10 quick talking points when someone asks about Sacramento real estate

The holidays are here, so if your Uncle Bob asked you next week at a family gathering what the real estate market is doing, what would you say? Or if a neighbor heard the market has been slow, how would you respond? Below I have 10 quick talking points to help you impress your Uncle Bob or anyone else with your knowledge of the local market. So let’s unpack some real estate trends in Placer County and the Sacramento region to hone in on two important questions: What are values doing? And why are they doing it?

Two ways to read this post:

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

GRAPHS

PLACER COUNTY

1)  The median price dipped about 2.5% last month:

Placer County median price since 2013 - by home appraiser blog

It’s not surprising to see the median price dipped last month by about 2.5% in Placer County. The median price had been at $375,000, and now it’s at $365,000. It is very normal for prices to soften at this time of year, which is seen in the graph below. Yet at the same time, the market really is getting much softer in light of increasing inventory, which is also important to watch.

Placer County median price since 2012 - Fall season - by home appraiser blog

2) Inventory increased to 3.24 months last month.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Housing inventory saw an increase from 2.75 months to 3.24 months from October to November 2014. This increase sounds dramatic, but fewer sales last month played a big role in seeing inventory increase. Remember, housing supply is calculated by dividing the number of current listings by the number of sales over the past 30 days, so a lower amount of sales will naturally drive inventory up. As you can see, inventory is not the same at ever price level, is it?

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

3) It’s taking an average of 55 days to sell a house in Placer County:

days on market in placer county by sacramento appraisal blog

It took one more day this month to sell a house compared to the previous month, and about 10 more days compared to mid-Summer. It’s still taking much less time to sell a house than it used to about 5 years ago, but it is still very important to price listings correctly. When prices are softening and houses are taking longer to sell, this means overpriced homes are simply going to sit. Generally speaking, the higher the price, the longer the marketing time. Keep in mind sales above $1M took only 91 days, but there were only 12 sales, so take that stat with a grain of salt. Realize too that current actives above $1M have been on the market for 198 cumulative days.

4) Sales volume is slightly lower right now compared to last year:

Placer County sales volume - by sacramento appraisal blog

There were only 345 sales in Placer County this past month, and that’s a fairly low number, though last year in November the figure was only 365.

SACRAMENTO REGION:

5) Regional values in Sacramento softened by about 2% last month:

median price sacramento placer yolo el dorado county

The regional market was extremely flat for about six months, but it finally dipped over the past couple of months in light of the onset of Fall. An increase of inventory is definitely putting pressure on values too. Housing supply lately has been hovering about where it was when prices hit bottom in January 2012.

Regional market median price - by home appraiser blog

When watching real estate, it’s important to take a broad look at how values are unfolding in surrounding counties as well as the entire region. If we look too closely at any given county, we might not be able to see the bigger picture. By the way, the median price in Placer County is $100,000 higher than Sacramento County. Does this mean prices are $100,000 higher in Placer County? Nope. Keep in mind the average size of house that sold last month in Placer County was about 450 sq ft larger in size than in Sacramento County. This makes for huge price differences, don’t you think?

6) Sales volume is down 7.5% this year compared to last year:

SALES volume in sacramento region - by home appraiser blog

Sales volume is down in 2014 by about 7.5% when compared to the same time period in 2013. This might seem like a trivial number, but it equals about 1900 less sales on MLS so far this year.

7) Cash sales are down 34% in the Sacramento Region in 2014:

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

Our regional market was heavily driven by cash investors over the past couple of years, but cash is no longer king. In fact, there have been 34% less cash sales in 2014 compared to 2013, which effectively means there have been 2186 less cash sales so far this year. This is a huge reason why housing inventory has increased this year because there are simply less buyers in the market right now. As time goes on, non-cash sales continue to show an increase as owner-occupant buyers are ultimately beginning to drive the market more and more. Some good news in the market is that FHA, conventional, and VA buyers have been increasing in numbers.

8) It’s taking an average of 50 days to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blogIt took one more day last month to sell a house compared to the previous month (10 more days since July 2014). It’s important to be in tune with the trends of each price range too since the market is not the same at each segment.

10) Housing inventory is a HUGE driver for the regional market:

months of housing inventory in region by sacramento appraisal blog

The higher the price, the more inventory there is (generally speaking).

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

median price and inventory in sacramento placer yolo el dorado county

As you can see, housing inventory in the region is definitely increasing, and that has dramatically slowed values over the past couple of years. Remember that housing inventory was artificially low at times in 2012 and 2013 because of the massive influx of cash investors who came from outside of the market to take advantage of the lower prices at the time.

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

Since the current market is no longer driven by cash investors, real estate is more prone to be strongly influenced by the health and strength of the local job market as well as increases in inventory.

I hope this was helpful, and I do hope you can share something here in a conversation soon. Thank you so much for being here.

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? What are you seeing out there?

The market continues to cool in Sacramento

The market is cooling, and that’s normal to see at this time of year. Yet beyond the expected chill of the season, the market as a whole is still clearly slowing down to become a buyer’s market. Let’s take a quick look today at real estate trends in Sacramento County so we can better understand what values are doing, and how to talk to clients about the market (don’t miss my 5 tips at the bottom). I’ll have a post on Tuesday to discuss the regional market and Placer County. Remember, you can use some of the graphs in your marketing too (see my sharing policy).

Two ways to read this post:

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

GRAPHS

1)  The median price dipped about 2% last month:

median price and inventory since 2013 - by sacramento appraisal blog

The median price declined from $270,000 to $265,000 from October to November in Sacramento County. Remember, it’s normal to see prices cool during this season, and the graph below helps illustrate that. Yet at the same time the overall market is definitely slowing regardless of the season.

median price in fall - by sacramento appraisal blog

2)  The median price is 33% lower than it was at the TOP of the market:

context for median price since the real estate bubble by sacramento appraisal blog

Since the bubble burst by sacramento appraisal blog

Let’s get some context. The median price hit its peak in Sacramento County in August 2005 at $395,000, and now it’s about 33% lower at $265,000. It’s hard to imagine prices were that high, but at the time buyers were willing to buy at those levels.

3)  Prices overall are softening

price metrics since 2014 in sacramento county

It’s important to look not just at the median price, but other metrics such as average price per sq ft and average sales price. This helps us get a stronger sense of the trends of the market so we don’t put too much weight on one metric.

price metrics since 2012 in sacramento county

4) Inventory increased to 2.75 months last month.

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

Housing inventory increased  from 2.47 months to 2.75 months from October to November. This seems like a dramatic increase, but remember that inventory is the relationship between the number of sales last month and the number of current listings. Sales volume was REALLY low last month, so it’s natural to see inventory see an uptick. Having 2.75 months of housing inventory means there are 2.75 months worth of houses for sale right now (active listings).

months of housing inventory by sacramento appraisal blogGenerally speaking, the higher the price, the more inventory there is. Knowing what the market is doing at various price ranges can help us better market or value properties. The market doesn’t behave the same at every price level.

inventory in sacramento county - by sacramento appraisal blog

BIG POINT: The market has ultimately become much more sensitive to increases in inventory in recent years, so what happens with inventory in coming months will help set the stage for next year.

inventory during fall 2 - by sacramento appraisal blog

5) Sales volume was sluggish in November (lowest November in 7 years):

sales volume in Sacramento County since 2001

We had a slow November. In fact, sales volume in November hasn’t been this low since November 2007. Granted, volume this year was only down by 4% from November 2013, but it’s still important to note when volume is sluggish.

sales volume in fall through 2014 - by sacramento appraisal blog

Remember that sales volume always declines in the Fall months. This is part of the normal real estate cycle, and we see this every year. However, the decline in sales volume was slightly higher this past month than normal. Volume usually declines by about 15% from October to November, but this year was 22%. This isn’t something to write home about because it’s only one month of data. It’s simply important to explain what happened.

6) Cash sales are down 40% in Sacramento County in 2014:

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

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Sales volume is down by 8.5% in 2014 compared with 2013. When we break down the numbers in Sacramento County, this means there have essentially been 1336 less sales this year compared to last year. The chief culprit in lower sales volume is the fact of 40% less cash sales in 2014 compared to 2013. Cash sales represented only 17% of all sales last month, which is far lower than 36% of all sales less than two years ago. This is great news for conventional, VA, and FHA buyers in that there is now more space to get into contract. Furthermore, non-cash sales are about 4% higher in volume this year compared to last year, which is also good news.

7) FHA sales were 25% of all sales last month (buyers are gaining power):

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

The market is still fairly competitive out there, especially for well-priced listings in good condition, but overall buyers continue to gain an edge in the market. One out of ever four buyers in Sacramento County last month used FHA financing. As you can see in the graph above, as cash declines, FHA has increased (conventional and VA are also increasing). Moreover, the market used to be about 33% FHA, so there is still some room for FHA to take an even greater share of the market.

8) It’s taking an average of 45 days to sell a house in Sacramento:

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took an average of 45 days to sell a home in Sacramento County last month (that’s the same as the previous month). As you can see above, the market doesn’t behave the same in every price range. Generally speaking, the higher the price, the longer it takes to sell. There were only 5 sales above $1M last month, and they sold very quickly. For reference, current listings above $1M have been on the market for an average of 119 days. Take stats below $100K and above $1M with a grain of salt since data is limited in both price segments.

9) Distressed sales are only 5% of the entire market:

REOs and Short Sales since the bottom in Sacramento County

The market hit bottom in early 2012, and since then both REO sales (bank-owned) and short sales have seen a dramatic decline. The market simply is not driven by distressed sales any longer. In fact, only 5% of all sales last month were REOs and 6% were short sales. Investors did a great job buying up the distressed market over the past couple of years, and banks have likely done a better job with loan modifications too. Some say there is a “foreclosure wave” coming, but friends, people have been saying that for 6 years. When looking at the stats, there is a slight uptick in foreclosures this year in terms of volume, but it’s more like a rain drop rather than a wave.

10) There are many layers to the housing market

layers of the market sacramento county since 2001 - by sacramento appraisal blog layers of the market sacramento county since 2008 - by sacramento appraisal blog layers of the market sacramento county since 2011 - by sacramento appraisal blog

These are some of my favorite graphs because they help show that the market is made up of many layers. Housing trends are never just about supply and demand, but interest rates, the job market, cash investors, the economy, buyer confidence, availability of financing, etc…

Conclusion: The market is experiencing a normal Fall seasonal dip, yet at the same time the market as a whole is definitely cooling. Interest rates have seen a decline lately, which helps buyers gain more power in the market to a certain extent, but increasing inventory is the trump card in that higher inventory carries the most weight to drive values these days in Sacramento.

5 Quick Tips for Real Estate Agents:

  1. Price Correctly: Houses that are priced right are selling, but overpriced homes are sitting. The market is still very price sensitive, meaning buyers will pull the trigger quickly when the price is right.
  2. Current Listings: Remember to price according to the most current listings that are actually getting into contract. Of course you’ll want to pay attention to sales, but remember that sales are historical documents in that they tell us what the market used to be like whenever the sales got into contract. Today’s market might have softer prices compared to six months ago, so that’s why current pendings (and listings) can sometimes help give us a better temperature of what the market is like right now.
  3. Concessions & Credits: As inventory increases, buyers in some price ranges are going to be asking sellers for more credits for repairs and/or concessions in the purchase price. Preparing your sellers for this reality is important. Also, remember to be cautious about padding the price with concessions beyond what it can appraise for.
  4. Know FHA Standards: One in four sales were FHA last month, so it makes it all the more important to be in tune with what it takes for a property to meet minimum FHA appraisal standards. On a side note, if you do not know where a carbon monoxide detector should be installed, read here.
  5. Being a “Short Sale Specialist”: There are still short sales happening, but keep in mind only 6% of all sales last month were short sales (which translates to 64 short sales in November in the entire county). It’s still somewhat relevant for your website and business card to say “Short Sale Specialist”, but keep in mind there are lots of agents out there to service this limited pool of sellers. Consider marketing to sellers who have equity again and to buyers who went through a foreclosure or short sale several years ago and can now re-enter the market (these buyers are called “Boomerang Buyers”).

I hope this was helpful. Thank you so much for being here.

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? What are you seeing out there?

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How much does a busy street impact the appraised value?

How does a location on a busy street impact value? It’s sometimes easy to think a busy street might have only a minimal effect on value of $5,000 to $10,000, but it can actually be quite significant. Let’s take a look at the Arden Manor neighborhood in Sacramento for reference. What do sales on Watt Avenue, a busy 4-lane street, sell for compared to the rest of the neighborhood?

Watt Avenue street view

Arden Manor Neighborhood and Watt Sales - 530 - by Sacramento Appraisal Blog

What do you see when looking at sales over the past ten years?

Arden Manor Sales Since 2008 - 530 - by Sacramento Appraisal Blog

The best way to determine an exact value adjustment for sales on Watt Avenue is to compare similar sales on Watt Avenue to similar sales in other parts of the neighborhood. For instance, if a 1081 sq ft model sold on Watt Avenue, how much did a competitive model sell for on a more standard street without an adverse location? When we find a few data points like that, we can begin to get a sense of a percentage adjustment. However, let’s make some general observations so this doesn’t end up being an exhaustive blog post.

Observations about Value on Watt Avenue:

  1. Sales on Watt Avenue tend to sell at the bottom of the market unless they are updated.
  2. Even when properties on Watt Avenue are upgraded, they don’t sell at the top of the market. You might see the one sale in 2005 though that closed at $385,000. I’m not sure how that happened, but I will say this same property actually just sold the day after I made this graph for $155,000 (not at the top of the market).
  3. If an appraiser or agent adjusted $5,000 for the location difference, do you think that would be enough? Would you only pay $5,000 for the difference? That’s probably not very close, right? For instance, currently there is a renovated listing on Watt Avenue at $169,000, while other competitive sales on standards streets have closed on the lower end at $180,000, but mostly between $200,000 to $212,000. This means a quick conservative adjustment would be closer to $10,000 (6%), but otherwise there are quite a few sales that sold for $30,000+ more (15-20% easily). A reasonable adjustment could only be narrowed down with research, but at face glance $5,000 doesn’t look like it cuts the mustard so to speak.

The houses literally across the street: Arden Park

Arden Park and Arden Manor Sales on Watt Avenue - 530 - by Sacramento Appraisal Blog

The interesting thing about Watt Avenue is that the Arden Manor neighborhood on one side of the street has profoundly different values compared to Arden Park that is literally on the other side of the street. For the most part it looks like there is a difference of close to $100-150K, right? Some properties have sold at similar levels of course, and we have to consider the impact of low-ball bank-owned sales and/or aggressively priced short sales in 2010-2012, but otherwise the value difference is striking.

Things to Remember About Location Adjustments: 

  1. The best way to find out how much a busy street (or any adverse location) is worth is to start comparing sales on a busy street with other similar sales on standard streets.
  2. There is no adjustment that will work for every neighborhood because real estate adjustments are about location, location, and location.
  3. Location adjustments tend to get larger when a market is soft since buyers have their pick of properties, but when inventory is tight, adjustments might be smaller.
  4. If there are no recent sales on a busy street for comparison, go back in time to find older sales. What were those sales selling for at the time compared to other properties on streets with less traffic flow? Get a good sample too because having only one pair of sales isn’t enough to establish a solid adjustment.

Questions: How have you seen location impact value? Any further insight, questions, or stories to share?

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A focus on real estate training in 2015

This year I had 35 speaking engagements. I visited many real estate offices, gave presentations to lenders, spoke at the Sacramento Association of Realtors several times, taught a CE course with REAA, gave a presentation on blogging for the Sacramento Business Journal, and even taught a class this week at Sacramento State. I figure between preparation, drive-time, and the presentations, I easily gave 120-150 hours (3-4 weeks of work). In short, teaching is something I love, it’s one of my core passions, and in 2015 I plan to take things to the next level.

Would you come along with me?

a recent class at SAR

I will still come to real estate offices and speak at many meetings for free, so please keep inviting me. But the change this next year will come in being intentional about doing more trainings for hire so I can really give myself more readily. Over the past couple of years I’ve noticed hour-long trainings are good, but they only scrape the surface. When we can get 2-3 hours together, it can much more meaningful.

Trainings in 2015:

How to Choose Comps & Make Adjustments: This training will give a framework for how to more effectively approach properties like an appraiser. The way appraisers and agents undertake valuing properties is dramatically different at times (even for experienced agents), so this class can be a game-changer. We’ll talk through choosing comps, how price per sq ft fits into valuations (and some of the big errors that can occur), and going through multiple practical scenarios together in MLS to value the largest lot in the neighborhood, the 1-bedroom house, the fixer, a location on a busy street, a house with a converted garage, etc….. We’ll look at how adjustments are made in appraisal reports too. The goal is to help agents begin to see properties like an appraiser does, as well as more effectively communicate about properties with appraisers. This class is meant for a group of at least 10, and is ideal for real estate offices or trainings hosted by loan officers or title companies.

Cost: $25 per person (or we can negotiate a flat fee)
Size: 10-50
Length: 3 hours

How to Communicate Effectively with Appraisers: What can you say and not say to appraisers? What is the best way to share “comps”? How can you build your case for the value of your listing without pressuring the appraiser to “hit the number”? How do you challenge a low appraisal? In this class we’ll walk through some very practical tips for how to talk to appraisers before, during, and after the inspection. Many times the real estate community puts very little emphasis on talking with appraisers. There is sometimes a hands-off approach when working with appraisers, but the most important thing you can do as a real estate agent is to have a focused and intentional system built into your business for communicating with appraisers. This is good for both new and experienced agents.

Cost: $20 per person (or we can negotiate a flat fee)
Size: 10-unlimited
Length: 2 hours (or shorter if need be)

How to Make Graphs with MLS Data: Real estate is changing, and it is becoming profoundly more visual. This means showing a neighborhood market visually on a graph can be a very powerful tool to use with clients. Yes, we have access to zip code graphs for free in MLS, but I’m talking about knowing how to make graphs for very specific neighborhoods so you can show what values are doing for specific properties. Not only can graphs like this help you show your market expertise, but they are great for listing presentations and blog posts. Honestly, learning how to graph has dramatically changed my business and the way I approach real estate. I hope the same for you, so I’d like to sit down to share my expertise with individuals for a two-hour period to work on making a few different types of graphs. I want to teach you how to do it using Excel so you can continue doing it after the class. We can even make graphs for neighborhoods you are currently working in so you have immediate marketing tools. The cost is a bit higher for this class since the training is incredibly valuable and hands-on. This is for agents and appraisers.

Cost: $100
Size: 1 person only
Length: 2 hours

a recent class at SAR II

Other Classes: I can also do classes on real estate blogging and other topics tailored to your office or group, but for now I wanted to highlight the three classes I’m most excited about. Please note prices can change too.

How you can help me:

  1. Set up a training date in your real estate office.
  2. Refer me to speak at a local or national real estate seminar.
  3. I would like to find some title companies to partner with to promote trainings in the region.
  4. Offer meeting space in your office.
  5. Keep inviting me to your office to give market updates or do Q&As (for free).

Thanks so much for your support. I really appreciate it.

Question: What are you looking forward to about next year?

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Why do appraisers ask real estate agents about concessions?

Being an appraiser is sort of like being Magnum PI. Well, I guess it’s just the same except for the tropical island, mustache, red Ferrari, and short shorts. I’m kidding. On a serious note though, appraisers are vaguely similar in one regard in that they investigate details. This brings us to our topic today. Why are appraisers always asking real estate agents about concessions in the purchase price? And how do appraisers use this information?

magnum PI

What is a concession? “A sales concession is cost or consideration given by a seller to motivate the buyer to complete the purchase” (homewyse.com). In other words, the seller is offering something to the buyer to help get the deal done.

Why do appraisers ask about concessions? There are two reasons why appraisers need to know about concessions. First, there is a place on the appraisal form for appraisers to list any concessions for the comps, so it’s a matter of filling out the form correctly. Secondly and more importantly, appraisers need to understand what impact any concessions might have had on the purchase price of the comps. Would the comps have sold at the same level if there were no concessions? That is essentially what the appraiser is asking so the appraiser can figure out how to make value adjustments to the comps.

sales concessions - sacramento appraisal blog

Common concessions: Some of the most common concessions include the seller offering help with closing costs, paying for HOA fees, including personal property in the sale, or giving credits for repairs. We see this in new construction all the time where a builder will offer $10,000 to help pay for the buyer’s closing costs. While this might be the only listed concession, if a builder has also offered $15,000 in “free” design options (upgrades), that’s also considered a concession. On the financing end there are concessions too such as interest rate buydowns or other below-market rate financing.

Examples of Sales & Financing Concessions Straight from Fannie Mae:

  • loan discount points;
  • loan origination fees;
  • closing costs customarily paid by the buyer;
  • payment of condo, PUD, or co-op fees or assessment charges;
  • refunds of (or credit for) the borrower’s expenses;
  • absorption of monthly payments;
  • assignment of rent payments; and
  • inclusion of non-realty items in the transaction.
  • (Examples taken from page  615 Fannie Mae Selling Guide Nov 2014)

Do appraisers adjust comps when the subject property has concessions? No. Adjustments are NOT made to comps if the subject property has concessions padded into the contract (or outside of the contract). Adjustments are only given to comps if there should be an adjustment given (see below).

credits - sacramento appraisal blog

When are adjustments given to comps? Appraisers will adjust for concessions to a comparable sale when concessions ended up impacting the final sales price of the comp. Would the comp have have sold at that level without the concessions? If an appraiser researches neighborhood sales and notices the sales with credits to buyers are selling at higher levels, then clearly credits are boosting those prices. In this case an adjustment would be made to the comparable sale for whatever amount the concession boosted the sales price to be sure the subject property’s appraised value reflects the market instead of padded prices from the comps with concessions. Keep in mind an appraiser doesn’t have to adjust the full amount of the concessions. It all comes down to how much of an impact, if any, the concessions had on the purchase price. Sometimes an appraiser might not make any adjustment at all.

 Tips for Real Estate Agents:

  • Be Specific in MLS: Disclose any concessions in MLS. Be specific and write a sentence if need be instead of writing “CLA” (Call Listing Agent). You will get less phone calls from appraisers too if you include more specific information.
  • Be Cautious of Padding: Be realistic about padding concessions above market value. If a property listed at the top of the market, and now you are writing or accepting an offer that pads the list price with an extra 3% above that price, realize this may push you into “no man’s land” where the property cannot appraise that high. Sellers always want to net more, but when a market slows down, it’s not always possible to get those higher prices.
  • The Truth: If asked about concessions, please tell the truth so appraisers can consider if there is any adjustment needed to the comps. If appraisers use bad information on the comps, it can lead to the wrong value for the subject property. If there are confidentiality issues about sharing these insider details, just let the appraiser know that.
  • Know How it Works: Remember that appraisers do not make adjustments if there are concessions in your listing they are appraising. They are only making adjustments to the comps if needed. Your seller can offer substantial credits back to the buyer for your listing, and no adjustment will be given because of that. However, the key is that there are comps out there that support your contract price (comps without boosted prices from concessions too). If your contract price reflects market value, that’s good news for your seller.

I hope this was helpful.

Questions: What type of concessions do you see most commonly in purchase contracts? How have you seen concessions impact the price on a property?

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Important things to know about solar panels in real estate

Solar is a hot issue right now in real estate. Actually, I should say it’s more of a gray area for many in the real estate community since it’s still an emerging market. This is exactly why I wanted to interview Kevin Nunn since he knows more about solar than most. Kevin is a loan officer with Umpqua Bank, he teaches classes on energy efficiency, and he has even sat down with policy makers in DC on issues relating to solar. In the interview we touch on the difference between leased and owned solar, whether a leased system can transfer to a buyer, and advice for the real estate community. Enjoy the interview, and be sure to pay close attention to the asterisk where Kevin mentions the PACE programs (big point).

Kevin Nunn Umpqua BankMe: Kevin, what is your background with solar?

Kevin: I have been promoting the benefits to buyers of including energy upgrades in home purchases for over 20 years, and many organizations have reached out to me for assistance in this area. I was even asked to go to the White House last year to assist in this area.

Ryan: What is the difference between leased and owned solar in the eyes of a lender?

Kevin: I can’t speak for all lenders as each can set their own policies. It is obviously challenging to value an owned system, but no value can be given on a leased system.

Ryan: Is it a problem to lend on a property with a leased solar system? In other words, can a leased solar system transfer to a new owner?

Kevin: It has been my experience that the companies with a lease are very cooperative with transferring the lease. One challenge with a leased system is that the payment must be included in the buyer’s qualifying ratios.

Ryan: Why do so many people say a leased solar system cannot transfer to a new owner when you say it can?

Kevin: Provided the buyer can qualify with the lease payment included, I haven’t had any issue with this. Each lender sets their own guidelines. Some may impose overlays that exclude this. Many see the UCC filing as a superior lien to the mortgage. I have found the leasing companies to be extremely accommodating about removing their UCC and putting it back after the new mortgage records (see comments on the PACE programs below where a “lease” has to be paid off prior to a property selling).

solar panels aerial view by sacramento appraisal blog

Ryan: What is a “UCC”?

Kevin: UCC stands for “Uniform Commercial Code”. It is effectively a lien against the solar equipment. Lenders have a concern that it could take priority over the mortgage if it was recorded before the deed. That’s why the UCC generally needs to be released and re-instated after the mortgage.

Ryan: Any advice for real estate agents who are marketing properties with solar systems?

Kevin: If it is a lease, contact the leasing company up-front and get their terms for assumption and their acknowledgement they will accommodate the UCC issue. Make sure any lender pre-qualification letters have factored in the lease payment.

* If the system is owned make sure it is not financed through one of the PACE programs that are being promoted right now. Homeowners are led to believe these “assessments” will just transfer over to a new buyer. Fannie Mae and Freddie Mac have been very clear that they will not purchase a loan with these “assessments” in place. It often comes as a very big surprise to owners and Realtors that the PACE must be paid off or they may only be able to sell to a cash buyer.

If the system is owned they should make sure there are local and relevant comparable sales with solar that clearly demonstrate any additional value solar adds in that specific neighborhood.

Ryan: What advice would you give to someone considering purchasing a leased solar system or a house with leased solar?

Kevin: If they are using FHA financing I would suggest they take a look at using the 203(k) and EEM (Energy Efficient Mortgage) to include a new system they could actually own on their house. The 203(k) is ideal for solar because it allows almost 10% in upgrades without value consideration. This is a great opportunity for buyers that is very under promoted. If they are going to purchase the house with the leased system in place they should review the lease terms very carefully and make certain their loan officer has properly factored in the lease payment so they don’t run into issues in underwriting.

solar panels on house - by sacramento appraisal blog

Ryan: What do you think of the exhaustive studies out of Colorado (pdf) and Berkeley (pdf) that give a specific value for solar power? Can we apply these values figures to our local market in Sacramento?

Kevin: I applaud these efforts, but I have found that they often do not appreciate the constraints we operate under or the dynamics of our industry. In reality, lenders have to look at a solar system just like any other feature on a property. That property is the security for the loan that has been extended to a consumer. In the event of a foreclosure, the lender has to know that they will be able to resell the property and recover their loan. In this way a solar system is just like any other feature on the property. The reason it is so crucial to use an appraiser with local market knowledge is they understand the premium a specific feature will add in a specific market. Just like a swimming pool will have a different value impact in one community verses another, solar has the same dynamic. National studies and state-wide studies are useful on some level, but real estate is always local.

Ryan: Lastly, where do you see the solar market going?

Kevin: I think it would be hard to find anyone who doesn’t agree that it is a good thing to make homes for affordable, comfortable, and dependable. Clearly there should be a difference in how energy measures like solar are viewed compared to features like a swimming pool. The challenge for lenders is finding the ways to accommodate this within the constraints they operate in. There are a lot of people who are working very hard to find these solutions. I do expect to see changes coming out soon to allow for this. Also, as more solar systems are installed it is going to get a lot easier to quantify the value differential in individual neighborhoods.

———————————————————————————————————–

Thank you Kevin for doing the interview. I hope it was helpful for everyone.

Closing Appraisal Thoughts:

  • A leased solar system is considered personal property and does not factor into the appraised value. If the system is not owned, it generally is not an asset for the property. This is why I recommend listing agents to be clear in MLS on whether a system is owned or leased.
  • Keep in mind solar panels may not be worth the same amount in every price range or market. For instance, in Sacramento they seem to carry less weight on the lower end of the price spectrum, but more weight on the higher end of the market. This is why we cannot blindly apply value adjustments from the Colorado and Berkeley studies referenced above without researching the local market. What are buyers actually willing to pay for solar panels? One way to know is to compare homes with owned solar vs homes without solar.
  • I recommend being careful to be sure the numbers really work to your advantage for leased solar. If the UCC can be removed so you can sell your property, that is great. But having amazingly low energy bills won’t do anything for you if your lease is actually more expensive than your bills would have been without solar. A lease like this could actually be a liability for your property value, right? In other words, if it is more expensive to own your property, consumers are not likely to pay as much for your house compared to other ones in the neighborhood.

Questions: What has been your experience with solar and real estate? Do you see buyers willing to pay a premium for solar features? Please share any stories or points for consideration.

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A “cheat sheet” of information to give the appraiser during a refinance

What type of information can home owners give appraisers during a refinance? Last month I put together a “cheat sheet” for listing agents to use during a sale, but I had several requests for something to use for a refinance. Loan officers and real estate agents, save this form to your desktop and consider sharing it with your clients as needed. If you can help home owners communicate more effectively about their property and the neighborhood, it can give the appraiser more data to consider, which can sometimes impact the value. Also, you’ll look like a rock star by providing excellent service.

A “cheat sheet” to communicate with appraisers: The document below helps address some of the questions appraisers tend to ask home owners, and it also gives insight into the neighborhood. You can quickly fill it out, and give it to the appraiser in person (or email it). Feel free to edit the document as needed. Download in WORD or a PDF.

information for the appraiser example

EXAMPLE OF INFORMATION SHEET FILLED OUT

information example to the appraiser

This document addresses recent improvements made to the subject property, but it also gives an opportunity for home owners to share any insight about the neighborhood, school district boundaries, coming changes in the city, reasons why people are buying in the area, or insider knowledge about the subject property or street. Hopefully the appraiser is in tune with these things, but I recommend not assuming. Remember, this is potential market data, and it can sometimes make a difference in the appraised value.

Some quick tips:

  1. Save this document to your desktop.
  2. Tell the truth in everything you write.
  3. Feel free to skip, delete, or add any categories.
  4. You don’t need to write a novel, but it’s okay if the document ends up being more than one page (keep it less than two though).
  5. Be specific about upgrades. For instance, instead of saying, “The house was remodeled throughout,” unpack what that means and when any remodeling was done (if you know).
  6. Remember, this information is about sharing facts instead of pressure to hit a certain value. This is exactly why it’s okay to share this type of information. During the inspection, simply say, “Here is some information about my property”, and hand the document to the appraiser.
  7. Use the “other information” section at the very bottom to mention any changes in the neighborhood that might be relevant for the appraiser to know about (parks, streets, land uses, zoning, businesses, etc…).

DOWNLOAD the WORD document or a DOWNLOAD a PDF.

Questions: Do you think this document would be useful? Anything you’d add or take away?

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The slower season of Fall, price reductions, and seeing Sacramento’s market

A few years back my doctor prescribed the drug prednisone. Have you ever taken it? I hope not. It’s a hardcore steroid that I needed at the time to address some stomach issues. While this drug worked like magic, it made me incredibly edgy, and I honestly had a hard time controlling what I said. It was as if the filter from my thoughts and mouth was partially removed. I know that sounds like an excuse, but it was reality. I’m normally a really nice guy, and I absolutely love people, but during those few weeks let’s just say there were some pretty ugly public interactions that definitely didn’t make the Facebook highlight reel.

the big picture in real estate 2 - image purchased by sacramento appraisal blog and used with permissionIn short, if you met me during one of those moments while jacked on prednisone, you might of thought I was a jerk. Yet that’s not who I am at all, which is clear when taking a wider view of my life. Now consider the housing market (you knew a transition was coming). If we only look at one tiny portion of the market, whether it’s median price, data from one zip code, or information from only one county, we might miss some of the big picture of what’s really happening. Two days ago we took a drive through the market in Sacramento County, but today I’d like to expand the trip to the entire region and Placer County. I’d love to hear your take of what is happening out there too. Comment below or send me an email.

Two ways to read this post:

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

GRAPHS

Note to New Readers: Thank you sincerely for being here. I wanted to give a quick heads-up about how things work. I write 1-2 posts per week. After the 10th of the month I have two big market posts where I discuss local trends. Yes, they are long, but they are full of good stuff. You can scroll quickly by reading the numbered points or really dig in. The first big monthly post talks through Sacramento County, and the second one shares Placer County and regional trends. Otherwise posts are more topical and they tend to appeal to a wide audience.

SACRAMENTO REGIONAL MARKET (Sacramento, Placer,  Yolo, El Dorado)

1) The regional market saw a 1.6% decrease in median price last month:

median price sacramento placer yolo el dorado county

The median price has been very flat throughout the Sacramento Region over these past six months, and last month it finally took a 1.6% dip. The median price has been hovering at $3100,000 in the regional market, but it’s now $305,000. This month the average sales also price declined by 2%, and the average price per sq ft decreased by less than 1%. It’s normal for prices to soften in the Fall market, but it’s also normal when inventory has increased and the market is generally slowing.

2) Sales volume is down by 8% this year compared to 2013: 

SALES volume in sacramento region - by home appraiser blog

There have been about 1800 less sales so far this year compared to 2013, which means sales volume is about 8% lower this year. Why is volume lacking? Let’s look at the graph below.

3) There have been 34% less cash sales this year:

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

Cash investors took their foot off the gas pedal in our market during the second quarter of 2013, and we are still feeling the difference. There have been roughly 2000 less cash sales in MLS this year compared to last year (single family detached sales). Think about it this way: Less cash this year has resulted in higher inventory, less competition to get into contract, softening of prices, and a revelation of what demand is really like in the Sacramento area. The market is trying to normalize and figure out how to cope without the steroid of outside cash investors to boost values.

4) There are 2.65 months worth of houses for sale in the region:

months of housing inventory in region by sacramento appraisal blog

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

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

Housing inventory saw a slight dip last month from 2.72 months to 2.65 months. Before you sound the alarm that inventory is now declining, let’s look closer at the stats. The key here is there are simply less listings right now, which tends to cause housing inventory figures to decline. Remember, monthly inventory is calculated by dividing the number of listings on the 1st of the month by the number of sales for the previous month. There was actually about the same number of sales in October compared to September, but there are about 3.5% less listings (at the beginning of the month), which makes a difference in the numbers.

5) It is taking an average of 49 days to sell a house in the region:

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

It took 36% longer to sell a house last month compared with one year prior in October 2013. In other words, it took 49 days on average to sell a house in October 2014 compared to 36 days in October 2013. This is definitely a sign that we are in a different market, right? For context though, remember it was taking 90 days to sell a home three years ago in the Fall of 2011. As the graph above shows, the higher the price, the longer it takes to sell in the Sacramento Region. This is a constant trend, and something to be very aware of when adopting a marketing strategy to sell. There are very few sales under $100,000, so take that stat with a grain of salt (don’t give it much weight).

The Fall Season Trumping Price Reductions: Over the past 3-4 weeks the market really changed as the Fall season became much more pronounced. Not only are there less listings right now compared with last month, but there are actually less price reductions too. For months the market has been very much overpriced, meaning many properties have not been selling because they were simply priced at unrealistically high levels. Evidence of this was seen when logging in to MLS and seeing about 400 price reductions every day for several months through mid-October (and about 400 sales during the same time period). However, over the past few weeks the number of price reductions and sales have inched down closer to 200. Does this mean sellers are no longer lagging behind the trend of a slower market? Are properties finally priced correctly? Not necessarily. It seems the reality of the slowness of the Fall market has begun to set in, and less new listings and market activity means there will naturally be less price reductions. Some listings are sort of only technically on the market too in that they will simply ride out the duration of their listing without having any more reductions until they are officially withdrawn. Ultimately there are simply fewer new listings hitting the market right now, which means there will be fewer price reductions. Don’t get me wrong though, sellers still need to be very cautious about pricing, and I recommend pricing according to the most competitive listings that are actually getting into contract (as opposed to pricing according to older sales that might not reflect where the market is at right now). When you think about it, a slower Fall season could actually help give sellers some space to get more in tune with the reality of softer prices in the market.

PLACER COUNTY REAL ESTATE TRENDS

1) The median price saw a decline and is now at $375,000:

Placer County median price and inventory - by home appraiser blog

The median price in Placer County declined from about $385,000 to $375,000 from September to October. It’s normal at this time of year to see prices soften during the Fall months, so I don’t recommend freaking out. There are simply less buyers looking in Fall, so prices tend to dip as a part of the normative real estate cycle. Of course the backdrop to this stat is that values in the regional market are definitely slowing down regardless of the Fall season.

2) Housing inventory saw a slight decline and is at 2.75 months:

Placer County housing inventory - by home appraiser blognumber of listings in PLACER COUNTY - by home appraiser blog

Monthly housing inventory took a dip last month from 2.92 months to 2.75 months. Why did it go down? Because there were less listings that hit the market in October compared with September (fairly normal for this time of year), and at the same time there were more sales. Remember, housing inventory tells us how many months of properties are listed on the market. An inventory of 2.75 basically means there are 2.75 months worth of active listings available for buyers.

months of housing inventory in placer county by sacramento appraisal blog

The interesting thing about inventory is that it’s not the same at every price level. There might be 2.75 months of housing supply right now in Placer County, but the market is more competitive toward the lower end of values, while there is more selection at higher price levels. This is a very normal trend in real estate, but it reminds us there can be different trends happening at different price ranges.

3) Sales volume is very normal in Placer County right now:

Placer County sales volume - by sacramento appraisal blog

When considering October 2014, there were actually more sales compared to the prior two years. In the next 30 days though we can expect volume to see a dip if the market unfolds like it has these past two years. December through February are slower months, which is evidenced by the low points on the graph above.

4) It’s taking an average of 54 days to sell a house in Placer County:

days on market in placer county by sacramento appraisal blog

It took one week longer to sell a house last month in Placer County compared with the previous month. Most price ranges did see an increase in cumulative days on market, which is normal, but sales above $750,000 were much higher than usual last month. Properties in this price range have normally been taking about 90 or so days to sell. This doesn’t mean the market changed very quickly in just one month though. It simply means the 17 sales that closed above $750,000 in October took much longer to sell for one reason or another.

When we start to get the bigger picture of how the regional market is moving, it can sharpen our understanding of the market and position us to be an incredible resource to clients. I hope this was helpful.

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? What are you seeing out there?

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Quick signs of the Fall real estate market arriving in Sacramento

Fall is here. You wouldn’t know it so much by the weather though since it’s still been hot in the Sacramento area. Seriously, my family has not even used our heater once yet (have you?). But the real estate numbers are a different story because they are showing a very definitive seasonal trend as the Fall market arrived on time over the past 30 or so days. Let’s take a look at 9 quick talking points to help understand and explain how the real estate market is unfolding right now in Sacramento County. I hope this helps.

Quoted in the SacBee: By the way, I was quoted in the Sunday morning edition of The Sacramento Bee in a story, “Sacramento area home could set record with 6.5 million listing“. Check it out if you wish.

photo by reggiewilliams on Instagram

Two ways to read this post:

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

GRAPHS

1)  The median price has been about the same for 6 months:

median price and inventory since 2013 - by sacramento appraisal blog

The median price technically declined from $275,000 to $269,951 last month, but take that with a grain of salt since the 2% boost in median price to $275,000 in September felt like more of a statistical fluke than anything. Overall the median price has been about the same for 6 months in a row.

2)  Prices overall are softening (which is normal for Fall):

price metrics since 2014 in sacramento county

Does the median price being the same for 6 months mean prices are stable? Looking at several metrics helps answer this question. Both the average sales price and average price per sq ft took a dip last month. Overall prices are softening in Sacramento County as well as the entire region (more on that in two days).

cooler price in Fall - by sacramento appraisal blog

Remember, it’s normal for prices to cool off during the Fall. The market as a whole is is slowing down, which is one thing, but let’s not forget the reality of our seasonal real estate cycle.

3) Inventory is at 2.5 months (about the same as last month).

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

inventory during fall - by sacramento appraisal blog

Overall inventory is a hair under 2.5 months of housing supply, which means there are about two-and-a-half months worth of houses for sale right now in Sacramento County. This is about where the peak of inventory was in 2013. If the market unfolds “normally” over the next two months, we should see an increase in inventory.

4) Sales volume is down 8.8% in 2014 (but up 4% from October 2013):

sales volume october to october in sacramento county

sales volume in fall - by sacramento appraisal blog

It’s normal to see sales volume decline during the Fall months, so it was not a surprise to see slightly less sales in October compared to September. It is true that volume is actually 4% higher than it was during October 2013. Whiles this is obviously not a huge percentage, it’s still good to see slightly more volume. If you remember, last year was a very dark time in real estate in light of the looming government shutdown and the market having a very strong reaction as cash investors began leaving in droves. Keep in mind some savvy buyers are trying to scoop up properties right now during November and December since they know they are gaining more power to negotiate, but realistically many potential buyers are not shopping aggressively these days since their focus will soon shift to turkeys and holiday gifts. Likewise, some sellers have pulled their listings from the market since they didn’t sell at their desired prices. In fact, beginning several weeks ago price reductions have gone from about 400 per day in MLS to closer to 200. This is a byproduct of a slower Fall season (this is normal).

5) Cash sales are down 40% in Sacramento County in 2014:

cash sales and volume in sacramento county - by home appraiser blog - Copy Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash purchases are down by 40% this year, which is really the X-factor for why sales volume has been more sluggish this year. Over the past couple years cash served as a steroid to increase values, but since investors took their foot off the gas pedal, the market has been attempting to figure out how to be normal. What does it look like for real estate to be more driven by local demand instead of an artificial demand from buyers outside of Sacramento? At the same time, cash purchases still represent about 1 in 3 sales under $200,000 (but it’s normal to have more cash at the lower end of the market).

6) Buyers are still gaining power in the market:

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

Less cash has created more space for both FHA and conventional offers to thrive. This has been great news for buyers. FHA has taken back an additional 4.5% of the market in 2014, which effectively means just over 23% of all sales in 2014 have been FHA (as opposed to 18.9% of all sales last year at this time). Keep in mind almost 33% of all sales used to be FHA a few years ago, so there is definitely room for buyers to absorb even more of the market. Did you catch that stat? As the market unfolds to become more of a buyers’ market in coming time, we can expect to see more FHA, conventional, and VA deals. In short, if you are not familiar with FHA appraisal standards, it’s time to get up to speed.

sellers lagging behind the trend in Sacramento County

Part of buyers gaining power in Sacramento’s housing market is due to overpriced listings from sellers. While price reductions have slowed down a bit over the past 30 days as less listings are hitting the market, there are still many overpriced properties. Sellers, remember that the mind of the buyer has changed drastically over the past six months. Buyers are simply not pulling the trigger unless properties are well-priced for their condition and location. As I’ve been saying, I recommend pricing according to the most recent competitive listings that are actually getting into contract. The image above shows how many sellers are lagging behind the trend of the market and not quite in tune yet with the change that took place. The market has been very flat and has been softening over time, yet some sellers have tried to “test the market” at higher price levels (which hasn’t worked out too well for many).

7) It’s taking an average of 45 days to sell a house in Sacramento:

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took 4 more days to sell a home last month compared to the previous month. When it starts taking longer to sell like this, it’s a sign of the market slowing down (as well as a normal seasonal trend). Remember that it was taking 90 days to sell a home just a few years ago. Generally speaking, the higher the price, the longer it is taking to sell. Take the properties under $100K with a grain of salt since there were fewer sales in that price segment.

months of housing inventory by sacramento appraisal blogRemember too that not every price range is experiencing the same trend, which is a powerful point to communicate to your clients. The image above shows how inventory is not the same at every price level. Inventory is still relatively low, and while it’s easier to get into contract than it was in early 2013, it’s still not easy in some price segments.

8) Distressed sales remain very low at around only 6% of the entire market:

REOs and Short Sales in Sacramento County

There were only 85 REO sales last month and 79 short sales in the entire county. So is it a good time to be an REO agent or short sale specialist? Both are still relevant avenues of business to a certain extent, but remember to let trends inform what type of business you pursue. Who might your clients be next year if the market continues to shift to a buyers’ market?

9) Interest rates declined over the past month:

interest rates by sacramento appraisal blog since 2008

Many experts thought interest rates would be hovering around 4.5 to 5.0 by the end of 2014, but it doesn’t seem like that’s going to happen. Of course only The Fed knows how things will unfold, but keep watching this trend since lower interest rates can end up pulling in buyers who are sitting on the fence (and thus lowering inventory and creating more pressure on values to increase). Ultimately at some point the real estate market needs to be more driven by the local job market, but for now it looks like a band-aid (temporary solution) of lower interest rates is bound to help fuel the market a bit more.

10) Other graphs for context:

context for median price since the real estate bubble by sacramento appraisal blog Median price and inventory since 2001 by sacramento appraisal blog Since the bubble burst by sacramento appraisal blogI hope this was helpful. I’d love to hear your take below.

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?

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How much is the largest home in the neighborhood worth?

How do you value a house when it’s significantly larger than anything else in the neighborhood? I’m talking 30-50% bigger than even the largest homes. Four years ago I came across an enormous property in a tract neighborhood, and I ended up shooting a quick 30-second video called, “Which house is overbuilt for the neighborhood?“. Being that this home sold recently, I thought it would be interesting to do a follow-up by asking two questions. Did this beastly house command a price premium because it was so much larger than anything else? Or did it suffer loss because it was simply too big for the neighborhood?

largest home in neighborhood - sacramento appraisal blog

This is what the  house looks like. You can check out the 30-second video below (or here) to see what surrounding homes look like.

square footage of sales in neighborhood 3

As you can see, when looking at all sales in the neighborhood over the past six years, the subject property is significantly larger than anything else. It is basically 1000 sq ft larger than even the largest homes, and it looks like a mansion in the middle of a ranch house development.

overbuilt house for neighborhood - sacramento appraisal blog

Despite its large size, the subject property ended up selling at a level consistent with much smaller-sized homes in the neighborhood. The subject property was listed on MLS for 119 days at $325,000 as an arms-length sale, so we know it was adequately exposed. In cases like this it may not be possible to find other “comps” that have a similar size. We simply have to use smaller sales. The assumption of course would be to start making significant upward adjustments for square footage, but if we did that in this case the property would be overvalued (unless of course we made huge upward adjustments for square footage, but then also made huge downward adjustments for functional obsolescence (being overbuilt)). In cases like this it’s important to find similar overbuilt homes in either the subject neighborhood (older sales) or even a competitive neighborhood. This will create a better context and reinforce how the market has dealt with overbuilt homes over time. It would be golden too if the subject property sold at any point in the past so you could go back to see how the market perceived the property at the time.

The Reality of a Neighborhood Price Ceiling: Every neighborhood has a price ceiling, and it’s important to be aware of where the top of the market is at. In other words, buyers tend to only be willing to pay so much in a particular neighborhood before moving on to a different community they think of as superior. In this tract neighborhood it looks like the price ceiling is around $325,000, and this mammoth home sold fairly close to that level. This is why when dealing with a huge property in a tract neighborhood, one of the first things we can do is to find out where the price ceiling is at. Is it feasible for buyers to pay above this level? That’s the big question. Ultimately in this case, despite the subject property having a much larger size, it ended up suffering economic loss because buyers didn’t expect such a large home in this neighborhood, and they weren’t willing to pay a massive premium for the extra space. This example also underscores how important it is for home owners to be aware of the expectations of buyers in a neighborhood (ask an agent or appraiser for advice on upgrades before doing an extensive remodel). My advice? Don’t overdo it.

REAA classAppraisal Class I’m teaching for 2 hrs of CE: On November 11 in the evening I’ll be teaching a class called “How to tell the story of value in appraisal reports”. The class will talk in depth about how the local real estate market is moving and how appraisers can more effectively tell the story of market trends in appraisal reports. The class is for the Real Estate Appraiser’s Association of Sacramento, and it will be good for two hours of CE (for appraisers). Dinner is included, and anyone is welcome. Registration closes tomorrow-ish I believe. See the image and click here for details.

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

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