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Low appraisals, weed, & rent control

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I’ve been getting lots of phone calls and emails about low appraisals over the past couple months. Is something in the water? What’s going on? Let’s talk about this briefly. Then I have some quick thoughts on weed and rent control.

5 things to remember about “low” appraisals:

1) This is common when the market slows.
2) This is even more common in a declining market.
3) It should happen if the contract is too high.
4) It can spur negotiation instead of kill a deal.
5) The value of course is too low sometimes.

The problem: During the housing “bubble” we expected appraisers to always “meet value” so to speak. Yeah, that wasn’t good. But it seems like the residue of that expectation still exists today. So when an appraisal comes in lower than the contract price, it’s often treated like a grave market sin when in fact this should be something that happens from time to time. I know this sounds a bit Pollyanna to say, but I’d like to see the real estate community view appraisals this way instead of thinking appraisers should “hit the number” all the time. Appraisers have an important role to play in the market and if they’re doing their job correctly it won’t always lead to smooth escrows.

Botched appraisals and what to do: Of course we don’t live in a perfect world and appraisers legitimately miss value at times. I’m not glossing over that frustration and I realize there are horror stories out there. When this happens it’s reasonable to go through the lender’s process of asking the appraiser to reconsider the value. I don’t think any appraiser looks forward to this, but it’s part of the business, which is why I advocate for data-informed conversations and ethical protocol. In fact, here’s some tips and a form I suggest using if the lender will allow it (otherwise you’ll need to use the lender’s form).

Note to appraisers: I know this post will not sit well with some colleagues, but this is a part of the business and my goal here is to elevate the conversation (and hopefully only see rebuttals when they need to happen).

Rent control: I have an upcoming interview about rent control with an appraiser colleague in the Bay Area (and I’ll likely do others too). We’ll talk through rent control dynamics and some things to consider for value. In the meantime, here are two quick thoughts. One, rent control is a huge deal, but we’re going to need some time to really understand the fine print as well as its effect on the housing market. The temptation is to look for an immediate impact, but we might need years to fully understand the effects. Secondly, rent control will change the way properties are advertised. Gone are the days of saying things like, “Rents are below market and you can raise them to X amount after buying.” The problem is market rent isn’t so straightforward any longer because not all units can be legally rented at the same level. Remember, rent control does not apply to single family homes. My advice? Be careful with assertions about market rent. 

Landlords getting huge weed fines: There was an illuminating piece by Capital Public Radio on Sacramento fining landlords when tenants turn rentals into “grow” houses. We’re talking big money too as the story highlights an example of a $137,000 fine. The author of the piece states the City of Sacramento has issued almost $100M in penalties over the past two years. I’ll let lawyers figure out if this is legal or not, but from a market perspective this is something to watch. What are the positives and negatives of this type of enforcement for the housing market? How will this affect investors?

I hope this was interesting or helpful.

BIG MARKET UPDATE: I’ll be giving a deep market update at SAR on September 24th from 10:30-12:00pm. My goal is for everyone to walk away with an understanding of how the market is moving, ways to describe it, and some ideas for business in 2020. Sign up here.

Questions: What is the sixth thing to remember about low appraisals? Any stories to share? Any thoughts on rent control or the weed dynamic right now?

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Cost vs value, Johnny Cash, & an explosion of murals

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Last week was a heavy post, so this week I have something quick and light. I wanted to share a perfect cost vs value example and then look at a few murals – particularly the Johnny Cash mural in Downtown Sacramento.

Record price: This contemporary home in Sierra Oaks Vista just sold for $5M, which is the highest residential sale ever in Sacramento County. I know it surprises some that we haven’t seen loftier sales, but let’s remember Sacramento isn’t the Bay Area despite being close.

Cost vs value: This house cost ten million dollars to build, but the market only paid half that. This is a striking example that just because an owner spent money doesn’t mean buyers will. Keep in mind there were two previous listings below six million for nearly two years of market exposure, so this home wasn’t given away.

Big takeaway: Just because you spend a dollar doesn’t mean you’ll get a dollar back in value. Cost doesn’t always translate to value, and this is the perfect example. More on the myth of dollar for dollar here.

EXPLOSION OF MURALS

Many cities across the country are seeing an explosion of murals lately. In Sacramento there’s been a concerted effort to paint the town with an emphasis called Wide Open Walls. This isn’t just Midtown or Downtown either as art is starting to spread to other portions of the region. If you want to see local murals, here’s the most exhaustive mural map out there.

Johnny Cash: Artist Shepard Fairey unveiled a 15-story Johnny Cash mural last year. This mural commemorates the 50th anniversary of the At Folsom Prison album (which I have on vinyl), but it also highlights the need for prison reform. Thank you to local photographers Dan & Vicky for letting me use these images.

Johnny Cash mentions in MLS: If you didn’t know, Folsom is a city in Sacramento County, which means Johnny Cash recorded his album locally. As a side note, “Johnny Cash” is mentioned seventeen times in MLS listings. It would be cool if the mentions were due to Mr. Cash making the real estate market move, but that’s just not the case. In every instance the mentions have been associated with the Johnny Cash Walking Trail. Yes, there’s a walking trail on the outskirts of the prison property. 

A few other cool murals: Thanks to John Adair and Vicky for letting me use some of your mural pictures.

One more. This isn’t in Sacramento, but it’s one of my favorite murals. I snapped this photo in Downtown Los Angeles a couple years ago. It’s called Our Lady of DTLA. I like how it canvases the housing units instead of being located on some random alley like many murals.

I hope you enjoyed this. Have a wonderful 4th of July!

Questions: What do you think about all the murals? Do they add value or make any difference for a neighborhood?

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My blog is 10 years old today

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It’s been ten years. I started this blog on February 20, 2009. I can’t believe it. The real estate market was way different then and so was my life. I have two things on my mind today.

1) THANK YOU

I’m so grateful for this past decade. I’ve had a blast and I’ve learned so much from our conversations through the years. I know it sounds dramatic, but my business and life have changed. My kids are now teenagers, my beard has way too much gray for my age, and I feel like I’m now surrounded with a tribe of such supportive people. Our conversations have led to many opportunities, weekly presentations in real estate offices, and doing the type of work I want to be doing. Thank you for adding joy to my life (that sounded way too Marie Kondo).

2) THINGS I’VE LEARNED ABOUT BLOGGING (AND LIFE)

1) Progress is impossible without effort: It’s impossible to make progress if you don’t put yourself out there. In other words, I wouldn’t be at ten years today without my first lame post.

2) You can’t please everyone: It’s impossible.

3) It’s not easy to be brief: Yep. Sorry. Nothing more to say about that.

4) Consistency: One of the most important things is being consistent. This is true for blogging and it’s true for anyone trying to reach others with a message. People say to me all the time, “I could never do what you do because I’m too busy.” I get it. But here’s the thing. We’ll never get results unless we commit to being consistent – no matter how busy we get.

5) Relationships: Ten years ago I started this blog as a way to earn business, and that definitely happened. But most of all I earned friendships.

Thank you for hanging with me for these years.

BLOG BASH: Just a reminder my wife and I are hosting a party at Yolo Brewing on Saturday March 2nd. It’s an excuse to get together and you’re invited. It’s okay if we’ve never met too. I’ll be buying the first 100 beers. Details here.

Question: What is one thing that is different about your life since 2009?

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

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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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