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Search Results for: explaining how price per

Explaining how price per sq ft doesn’t work (with a Lamborghini)

February 6, 2018 By Ryan Lundquist 25 Comments

If there’s one conversation to master in real estate, it’s explaining how price per sq ft works. Or rather how it doesn’t work. In the past I’ve used Starbucks cups and even toilet paper to explain things, but today let’s use price per pound. What do you think? Let me know.

Seller: I used price per sq ft to price my property.

Me: That’s great. Did you pick the right number?

Seller: What do you mean?

Me: Imagine your neighbor just bought a Toyota Camry for $24,000. If we do some quick math, she paid $7 per pound based on the weight of the car.

Seller: Okay.

Me: Now imagine a different neighbor wants to buy a Lamborghini. It’s been his dream since middle school, but it’s way out of his budget. Well, not any longer though since he just learned the price per pound for a vehicle is $7. He can now afford the Lambo. Pretty cool, right?

Seller: It doesn’t work that way. 

Me: Exactly. Why not?

Seller: You can’t use the price per pound from a Camry to price a Lambo. Those are two completely different cars.

Me: Well said. And in the same way we can’t borrow a price per sq ft from a dissimilar property down the street and arbitrarily use it to price your house. That’s a bit like using Camry stats to price a Lambo.

———————————————————————————

UPDATED on 2/08/2018 (“Picking the right number”): Someone read this post and thought I was saying price per sq ft is a good metric to use. That’s definitely not what I’m saying. To be fair I think I can see why this person thought that because I mentioned “picking the right number” in the conversation above. I’m not suggesting there is a right number to choose, and that example question is really only a device to help move conversation forward (rather than something to be taken literally). The big point here is choosing a random price per sq ft to price a property is a really bad idea. I suggest actually paying attention to similar sales more than anything. Does that make sense? I hope so.

This car example isn’t intended to tackle all aspects of price per sq ft. It’s simply a way to start conversation. Read more on price per sq ft here.

Mastering this conversation: I highly recommend for real estate professionals to master this conversation. If you don’t like the car example, that’s fine. My sense is it’s critical though to have a few examples at hand to quickly explain how price per sq ft works (and doesn’t work). Why? Because when sellers overprice it’s often because they’re hung up price per sq ft.

I hope this was interesting or helpful.

Questions: Does this work? Why do some sellers and real estate professionals get hung up on price per sq ft? Did I miss something?

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Filed Under: Market Trends, Resources Tagged With: appraisals, danger of price per sq ft, Greater Sacramento appraisal blog, Home Appraiser, House Appraiser, how value works, lamborghini, overpricing in real estate, price per sq ft in real estate, real estate metrics, sports car analogy

Photoshopping & price per sq ft in real estate

June 4, 2019 By Ryan Lundquist 21 Comments

I have a new way to explain how price per sq ft works in real estate. It’s helpful but maybe a little creepy too. No matter what, we need word pictures in real estate to explain concepts, so let’s chat.

The big idea: Using a price per sq ft figure from a different house is sort of like photoshopping someone else’s body on your own. It just might not fit.

Instagram model vs dad bod: Think about it this way. When we use a price per sq ft figure to price a home it can be like taking an Instagram model’s body and putting it on a dad bod. It just doesn’t belong or fit. The problem is we’ve imposed something entirely different on another thing, and it looks awkward. The same holds true in residential real estate when we hijack a price per sq ft figure from a dissimilar house down the street and use it to price a property. Thus if we’re not careful we can end up pricing a “dad bod” home like it was an Instagram model simply because we priced according to model metrics instead of other dad bod sales… Okay, let’s not take this analogy any further. Do you catch my drift though?

Pick your poison: This example isn’t intended to tackle all aspects of price per sq ft, but only help stir conversation. I actually use Starbucks cups and Lamborghinis too, but that’s just me. My advice? Use what works for you.

One more thing. I’m writing as a guy who is currently on a diet, so I’m definitely not poking fun at the reality of dad bods.  🙂

I hope this was helpful (and not too creepy).

Is Blackstone selling? I see Invitation Homes (Blackstone) has a handful of properties listed on the market right now. These could be non-performing assets of course, but we have to ask if they are starting to sell off some inventory too. Stay tuned.

Sign giveaway: Last week I wrote about people who are leaving the market, and I’m giving away the shabby chic signs I made on this Facebook post.

Video: Here’s a video I made to talk through the danger of abusing price per sq ft. Enjoy if you wish. It’s about six minutes.

Question: Does this example work? How do you explain how price per sq ft works in real estate? I’d love to hear your take.

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Filed Under: Appraisal Stuff Tagged With: appraisal advice, appraiser in Sacramento, choosing comps, comp selection, overpricing, Price per sq ft, price per sq ft explanation, pricing mistakes, pricing too high, Sacramento Appraiser

Some perspective as real estate “bubble” conversations emerge

October 5, 2015 By Ryan Lundquist 9 Comments

Lots of real estate “bubble” talk lately. Have you noticed? It’s a hot topic for the public and real estate community as housing affordability is becoming more of an issue since values have been on the rise for the past four years. Even Hollywood is getting in on the action with movies hitting the screen about the bursting of the “bubble” ten years ago (thanks Jonathan Miller for the heads-up). Anyway, this isn’t another post on whether we are in a bubble or not, but rather some things to keep in mind for the real estate community as bubbly conversations emerge. I’d love to hear your take in the comments below.

real estate bubble - image bought and used with permission from 123rf dot com by sacramento appraisal blog

Enjoy the tips. Anything you’d add?

Things to keep in mind during real estate “bubble” conversations:

  1. Predicting is Dangerous: Predicting the future of real estate is sort of like predicting what Justin Bieber is going to do next. What will the Biebs do next month or next year? Nobody knows. The same is true in real estate, and it’s okay for real estate professionals to simply say, “I don’t know what the market is going to do. My crystal ball is broken. But I can tell you what the market is doing right now and what it seems poised to do.” Seriously, if you work in real estate, this is probably the best and most honest answer you can give.
  2. Remember that markets change: At some point in the future values are going to decline, and at some point in the future they are going to increase. Of course we want to avoid incredibly steep declines, but otherwise it’s normal for real estate values to go up and down, and we should therefore expect that. We seem to have a mindset that prices should only increase, but that’s just not realistic. That would be like saying every day should be sunny or each day of a marriage should be only positive and filled with bliss (nothing is always positive).
  3. Be in tune with the slow fall season: When the market slows during the fall, it only exacerbates bubble talk. The past three years have seen a very definitive dull market in the fall (at least in the Sacramento area), and we need to respect and embrace that slow seasonal reality (and price accordingly). It’s sort of like when work is slow, it’s easy to get depressed or even think the business is going under. Well, it’s the same deal with the cyclical real estate market.
  4. Never promise equity: It’s easy to say things like, “This house will be worth much more in two years, so it’s a good time to buy,” but can anyone really guarantee that? If you never promise value to your clients, they can never come back and say, “You told me the market was going to increase and it didn’t”. This was exactly what many real estate pros told buyers using 100% financing last decade. “Hey, the market is going to increase, so don’t worry about that adjustable rate. You can refinance out of it in two years.” Interestingly enough, today’s FHA buyers are sometimes told, “You can get in the market with FHA now, and just refinance into a conventional loan when the market increases.”
  5. Focus on affordability: Everyone wants to buy at the lowest point in a market, but very few people actually pull that off. In fact, many times it’s simply an accident when it does happen. Ultimately people ought to buy when it makes sense for their wallet and lifestyle, and that is a fantastic point to emphasize because it respects where people are at in life rather than telling people when they should do something. If you have clients who want to buy, then honor their desires by helping them understand what affordability looks like with whatever market is in front of them.
  6. Become great at explaining the cake: Value in real estate is like a multi-layered cake since there are many “layers” in a market that impact prices. See my cake image here and use it (I love this analogy). It’s easy to think of real estate in terms of being only about supply and demand, but it’s also about interest rates, the economy, cash investors, financing, affordability, jobs, consumer confidence and so many other “layers”. In short, when one layer of the cake changes (such as inventory or financing), it can change the entire cake (the market).
  7. Hone your pricing skills:  How can you get better at pricing, pulling comps, or making value adjustments this year? It can be challenging to price when a market slows or declines because values might actually be lower than the most recent sales and listings indicate. Thus I recommend getting some training this year, taking some stellar CE, or connecting with some locals who you think are getting it right (By the way, if you’re local, I teach a 2 or 3-hour class called “How to Think Like an Appraiser”. May I do a training in your office?)
  8. Change what you say about the market as the market changes: It’s easy to speak fluently in clichés or say the same thing about the market for years. Agents do this by saying “it’s a good time to buy and sell” even if it isn’t, and appraisers do this by always indicating in their reports that values are “stable” with a “balanced” supply of inventory (even if that’s not the case). When we look closely at trends and begin to see what the market is doing, we can change what we say to our contacts and clients. Moreover, we might even price more effectively and give better real estate advice.
  9. Bubble Obsession: Values were massively inflated ten years ago, yet we still have this obsession about getting back to “the good ‘ol days”. Was it really that good to see huge price increases only to have the housing market collapse around us? Do we want to get back there? Nah, I think we can do better. This is why I recommend real estate professionals to be aware of bubble issues, but also find other interesting things to talk about and share. I’m absolutely not saying to ignore the market or be dishonest, but only find a balance so we don’t perpetuate a fear or worry about what may or may not happen to values in the future.
  10. Consider your future clients: One of the best things to do when considering the future of real estate is to think about who your clients might be as the market changes. Based on the way the market is moving, who do you think your clients are going to be in 2016 and 2017? What will your database need over the next two years? Are they going to be looking to buy, sell, rent, get married, get divorced, invest, do a short sale, get back in the market, remove PMI, sell a parent’s home, move up, build an accessory dwelling for an aging parent, downsize, settle an estate….?

I hope this was helpful.

Thank you sincerely for reading. I cannot tell you how much I appreciate you letting me share a few thoughts each week.

Questions: What is point #11? Which one resonated with you the most? Do you think we’re in a “bubble”? (I’ll share my thoughts if someone asks)

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Filed Under: Resources Tagged With: appraisals, appraisers, bubble 2015, FHA buyers, real estate bubble, Sacramento Market Trends, Sacramento Real Estate Market, slow fall season, the bubble, tips for talking about the bubble

Understanding how it works to appeal property taxes

April 17, 2014 By Ryan Lundquist 4 Comments

When the market gets hot, people tend to forget about their property taxes. Even the Sacramento County Assessor shows there were 35% less appeals filed last year compared to previous years (see graph below). We all know the market increased rapidly in recent time, but some people frankly still should have appealed, but they didn’t. Here is how the appeals process works and some tips to consider for this year.

Real Estate Agents & Loan Officers: Knowing these tips makes you well informed and an enormous asset for your clients (download a larger image to use in your newsletter). I hope this helps.

flow chart for appealing property taxes - by sacramento appraisal blog - white 530 - 2

10 quick things to know about appealing property taxes

  1. The Date: Your assessed value is based on January 1 of the given year – NOT today’s value.
  2. 2004-2007: If you purchased from 2004-2007 in particular, be sure to pay attention to your property taxes this year since the market is not quite back to those price levels yet in many cases.
  3. Wait Until July: Wait to see how the Assessor assesses your property before deciding to appeal. New assessments should be out in very early July. Do NOT hire anyone (including me) to help you appeal before you know what your assessed value is.
  4. Your Wallet: Remember that ever $10,000 in assessment is about $125 out of your pocket. This is a good gauge to keep in mind to help you decide whether it is worth it to appeal or not.
  5. Deadlines: You can begin appealing in early July, but the deadline to dispute property taxes in Sacramento County is usually November 30 (sometimes December 2). The deadline to appeal property taxes in Placer County is usually mid-September (dates will be announced by July).
  6. Two Form Options: There are 2 forms you can fill out. The Prop 8 “Decline in Value” form is a free informal review and the Application for Changed Assessment is $30 and is an actual appeal. Knowing the difference can make a huge impact for you and your clients because sometimes people think they appealed, but they actually only filled out the free form. Here is a brief video explaining the differences between these two forms.
  7. My Recommendation: In this market I recommend filling out the free Prop 8 “Decline in Value” form first, but if you don’t hear back by October in Sacramento County or August in Placer County, file a formal appeal. The Prop 8 form has no weight or power to take your appeal further once the appeals deadline has passed. In other words, if the Assessor disagrees with your value on the free form, you cannot move the conversation forward or have the right to an appeals hearing once the deadline to appeal has passed (since you did not actually file a formal appeal).
  8. Lowball: Don’t lowball your value.
  9. Comps Near January: Support your value with sales close to January 1 of the given year. Make sure your “comps” really are comparable. Don’t just use the lowest sales in the neighborhood. Use whatever is comparable.
  10. What Happens After You Appeal: The Assessment Appeals Board will either agree with your value, propose a new value that you can either accept or reject, or call for an appeals hearing. Try to resolve your appeal before the hearing. Otherwise bring your support to the hearing and argue your case. Resolving your appeal prior to the hearing can happen over the phone with whatever appraiser is assigned to your case. This is where knowing the market and all comps really well comes in very handy.

By the way, this graph shows the number of appeals filed last year after the market really heated up. What will happen this year?

graph of assessment appeals filed

flow chart for appealing property taxes - by sacramento appraisal blog - white 2A Resource for Your Blog & Newsletter: For my real estate friends, let your clients know about the tips above by forwarding this post. Or you can use my property tax flow image on your blog, Facebook or in your newsletter (just link back to me). Here is a larger-sized image too in case it’s relevant. Just click on the thumbnail and save to your desktop.

My Services: I’ve done quite a bit of work with “decline in value” property tax situations, but also with escape assessments and other base-year value challenges. I don’t use a full appraisal because it’s really not needed in most cases. Instead I developed a more limited custom valuation product that is amply informative, yet it costs less than a full appraisal.

Questions: Any other tips? Why do you think there were less appeals filed last year? Have you ever disputed your property taxes and found success?

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Filed Under: Property Taxes Tagged With: assessment appeals board, get appraisal for property taxes, hire appraiser property tax appeal, home appraiser property taxes, how to appeal property taxes, property tax consultant, property taxes 2014, Reduce Property Taxes, Sacramento County Property Taxes, tips for disputing property taxes

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