5 things to remember about the value of landscaping

How much value does landscaping really add? Nothing. A minor amount. A huge total. I’ve heard it all when it comes to what people think landscaping is worth. Today let’s kick around some ideas from an appraisal standpoint. Anything to add?

landscaping in appraisals - sacramento appraisal blog

5 things to remember about the value of landscaping

1) The myth of no value: I’ve heard the sentiment from some real estate professionals that landscaping does not count toward the value. My take? Landscaping is often very important to buyers – especially when it is extensive or highly expected in certain neighborhoods.

2) Front vs back: My sense is front yard landscaping does not sway buyers like the backyard does. I’m not saying it’s not important or curb appeal doesn’t matter (it does). I’m only saying the rear yard tends to make a much more significant impact on value since people spend more time there.

3) One size doesn’t fit all: The value of landscaping will vary significantly depending on the price range and neighborhood. For instance, a few years back during the height of home flipping activity, it was common to see flippers at the lower end of the market do very basic cosmetic landscaping in the front yard while doing almost nothing with the backyard (seriously, rear yards were at times just dirt or bordering on unkempt). In contrast, higher priced homes were getting full-service attention in both the front and backyard. Why? Because the market had different expectations by price range and the investors’ sense was spending the money was worth it in some neighborhoods and not others.

4) On par after huge money spent: Sometimes owners will spend good money to redo an unkempt yard only to expect a huge price premium. The problem is post-landscaping the owner is now basically on par with other homes in the neighborhood rather than in a position to command a premium. This is not easy to swallow, but it’s important to recognize in order to avoid overpricing. 

5) Dollar for dollar: While we like to get a “dollar for dollar” return on our improvement projects (at the least), that’s not always possible in real estate. So when an owner says, “I spent $125,000 in my backyard” and otherwise similar homes are selling for $700,000, can we really expect this property to be worth $825,000? That’s probably not realistic, right? Most of all though, let’s find comps with incredible landscaping and let those properties tell the story of value. That way we are letting actual market data speak to us to set the tone for what buyers have been willing to pay for similar landscaping. Isn’t that better than shooting from the hip about what landscaping may or may not be worth?

Case-in-point for an incredible backyard: While appraising in the Natomas area of Sacramento I came across a house with an incredible backyard. I ended up NOT using it as a “comp” because this property sold about 10% higher than others because of the built-in pool, custom covered patio, built-in BBQ, outdoor fireplace, and everything else in the yard. I’m not calling all of these things landscaping of course, but at the same time let’s be realistic to think buyers may lump some of these items in the same category. Anyway, at times it’s tempting to give a token $10,000 upward value adjustment when we see a nice rear yard because that’s what a mentor taught us to do, but sometimes the market is willing to pay more like 10%. In this case otherwise similar homes seemed to come in around $450,000 and the subject sold for $495,000 (there were 7 offers). There was one other sale at $485,000 and it also had a sweet backyard. As you can see on the graph, the incredible backyard seemed to really matter.

incredible landscaping - sacramento appraisal blog

Here is what the rear yard looked like. I could live with that. You?

house with amazing rear yard - sacramento appraiser

Remember, let’s find a few examples of extensive rear landscaping (or an amazing backyard) if possible so we don’t base our perception of value on only one sale. After all, what is that one sale sold too high or too low?

The Washington Post: Two weeks ago I wrote a post about the ugly side of appraisal fees, and as a result Ken Harney of The Washington Post interviewed a handful of appraisers (including me) for a piece that went live today. Ken is a nationally syndicated columnist, so the conversation that took place here is going to be moving to a much bigger level. Thank you everyone. Here is Ken’s article.

Questions: What stands out to you most about what I mentioned above? What is #6? Did I miss something?

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Insane value increases (not really) and Facebook real estate trends

The market has been showing insane value increases. Well, on paper it looks that way, but in reality that’s not what we’re seeing right now. Let’s take a deep look at the market today and also consider real estate trends we can glean from Facebook statuses. This big monthly post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts? 

Three real estate trends we can glean from Facebook:

1) Asking for inventory: I am seeing many posts from real estate agents saying, “I have buyers, but there aren’t any homes on the market”, or “Do you have any upcoming homes in XYZ city or neighborhood?”, or “There are only 11 listings in the entire zip code.” Even if we didn’t have actual numbers to show inventory is sparse, we could pick up on this reality by some of what we see on Facebook. This is a good reminder that data is not just about looking at sales. 

2) Asking for rentals: Many in the real estate community and the general public are asking for rental inventory on social media. There are so many posts from tenants needing to find a home or agents and loan officers asking on behalf of someone. A person I know recently posted about trying to rent a home in Roseville only to have to compete with 23 other contracts on one house.

3) Announcing price improvements: This market is “hot”, but buyers are not biting on absurdly overpriced listings. This is why we still see Facebook posts telling of price reductions or “price improvements” (a softer way of saying the same thing). You might think we wouldn’t see such a thing in a “crazy hot” market, but we do.

4) What is #4?

———————- big monthly market update below ———————-

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

A MARKET SUMMARY:

Last month values increased no matter how we look at it. The median price, average sales price, and average price per sq ft all increased in Sacramento County, Placer County, and the region. This isn’t a surprise though because it’s what tends to happen in the spring. The mistake we can easily make though is to look at the median price rising nearly 5% last month and say things like, “Values increased by 5%.” Thus if we’re not careful we might claim values are increasing rapidly when in reality they simply got back to where they were at the height of summer before a lull in the fall.

While the market is said to be “hot” in the “Farm to Fork Capital of America”, let’s still remember the market is not doing the same thing at every price level. Inventory is incredibly sparse under $400,000, and that is putting tremendous pressure on values to increase, but in some higher price ranges and neighborhoods the market feels a bit flat. Yes, there are multiple offers on about anything that is priced right, but still we have to not confuse the aggressive feel of the market with rapid appreciation. In short, at the moment we are not seeing the type of rapid appreciation we had in 2013 at the height of the glory days of Blackstone. In all of this let’s remember too we’ve had value increases without much wage growth. Let’s keep rooting for wages and the economy to drive the market instead of anemic inventory and low interest rates. 

Lastly, let’s remember the bulk of listings in 2016 hit the market between April and August, so my advice to buyers is to keep waiting for inventory to come (many buyers are feeling hopeless). I would advise sellers to price according to other properties that are actually getting into contract too instead of sensational real estate headlines.

SACRAMENTO COUNTY:

  1. The median price increased to $323,500 (8.2% above February 2016).
  2. The median price rose 6% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 6% in one month.
  3. Sales volume in February 2017 was just about 1% higher than last year.
  4. It took an average of 44 days to sell a home last month (one year ago in February 2016 it was taking 2 days longer to sell).
  5. It took two days longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).
  6. FHA sales volume is down 6% this year compared to 2016 (but roughly 25% of all sales were FHA last month).
  7. Only 3.8% of all sales were bank-owned and 2.3% were short sales.
  8. The average price per sq ft was about $204 last month (about 2% higher than January, but 8% higher than last year).
  9. The average sales price increased about 2.5% last month and is currently $348,892. This is 7.7% higher than last year.
  10. Cash sales were 15% of all sales last month.

Some of my favorite images this month:

Median price since 2013 in sacramento county

price metrics since 2015 in sacramento county - look at all

inventory in sacramento county Since 2008 - by sacramento appraisal blog

inventory - February 2017 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

sales volume in Sacramento County since 2012

january seasonal market in sacramento - 2

SACRAMENTO REGIONAL MARKET:

  1. The median price increased to $355,600 (7.7% above February 2016).
  2. The median price rose 4.8% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 4.8% in one month.
  3. Sales volume in February 2017 was about 2% higher than last year. Sales volume in the region is up nearly 3% this year so far.
  4. It took an average of 48 days to sell a home last month (one year ago in February 2016 it was taking 3 days longer to sell).
  5. It took one day longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).
  6. FHA sales volume is down 6.7% this year compared to 2016 (but roughly 22% of all sales were FHA last month).
  7. Only 3.4% of all sales were bank-owned and 2.5% were short sales.
  8. The average price per sq ft was about $210 last month (about 1% higher than January, but 7% higher than last year).
  9. The average sales price increased about 2% last month and is currently $387,105. This is 4.3% higher than last year.
  10. Cash sales were 16% of all sales last month.

Some of my favorite images this month:

Regional Inventory - by Sacramento regional appraisal blog

inventory in sacramento regional market

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

sacramento region volume - FHA and conventional - by appraiser blog

median price and inventory in sacramento regional market 2014

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. The median price increased to $435,000 (4.8% above February 2016).
  2. The median price rose 2.5% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 2.5% in one month.
  3. Sales volume in February 2017 was about 9% higher than last year.
  4. It took an average of 51 days to sell a home last month (one year ago in February 2016 it was taking 7 days longer to sell).
  5. It took 1 less day to sell in February compared to January.
  6. FHA sales volume is down 12.6% this year compared to 2016 (but roughly 17% of all sales were FHA last month).
  7. Only 2.5% of all sales were bank-owned and 3.1% were short sales.
  8. The average price per sq ft was about $219 last month (about 3.9% higher than January and 4.8% higher than last February).
  9. The average sales price increased about 2.4% last month and is currently $478,589. This is 3.5% higher than last year.
  10. Cash sales were 16.5% of all sales last month.

Some of my favorite images this month:

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog 2 Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

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

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.

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The ugly truth about appraisal fees

I had a bad experience with an AMC recently and I want to share it. This is not because I’m wanting to rant or be negative, but only to highlight some of the ugliness that happens behind closed doors when it comes to appraisal fees during loans. This is especially worth knowing about for any home owners and real estate agents for the sake of their clients. Any thoughts? I’d love to hear your take. 

35462423 - closeup of thief taking money out of back pocket over white background

The Issue: I was asked to appraise something challenging, so I quoted a fee that was higher than a standard fee in Sacramento but still reasonable for the job because the house was funky. Anyway, I was comfortable with the fee and it was accepted by the AMC (Appraisal Management Company) that the lender hired to manage the appraisal ordering process. But then things got interesting because through the course of the transaction someone showed me an email from the loan officer where I learned the AMC was actually charging the buyer $345 higher than the fee I quoted. What the? That seemed excessive, but the real clincher for me was the email showed a chain of conversation with the AMC where they said I was the one who quoted the much higher fee. Not only was the AMC gouging the buyer in my opinion, but there was a blatant lie that I was the one dictating this fee that was 43% higher than the one I quoted.

Look, I’m not a complainer and I am a total optimist, but this is not okay on so many levels.

Why this matters:

1) Anger & The Real Fee: Let’s remember the appraisal fee charged to the buyer might be far different from what the appraiser actually gets. Thus before becoming angry at the appraiser for charging so much, try to find out what the appraiser is being paid (and what a market rate is for your area too). Is the appraiser actually getting that rush fee your buyer paid too? Keep in mind many AMCs tell appraisers not to discuss fees, so unfortunately it’s not likely you’re going to get an answer from the appraiser (maybe ask the loan officer to dig around). To complicate matters, it’s common for AMCs to tell appraisers NOT to attach an invoice to the appraisal report, so it’s not easy for anyone to find out how much the appraiser made from the fee the buyer paid unless there are disclosure rules from the state.

2) Appraisal Quality: In many cases AMCs are scraping so much off the top that the appraiser really isn’t making a reasonable market fee. It’s easy to gloss over this as insignificant, but it matters because over time if appraisers do not earn market rate fees it is going to weed out more experienced appraisers from doing loan work. Could this impact quality? I think so. By the way, if you didn’t know, an Appraisal Management Company is NOT used during a private valuation such as a divorce, pre-listing appraisal, estate planning, litigation, hard money loan, bankruptcy, etc… By the way, let me make it clear that not all AMCs are bad either.

3) Longer Turn-Times: At times it’s difficult for an AMC to find an appraiser because a property is so unique or it’s in a rural area. This can be frustrating for everyone else in the real estate transaction because it hands-down makes an escrow longer. Yet sometimes the problem isn’t the lack of an available appraiser, but rather the AMC broadcasting an absurdly low fee to countless appraisers for weeks. If the AMC would have simply started the process with a market rate fee and a realistic turn-time, maybe the order would actually be finished by now.

4) Lack of Transparency: California does not require disclosure on the HUD-1 of the fee paid to the appraiser vs the fee paid to the AMC. Since these fees are not separated, there isn’t any transparency as to what the appraiser and AMC are getting. I would think some buyers would be shocked to learn the appraiser didn’t get the full fee in the first place – not to mention a $345 AMC fee. Why would we not disclose these fees? Can’t we do better at being transparent?

I hope this was helpful or interesting. Any thoughts?

New Video: I made a video called “The market isn’t doing the same thing in every neighborhood.” It’s a quick look at three neighborhoods. Watch below (or here).

Questions: What stands out to you most about what I mentioned above? Anything else to add? Did I miss something? What is the best way to avoid working with bad AMCs?

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When value is higher on one street than another

The cookie cutter tract homes are the easy ones, but sometimes value can change dramatically from one street to another – especially in older eclectic areas. Maybe you’ve seen this before after pulling comps and finding a huge disparity in prices. Today let’s look at an example of this happening to me recently. Any thoughts? I’d love to hear your take.

value higher on one street - sacramento appraisal blog

Values are sometimes all over the place, and that’s exactly what I saw when appraising a house in Carmichael. Take a look below at the graph. How do you think the subject street fits into the market?

Subject street in Carmichael - Sacramento Appraisal Blog

Value Conclusion: When we look at the graph with over 17 years of neighborhood sales, it’s clear properties on the subject street tend to compete toward the mid-to-higher end of the market range (even when they aren’t all that updated). Keep in mind every sale on the graph is between 1600-2100 sq ft, so we are looking at a tight range over a long period of time. You can also see there is a range where most properties have been selling between $350,000 to $500,000 lately.

Some tips for seeing the market in eclectic neighborhoods:

1) Pay close attention to subject street sales: There were 7 available sales for me to look at on the subject street over the past two decades. This might seem limiting, but it’s much better than zero, and ultimately it means I have seven data points that might help me see the context for how the subject street fits into the market. Of course we always have to use good professional judgment and not get caught up in giving too much weight to very little data. 

2) Look through years of data: In an eclectic area where values seem to be all over the place it’s a good idea to study the market by looking at years of sales. The goal is to know how value works and be able to see which streets or types of properties are fetching price premiums. When looking at areas like Fair Oaks, Carmichael, and East Sacramento, this is very key. In this case I appraised the subject property around $450,000, but there were sales within blocks that were coming in between $350,000 to $375,000 with seemingly superior upgrades too (probably why Zillow had this one at $378,000). After studying the market and carefully comparing previous sales on the subject street it was clear the subject street sales were competing at a higher price tier compared to other streets. It would have been a shame if I hastily pulled up three “comps” and brought this one in at $350,000 when the market was clearly willing to pay more.

3) The feel of the street: On paper it might look like we are pulling good “comps”, but then after driving by other streets we might see a lower quality of construction, or unkempt homes, or maybe a negative influence from commercial property.

4) Real estate community: It’s helpful to talk with other real estate professionals who know the neighborhood. I find most real estate agents and appraisers are actually pretty helpful when you call to say, “Hey, I have a question. May I bend your ear for a minute?” I realize not everyone is receptive to talking (lame), but that doesn’t take away the importance of building good relationships in the real estate community so we can exchange information. My advice? When people call you, be the type of person you wish everyone else was. Bottom line. All things considered, it is worth noting we still have to be careful not to impose someone’s perception of the market on our value. So let’s seek insight from others, but let’s also not forget to look at actual data and support the value we say exists.

5) Learn to graph so you can see the market: The graph above was part of my research and it helped me visualize the market. I know, here I am mentioning graphing again, but I only do that because it’s revolutionized the way I see the market. Anyway, here is a tutorial I made for learning to make a basic scatter graph in Excel. If you didn’t know, there are a couple of programs you can use to quickly export neighborhood data from MLS to make graphs. I might suggest looking at Don’s 1004MC program (for locals and some other states (right now his site is down)) and Trendsheet (covers many states). These programs are built for appraisers, but I tell Realtor friends all the time to consider using them and just skip the appraiser stuff. 

UPDATE: I was asked by several people in the comments and by email how to make a graph like the one above, so I made a video tutorial. Check it out here or below.

I hope that was useful or interesting.

Questions: What is #6? Did I miss anything? How do you figure out if there is a value premium for a certain street? How do you avoid choosing the wrong comps? I’d love to hear your take.

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