it was in 2012 and 2013, so it’s important to price your properties correctly if you want to sell.

9) There are 8% more listings this month in the Sacramento area:

number of listings in Placer Sacramento Yolo El Dorado county - June 2014 - by home appraiser blog

The number of listings jumped by about 8% from last month to this month, while the number of sales stayed about the same. The number of pending sales is actually lower than last month, which shows the market definitely experienced a slow down.

A little wood project: By the way, from time to time I like to share things I build since I enjoy working with wood. This is a porch footstool I built a few weeks ago out of scrap wood. It’s really meant for an adirondack chair, but it’ll still work I think. It’s kind of funky and it can double as a launch ramp for the kids.

porch footstool

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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10 quick talking points for Sacramento’s housing market

Imagine you’re in line at Starbucks with a friend, and your friend asks you about the housing market. How would you describe what the Sacramento market is doing? It’s easy to speak in generalities about it being a good time to buy or sell, but when you get more specific, something powerful happens. You begin to sound like a pro. Check out ten quick talking points to help explain how the market is unfolding.

Two ways to read this post:

  1. Scan the highlighted text and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

free graphs from sacramento appraisal blog

1)  The median price has been flat for the past couple of months:

Median price and inventory since 2011 by sacramento appraisal blog

The market over these past six months has seen a normal seasonal uptick, but values have been flattening out a bit lately. Different neighborhoods are experiencing different dynamics of course, but the overall market is more or less flat. The median price in Sacramento County is currently $270,000.

2) The number of listings has increased since January:

Active listings in Sacramento County by sacramento appraisal blog

It’s normal in real estate to see listings increase during the Spring and beginning of Summer, but it’s still good to be able to explain that the number of active listings in Sacramento County was closer to 2200 in January and is now over 3000. This means buyers have more opportunities to get into contract.

3) Inventory increased again last month and is close to 2.2 months:

inventory in sacramento county - by sacramento appraisal blog

Housing inventory increased again this past month and is now at 2.16 months of housing supply. This means there is just over two months worth of houses listed for sale on the market compared to the number of sales last month.

months of housing inventory by sacramento appraisal blog

Keep in mind two months is still very low, which means there is still quite a bit of competition to get into contract. The graph above illustrates how much inventory is in each price segment, and there is clearly stiff competition below $400K. This underscores the reality that different price segments can experience different trends in the same market.

4) Sales volume is down 14% from last year:

sales volume in Sacramento County since 2008

sales volume in June in Sacramento County since 2008

Sales volume this past quarter is down 14% compared to the same time last year, but the good news is we’ve had three strong months of sales in a row. This is an especially welcome phenomenon after a couple dismal months in the beginning of the year. There were slightly more sales in June compared to May, but not really anything to write home about.

5) FHA buyers are gaining more power:

FHA sales in Sacramento County by sacramento appraisal blog

It has been much easier for FHA buyers to get into contract these days compared to the beginning of 2013 when it was incredibly difficult. In fact, FHA sales increased by 6.4% when comparing Q2 2013 to Q2 2014. If you haven’t brushed up on FHA minimum property requirements, it may be a good time to do so since FHA is becoming more relevant again.

6) Cash sales have declined by 13% since last year:

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash sales are down 13% county-wide compared to where they were one year ago (down 16% from their peak). There has been a dramatic decrease of cash in the Sacramento market, and it has really made the rest of the market adjust or “normalize” so to speak. What does it look like to be a market that is not driven by cash investors from outside of Sacramento? That’s what the housing market is trying to figure out.

cash sales and volume in sacramento county - by home appraiser blog

This graph shows cash sales from January to June in both 2013 and 2014. What do you notice? Cash volume was about two times higher (47%) in 2013 compared to 2014, whereas there have been more non-cash sales this year. When you’re talking to clients about how the market has changed, this is an X-factor. In other words, if cash volume was still as high as it was last year, inventory would be incredibly low, and the market would feel much like it did in early 2013.

7) It’s taking 35 days on average to sell a house:

CDOM in Sacramento County - by Sacramento Appraisal Blog

On average it’s taking just over one month (35 days) to sell a house in Sacramento County. This trend is about the same for the entire region (37 days), but I’ll get to that on Thursday. Generally speaking, the higher the price, the longer it takes to sell. Keep in mind there were only 12 sales between $750,000 to $1M, so don’t put too much weight in that category.

8) Interest rates are still flirting with the 4% range:

interest rates by sacramento appraisal blog since 2008 interest rates by sacramento appraisal blogInterest rates took another slight dip last month, but really rates have been flirting with the lower 4s all year. What happens with interest rates will directly impact affordability, which really matters since values are much higher than they used to be. The market still feels fragile, so if rates shoot up too quickly, it could be bad news for values. It’s doubtful The Fed would increase rates aggressively right now, but who knows.

9) Today’s market is simply different than the market in 2013:

layers of the market since 2011 sacramento county - by sacramento appraisal blog layers of the market sacramento county - by sacramento appraisal blog

The real estate market has many “layers” that impact value. The keys drivers for the latest real estate boom were cash investors, historically low interest rates, and incredibly low inventory. Now the “layers” of the market have shifted though where inventory is increasing, interest rates are no longer in the 3s, and cash investors have sincerely stepped back their game. This means we have a real estate market that is much more sensitive to the health and strength of the local economy instead of being driven by rates and out-of-town investors. Key factors to watch over the next two quarters are inventory, sales volume, and interest rates.

10) REO sales are ten times lower than what they used to be:

REOs and Short Sales in Sacramento County

REOs and Short Sales Percentage and Volume in Sacramento County

Sacramento County used to feel like Foreclosureville, but the market is simply no longer distressed. Both REO and short sales are hovering at about 7% of the market. This is very low considering in the first quarter of 2009 REO sales were literally ten times what they are now.

One Last Bonus Chart:

Q2 2013 and Q2 2014 comparison in Sacramento County

Summary: Our market was on fire for 18 months after values bottomed out in early 2012, but over the past year the market has really slowed, and is ultimately trying to figure out how to be normal again. The beginning of 2014 has shown a typical seasonal uptick, but overall the market feels as if it is cooling more than not since some properties are being priced at similar levels to the most recent sales (or slightly lower in some areas). The market is competitive because inventory is still low, but at the same time it is very price sensitive. Buyers are not biting on listings that are priced too high, and they are not willing to pay top dollar for outdated homes either. In a hot market buyers tend to look past some negatives when inventory is really tight, but that’s becoming less common now. By the way, I’ll share some Placer County and regional trends in a few days.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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How much is that home remodel really worth?

How much is a remodeled home worth compared to a home without upgrades? An owner might spend $50,000 on improvements, but does that make the home worth $50,000 more? How do appraisers determine the value of upgrades in cases like this? Let’s look at an example.

SUBJECT PROPERTY: Upgraded and sold at $350,000

upgraded subject property - by sacramento appraisal blog

This property had refinished cabinetry in the kitchen, granite slab counters, an extensively-upgraded bathroom, hardwood flooring, travertine flooring, new fixtures, plantation shutters, and all the bells and whistles (including a blue door). I did not appraise this property, but I’ve called it the “subject” since we are comparing this property to other sales in the neighborhood (one of which I did appraise).

COMP: Few upgrades and sold at $329,500

standard comp - by sacramento appraisal blog

This property had a very similar square footage and the same bed/bath count, but very few updates overall. When comparing the subject property with this house, it looks like the market paid $20,500 more for the upgrades ($350,000 – $329,500 = $20,500).

MODEL MATCH COMP: Minor updates and sold at $320,000

standard model match comp - by sacramento appraisal blog

This property is a model match and sold at $320,000, and really didn’t have many updates other than low-grade granite counters. The sales price was lower since it sold at a slightly cooler time in the market when there was more inventory, but also because there was a den instead of a full third bedroom. The cost to convert this den back to a bedroom was definitely a factor in the lower price. All things considered, this property easily would adjust out to $327,000 to $330,000 when considering the den and the market at the time.

remodeled property vs standard home - by sacramento appraisal blog

As you can see on the graph, there are many other data points in the neighborhood to help interpret value. When considering comps above as well as all other information, the conclusion is straight-forward:

What are the upgrades worth? About $20,000 to $22,500.

KEY POINTS:

  1. Cost & Value: There is a difference between cost and value. The owner in this case probably spent more on the upgrades than he/she actually got in value. Other neighborhoods might show a much greater difference, but in this case the owner only got about $20,000 for some fairly expensive updates.
  2. Should you upgrade? If you plan to upgrade your home, tour some listings in the neighborhood and pay attention to what has been done to those houses and what they end up selling for. Ask yourself if it is worth the cost and effort to spruce up your home compared to the potential resale value.
  3. Overbuilding: There is a price ceiling in every neighborhood. If you improve your house too much, it probably won’t sell above that price ceiling since buyers are only willing to pay a certain amount in a particular neighborhood before moving on to look at other neighborhoods where values might be higher already.
  4. Rulers vs. Movers: Sometimes we want appraisers to “give” more value to certain features. The owner in this case would have loved to sell the house for $375,000, but the market was only willing to pay $350,000. This underscores the point that appraisers don’t give value, but instead recognize it in the market. In other words, appraisers don’t create value or even make value go up or down, but simply interpret the most probable price the market is willing to pay. It’s best to think of appraisers as rulers for the housing market instead of a gas pedal or brake pedal

Question: Any thoughts, insight or questions? I’d love to hear your take.

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Tips for effective blogging for business

Do you have a blog for your business? Why or why not? I’ve been blogging consistently for over five years, and it’s made a very significant difference for me. In fact, I’m coming up on post #1000 very soon here, and I’m excited about that. Anyway, about six weeks ago I spoke at Drexel University for a Sacramento Business Journal event about effective business blogging. I wanted to share the talk with you in case it might be useful. I give an overview of blogging and provide very practical tips for how to blog. This is not about SEO tricks, but about the nuts and bolts of developing solid client-centric content. This is good background fodder while working, or might be useful while driving or cleaning the house. Check it out below (or here), and let me know what you think.

I did this presentation with video and social media expert Kerry Shearer, and here is a shot of me in action (if you tied my hands, I probably wouldn’t be able to speak).

ryan lundquist blogging class - sacramento business journal

SacBiz-Journal-Event

Some tidbits: In the video I mentioned the importance of developing a subscriber list, but I forgot to go into more detail. You can use a tool like MailChimp to manage subscribers. Also, this class was on both blogging and video. I mentioned in one part that I would show certain videos, but that portion didn’t make it into the video above. Here is the playlist of videos I showed during the presentation as examples of different types of videos you can make (talking head, scrolling photos, screencast, green screen, etc…). I played the first 5-10 seconds of each video.

how to create original blog content

How to come up with post ideas: Lastly, I mentioned my blog content cloud (see above), which is what I use to keep 20-30 post ideas in front of me at any given moment. I simply write down post ideas and keep them on a cork board above my monitor. One of the most important aspects of blogging is consistency, but one of the major hurdles for success is actually coming up with consistent content. That’s why this content cloud helps me thrive. Download for free and use as you wish.

I hope this was helpful.

Questions: Do you have a blog? Why or why not? Any other insight?

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The importance of understanding what “market value” really means

If a buyer and seller agree on a price, that’s market value, right? I ask this question all the time during real estate presentations, and responses are mixed. There are passionate yeses, but there is also a bit of hesitation. Ultimately having a good framework for market value is incredibly useful when working with buyers & sellers – not to mention appraisers. Let’s consider 10 quick scenarios to test the concept of a buyer and seller’s price equaling market value.

what is market value - by sacramento appraisal blog

Quick Test: Which one example is a good picture of market value?

  1. An out-of-area investor is paying $30,000 higher than any recent sales.
  2. A short sale is in contract 10% lower than any sales or listings.
  3. A buyer really needs to find a home, so she offers more to close quickly.
  4. Grandma sells her house to a grandson for 25% less than all other sales.
  5. A seller is giving the buyer artwork and a car if the buyer closes at X amount.
  6. There were zero offers at $350,000 after 150 days, but now there is a contract at $350,000 with a $30,000 credit for the buyer.
  7. A property has been on the market for a reasonable period of time, was priced at a reasonable level, and had several offers at list price.
  8. An FHA offer is $13,000 above all others in hopes of getting into contract.
  9. A builder can’t sell units at the same price level as last year since the market softened, so the builder is offering fat credits to help keep prices high.
  10. A buyer wants to live next door to an aging parent, so the buyer offers $40K above any recent sales or listings.

Contract Price vs. Market Value: Can you see why a buyer and seller’s agreed upon price might not represent market value? A property can get into contract at any price level, and both the buyer and seller might agree with that price, but the price might not represent what the rest of the market is willing to pay (see “100 buyers vs 1 buyer” below). Of course if you’re paying cash, you can define “market value” however you want, but if there is a loan involved, Fannie Mae’s definition of market value comes into play.

overpriced property for neighborhood

Fannie Mae Definition of Market Value: Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

100 buyers vs. 1 buyer: If you lined up 100 buyers, how much would most of them pay for a particular property? That is a good picture for market value from an appraisal standpoint. If you are listing a house or coaching buyers on making an offer, it might be helpful to think about value this way because it is more in tune with how an appraiser is likely going to be thinking about value. Does that make sense?

Questions: Do you agree with the definition of market value? Why is it important to define what market value is? What is example #11?

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A podcast interview with an appraiser and real estate broker

I did a podcast interview recently with Real Estate Broker Marguerite Crespillo, so I wanted to share. Our conversation is perfect background noise while working, driving, cooking, or doing Zumba (okay, maybe not Zumba). We talk about the flat market, how appraisers make adjustments, using price per sq ft in real estate, a suicide house I appraised, what market value is, Zillow, and many other topics. Thank you Marguerite for the invite. It was an honor. Listen below (or here). You can check out the podcast on Marguerite’s blog too at Understanding the Value of Real Estate. Enjoy and let me know what you think.

interivew with marguerite crespillo and ryan lundquist Thanks so much for listening.

SacBee Blog Love: By the way, I was quoted a few days ago in a Sacramento Bee news story, which is always an honor. I’ll admit though I was tickled to see they mentioned my blog on the front page. I’m not bragging in any way, so I hope it’s not coming across that way. I just thought it was cool, and thought you might too.

blog

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How do you price a larger home when there are only smaller comps?

How do you know what a larger home is worth if the only recent sales are much smaller in size? A friend asked me this question recently as she was trying to price a listing. There are a few things I do when in this situation, and since this conversation helped my friend, I figured it might be useful here too (she said it was okay to turn this into a blog post).

weighing value by sacramento appraisal blog - image purchased and used with permission - 1

Question: I can find properties that are great comps, except for square footage. The property I am trying to value is 1730 square feet. All the others are less than 1200.  Is there some kind of formula you use to make up for the difference?

Answer: I only wish there was a formula so I could hire a computer to write all my reports and make adjustments for me. In this case the first thing I wonder about is why this house is 1730 sq ft in the middle of 1200 sq ft homes. Is the square footage legitimate? Or are we talking about a lower-quality add-on or garage conversion? Or maybe there simply haven’t been any larger sales that have sold recently.

  1. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerImmediate Neighborhood: The first place I would start would be to look at older sales in the immediate neighborhood. I would go back in time as far as needed to see what properties around 1730 square feet have sold for. This would help me gauge the market and begin to get some sort of a price point to understand what buyers have been willing to pay for larger-sized homes. I probably wouldn’t use these “oldies” as comps in my appraisal report, but they are still valuable to help paint a price context.
  2. Price Percentage Differences: When finding older sales I would look at how much of a price difference there has been between larger homes around 1730 sq ft sales and 1200 sq ft sales. If I can extract some sort of a percentage difference based on those sales, I might be able to apply that percentage adjustment to any 1200 sq ft sales today.
  3. Competitive Neighborhoods: Lastly, after gleaning a better understanding of trends in the immediate neighborhood, I would probably branch out to find some larger-sized comps from competitive neighborhoods.

Question: Any insight, additional points or questions? I’d love to hear your take in the comments below.

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