Advice for an increasing real estate market (and Sacramento trends)

When the market is flat, it’s easy to impress clients and look like a guru because of how accurate your values are. But when inventory shrinks, demand is off-the-hook, and the market shifts, it’s not always easy to nail value because things can change quickly in a short period of time. In light of the market increasing in value lately in many areas of the country, I thought it would be useful to offer some quick advice for dealing with increases. Then at the bottom of the post I have my ridiculously long Sacramento market update. I’d love to hear your take. Any thoughts?

increasing market advice for agents and appraisers - sacramento regional appraisal blog

Advice for Agents: When values are increasing, it’s crucial to pay careful attention when pulling comps before a listing. The tricky part in a “hot” market is it can be possible to get into contract at much higher levels than what is reasonable, so in a sense the agent has to really spend time weighing what a realistic value looks like before the listing hits the market. Keep in mind a lender’s appraiser is going to need to come up with a value that is supported by market data, reasonable for the neighborhood, and representative of the market. It’s easy to say, “The market is ‘hot’ and inventory is low, so I priced it higher,” but there really has to be support for the higher value. I recommend asking yourself the following questions and then talking clients through the answers.

  1. Is there support for value at the list price? (sales, pendings, listings, data)
  2. Is the list price reasonable? Does it make sense for the neighborhood?
  3. Would the market pay this price or would only one buyer pay this amount?

Advice for Appraisers: In an increasing market appraisers need to spend time figuring out how much the market has changed in recent time. In other words, if there has been upward value movement since the most recent sales got into contract, it could be very reasonable to give upward market adjustments to the comps. I suggest paying careful attention to competitive pendings, making market graphs in each report to help see the market, and keep an eye on competitive neighborhoods too in case data is sparse in the subject neighborhood. Lastly, let’s remember value increases might look more aggressive in some areas than others, so adjustments won’t look the same in every neighborhood or price range. Moreover, a typical canned market adjustment might be 1% per month (because that’s what a mentor taught us to do), but that might not be legit at all (like most canned adjustments). What does the market say? Let’s do our best to listen and then adjust if needed.

Questions: Any thoughts? What other advice would you give?

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

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

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

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market has been showing value increases. Whether looking at the median price, average price, or average price per sq ft, all the numbers sound “hot” so to speak. This isn’t a surprise though because it’s what normally happens in April. It’s worth noting it took 8 less days to sell last month compared to the same time last year, and the median price is up in the region by nearly 8% from last April. FHA sales were roughly 25% of all sales last month in Sacramento County, though they are down slightly from 27-28% of the market in past quarters (this is a stat worth watching over time). Sales volume for the entire year is down slightly, but not by much. In short, the stats are glowing overall because there has been upward growth with most metrics. However, buyers are still exhibiting price sensitivity. If properties are not priced correctly they are sitting instead of selling. Moreover, under the umbrella of a “hot market”, some sellers are simply pricing WAY too high for the market. They hear the word “hot”, but that doesn’t mean you can sell for anything. Lastly, just because the market has increased in value in some neighborhoods and the entire county doesn’t mean values are increasing for every property type or in every price range.

Sacramento County:

  1. It took an average of 31 days to sell a home last month.
  2. It took 6 less days to sell last month that the previous month.
  3. It took 11 less days to sell this April compared to last April.
  4. Sales volume is down slightly from last year by 3%.
  5. There is only 1.3 months of housing supply in Sacramento County.
  6. Housing inventory is 15% lower than it was last year at the same time.
  7. The median price increased by 1% last month.
  8. The median price is 10% higher than the same time last year.
  9. The avg price per sq ft increased by 2.8% last month.
  10. The avg price per sq ft is 8.8% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - April 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

Median price since 2013 in sacramento county

price metrics since 2015 in sacramento county - look at all

median price and inventory since 2005 - by sacramento appraisal blog

inventory in sacramento county Since 2013 - part 2 - by sacramento appraisal blog

fha and cash in sac county - sacramento appraisal blog

seasonal market in sacramento county sales volume 2

SACRAMENTO REGIONAL MARKET:

  1. It took 6 less days to sell last month compared to the previous month.
  2. It took 8 less days to sell this April compared to last April.
  3. Sales volume was 4.6% lower in April 2016 compared to last April.
  4. Short sales were 3% and REOs were 3% of sales last month.
  5. There is 1.6 months of housing supply in the region right now.
  6. Housing inventory is 9.5% lower than it was last year at the same time.
  7. The median price increased 3% last month from the previous month.
  8. The median price is 7.7% higher than the same time last year.
  9. The avg price per sq ft increased 2.5% last month.
  10. The avg price per sq ft is 6% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price sacramento placer yolo el dorado county

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

sacramento region volume - FHA and conventional - by appraiser blog

Regional Inventory - by Sacramento regional appraisal blog

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

median price and inventory in sacramento regional market

PLACER COUNTY:

  1. It took 6 less days to sell a house last month than March.
  2. It took 2 less days to sell this April compared to last April.
  3. Sales volume was 6% lower in April 2016 compared to last April.
  4. FHA sales were 17% of all sales last month.
  5. Cash sales were 21% of all sales last month.
  6. There is 1.8 months of housing supply in Placer County right now.
  7. Housing inventory is 6.7% lower than it was last year at the same time.
  8. The median price increased 5.6% last month (take with a grain of salt).
  9. The median price is up 9.2% from April 2015.
  10. Short sales were 2.7% and REOs were 1% of sales last month.

Some of my Favorite Placer County Graphs:

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

number of listings in PLACER county - 2016

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

SacBee: By the way, the second article I wrote for the SacBee real estate section went live. It’s called “One size does not fit all when talking about the housing market.”

Questions: Any advice you’d give to clients right now about pricing? Is there any other market insight you’d like to add? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Comments

  1. says

    Great post as usual Ryan. My advice to appraisers is to recognize what time of the year when the increases are largest and make larger adjustments for those times. Often appraisers over simplify a 6% annual increase into a strait line adjustment over the whole year when most of that probably happened just half of the year. Appraisers might need to be really aggressive with time/market change adjustments in the spring and less so in the fall to produce accurate adjusted sales prices.

    • says

      Extremely well said, Gary. Thank you sincerely. I find there is often a lull in the fall months, so when I choose comps in early spring I often find the market is back to where it was at the beginning of summer even though the most recent sales don’t quite show that on paper yet (the pendings do though). I can thus use comps from December and make upward time adjustments or use comps from July and August and use no adjustment because that market is at a fairly similar place. Or maybe I can use both newer and older sales. Oh the choices we have….

  2. says

    great post about what is going on today. I listed a remodeled home in old Roseville may 5th for 300k and received 4 offers above asking price within 3 days. The buyers agents and myself are worried that it will not comp out because the price is so aggressive. They are mostly FHA buyers. thanks for all your posts

    • says

      Thanks so much Gordon. The appraiser will be looking for market support, so hopefully there is some out there for your situation. 🙂 Best wishes. Thank you again.

  3. says

    If selling, I look at the condition of the home vs model matches and price accordingly by ranking, along with a look at trends, inventory and velocity of sales. IF the home is top of the market, I advise the seller to look at offers with cash reserves to back up potential low appraisals. If buying, I’m noticing many homes priced below these trends, and using the same rational as selling, figure out a viable offer price above asking if there is competition. Note that most flippers will not price below market and “let the price drive the traffic” which indicates some flaws in the pricing strategy.

    • says

      Thanks Jeff. I appreciate your take. Wise advice regarding cash reserves. That is certainly a part of negotiation, and buyers with better cash reserves tend to win. Not always of course. I appreciate the way you look at things. I’ve seen some properties that are clearly priced too low also. It seems like many flippers price at the very top of the market and then reduce the price if there are no bites.

      On a side note I talked with an agent today who is priced 20-30K too high apparently. The agent is convinced value is there, but there have been zero offers. There has been interest, but so far feedback from agents is indicating the sweet spot is maybe 20-30K less. My main question to the agent was whether there was any market support to be listed that high. The market is “hot”, but we still have to look at sales, listings, pendings, withdrawns, competitive neighborhoods, data, etc…. to find support for the value. Then the market speaks and it tells us if what is reasonable on paper is reality. We’ll see what happens in this case.

  4. says

    The Philadelphia Real Estate Market is seeing much the same thing. And I’m sure its the same thing in every large house areas. There are less homes for sale then there are home buyers. House listings are selling quick and Philadelphia real estate agents are forced to keep after our home buyer clients to keep them efficient and fast moving. I keep finding myself in homes that my clients like, trying to get them to understand it will be sold to another buyer immediately, if its not already under contract. Listings go quick!

    • says

      Thanks Joe. Your market sounds very similar to mine. It’s complicated at some of the lower price ranges too in that sometimes buyers putting very little down will tend to offer far more than what we might think of as a supported value. As long as they qualify for the loan amount, the offer is made. Now where is value in the midst of that? 🙂

  5. says

    Great post Ryan. In the Birmingham, AL area we are experiencing this very thing in various areas. Inventory is low so naturally listings prices should be high right? While this sounds good it may not be supportable, like you point out. Thanks for the post Ryan, I will definitely be sharing it.

  6. says

    Home sellers have a very strong tendency to list their homes with the agent that gives them the highest suggested list price. Every agent knows that.

    The game agents play is to choose a suggested list price that is high enough to get the listing but not so high that the listing agreement expires before the seller lowers the price enough to get offers.

    On the other hand, you often run into agents that aren’t very good with numbers but are incredibly optimistic about everything, including home values.

    They’re able to sell themselves and their high list prices to sellers because they actually believe their high list prices. Those “Everything is Awesome” agents will get a lot of listings.

    Agents who know the home’s actual market value may find it difficult to convincingly sell the seller on listing the home far above market value.

    Economists call this the “Curse of Knowledge.”

    That’s one reason why you don’t see a lot of former appraisers selling real estate.

    They would know what the home is worth… but they wouldn’t get the listing.

    I think home sellers are usually better off getting pre-list appraisals, so they don’t have to figure out if the agents are playing games with their suggested list prices.

    • says

      Wonderful comment John. I appreciate the time you took to write this. Your thoughts underscore the importance of really knowing how to value properties and also being able to communicate value. It takes tremendous skill to convince an owner to list at a reasonable price. I honestly think agents who learn to graph will have a profound edge in this regard because it helps owners see the neighborhood market. “You want to list at $450,000. Let’s look at a graph of all sales, model match sales, and competitive sales. Where does it look like the market is at?” Very powerful.

      Pricing right in the first place is huge and it helps an escrow go much more smoothly too when the appraiser gets out there and the property is in contract at a reasonable level.

Leave a Reply

Your email address will not be published. Required fields are marked *


*