Why a property’s previous sale can really matter for an appraisal

Paying close attention to a property’s previous sale can be a big deal. I know it’s tempting to say value is all about the current market, but sometimes looking at the past can help us understand the present. Here are some reasons why I pay attention to previous sales. Any thoughts?

previous sales matter to appraisers - sacramento appraisal blog

5 things to consider about a property’s previous sale:

  1. Requirement to Explain: If you didn’t know, appraisers are required by USPAP (our uniform standards) to analyze and report the past 36 months of sales or transfers of the subject property. Thus analyzing a prior sale can be a normal and even mandatory part of the appraisal process.
  2. Context: A previous sale can sometimes give tremendous insight into how the market responded to the subject property. This is especially true if a property is unique or funky. What did the subject property compare to at the time of its previous sale? How did it fit within the market? Digging deeply into neighborhood sales can help us answer these questions and maybe even influence the comps we choose for today’s value.
  3. Clues into Adjustments: A prior sale can give clues into how much we might need to adjust for certain aspects of the property. For instance, if the subject is located on a busy street, a previous sale might help us see if that was a big deal or not compared to other neighborhood sales. Or maybe the subject property has a very large lot for the neighborhood, and prior sales can help us gauge how much of a premium there was if any. Or imagine a house is twice as large as anything else in the neighborhood. Let’s find some current comps of course, but let’s also look to the past too. Can we maybe glean some value context by seeing what buyers were actually willing to pay for this beastly home in the past? Maybe so.
  4. Comp #4: Appraisers can use the subject property as a comparable sale in reports. Not that appraisers need permission, but according to Fannie Mae, “The subject property can be used as a fourth comparable sale or as supporting data if it was previously closed” (B4-1.3-08). I’ve done this on occasion when a property is unique and data is limited. After all, what is more comparable than the subject property itself?
  5. Past vs. Present: If there was a previous sale in the past, we can probably milk it for some perspective, but let’s remember we ultimately have to let the current market speak to us instead of imposing the past on the present. After all, the market might be different today due to a change in zoning, change in buyer demand, gentrification, etc… It’s worth noting too sometimes sales in the past simply sold for way too much or way too little.

Example: Here is a graph I made for an appraisal I did recently that was going to court. The subject sold three times in the past at a mid-range of the competitive market. Does the history of sales help build credibility for why I reconciled the value to the middle range? I think so.

context for value with graphing - by sacramento appraisal blog

Tip for Agents & Owners: If something has changed about the property since the previous sale, be very intentional about talking with the appraiser about the change (please use my Info Sheet for Appraisers). Also, I recommend opening up discussion about the nature of the prior sale so the appraiser can have more information and maybe make a judgment call about the sale (especially if the property sold too high or too low for some reason).

I hope that was helpful.

Questions: How do you use previous sales when you value properties? What is #6? Did I leave something out? I’d love to hear your take.

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Seeing the real estate market without numbers (and a big Sacramento update)

It’s not just about the numbers. Like many, I’m a huge fan of getting deep into real estate stats, but the truth is there are so many other ways to sniff out what the market is doing. Thus I’ve created a list of some of the things on my radar lately that help say something about the temperature of the market. Then for those interested, let’s crunch some numbers with my big monthly Sacramento market update. I’d love to hear your take. Any thoughts?

How to see the market moving - image purchased and used with permission from 123rf - Sacramento Appraisal Blog

Ways to see the real estate market without numbers:

  1. Facebook Posts: I can’t tell you how many posts I’ve seen lately saying, “Hey, my friend needs to rent a house. Anyone have something?” Seeing an increasing number of posts like this on Facebook or Nextdoor.com is definitely a symptom of rising rents and scarce inventory.
  2. Celebrity Flipping Seminars: Last week an HGTV flipping couple hosted a 4-day “how to flip” seminar in Sacramento, and this week a different “guru” is coming to town. If anything, this tells us the market for flipping has passed.
  3. Riskier Loans: As more lower-down payment loan products hit the market, it reminds us buyers need more options to afford higher prices.
  4. Sacramento Kings vs. Market - jokeSacramento Kings Wins: Here is an image to show the relationship between an NBA team winning and the housing market. Okay, there really isn’t a connection, but it almost looks like there is (you can make numbers say whatever you want).
  5. Less Property Tax Appeals: As the market has improved, assessment appeals have declined every year since 2008 in Sacramento County. Right now home owners are enjoying equity again and they’re hardly paying attention to their property tax bills. Here is an image to back that up.
  6. More Divorces: As the housing market has rebounded, it seems there are more divorces. I’ll admit stats are tricky in that some sources say divorces are increasing and others say they are not. It may be my personal experience, but I’ve done more divorce appraisals these past 2-3 years than I have in the previous ten years.
  7. Builders Being Less Cooperative: I’ve heard from several agents lately about local builders being less cooperative with agents representing buyers. That’s fairly normal for builders of course, though being less cooperative is certainly a luxury afforded by a market with tight inventory too. In other words, if the market had three times the housing supply, conversations might go differently at the sales office.
  8. The word “shift”: There is so much emphasis right now on the market shifting or maybe doing so in coming time. When the real estate community uses terms like shift, change, correction, or bubble, it can sometimes highlight what the market is doing (or at least what is on the mind of the real estate community).

Question: What is #9? I’d love to hear in the comments below. By the way, scroll to the bottom if you want to see some of my recent woodworking projects.

—————– For those interested, here is my big market update  —————–

Big monthly market update post - sacramento appraisal blog - image purchased from 123rfTwo ways to read the BIG POST:

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

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: Yep, the stats show the market has been increasing. This doesn’t mean every single price range or neighborhood is going up in value, but county and regional data are definitely showing that trend overall. One of the bigger narratives is that housing inventory is still down by 15% in the region compared to last year. Sales volume has been up slightly for the year and it took 6 less days to sell last month compared to the previous month. For context, last year at the same time it was taking an average of 8 days longer to sell. This reminds us the market has been more competitive this year compared to last year, though don’t take that to mean value increases have been extremely aggressive. Last month the median price increased by nearly 2% in the region, and the average price per sq ft increased by 2.5%. Overall most value stats are up a good 8-10% since last year, though remember it’s not the same market as it was in 2005 when we’d say, “My house went up by $10,000 last month.” It’s still important to price correctly unless you want to sit instead of sell.

Sacramento County:

  1. It took an average of 27 days to sell a home last month, which is 4 days less than the previous month.
  2. The sales to list price ratio was 100% last month.
  3. It took 8 less days to sell this May compared to last May.
  4. Sales volume was up nearly 4% in May 2016 from May 2015.
  5. There is only 1.35 months of housing supply in Sacramento County.
  6. Housing inventory is 22% lower than it was last year at the same time.
  7. The median price increased by 3% last month.
  8. The median price is 9.6% higher than the same time last year.
  9. The avg price per sq ft increased by 1.8% last month.
  10. The avg price per sq ft is 9.9% higher than the same time last year.

Some of my Favorite Graphs this Month:

Median price since 2013 in sacramento county

monthly inventory is sacramento county since 2001 - by sacramento appraisal blog

inventory - May 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

price metrics since 2015 in sacramento county - look at all

market in sacramento - sacramento appraisal group

SACRAMENTO REGIONAL MARKET:

  1. It took 6 less days to sell last month compared to the previous month.
  2. It took 8 less days to sell this May compared to last May.
  3. The sales to list price ratio was 99% in the region last month.
  4. Short sales and REOs were both 3% of sales last month.
  5. There is 1.6 months of housing supply in the region right now.
  6. Housing inventory is 15.6% lower than it was last year at the same time.
  7. The median price increased 1.7% last month from the previous month.
  8. The median price is 6.8% higher than the same time last year.
  9. The avg price per sq ft increased 2.5% last month.
  10. The avg price per sq ft is 8.4% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

Regional Inventory - by Sacramento regional appraisal blog

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

median price and inventory in sacramento regional market

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 2 less days to sell a house last month than April.
  2. It took 1 less day to sell this May compared to last May.
  3. Sales volume was up 3% in May 2016 compared to last May.
  4. FHA sales were 16% of all sales last month.
  5. Cash sales were 17% of all sales last month.
  6. There is 1.84 months of housing supply in Placer County right now.
  7. Housing inventory is 12.4% lower than it was last year at the same time.
  8. The median price is about the same as it was the previous month.
  9. The median price is up 7% from May 2015.
  10. Short sales were 2.1% and REOs were 1.7% of sales last month.

Some of my Favorite Placer County Graphs:

number of listings in PLACER county - 2016

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog

Placer County price and inventory - by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

I hope this was helpful and interesting.

My Latest Woodworking: By the way, I know this post has been ridiculously long already (on purpose since it’s my big monthly market update), but here are some of my recent woodworking projects. If you didn’t know, I like to tinker and create.

Ryan woodworking 2

Ryan woodworking 1

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Question: Any other market insight you’d like to add? I’d love to hear your take.

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How school boundaries impact real estate values

The quality of a neighborhood school can make a huge difference with real estate values. Yeah, I know that’s a Captain Obvious statement, but let’s talk about that. Last week I was reminded yet again how powerful school boundaries can be, so I wanted to share an example of this concept and then kick around some ideas. I’d love to hear your take in the comments below.

school boundaries and real estate values - sacramento appraisal blog

Do you look at school ratings? While appraising something in the Didion school boundaries in the Pocket area of Sacramento, I looked up greatschools.org to find Didion had a rating of 8 while neighboring schools in the neighborhood had a rating of 3 and 4. Could there be a difference in value depending on which school your home feeds into? Maybe so.

Ratings from Great Schools and Real Estate - by Sacramento Appraiser Blog

Do school boundaries matter? Okay, so Didion clearly has a higher rating, but do we actually see properties sell for more? Agents regularly say there is a value premium, but is there really? I decided to create a quick visual by comparing similar-sized sales from the surrounding neighborhood with ones in Didion territory. What do you see?

Pocket and Didion Market Trends - by Sacramento Appraisal Blog 2

The black dots that represent Didion show us these homes tend to sell toward the top of the neighborhood market. This tells us buyers are clearly in tune with the school system in the neighborhood and they are clearly paying higher prices to be in this niche.

5 Things to Remember about Schools & Real Estate Value:

  1. Know the school boundaries: One of the fastest ways I’ve been able to obtain school boundaries is through GreatSchools.org. I type in the name of the school, click on the map, and then observe boundaries and even ratings of surrounding schools (just like the image above). Obviously the website could be wrong, but it’s a good start.
  2. Don’t trust MLS comments: Properties are sometimes identified incorrectly in MLS, which is why we have to double-check by looking up various websites or even calling the school district.
  3. Choose comps attending the same school: Since value can be different depending on the school, it’s important to choose comps that have the same school influence (if possible). Many times a tract subdivision only has one school, so that makes it easy when choosing comps. But in the case above there are several school options, which means if we aren’t in tune with the neighborhood market and the school system, we just might pick the wrong comps.
  4. Don’t adjust based on GreatSchools ratings: As much as I like GreatSchools.org, at the end of the day I wouldn’t make a value adjustment because Didion has an 8 rating and other nearby schools have a 3 or 4. After all, I don’t want to impose the idea that one area sells for more or less because of a rating. If there really is a value difference, I’ll likely be able to see that in the sales. Or better yet, I can just choose comps that go to the same school so I don’t even have to worry about figuring out a value difference.
  5. Communicate about the school: If you are an agent, spend an extra minute studying school boundaries so you know for sure what school(s) your home feeds into. Your knowledge can come in particularly handy too when talking with appraisers. If the school boundaries are a big deal for value, I recommend highlighting this when talking with appraisers (or using my Appraiser Info Sheet to do so). Appraisers, it’s easy to miss details like school boundaries, so it might be a good idea to bookmark a few sites to help quickly see boundaries and/or ratings.

I hope this was helpful.

Questions: What is point #6? Did I miss anything? Do you have any other tips for finding out about school boundaries? Any stories about buying a house and paying more or less because of the school? I’d love to hear.

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An open letter about celebrity flipping seminars

Dear Public,

Last week I got an invite to a celebrity flipping seminar. That’s right, I can go learn how to flip houses from Tarek & Christina, the stars of HGTV’s Flip or Flop. Being that this is the second celebrity event to come to town this year, let’s talk about some of the dangers of these events and the real temperature of the flipping market. Please note: I’m not angry. I’m not a hater. I’m not jealous. I only want to give thoughtful commentary for the sake of others.

Celebrity flipping event HGTV Sacramento Appraisal Blog

Some things to know about these events:

  1. The reality stars won’t be there: This may come as a surprise, but the stars are not likely going to be there unless you consider a video appearance as being present.
  2. The goal is to make money off you: The event is designed to whet your appetite only to invite you to go deeper by paying for courses. From the reading I’ve done it sounds like the next step costs $1,000 to $2,000, but some students end up spending far more over time ($5000+ easily). The event will feel good and you’ll probably be inspired, but make no mistake the real goal is to get you to open your wallet.
  3. Flipping formulas don’t work everywhere: There is no such thing as a flipping model that will work in every location and every type of housing market in the United States, yet this event is being hosted in many cities and states. Moreover, it may be wise to be cautious about listening to a company coming from the outside, knowing far less about the local market, and using a celebrity’s star power to talk about flipping.
  4. It’s no longer a foreclosure market: The market used to be full of bank-owned properties, so it used to be much easier to buy low-priced homes to make a quick buck. For example, in 2009 over 70% of all sales in Sacramento County were bank-owned, but now that number is 3%.
  5. Experienced investors are struggling to find good deals: This event touts attendees will “gain insider access to private pre-auction real estate inventories.” Keep in mind even seasoned investors are struggling to find good deals right now because housing inventory is sparse and the foreclosure market dried up. Just last week I talked with an investor who was once easily in the top 10 in my market a few years ago, but is having a hard time finding deals lately. This doesn’t mean flipping is impossible, but it’s currently a really competitive market. That might be good to know before forking out thousands of dollars so you can “retire rich”, right?
  6. More skill is required: Today’s market in flipping is much different than it used to be. A friend on Twitter said it perfectly: “The anybody flip market has dried up. It’s a contractors-special flip market now. Serious add-value needed.” I agree with this as today’s flippers often need to add square footage, add a second bath, maybe do a more substantial kitchen remodel, etc… It’s often not just a matter of picking up a property, putting on some “lipstick”, and re-listing it. The rules have simply changed since the “foreclosure flood” ended. In short, it takes more skill to flip in today’s market.

My advice? Be careful. We all want financial freedom, but you could easily spend thousands of dollars on these seminars to obtain “secret flipping knowledge” (that you can probably get for free). If you want to get into flipping I suggest meeting investors in your local market and scouring the forums on BiggerPockets.com for free flipping advice.

I hope this was helpful.

Sincerely,

Ryan

Questions: What is your favorite HGTV show? Did I leave anything out? What point resonates with you the most? If you’ve attended an event like this, was it valuable? If you are currently flipping properties, what advice would you give to a newbie? Any suggestions for places to meet local investors?

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