Does knowing the contract price give the appraiser a target value?

Why do appraisers get a copy of the contract? Doesn’t this set the value stage? Someone asked me this recently, and I wanted to respond with a few thoughts. I’d love to hear your take in the comments too.

Image purchased by 123rf dot com and used with permission by sacramento appraisal blog - target value

Things to Remember about the Appraiser Knowing the Contract Price:

  1. Fannie Mae Requirement: If you didn’t know, the Fannie Mae appraisal form requires appraisers to analyze the purchase contract. Fannie Mae wants appraisers to list the contract price, date of contract, whether the seller is the owner (a safeguard against fraud), and if there are any concessions offered to the buyer. Moreover, if the contract cannot be analyzed, the appraiser has to explain why. See the text below straight from Fannie Mae.
  2. Valuable Data: Purchase contracts can provide valuable information to the appraiser. Sometimes there are listed repairs, credits offered, personal property given, or other incentives that might be influencing the agreed upon price. Other times there are a series of counter offers that help tell the story how a contract price was negotiated.
  3. MLS: Even if Fannie Mae did not ask appraisers to analyze the contract, appraisers would likely have MLS data during a sale, and then the complaint would be that appraisers are using the MLS pending price as a target value. Thus the issue is appraisers need to be objective about the value regardless of the information they have (and having more information is a good thing when valuing a property).
  4. The Bad: Appraisers can use a contract price as a target, but it shouldn’t be the goal to meet a certain value since appraisers are supposed to be objective and unbiased. We all know properties get into contract too high and too low at times, so appraisals shouldn’t “hit the number” every single time.
  5. The Good: There is nothing wrong with reconciling the appraised value to the contract price if the contract price represents a reasonable and supported value for the neighborhood. When doing this, an appraiser might say the following: “The contract price falls within the range of values indicated by comparable properties and represents a reasonable value for the subject property. Therefore the opinion of value in this report was reconciled to the contract price.” Or in layman’s terms, “Yep, the buyer and seller nailed it. Value is solid right where they agreed. How can I argue with that?”

Straight from Fannie Mae (p. 564 of the Seller’s Guide): All appropriate financing data and sales concessions for the subject property that will be or have been granted by anyone associated with the transaction must be disclosed to the appraiser. Typically, this information is provided in the sales contract. Therefore, the lender must provide, or ensure that the appraiser is provided with a copy of the complete ratified sales contract and all addenda for the property that is to be appraised. If the contract is amended, the lender must provide the updated contract to the appraiser to ensure that the appraiser has been given the opportunity to consider any changes and their affect on value. If the lender is aware of additional pertinent information that is not included in the sales contract, the lender must provide this information to the appraiser.

Questions: Do you think it makes a difference in the appraisal when the appraiser knows the contract price? Appraisers, what do you like or not like about analyzing the contract as a part of a purchase transaction?

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How do you know when a real estate market is increasing?

If a client asked you how to know when a real estate market is increasing in value, what would you say? Prices going up is the first and obvious answer, but what else? There are a number of different metrics to watch, and the image below helps hit on some of the main issues. Anything else you’d add?

Signs of an increasing market - 530

Markets tend to change over time rather than in an instant, so it’s important to know which metrics to watch. It’s also helpful to listen to what buyers are saying. After all, there is something about consumer confidence and the mood among buyers that cannot always be captured in one neat little metric. The other big question we must ask is: Why are values increasing? Remember that an increase in housing supply or interest rates can change the direction of the market in a heartbeat too (especially after the Spring seasonal market fades). This is why it’s also important to know the signs of a softening market.

think like an appraiserHow to Think Like an Appraiser: I’m excited to be teaching a class in a couple days at the Sacramento Association of Realtors. The class is called “How to think like an appraiser”, and we’ll hit on how to choose comps, how to make adjustments, and tips for working with appraisers. This will be very practical, and we’ll have many case studies to talk through in the class. See the image and register online here.

Question: What other signs do you watch to know if the market is increasing?

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6 things to remember when valuing a newer home in an older neighborhood

How do you value a new home in an old neighborhood? Here are six things I keep at the forefront of my mind when approaching this situation and choosing comps. What else would you add? I’d love to hear your take in the comments.

New vs Old Homes in a Neighborhood - by sacramento appraisal blog

  1. Premium: There is usually a premium for new construction. Just as buyers pay more for that new car smell, buyers will typically pay more for a home that has never been lived in.
  2. Fading Premium: However, the premium for new construction fades VERY quickly. This is important to keep in mind because any premium paid when the house was built a few years ago may not exist in today’s resale market.
  3. Infill Location: If the newer home is part of an infill project, it might have a bad location since the best locations were probably already built out. Moreover, infill projects tend to have tiny lots compared to larger ones found with older properties.
  4. Quality: Sometimes newer homes may not have the same quality as older homes, which reminds us new is not always more valuable. Other times though new homes are far superior to the surrounding area.
  5. Conformity: Does the property fit in with the neighborhood in terms of design and size? Or does it stand out in a bad way? The principle of conformity is a very relevant dynamic in real estate, and whether a property fits in the neighborhood or not can impact its value.
  6. Neighborhood Acceptance: Sometimes neighborhoods go through a period of change where it becomes more acceptable for older homes to be torn down and newer bigger ones rebuilt (East Sacramento). Other times it is not common or acceptable, so a new home might look like a sore thumb.

When valuing a newer home next to older ones, it’s easy to automatically assume it’s worth more. Yet we have to ask, how does the market see this new property? Is the market willing to pay more for this or not? What are buyers looking for in the neighborhood? The proof is in the data, so often times we need to dig deep for comparable sales. It might even be helpful to search through the past several years of sales to find something else that was new. What was comparable to the new property at the time of its sale? Did it sell with any premium? Or did it sell right on par with other older homes? Be careful of course when interpreting new construction comps since sometimes newly constructed homes are loaded with concessions and credits, which can inflate the price.

Questions: What’s number 7? Any other thoughts or insight?

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The real estate market that ripened early in Sacramento

The market ripened early this year. Buyers have simply been ready before sellers. On one hand listings and sales have been at fairly normal levels for the first two months of the year, so we can say the market is normal in that regard. But buyer demand really took off last month as pendings in the regional market were up by almost 30% compared to last February. This is the part that is not normal, and why we can say the Spring market ripened early.

Hungry buyers - image purchased and used with permission by Sacramento Appraisal Blog

One Paragraph to Explain the Market: Well-priced listings are going quickly and experiencing multiple offers, but otherwise properties are sitting on the market if they are not priced correctly. Buyers have been anxious to get into contract, but at the same time they seem to be showing discretion by not readily pulling the trigger on homes with adverse locations or issues. This has led to a sense of many current listings feeling like leftovers since they’ve been well vetted like thrift store clothing. The good news is we are reaching the time of year where more listings should be hitting the market to help alleviate the pressure of a lack of good inventory. Lastly, it took a few less days to sell last month, inventory decreased, and the sales to original list price ratio increased (all normal in Spring).

NOTE: I am posting once a week now, and this means my big monthly post will have less text, but a few more graphs (Placer, Sacramento County, & Regional Market).

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

DOWNLOAD 45+ graphs HERE for free (zip file): Please download these 45+ graphs here as a zip file (or send me an email). Use them for study, for your newsletter, or even some on your blog. See my sharing policy for 5 ways to share.

SACRAMENTO COUNTY:

median price and inventory since 2013 - by sacramento appraisal blog price metrics since 2014 in sacramento countymonths of housing inventory by sacramento appraisal blogCDOM in Sacramento County - by Sacramento Appraisal Blogsales volume in Sacramento Countyfebruary sales in sacramento county

PLACER COUNTY:

Placer County median price and inventory - by home appraiser blog

number of listings in PLACER county -February 2015 - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

SACRAMENTO REGION (Sac, Placer, Yolo, El Dorado):

median price and inventory in sacramento placer yolo el dorado county

days on market in placer sac el dorado yolo county by sacramento appraisal blogmonths of housing inventory in region by sacramento appraisal blogRegional market median price - by home appraiser blognumber of listings in Placer Sacramento Yolo El Dorado county - by home appraiser bloginterest rates inventory median price in sacramento regional market by sacramento appraisal blog

Questions: What is driving buyers to get into contract? Is it low rates? Is it a sense of needing to get in a home before values rise too quickly? What do you think?

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Why comparing the right numbers matters so much in real estate

You can make numbers say whatever you want in real estate. Sometimes this happens on purpose, but other times it’s an accident. That’s why it’s so important to know how to make the right comparisons. Below I will show you an example of how you can look at the numbers and end up saying two completely different things about the market. Both might be technically true, yet one of the statements really doesn’t reflect the real trend. In an era of big data in real estate, knowing how to communicate these things to clients is key. Enjoy.

Looking at the numbers - image purchased and used with permission by sacramento appraiser blog

THE WRONG COMPARISON: (Volume is down by 30%)

December to January

When we compare January with December, it’s easy to get an inaccurate picture of the market (but it happens all the time in media outlets). In the case above, we see a 30% decline, and this sounds very alarming. Yet volume from December to January almost always decreases by 20-25% easily in any given year in Sacramento, so 30% in not something to freak out about.

Truth: Comparing the previous month to the current month can sometimes give us the wrong picture about the market – especially in the midst of a strong seasonal trend. Volume is ALWAYS lower in January (see this quick graph as proof).

THE RIGHT COMPARISON: (Volume is down by 4.5%)

Month to Month

When we compare January 2015 with January 2014, we see sales volume was down by only 4.5% this year. That’s a far cry from sounding the alarm that “VOLUME IS DOWN BY 30%”. In this case the most accurate thing we can say about the market is that volume was 4.5% lower this January.

Truth: Comparing the current month to the same month last year tends to give us important insight because we are using the same context for comparison. I’m not saying to not compare back-to-back months, but only to get in the habit of looking at the same month last year too. This is especially important when dealing with January and February data since they are typically slower months in terms of closed escrows. Remember too that last month’s sales tell us what the market used to be like when these properties went into contract 30-60+ days ago, but current listings and pendings tell us about the market right now.

Questions: Any thoughts or insight? I’d love to hear your take.

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5 things to remember when using price per sq ft in real estate

Using price per sq ft can be very dangerous. I know that sounds odd because price per sq ft is about as common as anything in real estate. Home owners ask, “How much is the price per sq ft in the neighborhood?”, and real estate agents might say, “I priced this property based on the price per sq ft in the area.” But having a correct understanding about the way price per sq ft works can revolutionize the way we see the market and value properties. Let’s unpack five principles below, and I’d love to hear your take in the comments.

DOWNLOAD a more detailed version of this post to pass along to your office.

Image purchased by Sacramento Appraisal Blog from 123rf dot com and used with permission

5 principles to remember when using price per sq ft in real estate:

1) There is a price per sq ft spectrum in a neighborhood: There is never just one price per sq ft figure that applies to every property in a neighborhood. For instance, a neighborhood might easily see a price per sq ft range from $100 to $250 when looking at all sales.

2) Similar houses tend to have a similar price per sq ft: When homes are similar in size, location, bed/bath count, etc…, they tend to have a similar price per sq ft. That’s obvious, but the contrasting factor is that non-similar homes might have a VERY different price per sq ft that shouldn’t be used to value your home.

3) Property characteristics can quickly change the price per sq ft: When there are differences in condition, location, lot size, quality of upgrades, bed/bath count, size, etc… the price per sq ft can change dramatically. We might see a small remodeled home selling at $250 per sq ft, a model match fixer selling at $175 per sq ft, a short sale model selling at $185 per sq ft, and a home with an adverse location selling at $215 per sq ft. Thus even for one model there could be a price per sq ft range from $175 to $250.

4) Smaller homes tend to have a higher price per sq ft: It costs more to build smaller homes, so smaller homes tend to have a higher price per sq ft than larger homes. This is why it’s dangerous to use a price per sq ft figure from a smaller sale to value a larger home. A smaller home might sell at $250 per sq ft, but a larger home might be closer $150 per sq ft. Here is a quick video below (or here):

5) Price per sq ft provides a valuable context: When you can talk through price per sq ft figures in a neighborhood, and explain the above points, you are an incredible resource. Appraisers, pay close attention to the price per sq ft range in a neighborhood. Some appraisers treat price per sq ft as a meaningless metric, but it’s actually valuable. If your value does not fall within the range (especially the competitive price per sq ft range), it’s important to be able to explain that.

CONCLUSION: Be careful about using price per sq ft to price a property because sometimes it’s like putting the cart before the horse. I recommend starting a valuation with an “apples to apples” approach where you first and foremost try to find other similar sales and listings in the neighborhood, and then subtract and add value based on any differences with your property. After you have a grasp of similar sales, research price per sq ft figures for the entire neighborhood as well as competitive properties. Ask yourself if your value makes sense in light of price per sq ft figures.

Questions: Any thoughts or insight? I’d love to hear your take.

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What do appraisers look for during an FHA inspection? (free download)

What do appraisers look for when doing an FHA appraisal? These days it’s important to be in tune with FHA appraisal standards so your home can be FHA-ready or so you can know what to expect if accepting an FHA offer. Let’s talk through some of the most common FHA issues below. You can also download an FHA checklist to study or share with clients. This checklist has all the information from this post as well as one additional page.

what appraisers look for during an FHA inspection

DOWNLOAD an FHA checklist HERE (pdf)

The Main Idea with FHA: FHA is primarily concerned that everything in the house functions properly and that there are no health and safety issues. The basic concept of meeting FHA minimum requirements is that everything must work as it was designed to work. For example, a window that is supposed to open must open, and a built-in appliance should do what that appliance is supposed to do. If you have a sliding glass door with a lock on the handle, the lock should work.

FHA requirements - from sacramento appraisal blog

What do FHA appraisers look for?

  • Utilities should be turned on so the appraiser can test systems and appliances.
  • Appliances must function properly.
  • fha-logoThere should be proper drainage around the perimeter of the house.
  • The heating unit must be in working order (and AC if applicable).
  • Water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
  • The water heater must be in working order and strapped according to local code.
  • Attics and crawlspaces are to be viewed at minimum from the shoulder up by the appraiser. When viewing the attic, appraisers make sure there are vents, no damage, no exposed or frayed wires, and that sunlight is not beaming through. When inspecting the crawl space, appraisers make sure there are no signs of standing water or any other foundation support issues. Excessive debris in the attic or crawl space should be removed.
  • Paint must not be chipping, peeling, or flaking on homes built before 1978 because of the danger of lead-based paint (lead was used in paint prior to 1978). However, there must be no defective paint or bare wood for properties built after 1978 because defective paint impacts the economic longevity of the property. Defective paint should be scraped and re-painted (with no wood chips on the soil).
  • Electrical outlets must work (outlets should have a cover plate also).
  • Toilets must flush and be mounted.
  • Any active termite infestation needs to be cured.
  • Minor cosmetic issues such as stained carpet or a need for interior paint are okay. The house does not have to be perfect, but if there are issues that impact health and safety or the long-term economic viability of the property, then those issues must be cured.
  • Windows must open and close and they cannot be broken. Minor cracks can be okay so long as there is not an issue with safety, soundness and security.
  • No dangling wires from missing fixtures or anywhere else.
  • FHA doesn’t require air conditioning, but if present the system should work as intended.
  • Smoke detectors & carbon monoxide detectors are required insofar as required by local code
  • The firewall from the garage to the house should be intact. Missing sheetrock, a pet door installed in the door, a lack of self-closing hinges, or a hollow door could pose a safety issue.
  • A roof should not be leaking and needs to have at least two years of economic life left.
  • A house will be rejected if the site is subject to hazards, environmental contaminants, noxious odors, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property (this isn’t an issue for the vast majority of properties).
  • A trip hazard is a subjective call to make by the appraiser and not necessarily an automatic repair, but if there is a legitimate safety issue it should be called out by the appraiser.
  • There are things any appraiser will call out in an FHA appraisal, but there are times when appraisers have to consider how the spirit of FHA might apply in a situation. FHA is black and white on many issues, but other times appraisers simply need to use good judgment.

Reminder About Difference in Locations: Appraisers in different parts of the country may require some items in their appraisals that might not be required elsewhere. For instance, carbon monoxide detectors are required in most residential homes in California, but this is not the case in many other states. An FHA appraiser in a different state might not even mention a CO detector, but in Sacramento it is commonplace.

DOWNLOAD an FHA checklist HERE (pdf)

I hope this was helpful. If you’re looking for more information on FHA appraisal standards, you can check out other FHA appraisal articles I’ve written.

Questions: Anything else you’d add to the list? Any FHA questions? Appraisers, if you have any stories to share about properties that were rejected, speak on.

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A normalish start in 2015 for Sacramento’s regional market (and Placer County)

How did the real estate year begin in Placer County? What about the entire regional market in Sacramento? Let’s take a good look today so we can better understand how things are moving and how to explain trends to clients.

Longer on purpose: If you’re new to subscribe (thank you), know that twice a month I break down the trends so we can better see the local market. Most of my other posts are general enough to apply anywhere in the United States. Is your market similar though? I’m curious.

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.

snail in a race photo - bought by sacramento appraisal blog and used with permission

Email me if you want 20 graphs: If you would like all the graphs in this post (and 7 more), send me an email (make sure to write “I want the market graphs” in the header). You can use some of these in your newsletter, on your blog, and in other social spaces. See my sharing policy for 5 ways to share.

PLACER COUNTY:

1) The median price saw a dip in January (which is normal):

Placer County median price and inventory - by home appraiser blog

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

The median price cooled in Placer County, but as you can see in the graph above, it often cools off toward the latter part of the year and the beginning of the year. The seasonal market is a reality, and it’s important to consider what the market typical does during different seasons of the year.

2) It took an average of 68 days to sell a house in January:

days on market in placer county by sacramento appraisal blog

number of listings in PLACER county - January 2015 - by home appraiser blog

Last year it took 58 days to sell a house in January, and this year it took 68 days to sell a house (a 17% increase). When it takes longer to sell, it’s a sign that the market is overall slowing down. It’s actually a good thing for properties to take longer than just 30 days or so to sell because it evens the playing field and slows down rapid appreciation in value. Remember though that well-priced properties are still moving quickly (and even receiving multiple offers). At the same time, buyers are not quickly pulling the trigger on overpriced listings or properties with an inferior condition or adverse location (unless priced correctly).

3) Monthly sales volume was just about the same as last January:

Placer County sales volume - by sacramento appraisal blog

Monthly sales volume in January was virtually identical to last January. Sales volume tends to hit a low point in January, and that’s exactly what happened again this year.

4) Monthly inventory increased in January (not a surprise):

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Monthly housing inventory has been flirting with 2.5 to 3.0 months for the past year in Placer County. Last month inventory shot up to 3.16 months, which means there are 3.16 months worth of houses for sale on MLS. However, this is a weak figure since it is calculated by dividing the number of current listings as February 1 by the number of sales last month. Since there were very few sales last month, this actually means there really aren’t very many listings right now (not yet, but they are starting to come as the spring market unfolds). As you can see, the higher the price, the more inventory there is.

5) Layers of the market at work:

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

I like this graph because it’s a beginning to help show there are many different “layers in the market” so to speak. It’s never just about supply and demand. There is so much that goes into driving the market.

PLACER COUNTY SUMMARY: Stats for January showed just what was expected. The median price softened (which almost always happens in January), sales volume was just about the same as last January, it took longer to sell compared to the previous month, and inventory increased. The market is bound to feel more competitive to a certain extent because of lower interest rates, but sellers must remember to price according to this market instead of the very aggressive market in 2012 and 2013.

SACRAMENTO REGION:

1) Comparing Sacramento, Placer, and the Region:

Regional market median price - by home appraiser blog

It’s easy to get so focused on data from one county or neighborhood that we lose sight of the big picture. What are values doing in the overall regional market? When we take a wider look with far more data, we can sometimes get a better sense of the trends. Remember of course that not every neighborhood, price range, or property type is experiencing the same trend.

2) The regional median price took a dip last month (normal):

median price and inventory in sacramento placer yolo el dorado county

Sometimes people react with fear when they hear prices softened at the end of the year and beginning of the year, but that’s a very normal part of the real estate cycle. The market as a whole is still definitely slowing down, and we’ll watch that trend, but a slowness during this time of year was to be expected. Keep in mind there are almost 3000 pendings in the region right now, which represent more sales in coming months. It’s also normal to see a high volume of pendings right now because the spring sales spike in March happens because of all the listings that got into contract in January and February.

3) It took 65 days to sell a house in the Sacramento region:

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

On average in January it took 65 days to sell a house. Last January it took 53 days to sell a house, which means it took 22% longer this year to sell.

4) Monthly inventory is now at 2.9 months:

months of housing inventory in region by sacramento appraisal blog

Right now housing inventory is at 2.9 months, which is slightly above where it was last year at the same time at 2.7 months. Since there is more data to consider for the regional market, it really helps show the way the market works: The higher the price, the more inventory there is.

5) Layers of the market at work:

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

Just as I shared for Placer County above, here is a graph with different “layers in the market” so to speak. There is so much that goes into driving the housing market.

SACRAMENTO REGIONAL MARKET SUMMARY: Stats for January were  not a surprise at all. The median price softened, it took longer to sell this January, and housing inventory increased. This is usually what happens with January stats.

I hope this was helpful.

Share: Please feel free to share this link with clients, and see my sharing policy for 5 ways you can share my content so we’re on the same page about sharing.

Questions: What are you seeing out there? How does the market feel to you? Anything you’d add?

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The slowish real estate market in January

January is usually a slow real estate month. That’s nothing shocking. Yet it’s always interesting to see how the market begins to maybe get a sense for where it might go during the year. Today let’s take a look at 6 specific areas of the market in Sacramento, which will help us understand and explain the way things are moving.

Longer on purpose: If you’re new to subscribe (thank you), most of my posts are not this long. But twice a month I break down the trends so we can better see the market. Most of my other posts are general enough to apply anywhere in the United States. Is your market similar though? I’m curious.

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.

the story of the market in january

Email me if you want the graphs: If you would like all the graphs in this post (and 15 more), send me an email (make sure to write “I want the market graphs” in the header). You can use some of these in your newsletter, on your blog, and in other social spaces. See my sharing policy for 5 ways to share.

1) The reality of the slower seasonal market right now:

seasonal dip in sacramento

It’s easy to freak out this time of year when values take a dip. It can feel the market is falling apart when we see price figures decline. Yet the market almost always softens at the end of the year and in the very beginning of the year. Knowing this can help you communicate well with clients and even plan for business. Remember that sales stats usually see a huge uptick in March, and this signifies the Spring market. Technically most of the sales in March actually get into contract in February though, which reminds us the Spring market hits its stride in February.

2) The median price softened by 3% last month:

price metrics since 2014 in sacramento county

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

median price and inventory since 2013 - by sacramento appraisal blog

The median sales price took a 3% dip in January to $256,000. It might sound extreme to see the market soften this much, but last year saw the same exact 3% dip as you can see in the image above.

3) It took an average of 60 days to sell a house in January:

DOM in Sacramento County

On average it took 60 days to sell a house last month in Sacramento County. This is up from 48 days one year ago in January 2014, but down from about 90 days in January 2012.

CDOM in Sacramento County - by Sacramento Appraisal Blog

It’s important to realize the market is not the same at every price range. In other words, some price ranges tend to take longer to sell than others. Generally speaking, the higher the price, the longer it takes to sell. Keep in mind there were only 9 sales at 750K-1M and two above 1M, so take those stats with a grain of salt.

4) Sales volume hit its lowest point in 8 years:

sales volume in Sacramento County

Sales volume was at its lowest point in 8 years last month. On one had that sounds alarming, but it’s really the story of the market these days. Last year saw slightly more sales at this time, so this year isn’t anything out of the ordinary for the current market. Volume is simply down right now as a whole, and we can look at this as the new norm for a while until the market can handle more inventory and more demand (when the economy improves).

january sales in sacramento county

It’s easy to get sensationalistic about having such a low volume of sales last month, but the graph above shows 15 years of January sales in Sacramento County. What do you notice? January almost always comes in last place for sales volume. In short, don’t freak out.

sales volume in fall and winter through 2015 - by sacramento appraisal blog

Lastly, remember to consider what usually happens in February. Sometimes February is right in sync with January, but other times there is slightly more volume. We’ll see what this year brings, but knowing how the market works makes you an asset to clients.

5) Housing inventory increased last month (technically):

inventory in sacramento county  Since 2013 - by sacramento appraisal blog

Inventory increased last month to 2.61 months of housing supply. This is slightly higher than it was one year ago, and exponentially higher than 2013 when there was only one month’s worth of homes for sale. Remember that inventory is the relationship between the number of active listings as of the first of the month divided by sales from the previous month. This means if there are VERY few sales in a month, inventory will actually sound much higher than it actually is. In short, an inventory at 2.61 months sounds like it’s on the higher side, but being that sales volume was really low last month, this figure at 2.61 doesn’t really mean the same thing as it would in the summer when there are far more sales.

months of housing inventory by sacramento appraisal blog

Housing inventory is never the same at every price range. This reminds us yet again there are many markets within a market. In this case, the higher the price, the more inventory there is.

inventory during fall and winter 2 - by sacramento appraisal blog

number of listings in sacramento - January 2015 - by home appraiser blog

6) Interest rates continue to decline:

interest rates by sacramento appraisal blog since 2011

Low interest rates are like fuel for the housing market since they create more demand by drawing buyers into the market. That is what happened in 2012 when rates went below 4% (for the first time ever), and it’s likely going to get some buyers off the fence right now.

interest rates 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. I hope this was helpful to create some context and conversation.

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Questions: What are you seeing out there? How does the market feel to you? Anything you’d add?

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Real estate is about location, location, and __________.

It’s been said many times that real estate is about location, location, and location. This is basic stuff, and we all know where a home sits can be about as defining a feature for a property’s value than anything. This is why a home on “the other side of the tracks” can have a far different value than an identical home in a nearby subdivision. But sometimes it’s not even about crossing something obvious like train tracks, but simply crossing the street within the same neighborhood. Maybe the other side of the street is located in a different school district, has a different type of architecture, larger lot sizes, or there are more commercial properties. Whatever the case, let’s look at one particular street in the Curtis Park neighborhood of Sacramento to help show how real estate values are definitely about location.

Question: What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.

Curtis Park Neighborhood

A Neighborhood Example: This graph shows all Curtis Park neighborhood sales over the past 6+ years (not newer homes in Curtis Park Village).

Curtis Park Neighborhood Sales Since 2008 - by Sacramento Appraisal Blog

Franklin Blvd: Now let’s separate values by Franklin Blvd. This street is a north/south “line of demarcation” so to speak for neighborhood values. Of course Sacramento locals know there is a different feel between the east and west side of Franklin Blvd, but it’s still interesting to see this difference on a graph. For non-locals, both the west and east side are within the neighborhood boundaries, but as you can see, there is a huge change in value once Franklin Blvd is crossed.

Curtis Park Franklin Blvd - by Sacramento Appraisal Blog

2-Bedrooms on the East & West: Even when we look at 2-bedroom units on the east and west side of Franklin Blvd, we see a big difference in value.

Curtis Park 2-Bedroom Sales

Key Takeaways:

  1. Be a Student: Study neighborhoods so you know the boundaries where values change. This can only happen by talking with real estate professionals, reading articles, asking questions, studying trends, and working in a neighborhood over time. It takes time to become an expert.
  2. The Right Comps: Avoid “cherry picking” sales from across the street to boost value. Or if you do use higher-priced sales, be sure to make a value adjustment downward as needed. Remember that it’s okay for appraisers to use much older comps in the immediate neighborhood rather than finding newer ones in superior areas.
  3. Sales vs. Comps Distinction: If you are listing a home, price according to the market instead of borrower higher prices from the market across the street. Help the seller understand that nearby sales might not necessarily be “comps” either. In other words, just because it sold does not mean it’s a comp.
  4. No Little Black Book of Value: Remember there is no such thing as a book of value adjustments that can be applied to every neighborhood or property type. After all, buyers in one location may be willing to pay substantially higher premiums for certain features, but these same features might not command much of a premium at all in a different location.
  5. Let History Paint a Context: If you’re not sure if values are softer or higher in the immediate part of your neighborhood, look back at sales over the past few years to get a better idea about how the market has moved over time. The previous sales will help paint a picture of the market. What have buyers been willing to pay over time compared with other surrounding areas? This may be a clue into how value works in the neighborhood.

I hope this was interesting to you. I sure enjoyed putting it together.

Questions: What advice would you give others about the role location plays in real estate? What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.

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