3 ways price per sq ft is valuable in real estate (even for appraisers)

My name is Ryan and I use price per sq ft in real estate. There it is. My confession. Are you surprised? I know you’ve heard me talk about how price per sq ft is one of the most abused metrics out there. I still believe that. Yet there are several ways price per sq ft is actually valuable and useful for real estate professionals (even appraisers). So let’s kick around some ideas together below. I’d love to hear your take in the comments. Any thoughts?

price per sq ft value in real estate - image purchased and used with permission by sacramento appraisal blog

1) Price Per Sq Ft Helps Us See the Entire Market: What have buyers been willing to pay in a neighborhood? It’s valuable to see the price per sq ft spectrum to help answer this question. What is the high, the low, and the average? I ran a CMA of sales over the past 90 days in the Mather neighborhood in Sacramento County (a tract subdivision), and the price per sq ft range is $112 to $206.

Mather all sales past 90 days - sacramento appraisal blog

2) Price Per Sq Ft Helps Us See The Competitive Market: Imagine we’re valuing a home that is 1569 sq ft. The question becomes, where does the 1569 model fall on the price per sq ft spectrum that we see above? After running a CMA for model match sales, the price per sq ft range is $184 to $193. That’s a much more narrow range compared to the overall neighborhood, right? Ideally it would be nice to have many more sales, but that doesn’t always happen as we know. This is why sometimes it might be best to look at more than just 90 days of sales and obviously expand the square footage range to maybe 1400 to 1800 or so. Whatever you do, just make sure you have enough data to produce meaningful results.

1569 model in mather - price per sq ft - sacramento appraisal blog

3) Price Per Sq Ft Helps us Talk to Clients About the Market: Some clients are so stuck on price per sq ft that they struggle to think about real estate in any other terms. Here’s how it usually goes. A home owner sees a figure of $206 from a different sale in the neighborhood, fixates on that number, and then expects a value for his own property based on that number (even though no similar sales have commanded a price per sq ft close to $206). After talking through Points 1 & 2, hopefully the client can understand that hijacking a random price per sq ft from the neighborhood isn’t a good valuation methodology. Lastly, it’s critical to actually completely set aside price per sq ft and ask two questions: What have similar properties actually sold for? (sales price) & What are similar listings actually getting into contract for?

price per sq ft in real estate - image purchased and used with permission by sacramento appraisal blog

Application:

  1. Real Estate Agents: Be sure to study the price per sq ft spectrum for the entire neighborhood AND competitive properties in the neighborhood. But make sure you spend a good amount of time finding similar sales and listings. Sometimes agents say to appraisers, “I used a price per sq ft of $215 to price the property”. Okay, but where did you get $215 from? Why not $208, $214, or $225? Remember, appraisers like myself can find value in using price per sq ft to see the context of the market, but at the end of the day we are fishing for comparable sales to tell us what the market has been willing to pay for something similar. So when you communicate with appraisers, I recommend talking about actual sales you used to price the property rather than price per sq ft figures. This helps you speak the language appraisers use, and your initial research with price per sq ft vs. actual sales might even help convince sellers to not get hung up on a list price that is far too high (based on a hijacked price per sq ft).
  2. Appraisers: Sometimes appraisers mock price per sq ft and treat it like a meaningless metric, but there is actually some real value in using it. Not only can we get a more detailed sense of the market, but we can also communicate well with clients. Consider paying close attention to competitive price per sq ft figures (I know, this may not work in rural markets). If you are coming in lower or higher than the competitive range in the neighborhood, just be sure you know why and can explain why. Also, consider using price per sq ft figures in your final reconciliation. For instance, along with statements about comps, I regularly find myself saying things like: “The final value is also supported by trend graphs as well as competitive price per sq ft figures in the neighborhood.”

I hope this was helpful.

reaa-north-bayClass I’m Teaching Next Week: By the way, I’m teaching a class next week in the North Bay to a group of appraisers. It’s called How to Tell the Story of Value in Appraisal Reports (good for 2 hours CE). Come on by if it’s relevant.

Questions: How do you use price per sq ft in real estate? Anything else you’d add to the points above? Did I miss something? I’d love to hear your take.

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Toxic Water & Real Estate: An interview with a Realtor from Flint

What happens to a real estate market when the water is unsafe to drink? In light of the tragic situation unfolding right now in Flint, Michigan, I thought this would be a timely conversation. So I reached out to Realtor Ryan McFarlane who has sold nearly 1000 homes in Flint. This brief interview isn’t an exhaustive case study, but only one conversation centered on real estate (which has so much to do with people). I’d love to hear your take in the comments below.

Flint real estate agent interview - by sacramento appraisal blog - image purchased from 123rf and used with permission

Tell me about yourself. How long have you been in real estate? How much business have you done in Flint?

Realtor Ryan MacFarlane - MichiganMy name is Ryan McFarlane. I originally got into real estate around 2004. Overall I’ve sold over 3000 homes, and about 1000 of them have been in Flint; the company I work for now was actually started in Flint.

What is the population of Flint?

According to the census, the population is 99,763. However, it used to be 141,553 in 1990. When GM closed down their plants, it was devastating for the housing market and job market in Flint as a blue collar town.

What is the City of Flint like for those who have only read it about it recently?

I would say there are still some nice areas of housing. People are investing in Flint and trying to bring up the Downtown area. Though when you get off the beaten path, there are some rough patches. There are still good areas, but there are many bad areas. Some people say it’s all bad, but it’s not that way. There are also some good things going on, but the attention is often on the bad things.

flint listing - by sacramento appraisal blog

How much do properties tend to sell for in the city?

As of right now there are 352 active properties on the market in the City of Flint. The low end is about $500 and the highest listing is $229,000. In the last year the highest sale was $350,000, but it was over 6000 sq ft and a custom home in a historical area. Otherwise most properties in the city are going to sell under $30,000. The majority of sales are bank-owned properties. Sometimes properties literally sell for nothing since people call me and want to transfer the quitclaim deed to someone else. Sometimes a bank-owned property is in such bad condition that it is worth absolutely nothing. Other times a home will be bulldozed and the land will be sold (often a neighbor will buy the land). Some owners will not pay their taxes too because they might end up paying say $1000 for taxes when the property is only worth $500.

What is the median income of Flint residents?

The median income is $24,834 according to the U.S. Census Bureau.

flint vs sacramento

How much does a typical house rent for in Flint?

I would say on average about $500 per month.

How much are water bills right now in Flint? How does this compare to surrounding areas?

A family of 4 told me recently their bill was $250 per month, and the bill has to be paid even though they cannot use the water. Even vacant houses are being charged $50-60 per month for water. Some surrounding areas bill on a quarterly basis, and the quarterly water bill ends up being about the same as someone’s monthly bill in Flint.

NOTE from SacBlog: Most articles online state Flint residents are easily paying $140 to $150 per month for water they cannot use. This is obviously only an average since Ryan mentioned above that some residents are paying $250. Keep in mind $150 per month is 7% of a household’s monthly income (based on the median income in Flint). Also, if a home rents for say $600, the water bill is 25% of rent. Imagine a $1500 rental in Sacramento and having a $375 water bill (that’s 25%).

flint listing 2 - by sacramento appraisal blog

Some say it’s illegal to sell a house with toxic water. Is that true?

Legally there is nothing that says you cannot sell. There was a recent article from the Michigan Association of Realtors that said you can sell them, but you need to disclose the water issue on the seller’s disclosure form to make people aware of the water issue. Though buyers would have to be living in a cave to not know about the water issue already, so the disclosure is only a formality.

Some appraiser colleagues working in the Flint area say FHA and USDA have asked appraisers to verify where a home is getting water from since FHA/USDA don’t want to guarantee loans on properties using Flint water. Have you found this to be the case too?

Most of my deals have been cash buyers, though there have been people getting loans though too.

NOTE from SacBlog: Who is lending in Flint? Please comment below. I want to hear if any FHA and conventional lenders are making deals happen. Unsafe water is a clear health and safety issue, which would seemingly prohibit FHA deals from happening.

flint listing 3 - by sacramento appraisal blog

What impact are you seeing the toxic water issue to have on the local market in terms of values?

In some senses we may see a slight decline in sales and out-of-state investors are probably not going to be buying properties. But at the same time, sales are going to happen. From a practical standpoint the water issue has to be fixed. Nobody knows when that will happen, but we all know it will presumably happen. Flint is still one of the most affordable places to buy for locals. At the end of the day, values are already so low that they cannot go down much more than they have already. However, anything that is considered “higher-end” will probably be impacted since buyers will definitely look at what they can buy somewhere else for the same price (and not have water issues). But I don’t think there will be much effect under $30,000. You just can’t pick up homes in other nearby places for those low prices.

NOTE on rents from SacBlog: It’s interesting to consider what may happen with rents in outlying areas near Flint. If residents leave the city, will rents elsewhere increase? This reminds me of some reports of price gouging with rents in Porter Ranch in Southern California, which is the community where residents had to be evacuated due to an ongoing methane gas leak.

Have you heard or seen any impact on the commercial sector?

Yes. Businesses serve bottled water and they seem to be careful about water filtration. A few years ago GM had a nearby used motor facility just on the border of Flint. After doing some water testing, apparently the water was not good enough to spray on their motors.

_______________________________________________________

I hope you enjoyed this brief interview. Thank you again to Ryan McFarlane for his time and insight.

Questions: What if anything stood out to you about what Ryan said? What would you expect to see happen in a real estate market when the water is toxic? What would happen in your market?

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How much value do higher ceilings add to a home?

Would you pay more for a house with higher ceilings? I probably would, but I guess it depends. The ceilings in my home are a standard 8 ft. Would I have paid more if they were 9 ft? Probably. But what about 23 ft? No, that would be too high.

high ceilings in real estate - sacramento appraisal blog

Someone asked me a question recently about the value difference of ceiling height, and I thought kicking around some ideas here could open up a great discussion. Anything else you’d like to add? I’d love to hear your take.

Question: What is the difference in value for ceiling height? For instance, 8ft to 9 ft, 9ft to 10ft, etc?

Answer: That’s a great question. On one hand higher ceilings are a more custom feature, so buyers are likely to pay more for them. This is particularly true for single story homes. However, there isn’t some sort of ceiling height market formula we can apply to every property because real estate adjustments are frankly going to be different depending on the neighborhood, price range, and market. We often hope to extract the value of one particular feature, but let’s remember many times buyers are actually looking at the entire package of a home instead of parsing individual features. In reality ceiling height is only one part of the package when it comes to buying a home. For instance, 10 ft ceilings sound like an asset, but if they’re found in a home with a terrible layout, they might not command a premium at all. So just because they are there does not make them inherently valuable. This underscores the importance of using an “apples to apples” approach when selecting comps, meaning the goal is to compare the subject property with homes that are overall similar so we get a sense what the market has been willing to pay for such homes. We might not find homes that are exactly the same, but that’s okay because we can use homes that are deemed overall competitive. Thus as an appraiser, rather than isolating my search for comps to just ceiling height, I would simply try to find other homes that represent a realistic comparison. If an Excel Jedi wanted to geek out and crunch numbers to try to prove a value difference, maybe that could be done with extensive research (sort of like Jonathan Miller measuring value by floor location in New York). But keep in mind how difficult that would be since ceiling height levels are not recorded in MLS or Tax Records (in Sacramento at least). Most of all though, buyers don’t bring measuring tapes to properties, which reminds us to think in terms of the total package.

Questions: How would you answer the question if someone asked you? Anything else you would add? What did I miss?

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Thoughts on real estate agents influencing the appraised value

I wish every agent would be proactive about talking with appraisers, yet not everyone is on board with that. In fact, someone recently told me he thinks using my appraiser information sheet is a violation of Dodd-Frank. So I’d like to unpack two thoughts when it comes to influencing appraisers, and then give a helpful statement that might be useful for agents when sharing information with appraisers. I’d love to hear your take in the comments.

providing comps to the appraiser - sacramento appraisal blog

Two Things About Influencing Appraisers:

  1. Providing Data: As an appraiser I want as much information about the property as possible. I want to hear how the market responded to the home. How many offers were there? What price levels? What type of feedback was given from buyers and other agents? What recent upgrades have been made? The answers to these questions can be helpful since my end goal is to figure out how the subject property fits into the context of the market. Sometimes these insider details really can help paint context, so I need to be in tune with the details. I definitely prefer agents to share any sales, listings and data that were used to price the property too if possible because I want to understand the mindset of the agent or seller. Yet I am not a lawyer, so I cannot tell anyone for sure that providing sales is okay in the eyes of Dodd-Frank. I recommend each agent and brokerage to figure that out. However, on a practical level as an appraiser I know I want to get as much information as possible about the property, so I am in the habit of asking many questions. This is one of the reasons why I developed an appraiser information sheet so agents can be proactive about answering questions appraisers tend to ask.
  2. Hiding Stuff: Sometimes I hear the real estate community say, “It’s not okay to give appraisers comps because it’s an attempt to influence the value.” I get that because trying to pressure or coerce for a certain value is off-limits. That’s so 2005, right? Yet is giving appraisers “comps” the only way influence can happen? What about all the documents that are hidden on purpose from the appraiser? Pest reports, agent visual disclosures, contract addendums, repairs negotiated between the seller and buyer not mentioned on purpose in the contract, documents uploaded to MLS during the listing but then removed before the appraisal is ordered, etc… I’m not pointing fingers or sitting on a moral high horse by any means, but only saying influencing an appraiser can show up in many different ways. Sometimes it’s about what is said, but can it also be about what is not said or disclosed? Thus the conversation about influence seems to be about more than just giving an appraiser “comps”.

Agents need to take Dodd-Frank very seriously because it is professional and ethical to give appraisers space to be an unbiased neutral party in the transaction. Bottom line. Yet in my mind it is also professional for agents to serve their clients well and be proactive and prepared to answer questions appraisers tend to ask. Bottom line. Thus if you use my info sheet or something like it, I recommend using a statement like the following to explain why you are providing this type of information to the appraiser during the appraisal inspection.

A Statement I Recommend Agents to Use:

“Appraisers normally ask me questions like this, so I answered them for you to be proactive and professional. Would you like this information?”

information-to-give-to-the-appraiser

I hope this was helpful.

Action Steps: 

  1. Consider using the statement I mentioned above to help clarify and describe your actions as being proactive about answering questions rather than trying to steer a value. If an appraiser doesn’t want to take your information, respect that decision and move on.
  2. Feel free to use the “information sheet” I developed. If you think any portion of it could potentially improperly pressure an appraiser, then edit or change that portion. You be the judge.

A Quick Year in Review to Use: Here is a quick year in review graphic for the Sacramento housing market. Feel free to use it unaltered on your blog, on Facebook, Twitter, etc… I always appreciate a link back.

year in review - sacramento real estate market - 2015

Questions: Agents, what do you tend to hear in your office about what is okay and not okay to share with appraisers? Appraisers, in what ways are you being pressured right now to “hit the number”?

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8 things you can buy if you win Powerball (and the market in Sacramento)

Have you bought a Powerball ticket? It’s wild to think someone is probably going to win 1.5 billion dollars this week. Of course there’s an extremely slim chance you’d actually win, but if you do, here are some things you can buy when it comes to real estate. After that, let’s take an in-depth look at Sacramento’s housing market.

powerball winner - real estate - sacramento appraisal blog

8 real estate things you can buy if you win Powerball

  1. All current listings in Sacramento: You could literally buy every single active residential listing in Sacramento, Placer, and Yolo County (and still have about $150M left).
  2. NBA Team: You could buy the Sacramento Kings NBA team and have about one billion to spare.
  3. 63 million Shares of Zillow: You could buy 63,911,376 shares of Zillow ($23.47 per share).
  4. Buy an Island: This is an obvious choice for a billionaire. You could easily buy your own island. Heck, you could buy a group of islands. See some islands that are for sale right now.
  5. Own 7 Years of East Sacramento Sales: If you bought every single house that sold on MLS in East Sacramento since October 2008, you would still have 600 million left.
  6. Build a Sports Stadium: Most recent professional sports stadiums have ranged in cost from around $500M to $1.5B. For instance, the 49ers new stadium cost around $1.3B and the Sacramento Kings stadium is coming in around $500M. If you buy, what are you going to name it?
  7. Build a Bigger House than that One Guy in India: You may remember hearing about a 27-story residential home that was built in India in 2014. This home can withstand an 8.0 earthquake and it’s the second most expensive home in the world behind Buckingham Palace. Keep in mind it requires a staff of 600 to care for it. The property was said to have cost $1B total, so you have the coin to pull it off (Wikipedia).
  8. Do Some Good: Imagine the good you could do if you won the lottery. But we know that’s not going to happen. The great thing is we don’t have to wait to win Powerball to be generous since generosity is only relative to how much money we have – whether two dollars or $1.5B.

By the way, the winner won’t actually get 1.5 billion. I realize a huge sum is coming off the top right away for taxes and such.

Now let’s look at the latest Sacramento real estate trends.

the market in 2015 in sacramento

Two ways to read THE BIG MONTHLY 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 78 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: If I had to sum up the market last year I would say: Modest value appreciation, but aggressive demand. If I added a few more details I would say the story of the market is summed up as follows: More sales, lower inventory, higher demand, a fairly normal fall (though far less dull than 2014), and modest value increases over the year. Right now housing inventory is only 1.28 months in the region, which is 32% lower than last year at the same time. Overall sales volume in 2015 was 10.8% higher in the regional market, and it’s important to note FHA volume increased by 30% this year. In December it took 4 days longer to sell a home than it did in November, and that reminds us the market experienced a seasonal softening dynamic even in the midst of more competition. Remember though it was taking 90 days to sell a house four years ago, and selling in less than half the time right now helps us see the market can be different each year depending on inventory, interest rates, the economy, etc…  Overall most of the value increases came in the first two quarters of the year, and the market was fairly flat for the past six months in terms of value. Buyers really haven’t had very many options because of how low inventory has been, but at the same time buyers are exhibiting price sensitivity by not pulling the trigger on overpriced listings. One last aspect worth mentioning is rents have been increasing in many areas in Sacramento, and it’s worth watching this trend.

SACRAMENTO COUNTY:

  1. It took 4 more days to sell a house last month than November (but 7 days less than last year at the same time).
  2. Sales volume was 20% higher this December compared to last December.
  3. Sales volume was 10.9% higher in 2015 compared to 2014.
  4. FHA sales represented 27.5% of all sales during the past quarter.
  5. Housing inventory is 41% lower than it was last year at the same time.
  6. The median price increased by 2% last month (see #6).
  7. The average price per sq ft and average sales price stayed about the same from the previous month (so don’t put too much weight on #5).
  8. The average price per sq ft is 10% higher than last year at the same time.
  9. The median price is 11% higher than it was last year at the same time.
  10. REO sales were less than 4% of all sales last quarter (Short Sales were less than 5%).

Some of my Favorite Graphs this Month:

sales in 2015 2

Median price and inventory since 2011 by sacramento appraisal blog

bottom of market

fha and cash in sacramento county by sacramento appraisal blog - part 2

CDOM in Sacramento County - by Sacramento Appraisal Blog

inventory - December 2015 - by home appraiser blog

REOs and Short Sales in Sacramento County since the bottom

price metrics since 2014 in sacramento county - look at all

SACRAMENTO REGIONAL MARKET:

  1. It took 3 more days to sell a house last month than November, but it was taking one week longer to sell at the same time last year.
  2. Sales volume was 14.5% higher this December compared to last December.
  3. Sales volume was 10.8% higher in 2015 compared to 2014.
  4. Housing inventory is 32% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 7.5% higher than last year at the same time.
  8. The median price is 5.6% higher than it was last year at the same time.
  9. REO sales were 3.5% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2014 in sacramento placer yolo el dorado county

prices in sacramento region - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

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

median price and inventory in sacramento regional market

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

PLACER COUNTY:

  1. It took 6 more days to sell a house last month than November, but it was taking 5 days longer to sell at the same time last year.
  2. Sales volume was 1% higher this December compared to last December.
  3. Sales volume was 13% higher in 2015 compared to 2014.
  4. Housing inventory is 16% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 3.6% higher than last year at the same time.
  8. The median price is 2% higher than it was last year at the same time.
  9. REO sales were 1.8% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog number of listings in PLACER county - December 2015 Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 78 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: How would you spend the money if you won at Powerball? What stands out to you about the latest stats in Sacramento? How would you describe the market? I’d love to hear your take.

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7 goals for the real estate community this year (as illustrated by Star Wars)

Here we go. It’s a brand new year. A blank slate. What will your life and business look like in 2016? I know we all have plans for the year ahead, so as January begins I wanted to pitch in some thoughts on potential goals for the real estate community. These are meant to be fun, helpful, and provocative, so take them for what they’re worth. I snapped some photos of Star Wars actions figures to help tell the story too. I’d love to hear your take in the comments below.

1)  Say Something Different About The Market:

strorm troopers - by sacramento appraisal blog

If you’re in the habit of saying the same thing about the market all year, consider studying the market carefully and adjusting what you say throughout the year. It’s easy for both agents and appraisers to fall into the trap of using the same stale phrases, but getting more specific about the way the market behaves tends to build credibility with clients.

2)  Make it About Connections on Social Media:

storm troopers on facebook - sacramento appraisal blog

Let’s be honest. One of the sins of the real estate community is too much self-promotion, and this comes across loudly on most social media platforms. It’s easy to treat Facebook, Twitter, and other spaces like the yellow pages where we simply broadcast our services. Yet social media is all about building connections and creating conversations. Think about how you can add value to people’s lives this year online while avoiding nauseating self-promotion. Maybe take a look at what you said last year too. Have people been engaging with what you are saying? If not, maybe it’s time to mix things up or get back to a focus on relationships.

3)  Speak Graciously About Neighborhoods:

sacramento appraisal blog - star wars blog post

This might feel a bit touchy to say, but I can’t tell you how many times I hear things like, “I would never live in this neighborhood,” or “I don’t know why anyone would ever buy here.” It’s easy in the real estate community to gloss over statements like this, but the truth is they come across a bit arrogant because they demean neighborhoods and residents. Why is that person buying there? Probably because that’s what the person can afford. Let’s respect that and find ways to speak graciously about places people call home (even if we really don’t like the area). I’m not saying to be fake, but only to find ways to speak more positively about communities instead of ragging on them. Remember, your next client might want to buy in one of these neighborhoods.

4)  Learn How to Make Quick Market Graphs:

Looking at market graphs strorm troopers - sacramento appraisal blog

If you don’t know how to make graphs, why not make that a goal this year? It sounds like a scary thing to learn, but it’s very doable (seriously), and frankly it’s a skill that can help propel your business and understanding of real estate to the next level. I have a brief tutorial here, but send me an email too for some other suggestions.

5)  Remember to Say “CO” instead of “CO2” Detector:

CO alarms in appraisal reports - star wars - sacramento appraisal blog

When it comes to talking about carbon monoxide detectors, this is an easy mistake to make, yet still very important to nail for the sake of sounding professional. Remember, “CO” stands for “Carbon Monoxide” (a dangerous gas), but “CO2” stands for “Carbon Dioxide” (what comes out of our mouths when we breathe). Here are 5 ways to remember the difference in case it’s relevant.

6)  Be Generous:

being generous in real estate - sacramento appraisal blog

A generous person is a rare find. Be known this year for altruism, compassion, and responding in care when people need something. Not only does it feel great to live a life focused on others, but it’s actually really good for business. People want to work with others who are great at what they do AND generous.

7)  Be Prepared for Real Estate “Bubble” Conversations:

the force - by sacramento appraisal blog

Values have risen dramatically in recent years, and many consumers are wondering about a real estate “bubble”. Whether we are in a bubble or not, it’s important for the real estate community to expect and navigate this conversation well. How will you answer your client’s questions this year when “bubbly” conversations arise? In case it’s helpful, here are some quick points to shine some perspective on the topic.

Interview with Channel 13: By the way, here is an interview I did with Channel 13 in Sacramento a few weeks ago. Check it out if you’d like below or HERE.

Happy New Year! May this be a wonderful and rich year of life and business.

Questions: Which one did you like best? What are a couple of your big or little goals this year? By the way, did you see the new Star Wars?

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My last blog post of 2015

It’s been a wonderful year. Has it been for you too? I hope so. I wanted to thank you sincerely for taking time out of your day to read my blog. I hope it’s added some value to your life or business somehow, or maybe it’s helped you navigate the real estate road a bit better. Sometimes when I tell people how much I love blogging they think I have no life. But in truth this blog is about building relationships with readers (you), and that means the world to me. I appreciate the amazing people I’ve been able to meet over the past 7 years since this whole thing began. Thank you for hanging in there with me for another year.

Two Weeks: For the next two weeks I’ll be lying low with family, which means I’ll be taking the rest of the year off (I like the way that sounds). Honestly, this has been a very successful year in terms of business, personal goals, and relationships. Yet I find myself tired and emotionally done with 2015. Can you relate? I’m ready to close this chapter, get refreshed, and open a new chapter in 2016. So these next two weeks I’ll be enjoying walks on the beach, thinking about appraisals, building a few wood projects, catching the new Star Wars movie (no spoilers please), drinking as much coffee as possible, and savoring time with my lovely wife and sons. I’ll look forward to connecting with everyone again the first week of January.

Merry Christmas from Lundquist Appraisal Company

I took this photo at the Capitol building in Sacramento a couple of weeks ago. If you’re local, I highly recommend grabbing a hot drink and heading over to enjoy the tree while it is still there.

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

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

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Seeing the forest & the trees in real estate: Part II

Two weeks ago I talked about seeing the forest through the trees in real estate. The big point was it’s easy to look so closely at the most recent stats that we don’t see the bigger picture of the market. It’s sort of like noticing only the trees instead of the forest (hence the title). Anyway, in today’s big monthly market update I wanted to show how this concept actually works in real life when crunching numbers in the Sacramento area. Whether you’re local or not, I hope this will be interesting or even provocative for how you think about and share housing trends. I’d love to hear your take in the comments below.

The forest and the trees image - sacramento appraisal blog - image purchased and used with permission from 123rf dot com

Interest Rates & Nerf Battle: Before diving in, I have two quick things to share. Unless you’ve been in a bunker without internet access, you’ve probably heard the Fed finally increased rates. There is some good discussion unfolding on a post on my Facebook page. I’d love to hear your take there or here. Also, in non-real estate news, I recently built a Nerf gun battlefield out of pallet wood for my son’s birthday. Check out a quick video tour at the bottom of the post (or here).

Recommendations for reading THE BIG MONTHLY POST: Compare the numbered bullet points to get a sense of the latest numbers (the trees) with older stats (the forest). If you’re short on time, just skip the graphs or download them for later use. The big question today: What difference does it make to look at both recent numbers and year-old numbers? If you’re new here, once a month I do an in-depth market update, whereas other posts are short and sweet. I know the post is long, but it’s on purpose (thanks for reading).

SACRAMENTO COUNTY:

The Latest Numbers (Trees):

  1. DOM: It took 3 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 18% from the previous month.
  3. Inventory: Housing inventory stayed about the same as the previous month.
  4. Median Price: The median price has been the same for 7 months.

Last Year’s Numbers (Forest):

  1. DOM: Last year in November 2014 it was taking 6 days longer to sell.
  2. Volume: It’s normal for volume to decline from October to November, so highlighting an 18% “decline” is silly. The bigger story is volume this November is actually 12% higher than last November.
  3. Inventory: Current inventory is 36% lower than last year at the same time.
  4. Median Price: The median price was 5.8% lower last year, which reminds us values have seen a modest uptick this year.

Some of my Favorite Graphs this Month:

price metrics since 2014 in sacramento county

inventory - November 2015 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

seasonal market in sacramento county sales volume 2

market in sacramento - sacramento appraisal group

DOWNLOAD 61 graphs HERE: I have many more graphs you can download for study, use in your newsletter, or share some on your blog. See my sharing policy for ways to share (please don’t copy this post verbatim).

SACRAMENTO REGIONAL MARKET:

The Latest Numbers (Trees):

  1. DOM: It took 4 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 20% from the previous month.
  3. Inventory: Inventory increased by 3% from the previous month.
  4. Median Price: The median price is down 1% from a few months ago.

Last Year’s Numbers (Forest):

  1. DOM: It took 5 days longer to sell a house the same time last year.
  2. Volume: Sales volume in 2015 is actually 9% higher than last year. Also, in 2014 sales volume declined 23% from October to November, so let’s not freak out about the 20% “decline” above.
  3. Inventory: Current inventory is 28% lower than last year at the same time.
  4. Median Price: The median price was 9.7% lower last year at the same time.

Some of my Favorite Regional Graphs:

prices in sacramento region - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

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

median price and inventory in sacramento regional market

number of listings in sacramento regional market

PLACER COUNTY:

The Latest Numbers (Trees):

  1. DOM: It took 4 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 22% from the previous month.
  3. Inventory: Inventory increased by 10% from the previous month.
  4. Median Price: The median price has been jumping up and down for the past few months (generally hovering between $390-400K).

Last Year’s Numbers (Forest):

  1. DOM: Last year it took an average of 5 days longer to sell.
  2. Volume: Sales volume this November was 12% higher than last November.
  3. Inventory: Current inventory is 23% lower than last year at the same time.
  4. Median Price: The median price was 5-7% lower last year at the same time.

Some of my Favorite Placer Graphs this Month:

Placer County sales volume 2 - by sacramento appraisal blog

number of listings in PLACER county - November 2015

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County price and inventory - by sacramento appraisal blog

Quick Market Summary: On one hand the market in Sacramento has been slowing down. This is normal to see during the fall, and we see a slowness with less sales volume compared to a few months ago, increased days on the market, and a slight increase in housing inventory. The bigger story though is how much different the market is this year compared to last year. In 2014 the fall was extremely dull and incredibly overpriced (as evidenced by 300-400+ price reductions every day). This year housing inventory is over 20% lower, sales volume has been roughly 10% higher, it’s taking 5-6 days less to sell a house, and price reductions have been far less of an issue. However, even with strikingly low housing inventory and more glowing numbers this fall, if the price is not right, buyers are not pulling the trigger. Bottom line. Well-priced listings are tending to attract multiple offers, but otherwise there are homes that are being priced higher that are sitting instead of selling. Sellers would be wise to remember prices tend to soften in the fall, which means pricing like it’s the spring probably isn’t a good move.

Nerf Battlefield I built: Okay, now let me give you a quick tour of a pallet wood Nerf battlefield I built for my son’s birthday. Yes, an epic war happened just two weeks ago in my backyard. Check it out below (or here). Locals, if you want to borrow it for a birthday party, feel free to reach out (you have to pick it up, return it, sign a liability waiver, and of course be trustworthy).   :)

DOWNLOAD 61 graphs HERE: I have many more graphs you can download for study, use in your newsletter, or share some on your blog. See my sharing policy for ways to share (please don’t copy this post verbatim).

Questions: What stands out to you when comparing the latest numbers with older stats? What impact do you think an increase in rates will have on the housing market? I’d love to hear your take.

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4 questions to ask when giving real estate value adjustments

Let’s talk about adjustments. Last month I wrote about being a trigger-happy real estate adjustment giver, and I had some great feedback. One appraiser told me she is going to stop adjusting for some of the very minor stuff like fireplaces and covered patios, and an agent told me his list of adjustments was basically the one I shared as an example of what not to use. It’s great to hear of growth like this, and I love the honesty, yet I think anytime we start talking about adjustments, it can also make us feel insecure because we begin to question everything we are doing. So for the sake of growth and conversation, let’s kick around the topic a bit more. I’d love to hear your take in the comments (or send me an email).

giving real estate adjustments - by sacramento appraisal blog - image purchased and used with permission from 123rf dot com

4 questions to ask when giving real estate value adjustments

Does the adjustment represent how buyers behave? When valuing a property, we adjust the comps when there are value-related differences compared to the subject property. The adjustments are not about what one buyer would pay, but rather what a representative buyer in the market might pay. In other words, if you lined up a group of 100 interested and qualified buyers, and they would pay a difference for that certain feature, we then adjust by that difference. Remember, there is always going to be one buyer who is going to love a feature, and pay way more because of it, but we have to ask, “How much is the market going to pay for this?” Example: House shaped like Darth Vader’s light saber.

Does the adjustment seem reasonable? Take a step back from the adjustment you are giving and just ask, “Is this reasonable?” If you’re giving a $500 fireplace adjustment, does that really seem like a reasonable adjustment, or is it purely made up? Does a $10,000 location adjustment for the busy street really represent what the market is willing to pay? Or does a $25,000 condition adjustment between the fixer and remodeled home make reasonable sense? This is a big question to filter our adjustments through, and I recommend getting into the habit of asking it. By the way, I find sometimes when it comes to condition, the adjustment might be more like 20% instead of $20,000.

Is the adjustment supported? It’s easy in real estate to pull out a list of canned adjustments and start giving them whenever we see any difference between a comp and the subject property. So we see a built-in pool and automatically give a $10,000 adjustment for the difference. Yet we need to do some research in the neighborhood. Is there a price difference between similar homes with and without pools? At times our canned adjustment at $10,000 might actually make really good sense, so it’s perfect to use, but other times we might see a different story of value. It’s easy to get stuck giving that $10,000 adjustment in every case, but this is where we need to let the market speak to us. Research the sales and let them set the tone. This means the adjustment might look different in each valuation. Maybe you’ll have no adjustment at all for a pool if there really isn’t a discernible price difference, while other times you might adjust twice as much as you normally do because the pool is something special and it looks like buyers paid a premium for it. Remember, the goal ought to be to find other homes that actually don’t need any adjustments at all because they are truly comparable. I know that’s a fat chance, but keep that in mind.

Does the adjustment fall in the range of value? As much as we’d like to think there is one perfect and precise adjustment out there to give, it’s most likely we will see a range of value emerge. For example, if we surveyed a neighborhood and found homes with built-in pools were tending to sell between $8,000 to $15,000 higher in price, we have to make a decision. What should the adjustment be in the case of the subject property’s pool? If it’s an older pool, maybe we end up giving a value adjustment closer to $8,000. But if it is a higher quality newer pool we might reconcile the adjustment closer to the top of the range.

I hope this was helpful.

Questions: What is question #5? Anything else to add?

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Seeing the forest and the trees in real estate

What was your worst public interaction in recent years? Think of a time when you were mean or rude to a complete stranger. You might not have intended to come across that way…. but you did. Ouch! We’ve all been there, and while I wish I was an exception, I’m certainly not. Now think of the person who experienced you as rude or mean. You might be the complete opposite in most of your life, but all this person knows of you is from that one unfortunate moment. Your larger body of work (your life) shows you are a kind and friendly person, but when someone only sees a clip of your life instead of the entire reel, that person may not have an accurate picture of who you really are.

forest through the trees in real estate - sacramento appraisal blog - image purchased and used with permission by 123rf dot com

The same thing happens in real estate. Sometimes we get so fixated on the most recent moments of data that we don’t see the bigger picture of the market. It’s like we see the trees instead of the forest, which also means we end up talking about “trees” to clients instead of giving them a fuller picture. Let’s take a look at a few examples below to help show how a wider focus on the numbers can be a huge benefit when trying to digest and explain the market.

Three examples of using consecutive months vs. last year:

Month: Sales volume declined 6.1% from September to October.
Year: Sales volume is up 7.9% when comparing October 2014 with October 2015.

Month: It took two days longer to sell a house last month than the previous month.
Year: It was taking one week longer to sell a house last year.

Month: The average price per sq ft declined by nearly 1% last month.
Year: The average price per sq ft is currently 7% higher than exactly one year ago.

I know, we can make numbers say whatever we want them to say, and that is something we always have to be careful of in real estate. But sometimes when we only compare sequential months, we are missing something important: The seasonal market. Since real estate tends to behave in a fairly predictable cycle each year (hot spring season and cooler fall), it becomes very powerful to make comparisons not only with consecutive months, but on a yearly basis. In other words, it’s telling to see what the market was doing in October 2015 compared with September 2015, but it’s just as relevant (if not more important) to compare October 2015 with October 2014. For example, in the case above when we only look at consecutive months, we might report that sales volume is declining, it’s taking longer to sell, and values are declining. Yet when we pan out for a wider view by comparing numbers from October 2015 with October 2014, we see a more well-rounded picture of the market. Sales volume is actually higher this year, it’s taking one less week to sell a house, and values are also higher than they were at the same time in 2014. Don’t get me wrong, monthly information is incredibly valuable and we need to pay attention to how the market is changing right now. But at times too much emphasis on consecutive months of data can obscure our view of the bigger picture. Thus we are left saying things like, “Sales volume is declining” or “values are dipping” when the bigger story is sales volume is actually higher this year (and it’s normal for values to soften in the fall).

Action Step: Next time you talk about the market in a newsletter or in an appraisal, compare numbers over the past couple of months, but also talk about numbers from last year too. For example, in coming weeks if you discuss sales in November, you can compare November 2015 sales with October 2015, but make it a point to also compare November 2015 with November 2014 numbers. It can be very eye-opening to make comparisons like this. I might suggest talking about sales volume, inventory, days on market, and price.

Remember, there is no one right way to explain the market. Just do your best to see the bigger picture (the forest) while you explain the latest (the trees).

I hope this was helpful.

UPDATE: I’m not sure I was as clear as possible, but consecutive monthly trends are VERY important to digest so we know if the market is slowing or growing. This is why I advocate using a CMA to gauge the temperature of the current market as well as knowing the signs of a market slowing (this requires us to use month-to-month numbers). This post is simply highlighting the importance of gleaning a better context for interpreting and reporting the market.

Questions: How do you see the forest through the trees in real estate with so much information these days? What are the positives and negatives of comparing month to month vs year over year?

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