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Ryan Lundquist

The players in the market & normal pendings

February 12, 2019 By Ryan Lundquist 17 Comments

Who are the players in the market? Who is buying and selling? Who is coming? Who is going? These are questions we have to ask to grasp a local market. And for real estate professionals, knowing who the players are helps us serve clients well and sometimes even make future business plans. 

Well, let’s talk about a new player in town called Opendoor. This company is trying to gain a foothold in about 20 markets across the country right now. If you’re not local, are they in your area?

Opendoor posted up in Sacramento last year and they’ve begun to make a splash. They’re not dominating the market by any stretch, but in the region over the past few months they bought over 90 homes. I don’t fully understand the fine print of their business model yet, but in a nutshell they buy from owners privately and then put these homes back on the market to sell to the public. In fact, mostly all of their private purchases are currently re-listed on our local MLS. Opendoor also has an affiliation with Lennar – a local builder.

My real estate antennas: Any time I see a group buying a larger amount of homes, I pay attention. In the past I talked heavily about Blackstone, and in the future I’ll discuss other players whether they’re making a splash or shaping the market (like Blackstone did). Any stories or thoughts?

Now for those interested, let’s talk about the market – especially pendings.

I hope this was interesting or helpful.

—–——– Big local monthly market update (long on purpose) —–——–

The market slumped during the second half of 2018, and now it’s an interesting spot. Let’s talk about it.

THE SHORT VERSION:

  • Pendings were normal for January
  • Sales volume has slumped for 8 months in a row
  • Prices are barely up from last year
  • Most metrics softened as expected for January
  • The market is starting to wake up for the spring
  • This post is long on purpose. Skim or pour a cup of coffee.

DOWNLOAD 70+ graphs: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE LONGER VERSION:

Here’s some of the bigger topics to consider right now.

We need time: We don’t have a totally clear picture for where the market is going yet in 2019. We still need more time. Here is what I am specifically looking for in the stats over these next few months.

Normal pendings: It’s big news that pending sales were normal this past month compared to last January. We’ve had a slump in sales volume for eight months, so what does this mean? Well, it could be the market trying to find some normalcy after two quarters of sluggishness. Though the real cause very likely stems from mortgage rates recently declining. It’s amazing how that can affect buyers and even sales volume. Remember, pendings in January will likely close in February and especially March. So if we start to see a normal level of pendings in January and February, we may see sales volume show normalcy for the time being.

Yeah, most metrics softened: We saw the typical signs we’d expect to see at this time of year with most metrics. It look longer to sell last month, prices dipped, inventory increased, and sales volume sloughed. Though overall the softening in most metrics felt way more pronounced.

Low rates are steroids: Mortgage rates declined and that’s seeming to draw some buyers back into the market. Low rates are like steroids for demand – at least temporarily.

More listings this year: There’s more listings this year compared to last year at the same time. In fact, it’s been about five years since we’ve started the year with this much housing supply.

Waking up: I’m hearing from many agents about more buyer attention on their listings lately. More traffic at open houses. More offers. It’s still to be determined what this spring market will look like exactly, but for now the spring season is starting to move.

Not seeing aggressive price gains: The rate of price change has slowed. What I mean is in years past we’d see 7-10% price increases when running stats, but now we’re seeing modest 2-3% year-over-year price gains. 

In case you need slumping trivia to impress friends: Last month we saw the worst sales volume in 11 years for a January. We’ve had eight months in a row of year-over-year sales volume declines. That’s a dismal stat and there’s no sugar-coating it. If this trend doesn’t change we’re going to have a much different market. Yet this is why seeing normal pendings for January is a big deal because today’s level of pendings could presumably show a normal number of sales in a couple of months when these properties close.

The Tallest Graph in Sacramento: Here’s a look at over 60,000 single family detached sales in Sacramento County. This graph is inspired by Jonathan Miller.

Less offers: Here’s an interesting way to see the market has slowed. Multiple offers are down about 11% this year.

More concessions in new construction: Lots of builders are offering credits and concessions to help get their deals done lately. This is a symptom of a slower market. It seems more sellers are also offering concessions and credits too. Buyers, don’t be afraid to negotiate with sellers since the market has slowed, but at the same time don’t think you are driving the market either. Keep your perception of power in check. And sellers, talk with your agent about whether credits or concessions might need to be an option on the table.

Final thought before the graphs: In closing, the market is in an interesting spot. It feels like it’s juggling uncertainty from last year with a striving for normalcy today. We only have one month of data and we need to keep watching to see how this market is going to emerge.

I could write more, but let’s get visual instead.

BIG ISSUES TO WATCH:

1) SLOWING MOMENTUM: The stats show the market is slowing down when we look at the rate of change by year. Looking at monthly, quarterly, and annual numbers helps give a balanced view of things.

2) SALES VOLUME SLUMP: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.

SACRAMENTO COUNTY:

Key Stats:

  • January volume down 21.5%
  • Volume is down 4.7% over the past 12 months

SACRAMENTO REGION:

Key Stats:

  • January volume down 17.7%
  • Volume is down 5.8% over the past 12 months

PLACER COUNTY:

Key Stats:

  • January volume down 10.9%
  • Volume is down 7.7% over the past 12 months

3) LAST YEAR VS THIS YEAR: Here’s a comparison of last year compared to the same time this year. What do you see?

NOTE: Placer County had very few sales this January, so I wouldn’t put much weight on the price figures for this month.

SACRAMENTO COUNTY (more graphs here):

 

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 70+ graphs: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

BLOG BASH: Just a reminder I’m hosting a blog party on March 2nd from 3-7pm. You’re invited to celebrate my blog’s 10th birthday. I know, that sounds a little cheesy. But I’ll be buying the first 100 beers… Details here.

Questions: Any stories to share about who is playing the market right now? What are you experiencing right now in the trenches with buyers and sellers?

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, buyers and sellers, buying and selling, Home Appraiser, House Appraiser, increasing inventory, inventory, investors, million dollar sales, multilpe offers, new construction, Opendoor, Sacramento Real Estate Appraiser, sacramento regional real estate blog, sales volume slump, trend graphs

How do we value a house with a HUGE non-permitted addition?

February 5, 2019 By Ryan Lundquist 24 Comments

What do appraisers do when there is an enormous non-permitted addition? Imagine a 1,300 sq ft house with a 1,000 sq ft addition. What the? Let’s talk about this.

Here are some things to consider:

THE SHORT VERSION:

  • A lack of permits causes uncertainty in real estate
  • Buyers usually expect a price discount
  • Appraisers need to think through many issues when there aren’t permits
  • Many appraisers are likely to use the original footprint when choosing comps (instead of blindly lumping in the extra space)
  • This is a complicated issue, which is why the post is longer

THE LONGER VERSION:

1) Uncertainty: Whenever a home has a substantial non-permitted addition, it’s like infusing the property with uncertainty. What I mean is every time a person does a refinance or sells, the lack of permits might not be seen the same way by buyers, lenders, real estate agents, and appraisers. So just because it sold without any problems in the past doesn’t mean it will sell without hiccups in the future. In short, people who buy homes like this need to understand they’re signing up for a future of uncertain escrows.

2) Expectation of a discount: My sense is most buyers are going to expect a price discount when there aren’t permits. I know, thanks Captain Obvious. Granted, in some areas a lack of permits might be normal, but in other places or price ranges a lack of permits can be a huge deal. If a house was increased from 1,300 sq ft to 2,300 sq ft though without permits, that’s a 77% change in size. I’d say that’s no small matter for marketability, so buyers aren’t likely to be okay with paying full price. On top of this, some lenders might not want to touch the property either. Anyway, I’d expect to see buyers wanting a discount, but technically I’m open to seeing otherwise because my job is to be objective rather than impose a rule that says, “Buyers will always pay less in this situation.”

3) Nuts and bolts: Appraisers have to ask whether an addition is legal based on zoning. If it’s flat-out illegal, the appraiser isn’t going to be recognizing value (or shouldn’t be). Keep in mind sometimes lenders instruct appraisers not to show value for non-permitted space. At the same time many lenders ask appraisers to simply support the value if the appraiser is assigning value to non-permitted features. In other words, lenders might say, “We’re cool if you give value to this, but support the value with comps or data.” I wrote more about some of the nuts and bolts of the problem of non-permitted additions here.

4) Assuming it’s no big deal: An appraiser could assume the market would pay the same amount for a 2,300 sq ft house compared to a 1,300 sq ft house with a 1,000 sq ft addition, but that’s a gigantic assumption. In my mind it would be a huge liability for an appraiser to blindly assume the market would have no problem and just appraise it like this was no big deal. There is simply too much uncertainty, so appraisers aren’t likely to walk out on a limb of liability like this without compelling data. In many cases buyers will ignore smaller-ticket items that aren’t permitted, but a 1,000 sq ft addition is a massive issue that cannot be ignored.

5) A starting place: In an ideal world it would be best to find comps that also have large non-permitted additions. That would be incredible, but there’s a fat chance of that happening. So an appraiser has to decide which course to take. Should the appraiser choose 1,300 sq ft comps or 2,300 sq ft comps? There isn’t just one answer here, so I’ll let my colleagues speak to what they would do, but I would personally be extremely hesitant to use 2,300 sq ft homes unless there was a really good reason to do so. When an addition is so large like this, there are too many unknown factors about the quality of work and whether things were done right, so I’d more likely use 1,300 sq ft comps and then treat the non-permitted area separately. In other words, I’d get a really clear sense of what the house would be worth at 1,300 sq ft and then figure out the value of the addition and adjust for that in my report if needed. Yet I would be asking what 2,300 sq ft homes are selling for too, and I would probably view that price level as the very top of what a property like this could be worth.

6) Previous sales: One thing I would look for is if this property sold on the open market in the past. If it sold more recently a few times at 2,300 sq ft and the market seemed to recognize this space as square footage (despite a lack of permits), that might be data for me to consider. In that case I might be more tempted to choose 2,300 sq ft comps while making some very heavy disclaimers about there being no permits. But if I only have one previous sale from 2005 when lending standards were loose and lots of properties sold at inflated levels, I’d probably give very little or no weight to that prior sale. The truth is we might look up previous sales and see the opposite too. Maybe a property is huge on paper, but that doesn’t mean buyers paid a huge price. Thus we might see proof in previous sales that buyers didn’t consider this house on the same level as other 2,300 sq ft homes. Here’s the thing though. No matter how the market responded in the past, it doesn’t mean the market would look at the property the same today. Moreover, what if fraud or incompetence was involved in the prior sales? Thus prior sales can be valuable, but at the end of the day I have to still make a judgment call about today.

7) Multiple offers: If this property was listed on the open market and there were ten offers when buyers were informed about a lack of permits, that might mean something. Offers aren’t sales, but it’s still data to consider. Yet if a property has been really attractive to buyers but it keeps falling out of escrow because of a substantial non-permitted addition, that’s also telling. So just because something is appealing and getting offers doesn’t necessarily mean value is there. If buyers are struggling to close, that’s probably more telling than initial offers, right?

8) It’s a puzzle: Properties like this are like a puzzle. I have to look at many factors and assemble the pieces together. So I’ll give strong weight to 1,300 sq ft comps, I’ll maybe use some 2,300 sq ft comps and adjust down if necessary, and I’ll do my best to find some other comps with permit issues. Additionally, if I get a sense of what it would cost to permit the area, that’s at least worth considering and it might help me come up with some sort of adjustment down. My knee-jerk reaction is to think buyers at the least would deduct the cost to get it permitted (and realistically probably more). Lastly, I’d interview lots of agents and talk with appraiser colleagues too. This would help me sharpen my focus, give ideas for how to approach the property, or maybe even shed light on comps.

It’s not the appraiser’s fault: I know it’s frustrating to not give a quick solution for valuing a property like this, but there isn’t one. Let’s remember the uncertainty in valuing only exists because someone didn’t get permits.

I hope this was interesting or helpful.

BLOG BASH: My blog turns ten this month and I thought it would be fun to get some people together. I reserved a private room at Yolo Brewing Company from 3-7pm on March 2nd, and I’d be honored if you would show up. My wife and I will buy the first 100 beers and I’ll be doing some woodworking giveaways too. This is a laid-back event. No pressure at all. It’s okay if we’ve never met before too. You can RSVP on Facebook or just let me know by email.

Questions: What would you do in this situation? 1,300 sq ft comps or 2,300 sq ft comps? Anything to add?

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Filed Under: Appraisal Stuff Tagged With: 1000 sq ft addition, appraiser methodology, choosing comps, cost of permits, House Appraiser in Sacramento, no permits, non-permitted addition, puzzle approach to value, Sacramento Home Appraiser, what appraisers consider

More owners, less sales, & confidence

January 28, 2019 By Ryan Lundquist 15 Comments

I have a few things on my mind. Let’s talk about more home owners, slumping volume, confidence, and outliers. Anything to add?

Increasing home ownership rate: There’s so much dreary news these days because of slumping sales volume. So here’s some good news first. We’re seeing an uptick in the home ownership rate (especially with buyers under 35). Check out the right side of the graph. It doesn’t look like much, but it’s welcome news. Image source: Len Kiefer.

Slumping volume & the Superbowl: Last week CNBC published a story stating national sales volume was down 6.4% in December. This is something we saw in many markets across the country, though the Sacramento region was down a whopping 25%. Right now we’re watching closely to understand how this will play out in the new year. The market is starting to wake up, but it still has a subdued feeling as early January is usually slow. In Sacramento many agents report the market starts to heat up after the Superbowl. Being that the big game is this Sunday, let’s watch stats closely in coming weeks.

Confidence: I like what NAR Chief Economist Lawrence Yun had to say about sales volume in this CNBC article: “The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018.” As Yun mentions and we’ve been talking about, interest rates going up really slowed down the market last year. But is it more than just rate changes? Could it be consumers losing confidence in the market? That’s something we have to explore and watch over time. How do you think we’d gauge that? I’d love to hear your take in the comments.

The Governor’s outlier purchase: I mentioned California Governor Gavin Newsom just bought a house in Fair Oaks for $3.7M. Well, here’s what that purchase looks like on a graph. It’s an outlier in price, but it’s also an outlier because of the huge lot size and square footage. It’s the fifth highest sale ever in the county and definitely the highest ever in Fair Oaks.

That $238M sale & Sacramento’s Top 10: You probably heard about that $238M sale in New York. Crazy, right? Did you know $238M would allow you to buy 25% of all listings right now in Sacramento County? That’s nearly 500 homes. Speaking of high sales, here’s the region’s Top 10.

I’m expecting really dull January stats: I imagine we’ll see dull sales stats in many markets in January, and that’ll be the case in Sacramento where it looks like sales volume could easily be down 15-20%+ again. I’ll know more in two weeks for sure when I pull my stats. In short, it’s a big deal if we don’t start to see this trend turn around over the next few months. It would be a sign the market has changed. Let’s remember though that January stats don’t actually tell us about the market in January. In fact, January sales tell us what the market used to be like in November and December when these properties got into contract (and then closed in January).

Preview of 2019 trends right now: The big question right now is what the market is going to do in 2019. We’ll begin to see that in sales stats in March and beyond, but right now we’re getting a preview in the listings and pendings of today that’ll eventually become sales.

I hope this was interesting or helpful. Thanks so much for reading.

Upcoming speaking gigs: I’m speaking in so many places lately. It’s been insanely fun. Here’s some upcoming talks in case you’re around. I’m doing a blogging class soon too.

Making graphs: Last week I asked if anyone wanted to learn to make graphs. Here’s a tutorial for how to make neighborhood sales graphs. This was a game-changer for me to learn. I’ll do a tutorial soon for how to make the price per sq ft graph I showed last week (hopefully in the next couple weeks).

Questions: What are you seeing in the market so far this year? Normal January or not? And Rams or Patriots? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: Fair Oaks highest sale, Governor Gavin Newsom, increasing home ownership rate, January real estate, Len Kiefer, record real estate sales in Sacramento Region, Sacramento real estate trends, slow real estate season, slumping sales volume

Being neutral, price per square foot, and the Governor’s new digs

January 21, 2019 By Ryan Lundquist 34 Comments

I have a few things on my mind. Let’s talk about me being asked to recruit for a brokerage (really), price per sq ft, and the Governor’s new digs.

1) WHY I SAID “NO”:

A brokerage recently asked me if I would help them recruit agents. The idea was I could use my influence to attract agents to a certain brand and then get a commission for each person I recruited.

I said NO, and my answer will always be NO. I probably don’t even need to mention this, but I want to communicate clearly. As an appraiser I won’t take sides. I’m neutral in my work, but my independence also extends in the way I interact with the real estate community. This is why you’ll see me speaking in many different places and real estate offices. I’m here to educate, not advocate. The truth is if I said yes I would’ve instantly destroyed my credibility.

2) PRICE PER SQ FT:

Here’s a look at price per sq ft trends in a few local areas. I plan to share more graphs like this throughout the year if people like them. Does anyone want to see a video tutorial for how to make these? Let me know. What do you see?

Two Takeaways:

1) RANGE: There’s always a price per sq ft range, which means there’s never just one price per sq ft figure that applies to every property in a neighborhood. Sellers often want to hijack a price per sq ft figure from a sale down the street, but that’s one of the quickest ways to overprice. My advice? Pay attention to price per sq ft, but most of all ask yourself what the comps are selling for. That’s exactly what appraisers are going to do.

2) OUTLIERS: There are clear outliers. As an FYI, usually the highest price per sq ft figures end up representing the smallest-sized homes or over-the-top unique properties.

3) THE GOVERNOR’S NEW DIGS: 

Gavin Newsom is the new governor of California and he just bought a $3.7M house in Fair Oaks. This price point isn’t much in many areas of the country, but it’s actually the fifth highest residential sale ever in Sacramento County. This home is said to have over 12,000 sq ft and it’s located on 8 acres. It’s near the American River, but not on the river. Now two of the top five sales in the county have a connection to a governor (the other was the mansion Ronald Reagan started to build in Carmichael in the 1970s).

Here’s a picture I took of the front gate this week, and here’s a video from a previous listing if you wish to see the home. Not too shabby, right?

Value thought: In the future we’ll have to consider whether there will be a price premium or not for this home because a governor owned the property.

CLASS I’M TEACHING: I’m teaching my favorite class at SAR called How to Think Like an Appraiser on January 31st from 9-12pm. We’ll dig deep into comps and adjustments (and have some fun). I’d love to have you come out.

I hope this was helpful or interesting.

Questions: Would you pay more if a governor previously owned the home? What do you think of my recruiting story? I’d love to hear your take.

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Filed Under: Random Stuff Tagged With: abusing price per sq ft, Appraiser, being neutral, El Dorado Hills, Folsom, Gavin Newsom residence, Governor Gavin Newsom, Governor's home in Fair Oaks, Home Appraiser, House Appraiser, Midtown price per sq ft, objectivity, Price per sq ft, real estate recruiting, role of appraiser, Roseville, southcliff neighborhood, Tahoe Park, using price per sq ft in real estate

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Most Recent Posts

  • The players in the market & normal pendings
  • How do we value a house with a HUGE non-permitted addition?
  • More owners, less sales, & confidence
  • Being neutral, price per square foot, and the Governor’s new digs
  • At least read this part of the appraisal
  • Will buyers step on the gas or brakes in 2019?
  • Real estate trends to watch in 2019
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  • An underrated metric & slumping volume
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