How to pull comps like an appraiser

The right comps make all the difference. How do appraisers pull comps? I scraped the surface of this topic a few days ago in a class I taught, and I wanted to unpack it a bit further today. There is sometimes a striking difference between how appraisers and agents approach this topic, so being on the same page a bit more will probably be an advantage. I hope this helps. I’d love to hear your thoughts below.

choosing comps like an appraiser - by sacramento appraisal blog

These following steps sound very detailed, but applying them is really a matter of making quick decisions during an MLS search.

7 steps when pulling comps in a neighborhood

  1. Start with Tight Boundaries: Pull sales and listings from the very immediate neighborhood first. It’s better to start out smaller rather than begin with a wide area such as a one-mile radius or an entire MLS area. I recommend using the Polygon tool in Sacramento MLS so you can actually draw exact neighborhood boundaries to be sure you are only getting data from those boundaries. After all, if you search by radius, you’ll inevitably pull in data that doesn’t really reflect the immediate neighborhood. Practically speaking, if you don’t know where to draw boundaries, just start searching as close as possible to the subject street, try not to cross major streets or school district lines, and keep an eye out for big age pulling comps 2 - image bought and used with permission by sacramento appraisal blogdifferences in the neighborhood since values might change for newer homes. Sometimes an aerial view on Google Maps can be helpful because you can see a clear difference where one tract starts and another begins because the roof colors are different.
  2. View all Recent Sales & Listings: Look at all sales over the past 3-6 months as well as current listings. This will help give you a quick understanding of the neighborhood price spectrum and which types of houses have sold at the top and bottom of the market. If there are few recent sales, be sure to go back one year or so for reference just so you are sure about what the market has done over time. For instance, if there are only fives sales over the past 90 days, it’s easy to miss the market if you only look at these sales. What if the these five properties sold too low? Or what if the most recent sales were lower in light of the cyclical real estate market (softer sales in the Fall). Remember that current listings might tell us if the market is different from previous sales. If the listings are higher, maybe the market increased. If the listings are lower, maybe the market has softened. Or if the listings are the same, but they aren’t selling, the market has probably softened. You can also look at expired listings also to get a sense of the temperature of the market.
  3. Use an “Apples to Apples” Approach to Search for Similar Homes: Now it’s time to dig into similar-sized homes. I recommend searching by square footage since that is what tends to guide most buyers. You can add and remove about 10% on each side of the square footage. This means if your house is 1800 sq ft, a good range is probably 1600-2000 sq ft. Of course sometimes data is sparse, so you simply need to work with what you have. But comparing something that is significantly different in size really isn’t a good methodology. In cases like that it’s probably better to use an older similar-sized sale rather than a newer and much different property. The key is to use an “apples to apples” approach, meaning you are trying to find the most similar properties to the subject property. If the subject property was not available, what properties would a buyer realistically consider purchasing? (that’s what a good comp is). If your house has three bathrooms, try to pull some sales with three bathrooms and a similar square footage. If you have a pool or converted garage, find other homes with the same feature. When the comps are very similar to your property, you don’t have to guess at how the market responds to upgrades or certain amenities because the proof is already there in the sales. Of course sometimes there aren’t any recent truly similar sales, so it’s important to go back in time to find something similar, or even search a different size of property in the neighborhood to understand how the market has responded to a certain feature. Once you find other sales of any size in the neighborhood with a pool, converted garage, or whatever you are looking for, you can then compare these sales to other similar-sized sales at the time. How much more or less did the house with the pool or converted garage sell for? This can help you glean some context for how much a particular feature might be worth.
  4. Search Older Similar Sales: Be sure to look back over the past year or so in the neighborhood so you can see what similar-sized sales have sold for. This will only take a minute in MLS, and it will help create a deeper context for you to understand the market. It can sometimes reinforce the strength of your list price or value to be sure your current price/value makes sense in light of historic trends in the neighborhood. If you are dealing with a custom home or unique location, you might need to consider sales over multiple years.
  5. tight and expanded search in tahoe park - sacramento appraisal blogSearch the Expanded Neighborhood: If you started with very tight boundaries in your initial search, you can expand it a bit more. I’m not saying to go outside of what buyers would consider the neighborhood market, but only to maybe include more area if you didn’t already. If a buyer would typically search throughout the entire larger neighborhood, then look for comps in this larger area now. The benefit of starting out small is that you are sure to research value very close to the subject property, which helps you not pull in data from further away that might not reflect the immediate neighborhood.
  6. Pull from Outside the Neighborhood (if needed): If sales are really sparse in the immediate neighborhood, you may need to find comps in competitive areas. Don’t do this step first though because it’s important to understand values in the immediate neighborhood first (even by using older sales, current listings, and expired listings). Of course the problem is it can be easy to “cherry pick” higher sales from other subdivisions. This can happen on purpose or by accident. A different tract might sell for more or less than the subject tract, so exercise caution to study whether the other tract really does have similar prices or not. Would a buyer shopping on the subject street also be shopping in the other tract? Better yet, would a buyer pay the same price in both areas?
  7. Avoid Using the Wrong Price per Sq Ft: There is always a price per sq ft range in a neighborhood, so it’s important to not simply choose one random price per sq ft figure and use it to come up with a value or list price. For instance, imagine a 2500 sq ft house that sold at $500,000, which would make the price per sq ft $200 (500,000 / 2500 = 200). At times it’s easy to see the metric of $200 and begin applying it to other homes right away. Yet what if the other homes aren’t similar in size, upgrades, appeal, condition, or location? The reality is if I was pulling comps for a 2000 sq ft home, I might find out that similar-sized sales really have a price per sq ft range of $210-225K instead of the $200 figure that was only good for the 2500 sq ft home. This is an easy mistake to make, and it underscores how important it is to be aware of price per sq ft ranges in a neighborhood. Rather than impose a price per sq ft on a property, search similar sales to discover what the price per sq ft range is for that size of property.

NOTE: Obviously some appraisers might not pull comps exactly like this. After all, there isn’t a standard set of steps appraisers must follow. Do what works best for you, and if something here resonates with you, that’s great.

Question: Any other tips, insight, or stories to share? I’d love to hear what you do, whether you are an appraiser or real estate agent.

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But Zillow says my house is worth a gazillion dollars

“But Zillow says my house is worth….”. That’s a fairly common statement, and it highlights how much the public trusts Zillow these days. I’ve written other posts comparing 10 actual appraisals with Zestimates, but today I want to show you a property in Sacramento that is over-valued on Zillow by more than 100%. While Zillow is a neat tool, let’s consider some of the important factors that go into making values accurate, and where things went wrong with this property.

zillow details

Case Study: Let’s look at 5309 Broadway in Sacramento located in the Greenfair townhouse complex. You might be thinking, “C’mon, let’s cut Zillow some slack since this is a complex of only 45 units, and sales have been sparse for two years”. But Zillow sits at the adult table, and should have access to data from previous years. Moreover, notice above that Zillow actually shows the subject property sold in 2008 for $138,000, which gives Zillow a context to measure value.

Broadway Sales vs Zillow

The Zestimate: The Zestimate for this property is $321,679. The graph above shows all sales since 1998 in the Greenfair subdivision. As you can see, there have never been any sales above $300,000 in this complex – even during the height of the housing bubble in 2005. In this case Zillow is frankly wildly off since market value looks a whole lot closer to the red trend line.

Where did Zillow go wrong?

  1. nearby so-called similar sales to the subject propertyChoosing the Wrong Comps: The image to the right shows “nearby similar sales”, but these sales are single family detached homes, and NOT attached townhouses. When there are no recent sales in a townhouse subdivision, it doesn’t mean you should borrow from the single family detached market. Either you can use VERY old townhouse sales in the same subdivision, or maybe find a competitive complex somewhere in the market area. Again, it’s easy to cut Zillow some slack here since they might not know the units are attached, but even in that case the TINY lot size and history of sales should be given much stronger weight then.
  2. Data Fail: Zillow clearly didn’t consider even its own data in this situation. Despite an understanding that this property sold in 2008 for $138,000, something in Zillow’s algorithm is obviously not crunching the numbers correctly since the market has not increased from $138K to $322K. Moreover, not considering a listing in the complex that expired at $186,000 this month is also a failure. When there are few recent sales, sometimes much older sales and expired listings can tell us about the market.
  3. Wrong Neighborhood Boundaries: Zillow is considering single family detached homes in Elmhurst and other parts of Tahoe Park as you can see by the addresses in the “similar sales” image. These areas have far higher prices compared to the Greenfair subdivision. If you use the wrong neighborhood boundaries, there’s a good chance the value might be off-base too.
  4. Problems with Less Data: When there is little data to consider, it looks to be a struggle for Zillow. To be fair, it’s relly not easy for humans to crunch numbers either when there are not many numbers to crunch. Yet data is available. It’s just a matter of seeing the numbers in their proper context.

Zillow Values in Sacramento - by Sacramento Appraisal Blog

One Buyer’s Reasons for Using Zillow: I asked a current buyer how she is using Zillow as she hunts for a home. I thought her response was interesting and insightful. What do you think?

At first, it helps me get an idea of overall neighborhood values, so it helps me know where to look or not look. Then, when we do look at specific houses, it gives me a general value of the house. I like the low-high range tool better than the “Zestimate” because it helps me get a feel for the overall values of a neighborhood. So, if a house is priced near or less than the low end, I figure it probably needs a lot of work, and if not, it might be a good deal. If it’s priced near or over the high end, I expect it to be in very good condition or have some kind of bonus features. Likewise, if we really like a house and it appears to be a good value according to Zillow, we’ll consider making an offer.

We also use Zillow to see a price and sale history of the house (our realtor can do this too, but it’s easy for us to do with Zillow rather than constantly calling her!). We can see when it first came on the market and various price changes, whether it’s a flip or not, and sometimes even if it was a rental.

One thing I don’t like is that it doesn’t have very accurate listing information. There are many houses on Metrolist and Redfin that aren’t on listed as “for sale” on Zillow. So, I find myself going back and forth between the three resources and our Realtor’s updates! If Zillow and Redfin merged, I’d be happy!

I look at Zillow as a range or estimate. I know that it doesn’t replace a person on the ground, but we can’t bring an appraiser with us to each house! :) Zillow can’t see a smelly smoker’s house or a house full of old wall paper that needs to be torn down, or a crazy neighbor with three boats on the front lawn, or a dog that barks at all hours. It also can’t see a potential great neighbor with kids our kids’ ages, or a shade tree that’s perfect for a tire swing or tree house. It also doesn’t understand that I’m OVER granite countertops! Enough with the granite!

Zillow isn’t usually off by 100%, but cases like this are worth noting because they highlight some of the issues a “machine” can have when valuing a property.

Quick Advice:

  1. Take Zillow with a grain of salt.
  2. Don’t excuse Zillow when it’s wrong. If it’s off-base, call it what it is. You can look at Zillow’s own accuracy rates and be the judge whether this is reliable data or not.
  3. Home owners, realize Zillow doesn’t know neighborhood boundaries, the condition of your home, all the same listings that are in MLS, and it may not even be comparing your house to the right type of property.
  4. Agents, be sure to look up the Zestimate before listing presentations so you can be prepared to answer when your potential client says, “But Zillow says….”. Consider some of the positive reasons why consumers like Zillow (there are some for sure), but then talk about the things you know as an expert – neighborhood boundaries, the mood of the market, sales and listings in the immediate neighborhood, expired listings, how long it it taking to sell in the neighborhood, the direction of values, the condition of the house, and what buyers are willing to pay more for in the neighborhood.

I hope this was helpful.

Question: Any stories to share, or any other points you’d add?

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7 tips to NOT stress out when the real estate market changes

Change can be stressful. That’s obvious. I don’t know about you, but I’ve picked up on a slightly stressed vibe when talking with the real estate community lately. We had such an aggressive market for the last couple of years, but now that things are slowing down, it can feel a bit stressful for some. For what it’s worth, I wanted to share a few thoughts for anyone who is feeling edgy right now about the market.

stressed guy - image purchased by sacramento appraisal blog

7 tips to NOT stress out when the real estate market changes

  1. It’s normal for markets to change: This is what we tell our clients, and this is what we need to tell ourselves. Real estate markets are constantly morphing, so we should expect change and plan for it too.
  2. Sellers will eventually catch up to the market: Right now sellers have been lagging behind the trend, meaning they’ve been wanting to price their properties higher than the market will bear. Sellers will eventually catch up to the market though, which will help put sellers and buyers on the same page. Kevin Cooper and Tom Lichtenberg reminded me of this point last week.
  3. Find some optimism: There are always two sides to stats. Sellers might look at a softening trend as a threat, but on the positive side buyers have more opportunity to afford the market and actually get into contract. I’m not saying to turn a blind eye to stats or perpetuate real estate spin, but simply keep things in perspective.
  4. Think about your marketing strategy: When you consider how the market is moving, who are your clients going to be next year? Now is the time to work hard and diversify your clientele if needed. Also, when a market changes, sometimes that means employing different strategies instead of doing the same thing that worked last year.
  5. Keep connecting with people: Business is about people. When we start to stress about market trends, the focus is removed from the most important thing. People. Yes, watch trends carefully, but be sure to let them serve and guide you instead of stress you out.
  6. Try to keep your emotions grounded: The plight of any self-employed person or sales professional is that our emotions are often contingent on how business is going. If things are booming, we feel great, but if things are slower, we feel down. The key is to find a way to stay grounded and put your confidence in something bigger than work. I’d love to hear what you do. I’ve yet to meet someone who does not struggle with this to a certain extent.
  7. Know the context of your stats: Lastly, when a market changes we can often look at stats with tunnel vision rather than the broader picture. For instance, on one hand it’s taking 40% longer to sell a house in Sacramento compared to last year, but four years ago it was taking twice as long than it is now. Additionally, inventory more than doubled in the past 18 months, but it’s actually at a fairly normal level right now.

Three graphs to provide context for the current market:

CDOM in Sacramento Region

Regional housing inventory in Sacramento

I hope this was helpful.

Questions: Which is your favorite point? Any other points you’d add?

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Removing chain link fences to beautify a neighborhood

photo from SNRIt’s easy to make idols out of athletes and celebrities, but who are the real heroes? I’m not saying sports figures and musicians can’t be worthy of respect and admiration, but in my book the most heroic people I know are normal everyday individuals walking out the grind of life – yet living out a sense of vision to make a difference. This is exactly who Amanda Dodd is, and I wanted to interview her because she is doing amazing work in the Oak Park neighborhood of Sacramento.

Several years ago Amanda started a volunteer effort called Neighbors Without Borders, which removes front yard chain link fences for the sake of beautifying the neighborhood. You might think chain link fences have no effect on real estate, but read The verdict on chain link fences and property value. Moreover, ask yourself when the last time was you saw a builder install chain link fencing in a tract home subdivision. If you really want to go deeper, check out a study of Diggs Town Public Housing to see the power of a focus on traditional neighborhood design. This isn’t about judging anyone who has a certain type of fence, but only highlighting the reality that the way a neighborhood looks tends to say something. Right or wrong, outsiders will judge whether a community is safe or even pleasant by its appearance.

Enjoy the interview and be inspired. What do you think of Amanda’s work?

chain link fences and property value - by sacramento appraisal blog

Ryan: First off, Amanda, why don’t you introduce yourself. Who are you and what do you do?

Amanda: I’m a  resident of Oak Park, Wife, Mom of a 1 year old little boy, and Clinical Social Worker who works part-time in Private Practice.

Ryan: How long have you lived in Oak Park?

Amanda: I’ve lived in Oak Park for 6 years

Ryan: What do you like most about the neighborhood?

Amanda: I love the architecture–the Bungalows, Victorians, and history of the area. I love that I can walk to the post office and mail a letter, or walk through beautiful McClatchy Park on my way to the bank. The diversity here is amazing, and there is a huge sense of community unlike anywhere else. People are so involved and the energy is contagious.

before and after chain link fence removal - sacramento appraisal blog

Ryan: Explain what your project is and how it began.

Amanda: When I moved to Oak Park in 2008, the first thing I noticed was how friendly and open people were. One neighbor was dropping vegetables off on my porch, people were waving hi to each other and stopping to talk…this was in stark contrast where I moved from. In Natomas, the yards were well-manicured and front yards were open, but I never met any neighbors in 4 years of living there. In Oak Park, however, people were so open and friendly, yet my street was covered in chain link and iron fences in front of almost every house. The irony was not lost on me. I noticed that the beautiful architecture of these hundred-old houses was covered up and hidden behind street after street of chain link and metal. It was so sad to me that the true beauty of the neighborhood, besides the people who reside here, would be covered up like that. So, I researched other cities such as Toronto and Boston who have done fence removal projects in certain neighborhoods, and they reported a decrease in crime, and an increase in sense of community. I wanted to do that here too.

Ryan: What is your role in the project, and who else volunteers?

Amanda: I came up with the idea of Neighbors Without Borders five years ago, and didn’t get much support around it. Then this past year, decided to try and resurrect it. I came together with a committee and we talked about how to get the idea out there, and we educated ourselves on how to take down fences. We removed about five this summer. Victor Duron is my co-partner and has been an essential part of this process. I couldn’t have done it without his support.

before and after chain link fence removal - 2 - sacramento appraisal blog

Ryan: Did you ever imagine you’d be doing this?

Amanda: I think I’ve always had a mindset toward change. I’m a social worker by nature, and when I see something that can be better, I want to get my hands dirty and go there.

Ryan: Why is removing chain link fencing a big deal for the neighborhood?

Amanda: There is nothing necessarily wrong with having a chain link fence; many people need fences to keep in dogs or children, and chain link is the most cost-effective fence you can put up. However, when you look down a street and see a solid line of fence metal, the street appears to be almost prison-like, or  a compound. The underlying message that is communicated is,  “Keep Out” or “This is a not a safe neighborhood”. Aesthetically, it can appear cold and unwelcoming. So a first time visitor to Oak Park  would likely  get the opposite idea about the types of people who live here.  Also, I think the biggest misconception is that “Fences keep you safe”. Research shows otherwise, and I have talked to many people who have had their house broken into even though they have a fence. A fence is not going to stop someone who wants to get in. I think fences can definitely bring about a false sense of security. If you look at the safest neighhorhoods in Sacramento, they don’t have any fences in their front yards.

Ryan: It seems kind of touchy to ask someone if a chain link fence can be torn out. How do you pull that off without offending residents or making them feel isolated?

Amanda: This is a good question because having a fence is a personal decision for everyone, and each person has a reason for having a fence. My goal is that people examine their reasons to see if they are no longer applicable. Maybe they put the fence up in the 80’s when the neighborhood was much less safe. Maybe the previous owner had a dog and they have just left it up as a matter of convenience. We don’t force people to remove their fences, or pass judgment on why people leave them up. Basically, our services are an offer for anyone who wants them.

before and after rehab by The Oak Park Team - Sacramento Appraisal Blog

Ryan: What would your quick response be if someone said, “My house has always had a chain link fence. It’s not bringing down the neighborhood.”

Amanda: I wouldn’t even argue that. It’s their decision. Maybe their particular fence isn’t bringing down the neighborhood, but collectively, the 14 other fences on the same street might not be sending the most open message.

Ryan: How do you let other people know about your project’s services?

Amanda: We have announced our services at Oak Park meetings, and have mailed letters offering our services. Also, word of mouth. In a community like Oak Park, people know what’s going on and talk to each other.

Ryan: Do you only focus on chain link fences?

Amanda: Right now, yes.

before and after chain link fence - the oak park team

Ryan: Is chain link difficult to remove? What do you do with it once it’s taken down?

Amanda: It’s surprisingly so easy! I bought some bolt cutters and a sawzall, and two people can take it down from start to finish in about half an hour! We have people who pick up the fence to sell as scrap metal to recycling centers.

Ryan: Lastly, in just a few words, how would you sum up what is happening in the Oak Park neighborhood right now?

Amanda: So much energy! People who live here can’t stop talking about all of the change.

—————————————————————————————————————

I hope you enjoyed the interview. Thank you Amanda for your time, and keep up the incredible work. If anyone wishes to connect with Neighbors Without Borders, email oakparkbeautiful@gmail.com. It’s easy to see the need for change, but rare to find individuals willing to help start to make change happen. If you are considering helping your neighborhood connect or grow in the right direction, why not get started? You just might be the right person at the right time to get the ball of change rolling. If not you, then who? Thank you also to The Oak Park team (Micah & Sam) for letting me use some photos.

Questions: What stood out to you most about the interview? What are your thoughts on chain link fences? Oak Park residents, how would you describe the neighborhood right now?

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10 sentences to describe Sacramento’s regional housing market

Have you ever attended a presentation and thought, “Wow, there wasn’t any reason why that needed to be an hour. The speaker could have said everything in 15 minutes.” This is why speaking is an art form. It takes real skill and time to hone a presentation, yet still pack the same punch in a shorter amount of time. The same holds true for writing. Twice a month I have two big market posts, but today instead of writing paragraphs below each graph, I’m simply sharing an image and then one sentence. Here are 10 sentences to describe Sacramento’s regional housing market (and Placer County). Any thoughts? Enjoy.

GRAPHS

SACRAMENTO’S REGIONAL MARKET

1) The median price has been the same for 5 months in a row ($310,000).

median price and inventory in sacramento placer yolo el dorado county

2) Housing inventory increased last month to 2.72 months (inventory isn’t the same at every price level).

months of housing inventory in region by sacramento appraisal blog

3) It took an average of 45 days to sell a house last month.

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

4) Sales volume is down about 9% this year compared to last year.

SALES volume in sacramento region - by home appraiser blog

5) There have been 36% less cash sales in 2014 compared to last year.

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

6) The number of listings increased again last month.

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

PLACER COUNTY

7) The median price has been fairly flat in Placer County ($386K).

Placer County median price and inventory - by home appraiser blog

8) Inventory is hovering just below 3 months in Placer County.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

9) It took an average of 47 days to sell a home last month in Placer County.

days on market in placer county by sacramento appraisal blog

10) Sales volume is at fairly normal levels in Placer County.

Placer County sales volume - by sacramento appraisal blog

wright-reportThe Wright Report: By the way, I contributed a few thoughts to The Wright Report, which is the most exhaustive local real estate report I know of. If you need some resourceful bathroom reading, I suggest downloading it. You can read it carefully or maybe take a quick stroll through the graphs. I’m honored to pitch in a few thoughts, but that’s not why I’m sharing it. I really like what Joel Wright puts together, and it’s a great service to the real estate community. When we understand the market and how it’s moving, it’s good for business and for our clients. Download and enjoy.

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: Do you like the format for this post? I’d love to hear your feedback. How else would you describe the market?

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The biggest change in Sacramento’s housing market (the mind of the buyer)

Have you been feeling the market change lately? We all know real estate has been slowing down, but the big theme last month seemed to be the change in the psychology of the buyer’s mind. A year and-a-half ago buyers were getting beat down by cash investors, but now buyers feel like they are sitting in the driver’s seat of the market because they have more power, selection, and even the perceived luxury of time being on their side. Let’s talk about this below as well as hit on some other trends. Remember, the goal of my big monthly post is to help better understand and explain what the market is doing. I hope this helps.

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.

changing market in mind of buyers -by sacramento appraisal blog

free-market-trend-graphs-from-sacramento-appraisal-blog4

1)  The median price INCREASED, but the market is NOT increasing:

median price and inventory since 2013 - by sacramento appraisal blog

The median price increased from $270,000 to $275,000 last month. Does that surprise you? I think many of us were expecting the median price to show a decline this past month in light of rising inventory and a general malaise in the marketplace. However, remember that sales stats for September strongly reflect what the market actually did in August rather than September. Being that properties are taking 41 days to sell right now in Sacramento, this means most escrows in August actually ended up closing in September. Thus the slowness felt in the market in September will theoretically be better reflected in sales stats in October. This is a good reminder too to not take one month of data and draw a big conclusion from it. We also must ask what the surrounding market is doing (hint: The median price has been the same for 5 months in a row).

One last thought on Trendgraphix: I mentioned previously how Trendgraphix in MLS showed the median price was increasing over the past few months in Sacramento County despite the trend really being flat. This has now been corrected. Just be aware that Trendvision adjusts publishes stats at the beginning of the month, but then they adjust their graphs at the end of the month. This means the data might look different depending on when you look at it.

2) Distressed sales represent only 6% of the market

REOs and Short Sales in Sacramento County

REOs and Short Sales Percentage and Volume in Sacramento County

There were less REO sales and less short sales over the past quarter compared to the previous quarter. I hear rumors of increasing REO sales, but that hasn’t shown up in the stats yet since both bank-owned sales and short sales showed a decline from the previous quarter. Keep in mind REOs and short sales each only represented about 6% of all sales over the past three months. Remember too that “Boomerang Buyers” are entering the market right now after having gone through a foreclosure or short sales, and they are hungry to buy again.

3) Inventory increased again last month and is now at 2.5 months:

inventory in sacramento county - by sacramento appraisal blog

Inventory is now at 2.5 months of housing supply (up from 2.41 month last month). This means there are 2.5 months worth of houses for sale right now in Sacramento County. Inventory also increased in the regional market, but we’ll dissect that in two days. Inventory right now at the beginning of Fall is at the peak of what it was at the end of Fall last year.

months of housing inventory by sacramento appraisal blog

number of listings in sacramento - July 2014 - by home appraiser blog

What happens with inventory over the next 3 to 5 months will set the stage for the housing market in 2015. Increasing housing inventory is definitely one of the X-factors for how values are going to move in coming time. A larger housing supply is also indicative of having a more “normal” level of demand now that cash investors are no longer driving the market. Investors acted like a steroid for the housing market, and their rampant purchases made it seem like demand was much stronger than it really was. But lately we are getting a taste of what demand is really like now that regular non-cash buyers have to support the market. As you can see above, inventory is not the same in every price range, and that is a key marketing point for buyers and sellers to embrace. Anything below $300K is still a bit of a fight to get into contract.

4) Sales volume is down 10% from last year:

sales volume in Sacramento County

Sacramento County has seen about 10% less sales volume so far in 2014 compared to 2013, but sales volume is only down 2% when looking at September 2013 and September 2014. The more sluggish volume of course is due to less purchases by cash investors.

5) Sellers are lagging behind the changing market

sellers lagging behind the trend in Sacramento County

The market has changed and really softened over these past five months, but many sellers are stuck in Q1 2013 when the market was very aggressive, or the first quarter of 2014 when the market experienced a normal seasonal uptick. Throughout September there were about 400 price reductions every day in MLS, and that tells us the market has been overpriced. This means it’s all the more important to price according to the most recent listings that are actually getting into contract (instead of the most recent sales from six months ago). If you haven’t seen my “Open Letter to Sellers in Sacramento“, it may be worth a look or share.

6) Cash sales are down 42.5% from last year:

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

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

There have been more non-cash purchases in 2014 so far compared to 2013, but the big news is cash sales volume is down by 42.5% from last year. Furthermore, cash sales used to represent almost 36% of the entire market in Sacramento County, but now cash sales are just under 18%. At the same time, it’s important to realize cash sales below $200,000 still represent almost 34% of the market, which tells us cash purchases are more aggressive at the lower end of the price spectrum than the rest of the market (that’s normal). Remember, taking cash out of the market has led to buyers gaining more power.

7) Buyers are gaining an obvious edge in the market

FHA sales in Sacramento County by sacramento appraisal blog

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

FHA sales have taken back about 7% more of the entire market since cash investors began exiting the scene 15 months ago. This is important for several reasons: 1) It shows us many first-time buyers are getting FHA offers accepted; 2) Sellers are more accepting of FHA offers lately (and conventional & VA); and 3) As buyers gain more power in the market, they are gaining the power to negotiate for lower prices and seller credits. If you are rusty when it comes to FHA appraisal standards, be sure you get in tune with FHA minimum property requirements.

8) It took 1 day longer on average to sell a house last month:

CDOM in Sacramento County - by Sacramento Appraisal Blog

On average it took 41 days to sell a home in Sacramento County last month, which is up 1 day from the previous month (and up 68% from September 2013). All things considered, properties that are well-priced and in good condition are tending to sell quickly, but anything that is overpriced is simply sitting on the market. Buyers have become much more picky about location and upgrades also, so any detrimental property characteristic is standing out like a sore thumb right now. Remember, when the market is very competitive and inventory is low, outdated homes and adverse characteristics are less of a big deal for buyers, but now that buyers have more choice and feel that time is on their side, they are tending to ignore certain listings because they believe they can find something better or wait out the market to see what happens. On the positive side, if your home is upgraded already, you have a marketing edge.

9) Interest rates are hovering in the 4% range:

interest rates by sacramento appraisal blog

Interest rates have been hovering in the lower 4s lately. It seems week by week the tone of real estate articles change from saying rates are likely to increase or they’ll likely to decrease. Ultimately only The Fed knows what will be done, so we’ll see how this pans out. This will be an important factor to watch since a change in rates can impact affordability and competition. Personally, I’m hoping interest rates don’t creep down too low because that will only ramp up prices again. Our market needs some space to figure out how to be normal rather than more outside forces to help inflate values beyond where the local economy would naturally take housing prices.

10) Values when the “bubble” burst and when we hit bottom

Since the bubble burst by sacramento appraisal blogThe median price is currently about 30% lower than it was when the previous real estate “bubble” burst in the summer of 2005. This may be helpful to consider for context for some buyers and sellers. I’ve heard a number of friends say, “I know values increased rapidly recently, but they are still so much lower than they used to be.” What do you think of that?

Median price and inventory since 2012 by sacramento appraisal blog

The market hit bottom in early 2012 and has since seen exponential appreciation.

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

Current values in Sacramento County are similar to where they were during Dec 2007/Jan 2008 and Dec 2003/Jan 2004. Keep in mind different neighborhoods or property types might not be experiencing this same trend.

Summary: Despite the median price showing an uptick this month, the market is NOT increasing. The market can best be described as flat, price-sensitive, and less competitive than it was in recent months. At the same time inventory is still relatively low, interest rates are near historically low levels, and there is still stiff competition to get into contract in various price ranges. We can look at housing market metrics until we’re blue in the face, but one of the biggest changes not shown on a graph above per se is the mind of the buyer. Real estate and Psychology definitely mix, and we’re seeing the mixture with buyers beginning to feel much more confident and in control of their housing destiny.

Two speaking engagements: By the way, I’m speaking at Sacramento Association of Realtors at the end of the month on the 24th. This is a free event, and I’ll be sharing about market trends and how to talk about them with clients when the market slows down. Secondly, I’ll be teaching a class on how to work with appraisers on the 27th. The cost is $25 for this class, and you have to sign up with SAR. Full disclosure, as the instructor I get a portion of the $25 fee.

ryan lundquist speaking events in october - 530 2

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

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

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A “cheat sheet” for agents of information to provide to the appraiser

I recently appraised a custom home, and when the order came through the property looked overpriced. I thought, “Yep, I’m going to look like the bad guy when this one appraises too ‘low'”. However, after doing all my research AND asking all the right questions to the listing agent, this property was clearly worth slightly more than the contract price. Ultimately I left the transaction feeling a bit curious why the agent did not offer more information about the property until I asked. At the end of the day her insight was actually vital since I found out there was a back-up cash offer above asking, one other full-priced conventional offer, and another listing coming on the market priced at a similar level – not to mention the feedback on the layout, landscaping, and location. The agent spent so much time, effort, and money to market this listing, but when it came to communicating with the appraiser, her approach was hands-off.

A “cheat sheet” to communicate with appraisers: What if you had a document on your desktop to simply address some of the questions appraisers tend to ask? You could quickly fill it out, and then email it or give it to the appraiser in person. Check out the document below, and you can download in WORD or a PDF.

information to give to the appraiser

This document addresses how the market responded to the subject property, and it also gives an opportunity for the listing agent to share any insight about the neighborhood, school district boundaries, market trends, important reasons buyers might be looking in the neighborhood (that the appraiser may or may not know), or insider knowledge about the subject property or street. Remember, this is potential market data, so it can be important for the appraised value. Also, you can look like even more of a rock star to your client when your client sees how intentional you are with the appraiser.

Some quick tips:

  1. Save this document to your desktop and use it for each listing.
  2. Tell the truth in everything you write.
  3. Feel free to skip, delete, or add any categories.
  4. Take 10 to 15 minutes to answer questions.
  5. You don’t need to write a novel, but it’s okay if the document ends up being more than one page (try to keep it less than two though).
  6. Remember, this information is about sharing facts instead of pressure to “hit the number”. This is exactly why it’s okay to share this type of information.
  7. Try to avoid subtle pressure statements like, “Please get value as high as possible”, or “We really need this one to work out”, because that comes across as trying to steer the value.
  8. 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).
  9. If you don’t feel comfortable providing sales or listings to the appraiser, that’s okay. However, if you do provide sales, make sure they are actually competitive to the subject property. If you know the sales well, you can always write out any differences at the top of the MLS sheets. I recommend saying “here is data I used to price the property” instead of “here are your comps”. If the appraiser doesn’t want to take any sales from you, maybe the appraiser would still take this information sheet.

DOWNLOAD the WORD DOCUMENT or DOWNLOAD a PDF.

Is there anything you’d tweak about this document? Speak up or offer constructive feedback below. If there is enough response, I can post a second round of an improved document in a few weeks. I’m all for better communication, and I would LOVE to get more information like this on a regular basis.

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

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10 things appraisers can do to improve the appraisal industry

The appraisal industry is in a funk. There is a lack of national unity, but more than that there is a culture of isolation and negativity that seems to leach the industry of forward progress. I was reminded of this recently while reading an article by Jonathan Miller, so I thought it might be fitting to share some practical and actionable steps to improve the appraisal profession. I’m not pointing fingers or talking down to anyone, but rather hoping we as appraisers can get on the same page about some of the basics. This is coming from a guy who frequently collaborates with other appraisers, and serves as a board member for an appraisal organization in Sacramento. What do you think?

isolation in appraisal industry -image purchased by sacramento appraisal blog

10 things appraisers can do to improve the appraisal industry:

  1. Increase your skill set. Study the market. Become a local expert.
  2. Think of appraisers as peers or potential collaborators instead of the enemy.
  3. Learn to visually illustrate the market by graphing trends. This can help you be relevant, show support for market trends instead of using boiler plate lingo, and ultimately tell a more compelling story of value in reports.
  4. Stop working for clients who pay too little. Expand your skill set so you are more marketable to a better clientele, and then break up with your old clients. Marketing to new clients can feel scary for anyone, but if you don’t step out to do it, you’ll never get those clients. Remember, waiting for the phone to ring is not a marketing plan.
  5. Don’t be afraid to ask questions. You will never grow if you do not ask questions and reach out to other appraisers for help. Don’t be a lone ranger.
  6. Be friendly. Appraisers are not known for their warm people skills, but it’s still possible to be personable while remaining objective.
  7. Be professional. Incessant complaining about other real estate professionals is a bad look. Why would a real estate agent, attorney, or CPA want to work with you if you are a toxic person?
  8. Be humble since no appraiser gets value absolutely right 100% of the time.
  9. Be a mentor by answering questions to other appraisers (whether they are younger or older). 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. Realize lots of appraisers need your help because they had poor training or were taught to “hit the number”. Many of these appraisers are isolated, so help draw them out.
  10. Join a local appraisal organization that meets together regularly. Isolation is hands-down one of the biggest threats in the appraisal community, so this is a necessary solution. Think about how you can improve the organization too. Or better yet, become a board member or volunteer.

The truth is we all have room to grow in life and business, and there is no such thing as a perfect appraiser either. There are surely some big things that need to happen to help steer the appraisal industry toward health and national unity, but if we begin to focus on some of the small steps above, it just might help put us on the right track.

If you have further thoughts, ideas, constructive feedback, or feel inspired about something, I’d love to hear from you in the comments.

Questions: Any thoughts or stories to share? What is #11?

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Convincing sellers to NOT overprice their homes by making graphs

The market is overpriced. So if you are a real estate agent trying to communicate with sellers, how do you get someone who wants to test the market at $500K to realize a more reasonable price is $375K? There are surely many strategies, but today I want to mention the power of graphing neighborhood sales. I don’t mean to beat the dead horse by bringing this up again, but knowing how to graph will help you communicate effectively, stand out from other industry professionals, and seize your role as a market trend expert instead of letting Zillow have all the glory. Sure, you can show your client a graph of city or zip code trends by using Trendvision, but it’s hard to argue with neighborhood-specific data.

making graphs - image purchased by sacramento appraisal blog

A letterhead to give your sellers: Before we dig in, here is a letter I wrote for sellers about things to consider when pricing in this market. This letterhead is based on a post I wrote recently, but I tweaked a few things. See the image below and DOWNLOAD here (PDF). Feel free to email or use as you see fit. Obviously the letter does not address a specific property. If you need a letterhead for your specific property, let’s talk about some consulting.

letterhead

Excel Tutorial: I know, you don’t use Excel because it’s only for nerds. But let me break it down for you below so you can join the club. Previously I shared a tutorial on how to graph with Gnumeric, but I had a few requests for using Excel instead since that’s what most people already have on their computers.

land park two-bedroom graph example by sacramento appraisal blog

This graph shows the range of similar-sized neighborhood sales is between $300-375K for the most part (instead of $500K). This can be a very powerful visual, especially when you begin to show the sales at $375K have been remodeled.

A tutorial on how to show the market: I recommend watching the tutorial below and then pulling up some MLS data for a neighborhood you are working in so you can create a graph by following the steps I took. This is perfect for Sacramento MLS, but as long as you can export data from your MLS system, you should be okay too. You may need to pause my video several times or rewind at moments. Whenever we do something new, it takes a while to catch on. If you don’t have Microsoft Paint to paste the graph like I did, you can use a different photo editing program, or maybe use a snipping tool on your computer. Additionally, you can open up Paint and simply start a new file, and then paste your graph (as opposed to opening an existing photo like I did). Watch below (or here if it’s too small below).

Please let me know if you have any questions. I hope this was helpful. Perhaps this will spur on a new skill set for you that can make a difference in your business.

Questions: Was the tutorial helpful? Anything you need clarity on?

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Does an enclosed patio count in the square footage?

Can you count an enclosed patio as square footage? I had a real estate agent ask me this question recently, and the answer was going to make a huge difference in the value and pricing strategy for an upcoming listing. The agent did not want to include the enclosed patio as square footage, but the seller did.

enclosed patio square footage - by sacramento appraisal blog

Question: Does a permitted “enclosed patio” built back in 1970 count as sq footage in a home? Tax records does not reflect any extra sq footage, but of course the owner wants to add 400 sq ft to the MLS listing.

Answer: An enclosed patio usually does not count in the square footage unless it is more like the home than not. The fact that it was built in 1970 is not the issue, but rather the quality of the enclosed patio is a big deal. Enclosed patios often have a lower quality compared to the rest of the house, and they don’t usually have the same feel as other parts of the home either. Moreover, they often don’t have a heat source, which is essential for any space to be considered square footage. In cases like this, a buyer would likely walk in to the enclosed patio, and think “This is a nice enclosed patio”, instead of “Wow, look at the 400 extra square feet of living space.” We have to keep in mind how buyers would view the property because if they don’t think of it as square footage, they won’t pay the same price per sq ft for the enclosed patio as they would for the rest of the house. On the other hand if the quality is very high, it feels like the rest of the home, and it has a heat source, it can sometimes be included in the total square footage (as was the case in the last photo below). Ultimately I would say the majority of enclosed patios are just that – enclosed patios. Not living space. This means in most scenarios enclosed patios are NOT included in the total square footage by appraisers. This does not mean they cannot contribute to the appraised value, but only that they are not considered as living space.

enclosed patio square footage 2 - by sacramento appraisal blog

enclosed patio square footage 3 - by sacramento appraisal blog

Keep in mind various portions of the country might have different rules for enclosed patios, so be sure to know your local code and how buyers perceive the market too.

NOTE: Photos in this post are not of the home in question, but rather of two different homes in the Sacramento area.

I hope this was helpful.

Question: Any further insight, questions, or stories to share?

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