How do you value an attached unit when there are no recent sales?

I get quite a few calls from the real estate community about pricing attached units. The conversation tends to go like this:

Agent: Ryan, I’m working on pricing a halfplex, and it’s not easy.
Me: I feel your pain.
Agent: There aren’t any recent halfplex sales in the neighborhood, and my unit is larger than others too. What should I do?
Me: You should probably just guess and hope you’re okay on value.
Agent: What??
Me: I’m kidding. Let’s talk about it.

What is a halfplex? If you are located in another part of the country, you might call an attached home something else, but in the Sacramento area we say “halfplex” (sort of like half a duplex). The home below is a halfplex because it is connected to the house next door by the garage and a wall inside. Moreover, the parcel line runs through the center of the connecting wall in the garage, so each unit is individually owned and has its own lot.

tips for valuing a halfplex

It’s not always easy to value certain properties – especially when sales are sparse. This is why it’s important to have a solid valuation methodology clipped to your real estate utility belt so you can apply it as needed.

Tips for Valuing a Halfplex (Attached Home):

1) Apples to Apples: An attached home should be compared to other attached homes because a buyer looking for a detached unit is usually NOT simultaneously in the market for an attached one. It’s just a different type of house. Moreover, there can be a huge value difference between attached vs. detached.

2) Start in the Immediate Neighborhood: You’ll want to find halfplex (attached) sales in the immediate neighborhood so you are sure what buyers have been willing to pay in the area. If you go out too far looking for “comps”, it’s easy to miss the immediate market by assuming that values are similar in other tracts. I recommend using the Polygon tool in Sacramento MLS so you can actually draw exact neighborhood boundaries in the immediate subdivision to be sure you are only getting data from those boundaries. You might want to start looking at sales over the past 6 months and then go back to one year. In an ideal world you will have a ton of sales, but we all know that doesn’t always happen.

TIP: In addition to sales, be sure to look at both listings and withdrawn listings in the immediate neighborhood to get a fuller picture of neighborhood values.

start small before searching further away for comps - sacramento appraisal blog

3) Look at Older Sales in Immediate Neighborhood: Be sure to look back over the past few years or so in the immediate neighborhood so you can see gain a better context for the halfplex market. You probably won’t use these oldies as comps in a listing presentation (or appraisal), but they still might provide a fantastic context because you can either add or subtract value to older sales based on what the market has done over time.

4) Previous Subject Property Sale: Has the subject property sold previously? If so, look up sales at the time to see what it was comparable to in the neighborhood? Moreover, how has the market changed since it sold previously? Be sure to give more value weight to recent sales and current reasonable listings, but be aware of any previous sale to help create context. Remember the condition of the subject property might have changed over time, and pay attention to the nature of the previous sale (maybe it sold for too little or too much).

5) Competitive Sales in Other Tracts: In some areas of town there are simply few attached homes, so you may need to go out several miles to find comps. The problem of course is that if you travel too far, some neighborhoods might have higher or lower prices, so be aware of value adjustments that might need to be made. As a rule of thumb, try to look in areas where you think a buyer might realistically considering hunting for a home if the subject property was not available. You can double check how comparable other neighborhoods are by comparing older sales in the immediate neighborhood with older sales in neighborhoods that are further away. For instance, if you have an older sale that closed at $250,000 in the immediate neighborhood, how much did similar-sized halfplex sales in further places sell for at the time? If the neighborhood that is further away ends up being very similar in price when comparing historical sales, there is a good chance current sales in the further neighborhood could help tell you what the current market is willing to pay for your neighborhood.  Be careful to not just look at one sale though because one sale does not make or break the market. Having a few data points is best so you know you’re not just looking at an outlier.

what is a comp - sacramento appraisal blog

6) Detached Units in Immediate Neighborhood: Be aware of what other detached units are selling for in the neighborhood. If there are very few recent sales, I recommend going back in time to find out what the price difference was between halfplex (attached) sales and similar-sized detached sales in the immediate neighborhood. Then once you understand the price difference in the past neighborhood market, come back to today’s market. What are similar-sized detached sales currently selling for? This may help you see what attached units should theoretically be selling for. Remember, this is definitely a back-burner approach to value, and it’s not the first step, but it can still provide context.

7) Bottom of the Market: Where is the bottom of the market in the immediate neighborhood? There is a good chance that halfplex (attached) units tend to sell toward the bottom of the price range compared to similar-sized detached units. I’m not saying all halfplex units are going to sell for dirt cheap, but only that they tend to be marketed toward the lower end of the price ladder in many neighborhoods.

I hope that was helpful. If you’re interested in more details, see How to choose comps like an appraiser.

Photo Credit: The first photo is from Roseville & Rocklin Realtors Steve & Heather Ostrom (thanks).

Question: Anything else you’d add? I’d love to hear your take in the comments.

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Honored with the Affiliate of the Year award

I’m excited to announce I was honored with the Affiliate of the Year award a few weeks ago from the Sacramento Association of Realtors. This award is given to one non-Realtor each year, and this year it was given to me. This was not expected, and I’m really blown away. I’m very proud to hang this plaque in my office, and I hope you can join me in the excitement. Thanks everyone.

An award from SAR - this is me with Chris Clark

An award from SAR - what an honor

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What you need to know about Fannie Mae’s Collateral Underwriter

Have you heard of Fannie Mae’s Collateral Underwriter yet? It’s coming in a matter of days on January 26, and it’s been called an “appraisal time bomb” by some, while others say it’s no biggie. Today I want to give you the scoop on what it is as well as some of the potential impact it might have.

Fannie Mae is watching appraisers closely - by sacramento appraisal blog - image purchased and used with permission

What is Collateral Underwriter?

Collateral Underwriter (CU) is a property appraisal review tool created by Fannie Mae to help mortgage lenders manage risk.

What will Collateral  Underwriter do?

  • CU performs an automated risk assessment on appraisals geared toward Fannie Mae and returns a risk score, flags, and messages to the submitting lender. CU will provide a risk score for the appraisal of 1-5 (1 being the lowest risk and 5 being the highest).
  • CU will analyze comparable sales selected by the appraiser and recommend alternatives.
  • CU will compare adjustments the appraiser has given with what other appraisers have done in the same area (Fannie Mae has been mining data from over 12 million appraisals since 2011, so they definitely have some data at their disposal).
  • CU will use census block groups to analyze market trends.
  • CU will review specific information in each appraisal such as the sales price, lot size, bathroom count, bedroom count, age, location, size of the basement, condition, quality of construction, view, and GLA (gross living area). In 2011 Fannie Mae mandated appraisers to begin using UAD codes in their reports to describe all of these elements. You may have read a report and thought, “Why the heck is the appraiser saying the property is in ‘C4′ condition? What does that even mean?” Well, that is a Fannie Mae UAD code to describe a specific condition, and now that Fannie Maw has over 12 million appraisals in their system with these codes, it has allowed Fannie Mae to give birth to the CU review tool.

Fannie Mae Collateral Underwriter - Data Mining Image Purchased and Used with Permission - by Sacramento Appraisal Blog

5 things to know about Fannie Mae’s Collateral Underwriter:

  1. Fannie loans only: CU is only used for loans geared toward Fannie Mae, and not for divorce appraisals or any other private appraisals. CU is also not used on 2-4 unit properties or “drive-by” appraisals.
  2. Not FHA/VA: CU is not used for FHA and VA loans (I’d be shocked if they didn’t adopt it later though).
  3. Commentary: The CU tool does not read any of the commentary by the appraiser, which can be key to understanding comp selection, adjustments, and the final value.
  4. Neighborhood boundaries: CU uses census block groups for data analysis instead of specific neighborhood boundaries that may be readily understood in the market. Pulling data from the right neighborhood can make a HUGE difference in a valuation, don’t you think?
  5. Adjustments & comps: Fannie Mae has heaps of data to compare to any new appraisals that come into the system. Not only do they know about sales in the neighborhood, but they also know which comps other appraisers have used, and even value adjustments given by other appraisers. CU knows if an appraiser says a comp is in good condition (C3) in one report, but then says it is in fair condition (C5) in a different report. CU will pay special attention to comp selection, adjustments, and the final reconciliation of value.

Fannie Mae Collateral Underwriter - by Sacramento Appraisal Blog

Potential Impact of Fannie Mae’s Collateral Underwriter:

  1. Unknown: The truth is we don’t really know how CU will impact the market. It could be a game-changer for the mortgage industry and appraisal profession, or it could feel like the same old same old.
  2. Slower loan process: As CU is implemented, expect a learning curve, and thereby a slower loan processing time. It’s going to take some time for lenders, appraisers, and underwriters to work out the bugs.
  3. More conservative appraisals: One of the unintended consequences of CU may be more conservative appraisals.
  4. Headaches for appraisers: The fear among appraisers is that lender clients will now come back to say, “CU has identified 20 other comps in this census block. Why did the you not use these?” Hopefully that will not happen (assuming the appraiser did a good job of course), but increased scrutiny will be bound to cause appraisers to spend more time responding to CU.
  5. Higher cost for consumers: If CU does end up putting more work on appraisers, it may lead to higher appraisal fees. After all, more work requires more time (which is money).

Advice to the Real Estate Community:

  1. Real Estate Agents: Make sure your clients know how strict the underwriting process has become for appraisals. I’m not saying you need to sit down with your clients and watch Fannie Mae’s CU tutorial (that’s probably a quick way to lose clients). All I’m saying is this is one more reason to price properties correctly since the appraisal is going to be even more scrutinized now. Also, if you accept an offer that is clearly out sync with neighborhood values, the lender is going to have a ton of data at their disposal about neighborhood values – even if the appraiser happens to “hit the number” somehow.
  2. Appraisers: Many appraisers are gravely concerned about CU, though many lenders have been reaching out to say, “Hey, we’ve already been scrutinizing you, so don’t worry about this.” Only time will tell how this will impact business and the industry. All we can do is choose the best available comparables and make reasonable market-supported adjustments. There will be a learning curve to know how to avoid red flags so to speak, but explaining why we made adjustments and supporting those adjustments will be a big theme this year for lender work. The bottom line is appraisers will need to add more commentary in their reports. If you are making the same adjustments in every single report regardless of the location of the property, it’s time to stop that because adjustments vary depending on the neighborhood. If you are struggling to support adjustments, it may be a good year to find a mentor as well as take some quality continuing education. If you do not know how to graph sales, make that a top goal this year. On the other hand, if you are an experienced appraiser, find ways to be a mentor to other appraisers by answering their questions – whether on forums or in person. As I said in 10 things appraisers can do to improve the appraisal industry, “Too many appraisers think they are right about everything, but at the end of the day being right doesn’t help anyone grow. Find ways to share your knowledge and build others up.” Lastly, if it ends up costing you more time to do your work, it may be time to consider raising your rates.

Helpful Links:
Fannie Mae’s Collateral Underwriter Home Page
Collateral Underwriter FAQ (pdf)
Collateral Underwriter Fact Sheet (pdf)
Into to Collateral Underwriter Recorded Tutorial
CU Risk Score, Flags, & Messages (Recorded Tutorial)

Questions: How do you think Fannie Mae’s Collateral Underwriter will impact the market and/or the appraisal profession? Anything else you’d add? I’d love to hear your thoughts.

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The story of Sacramento’s regional housing market in 2014

How much did values increase last year in the Sacramento Region? What about Placer County? How would you describe the market to friends or clients? Let’s take a stroll through the trends today.

Dude, this is a long post: If you’re new to subscribe (thank you), most of my posts are not this long. But twice a month I break down the local trends so we can better know how the market is moving. If you are outside of the area, you can still glean from what is here. Beyond these two monthly posts, my other posts tend to be general enough to apply throughout the United States.

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.

Thank you for being here.

SACRAMENTO REGION (scroll below for Placer County)

Sacramento regional market in 2014 - by Sacramento Appraisal Blog - smaller

Email me if you want the graphs: If you would like all the graphs in this post (and others), send me an email (make sure to write “I want the market graphs” in the header). You can use these in your newsletter, some on your blog, and some in other social spaces. See my sharing policy for ways to share.

Regional Market Year-End Stats:

1) Median Price ended at $309,000
2) Average Sales Price ended at $339,182
3) Average Price per sq ft ended at $179
4) Sales volume was down 6.6% in 2014 compared to 2013.
5) FHA sales increased by 4.6% from 2013.
6) There were 32% less cash sales this year.
7) Short sales represented only 6.7% of the entire market in 2014.
8) Bank-owned sales were only 5.8% of all sales in 2014.

1) Values saw a modest uptick, but the market was flat for most of the year:

median price sacramento placer yolo el dorado countyThe graph above shows an increase in the median price at the beginning of the year, but then the market was basically flat for more than half the year. Overall the median price increased by 10.3%, the average price per sq ft increased by 5.3%, and the average price increased by 6.6%.

Regional market median price - by home appraiser blog

 2) Cash volume declined by 32% this year in the regional market:

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

Having 32% less cash sales in 2014 definitely softened up the market compared to 2013. For much of the year there was a sense the market was “normalizing” in that it was learning how to exist without cash investors driving the market, inventory was approaching more normal-ish levels, and interest rates were increasing. Of course now that rates have begun to decline again, that will help put a bit more “steroid” back into the market.

3) Sales volume was down by 6.6% in the region:

SALES volume in sacramento region - by home appraiser blog

There were almost 1800 less sales this year in the Sacramento region, which translated to a sales volume at 6.6% lower than the previous year. This year volume was lower, and we began to get a better picture of what real demand is like in the Sacramento market. In 2012 and 2013 we saw a market that was driven by buyers outside of our market (investors). In short, the demand wasn’t a result of the local market or the local economy. But this year we saw a market that was more driven by local buyers, which is why volume was so much lower than the previous year. Granted, interest rates are still helping buyers afford far more than their wages would otherwise allow, and that’s going to be important to watch over time.

4) Housing inventory increased over the year (declined in December):

median price and inventory in sacramento placer yolo el dorado county

Housing inventory saw a clear upward trek throughout 2014. There was not a steady increase every single month, but overall the trend was increasing, wasn’t it? The truth is in real estate some months are going to be higher or lower in a particular category, and sometimes data will even seem conflicting. That’s why we need to look at the big picture as well as hyper-local neighborhood data and county-wide data. It all helps us understand and tell the story of the market.

months of housing inventory in region by sacramento appraisal blog

Here is what inventory looks like in December. We should see increases this next month as some properties slowly begin to hit the market. We like to think real estate fever begins in March, but remember the sales in March are often the pendings from February.

5) It’s taking about 25% longer to sell a house in today’s market (but 35% more quickly than it was three years ago):

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

These days it’s taking about 25% longer to sell a house than it did last year. This sounds alarming, but let’s remember this is normal. We remember the days in mid-2013 when it was actually taking less than 30 days on average to sell a house. That was insane. For context, at the end of 2011 it was taking about 90 days to sell a house in the Sacramento region (that was three years ago). Of course I still recommend pricing to sell in 30 days or less so you hit the sweet spot of buyers looking for properties. In most price ranges  you don’t want to be on the market for 90 days right now because you begin to lose your power to negotiate a higher price with buyers.

6) Listings and Trends:

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

Here is the price spread of current listings in the regional market. The bulk of current listings are priced between 200-400K. We can also see as of last month there were only 50 properties for sale under $100,000. It’s just no longer the market to pick something up for dirt cheap.

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

Last but not least, here is a picture of some of the “layers of the market” working together.

Email me if you want the graphs: If you would like all the graphs in this post (and others), send me an email (make sure to write “I want the market graphs” in the header). You can use these in your newsletter, some on your blog, and some in other social spaces. See my sharing policy for ways to share.

PLACER COUNTY MARKET TRENDS

Placer County 2014 recap by sacramento appraisal blog - smaller

Placer County Year-End Stats:

1) Median Price ended at $387,000
2) Average Sales Price ended at $428,629
3) Average Price per sq ft ended at $192
4) Sales volume was down 2.96% in 2014 compared to 2013.
5) FHA sales decreased by 9% from 2013 (76 less sales).
6) There were 19% less cash sales this year.
7) Short sales represented only 5% of the entire market in 2014.
8) Bank-owned sales were only 3.5% of all sales in 2014.

Email me if you want the graphs: If you would like all the graphs in this post (and others), send me an email (make sure to write “I want the market graphs” in the header). You can use these in your newsletter, some on your blog, and some in other social spaces. See my sharing policy for ways to share.

1) Values increased only a few percent over the year:

Placer County median price since 2012 - by home appraiser blog

How much did the market increase in Placer County last year? Overall the median price increased by 8.1%, the average sales price increased by 6.3%, and the average price per sq ft increased by 7.8%. The market saw some appreciation in the beginning of the year, but was fairly flat and really softened over the last two quarters. The stats actually seem a bit higher than the market felt in light of December’s numbers (which were quite a bit higher than the past few months). For instance, the median price had cooled to $375,000 in October, then $365,000 in November, and then December showed up at $387,000, which is just $1,000 under the highest monthly median price of the year. We’ll see how this figure pans out in coming months, but don’t put too much weight on it. As I said a couple days ago when discussing Sacramento, remember that these figures don’t necessarily mean each property has increased in value by 8.1%, 6.3%, or 7.8%. Actual value is only something we can determine on an individual basis.

2) Inventory increased steadily over the year (down in December):

Placer County median price and inventory - by home appraiser blog Housing inventory in Placer County increased steadily throughout the year and was hovering in the higher 2s for the most part. It peaked once over three months at the end of the year, and saw a dramatic Fall to 1.8 months in December (its very normal for inventory to decline in December because there aren’t many new listings coming on the market).

months of housing inventory in placer county by sacramento appraisal blog

Housing inventory was freakishly low in Placer County last month (besides the market about $1M). Keep in mind there are only four listings below $100,000, so don’t put any weight on the “4” number you see for inventory under 100K.

3) It’s taking 20-25% longer to sell a house in today’s market: 

days on market in placer county by sacramento appraisal blog

Last year at this time it was taking anywhere from 45 to 50 days to sell a house, and this year it was taking anywhere from 55 to 60 days to sell a house. Well, technically on average it took 61 days to sell a house last month in Placer County. It’s normal for properties to take longer to sell in the Fall months, and then shorter when the market heats up during the Spring. As you can see, there are different price segments that tend to sell more quickly than others. Generally speaking, the higher the price, the longer it takes to sell.

4) Sales volume was down 2.9% in 2014 compared to last year:

Placer County sales volume - by sacramento appraisal blog

There were 164 less sales in 2014 in Placer County compared with the previous year. This translates to sales volume being 2.9% lower compared to 2013. In contrast, Sacramento County had a volume that was 7.7% lower than the previous year.

5) The Fall showed a normal real estate seasonal cycle:

Placer County median price since 2012 - Fall season - by home appraiser blogIt felt like a fairly normal Fall for the most part (beyond the higher uptick in median price). Remember, don’t make too much of the median price. It may have increased 6% from the previous month, but the average price per sq ft only went up 1%. What does that tell us?

6) The layers of the market at work:

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

Real estate is never just about supply and demand. There are so many “layers of the market” that are working to impact the direction of values. Both interest rates and housing inventory will be important factors to watch this coming year.

Thanks for letting me post today. I know these posts are long, but twice a month we get to delve into some big-time real estate trends, and I hope it’s been helpful for you (I know it is for me). The more we can explain what the market is doing and why it is doing it, the more we can help our clients make informed real estate decisions.

Questions: What else are you seeing out there? Anything you’d add?

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Where the market went last year and where it is now in Sacramento

Not sensational, but fairly normal. That’s a great way to describe last year’s real estate market in Sacramento. There was a nominal uptick in value during the first part of the year, but otherwise values were very flat. Let’s take a look at the year as a whole below and delve into some December trends too.

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.

Email me for the graphs: If you would like all the graphs in this post (and many more), send me an email. You can use these in your newsletter, some on your blog, and some in other social spaces. See my sharing policy for ways to share.

Sacramento County 2014 Year in Review - smaller

Sacramento County Year-End Stats:

1) Median Price ended at $265,000
2) Average Sales Price ended at $293,646
3) Average Price per sq ft ended at $170
4) Sales volume was down 7.7% in 2014 compared to 2013.
5) FHA sales increased by 11.3% from 2013.
6) There were 38% less cash sales this year.
7) Short sale volume was down 64% from 2013 level.
8) Bank-owned sale volume was down 18.9% from 2013.

1) Values increased only a few percent over the year:

price metrics since 2014 in sacramento county

How much did values rise last year? The median price increased 6% from December 2013 to December 2014, the average price per sq ft increased by 3.5%, and the average sales price increased by 4.5%. It’s easy to look at the median price at 6% and think, “Sweet. Values increased by 6%”, but an increase in median price at 6% doesn’t necessarily translate into an actual 6% boost in value to every property. When we look at other metrics such as price per sq ft and average sales price, those metrics are even lower than 6%. All things considered, the actual increase in value was modest at probably 3-4% at best.

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

2) Inventory increased this year (declined in December):

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

Housing inventory was flirting with 2 to 2.5 months for much of the year. This means there were generally 2 to 2.5 months worth of houses for sale at any given moment. The peak was 2.75 months in November, and the low was last month at 1.79 months. Remember, inventory almost always declines during December, so don’t make too much of the low number (it doesn’t mean buyers flooded the market).

months of housing inventory by sacramento appraisal blog

During November and December people tend to be thinking of turkey and gifts instead of real estate, so it’s not a huge surprise to see sparse inventory. Moreover, it’s natural to see a lower inventory right now since many owners do not want to list their properties until February or March when the market begins to heat up. As January unfolds though, listings are slowly starting to come back on the market. As you can see, inventory is not the same at every price level, and it was very low in December other than above the $1M range.

 3) Sales volume was down 7.7% in 2014 compared to last year:

sales volume through nov 2014 in sacramento county

Sales volume was down by 7.7% this year, which translated to 1,310 less sales on MLS this year compared to 2013. As you can see by the graphs above and below, volume this year was much lower than previous years. There were more sales in December than November, but that’s not a surprise since November had a sluggish sales volume (and December often has more sales than November, but technically many of these sales got into contract in November).

sales volume in Sacramento County since 2001

 4) FHA purchase volume increased by 11% this year:

FHA sales since 2009 in Sacramento County by sacramento appraisal blog

FHA has been making a big come-back in the market. Why? There are less cash investors, and FHA has been one of the strongest options for many buyers trying to purchase with little money down. This year FHA sales represented about 24% of all sales, whereas last year FHA was just under 20% of the market. Remember that FHA used to represent over 30% of the market from 2009 to 2012, so there is room for continued FHA growth. This year there are bound to be some more competitive conventional products hit the market, and the 90-day flipping rule will thwart some FHA buyers, but otherwise FHA should still be a relevant force to reckon with in housing in 2015.

5) The Fall showed a normal real estate seasonal cycle:

cooler price in Fall 2 - by sacramento appraisal blog inventory during fall 2 - by sacramento appraisal blog

sales volume in fall through 2014 - by sacramento appraisal blog

It’s easy to get alarmed when prices soften during the Fall, but that’s normal. There are simply fewer sales, and inventory tends to be a bit higher too.

6) There were 38% less cash sales this year:

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

Having 38% less cash sales in 2014 made the market feel a whole lot different than 2013. This dynamic really cooled off values and brought about a more “normal” feel. In 2012 and 2013 there was an extraordinarily high level of cash investors playing the market, but without the investors this year it gave us a picture of what demand really looks like in the Sacramento market. It’s a healthy sign to see more conventional sales this year too compared to 2013.

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

I mentioned above that having less investors has helped FHA buyers get into contract more often, and these graphs really prove the point. The same is true with conventional and VA buyers. This past year owner occupant buyers were actually able to get into contract without having to try to outbid investors with deep pockets.

7) It’s taking 20% longer to sell a house in today’s market: 

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took 50 days on average to sell a home last month in Sacramento County, which is 20% longer than it was taking one year ago (40 days in December 2013). Keep in mind it was taking easily 80-90 days at the end of 2011 and beginning of 2012, which was only three years ago. Ultimately well-priced properties are still selling very quickly and receiving multiple offers in some cases, but properties that are overpriced are sitting on the market. This is the classic example of what Jay Papasan says about “being on the market” vs. “being in the market”.

8) Distressed sales were hardly a force in 2014:

REOs and Short Sales since 2013 in Sacramento County

REOs and Short Sales in Sacramento County

Both short sales and REO sales hovered around only 6% of the market for the past two quarters. There are still distressed sales to buy out there, but they are far and few in between.

9) Interest rates are boosting purchasing power for buyers:

interest rates by sacramento appraisal blog since 2008

All the experts keep saying rates are going to increase, but then the Fed keeps surprising us with lower rates. Obviously this cannot continue forever, but for now lower rates are going to help buyers afford more house for their money (and afford to purchase in a market with higher prices).

10) Trends to Watch: Job Market, Interest Rates, and Inventory

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

Three factors to watch this year include interest rates, the health of the local and national job market, and housing inventory. These are three of the biggest players in the market right now since cash investors and freakishly low housing inventory are no longer driving factors.

a) Interest Rates: Rates moving up and down will impact values to a certain extent as buyers will be able to either pay higher prices or not.

b) Job Market: Our economy has been inching forward, but we need local buyers to have higher incomes. Relief at the gas pump will certainly help free up some funds, but that is an external temporary boost for buyers instead of wage growth.

c) Housing Supply: Inventory has been flirting with 2.5 months, and it was poised to grow this coming year (but we’ll see what lower rates do to inventory as more buyers may enter the market). Remember that the market in Sacramento showed declining values any time in the past 15 years when inventory was higher than 4 months of housing supply. We like to say “5 months is a normal supply of houses”, but that’s not the norm for today’s market. In short, let’s keep our eye on how high inventory goes because the market is very sensitive to increases in inventory.

Questions: How would you describe the market in 2014? Anything else you’d add? If you are not in Sacramento, are there some similarities here that also resemble your market? I’d love to hear your take.

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5 things to keep in mind about FHA’s 90-day flipping rule in 2015

The FHA flipping rule has changed this year. Since 2010 investors were able to buy a home, rehab it, and then re-sell the home to an FHA buyer as soon as they wished. But now in 2015 FHA has re-instituted their traditional 90-day rule so investors need to wait at least 90 days before selling their properties to an FHA buyer.

fha anti-flipping rule in 2015 - by sacramento appraisal blog

Is this a big deal or not for the housing market? I have 5 points below to consider and maybe share with clients when they ask. I’d love to hear your take too.

5 things to consider about FHA’s anti-flipping rule for 2015

1) An Inconvenience for Investors: This 90-day rule will be an inconvenience for investors since it limits the pool of existing buyers for their product. Some investors who are flipping at price ranges prime for FHA financing will definitely feel the impact of this rule.

2) Missed Opportunities: Some would-be FHA buyers will miss out on properties since investors will be more prone to accept a conventional buyer instead of waiting 90 days for FHA. In Sacramento, FHA financing has a higher volume at the lower end of the market under $200,000, so buyers at the bottom end could actually be more burdened by the rule.

fha logo3) The Reality of Less Cash: We no longer have a foreclosure epidemic both locally and nationally, which means there are fewer houses being flipped. Thus a rule like this carries far less impact in today’s market compared to the beginning of 2010 when it was absolutely beneficial. For reference, when FHA first eased their 90-day rule in 2010, bank-owned sales represented about 40% of the entire market in Sacramento, but now they’re only 5% of all sales.

4) It’s taking Longer to Sell Anyway: Realistically since many investors are going to take 30 to 60 days to flip a property, and then have a property on the market for 30+ days, this means some homes will still easily qualify for FHA financing. Agents will simply say in MLS something to the effect of, “90 day flip rule expires on such and such date”. For context, in November it took an average of 45 days to sell a house in Sacramento County and 50 days to sell in the region (though flips often sell more quickly since they are more marketable).

5) Boosting Conventional Loan Products: Lastly, removing FHA as an option within 90 days of acquisition will help steer some buyers to use conventional financing. Like I said two days ago when talking about trends to watch this year, we can expect to see some more creative financing options emerge as the market softens (and also as buyers need a different option to buy a quick flip without FHA financing).

I hope this was helpful. It’s so important to keep our finger on the pulse of the market so we can serve clients and make informed real estate decisions.

Questions: Do you think the 90-day flipping rule is a big deal or not? Anything else you’d like to add? I’d love to hear your take in the comments.

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12 market trends and tips for real estate professionals to watch in 2015

It’s a new year, which means it’s crucial to take a look at the housing market. If you work in real estate, ask yourself these two questions: What is the market doing? And who are your clients going to be this year? The truth is if we do the same thing each year without really considering how the market is evolving, it’s easy to miss out on being relevant to clients.

The 2015 housing market

Here are some trends and tips on my radar as 2015 begins, and I wanted to share them because I thought some of them might be good conversation fodder for business plans or with clients. These trends are relevant for Sacramento, but I have a feeling they might be showing up in many markets across the country. Enjoy.

12 trends and tips for real estate professionals in 2015

  1. Buyers’ Market: The market is definitely morphing into a full-fledged buyers’ market. In light of more houses for sale, buyers simply have more options. This means properties will generally take longer to sell, and buyers will have more room to negotiate.
  2. Pricing Correctly: As the market changes and inventory increases, it will be paramount this year to price properties correctly. When a market grows soft, buyers tend to become more picky about pricing and making offers, which means overpriced listings will sit on the market instead of sell.
  3. image purchased from 123rf and used with permission by sacramento appraisal blog - distressed sales fishingThe Small Distressed Sales Pond: Foreclosures and short sales used to drive the market, but that’s not the case any longer these days. Being a distressed property specialist is still a relevant avenue of business, but it’s also a crowded pond to fish in. Remember that owners who went through a foreclosure or short sale several years ago may actually now be able to re-enter the market (these buyers are called “Boomerang Buyers”).
  4. Equity Sellers: Some home owners do not realize how much the market surged in recent years. They may actually be surprised to know they have equity again after the recent increases from 2012 to 2014. This can open up options for moving up or downsizing.
  5. Dispelling the Want to Buy at the Perfect Time: With the advent of vast online real estate data, many buyers are watching the market carefully and wanting to time the market perfectly to be sure they are buying at a time when values are increasing. The reality is it’s not easy to pull this off. In fact, many home owners who purchased at the bottom of the market in early 2012 didn’t actually realize they were doing so. They were simply lucky and bought at a time they could afford. When I ask, “Do you realize you purchased at the bottom?”, their response is often, “Really? I had no idea at the time.” In short, in a market that is no longer rapidly appreciating in value, buyers need to focus on being sure they are comfortable with the price and monthly mortgage payments rather than looking for that perfect market moment to get rich in real estate.
  6. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerDivorce: As the economy improves, divorce has been more common (the LA Times says so too). I easily did three times as many divorce appraisals last year compared with previous years. Divorce is a very difficult time in a client’s life, so it’s important to be able to serve clients in their time of need, and to be aware that divorce stats may be increasing as the economy heals.
  7. FHA Buyers Increasing: Despite some in the real estate community saying FHA would not increase due to permanent mortgage insurance being required, it has definitely increased over the past 18 months in the Sacramento region. FHA has been a relevant product for many buyers since there is little money down required. Of course we can expect to see some more creative financing options emerge as the market softens, but in the mean time, if you are not in tune with FHA appraisal standards, it’s time to brush up so your buyers and sellers know what to expect. I have seen several properties recently trying to use traditional FHA financing that were blatantly not acceptable for FHA (maybe a 203K loan though). This is where knowing the standards becomes important.
  8. Rentals Hitting the Market: Some investors who purchased in 2012 and 2013 are beginning to sell their properties. I have yet to see Blackstone do this, but I have seen some smaller funds with 30-40 properties begin to unload. I talked with an investor recently who has a few dozen properties, and he wondered how strong the market is to sell. What would you say?
  9. Not as Easy to Flip: Everyone and their Mom wants to be a house flipper, but buying distressed inventory on MLS these days isn’t as easy as it used to be because there just aren’t as many low-priced foreclosures. Since there is less room to buy at a discount on MLS, it’s important for would-be flippers to explore alternative ways of picking up properties, and to be extra sure they are purchasing with enough room to rehab and sell. Being realistic about the ARV (After Repair Value) is key – especially in a price-sensitive market.
  10. Exit Before It’s Too Late: Some property owners are concerned about the future direction of the market, so they will be interested in selling this year “before it’s too late” (in case the market begins to decline in value).
  11. The Granite Wave: Having granite counters used to be such a custom feature a decade ago, but it’s become a bit stale in the current market. Don’t get me wrong, buyers still like granite, but at the same time there is a growing sense of the market becoming saturated with granite. What advice would you give clients about making a kitchen shine in today’s market?
  12. Standing Out: As housing inventory presumably increases this year, it will be important for properties to stand out from others to compete for a limited pool of buyers. When inventory increases, buyers tend to become more finicky about location, condition, and upgrades (which underscores the need to price properties correctly).

NOTE: These trends may not be present in every neighborhood or price range in Sacramento, or in every area of the United States.

I hope this was helpful in some way, and I hope you have a profoundly successful year in real estate. I look forward to watching the market carefully this year, and to all the discussions we’ll have together. May you have a very prosperous 2015.

Questions: Anything else you’d add? If you are not in Sacramento, are there some parallels here that also resemble your market? I’d love to hear your take.

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My last blog post of the year…

It’s been an incredible year. I hope it’s been a great one for you too. I wanted to thank you so much for taking time out of your day to read my blog. I hope it’s added some value to your life or somehow helped you better navigate the road of real estate. For me this is never just about words or slick graphs, but building a relationship with readers (you). As a result of this blog, I’ve met some amazing people, and my career has taken some fun directions too. I’m grateful.

Two Weeks Off: After a few more days of crushing deadlines, I’ll be laying low for some much needed time off. This means I won’t be posting again until the first full week of January. I’ll be recharging, riding the new bike I bought last weekend, fitting in some woodworking hopefully, thinking about appraisals, spending time at the ocean, drinking as much French Press coffee as I can, enjoying family and friends, and getting ready for an even better coming year. I will be posting some of what I do on Instagram, so let’s connect there if we haven’t already.

Our book tree

By the way, in addition to our normal tree, we stacked some books in our Living Room to form a book “tree”. Can you tell I’m married to an author?

From my family to yours, Happy Holidays and Merry Christmas!!

Question: What are you going to be doing for these next two weeks? Any plans with family or friends?

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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.

 

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?

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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

(I was getting spam from the form, so email me)

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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