4 things to remember about increasing values and low inventory

Let’s talk about increasing values and low inventory. ‘Tis the season for this conversation because the market is heating up right now as we are on the cusp of spring. Here are a few things that have been on my mind, and then a huge local market update after that (for those interested). I’d love to hear your take in the comments below. Any thoughts?

values in real estate - sacramento appraisal blog - image purchased and used with permission from 123rf

  1. Front Loaded Market: In a normal market prices tend to heat up in the spring and soften in the fall. While this isn’t true everywhere in the United States (or for every year or type of property), this general reality reminds us that value increases are often loaded into the front part of the year rather than throughout the entire year. For instance, if values increased by 6% last year, it doesn’t mean value went up by 0.5% each month. Instead, any increase in value might actually have occurred from February to June.
  2. Rapid Appreciation: I’ve been hearing lots of chatter about rapid appreciation lately. The idea is the market has increased substantially in value over the past couple months and appraisals are lagging behind the trend. I know low appraisals are a reality, and if appraisers aren’t giving upward adjustments for value increases (when warranted of course), it can lead to conservative appraisals that probably reflect the market two months ago rather than right now. Whatever the case, the Sacramento market has felt extremely competitive lately because of freakishly low inventory, though actual value increases seem more nominal for the spring rather than exponential. Yes, there are some properties that have been bid up 10% or so, but those properties were probably priced far too low since increases that large have not typified this market. Moreover, sometimes markets feel more aggressive than they actually are, so a market’s mantra might be: “Aggressive demand, modest appreciation.”
  3. Not Every Neighborhood: Some neighborhoods and price ranges are trending differently than others. I know that sounds obvious, but it’s worth mentioning because it’s easy to lump all areas and price ranges together. For instance, the median price in the regional market last month increased by 2.5%, but that doesn’t mean values increased by 2.5% in every single neighborhood or price range. When valuing a property, we can keep an eye on trends from the wider area, but at the end of the day we need to look at competitive sales and listings in the subject property’s particular neighborhood. What is the competitive market doing in the neighborhood? If we impose the notion that “values increased by 2.5% last month” on every neighborhood, we’re probably going to make some valuation mistakes.
  4. Less New Construction is Starting to Matter: When the economy collapsed, new home construction sloughed off and has not yet recovered anywhere close to where it was during the glory years from say 2003 to 2005. This might not seem like a big deal, but now imagine the population has grown over the past 10 years, which essentially means there are now less available housing units for a larger population. On top of this, institutional investors bought homes in recent years and are holding on to them instead of selling. Moreover, some owners purchased several years ago are sitting on a sweet 3.5% interest rate and a low mortgage payment. Why would they sell in today’s market unless they really had to? Not all areas in the country are struggling with low inventory, but a lack of new home construction in recent years is actually a big deal, and it’s certainly contributing to a lower housing supply in many markets including Sacramento. Lastly, when there are less housing units for the population, it tends to create an environment where rents increase. This is an important trend to watch.

Any thoughts? I’d love to hear your take below.

—————– 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 a few minutes digesting what is here.

DOWNLOAD 70 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 Sacramento Market Summary: The market in February was fairly normal in Sacramento. Values saw a modest seasonal uptick, sales volume increased, and inventory declined. This was all expected because it’s what we normally see at this time of year. But while market stats are more on the tame side, the market has felt anything but that in the trenches of house hunting. Multiple offers are commonplace and buyers are seeming to exude a 2004-ish frenzy to get into contract before values rise too quickly (does that concern anyone?). Despite housing inventory being extremely tight, properties that are priced too high are sitting instead of selling, and that reminds us how price sensitive buyers have become. The market is definitely a sellers’ market, though that doesn’t mean sellers can command any price they want. It’s interesting to note it took 12 less days to sell a house this February compared to last February, and only 3.4% of all sales in the region last month were short sales. One last thing. There is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

  1. It took an average of 46 days to sell in both February and January.
  2. It took 12 less days to sell this February compared to last February.
  3. Sales volume was nearly identical in February 2016 compared to last February.
  4. FHA sales were 24% of all sales last month.
  5. Housing inventory is 25% lower than it was last year at the same time.
  6. The median price increased by 6.7% last month (take that w/ a grain of salt).
  7. The median price is 6.7% higher than the same time last year.
  8. The avg price per sq ft increased by about 1% last month.
  9. The avg price per sq ft is 6% higher than the same time last year.
  10. Sales volume in 2016 is roughly the same as the same time last year.

Some of my Favorite Graphs this Month:

Median price since 2013 in sacramento county

inventory - February 2016 - by home appraiser blog

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

CDOM in Sacramento County - by Sacramento Appraisal Blog

Median price and inventory since 2001 by sacramento appraisal blog

market in sacramento - sacramento appraisal group

SACRAMENTO REGIONAL MARKET:

  1. It took 1 day longer to sell a house last month than January.
  2. It took 12 less days to sell this February compared to last February.
  3. Sales volume was 2% lower in February 2016 compared to last February.
  4. FHA sales were 22% of all sales last month.
  5. Short sales were 3.4% and REOs were 4.8% of sales last month.
  6. Housing inventory is 20% lower than it was last year at the same time.
  7. The median price increased 2.5% last month from the previous month.
  8. The median price is 3% higher than the same time last year.
  9. The avg price per sq ft declined slightly last month (less than 1%).
  10. The avg price per sq ft is 7.9% higher than the same time last year.

Some of my Favorite Regional Graphs:

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

sacramento region volume - 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 2013

number of listings in sacramento regional market

PLACER COUNTY:

  1. It took 7 more days to sell a house last month than January.
  2. It took 6 less days to sell this February compared to last February.
  3. Sales volume was 4% lower in February 2016 compared to last February.
  4. FHA sales were 20% of all sales last month.
  5. Cash sales were 19% of all sales last month.
  6. Housing inventory is 17% lower than it was last year at the same time.
  7. Sales volume is up 2.5% this Jan/Feb compared to last Jan/Feb.
  8. The median price increased 2.5% from the previous month.
  9. The median price is up nearly 11% from February 2015.
  10. Short sales were 1.5% and REOs were 4.3% of sales last month.

Some of my Favorite Placer County Graphs:

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 - January 2016 Placer County housing inventory - by home appraiser blog 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 70 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.

Questions: Any other points to add about increasing values or low inventory? What stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

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Paying attention to the mood of the market

The other day a home owner was upset because he thought his appraisal came in too low. Yes, he was hung up on price per sq ft, which was a big issue, but most of all he believed the home should have been worth way more since there were almost no other homes listed for sale on the market. His thought was, “There’s no inventory, so I’m going to command top dollar.” After all, isn’t real estate about supply and demand? Well, yes. But there’s so much more.

the mood of the market sacramento appraisal blog - image purchased and used with permission by 123rf

The Market’s Mood: The truth is there are many factors that make value move in a market, and supply and demand is only one cog in the system (or “layer of the cake” as I like to say). Granted, it’s one of the more important metrics, but at the end of the day we can’t forget to ask how buyers and sellers are feeling about the market. Or in other words, what is the mood? For example, in early 2013 housing inventory in Sacramento was incredibly low, and buyers were pretty much willing to offer at list price or above on anything that hit MLS. In fact, if something didn’t have multiple offers, I wondered what was wrong with the property. At the time there was a real desperate mood, yet despite inventory still being low today, buyers are exhibiting more discretion by not pulling the trigger unless the price is right. Like the owner above thinks, this seems irrational because there aren’t many homes for sale. But the mood has changed. Likewise, if a house backs a busy street or has some adverse issue, buyers are tending to wait rather than offer. Again, this seems illogical because on paper it looks like buyers should be making offers all day long because of how low inventory is. Lastly, it’s worth mentioning the owner above did not realize his home valued toward the higher end of the neighborhood range was simply not experiencing the same demand as the lower end of the price spectrum in the neighborhood. Thus the mood at the top was different than the bottom.

Action Step: At the end of the day, let’s not forget to talk with clients about the mood of the market. We can do this by sharing the latest numbers, thinking about what is driving some of the numbers (the mood), reading articles from several local and national publications, and having conversations as often as possible with others in the real estate trenches (not just with people in your office or field). Also, since market moods are constantly changing, we have the opportunity to continually say something different about the local market.

Any thoughts? I’d love to hear your take below.

—————– 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 a few minutes digesting what is here.

DOWNLOAD 73 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 Sacramento Market Summary: The market in January was fairly normal. It took 3 days longer to sell a house than the previous month. That’s normal. The median price and other price metrics generally declined from December. Yep, that’s normal too for the time of year. Sales volume declined by 39% from December to January, but that’s common since sales volume ALWAYS declines from December to January (yes, I said always). Actually, the real trend is January 2016 had a 2.5% higher sales volume than January 2015. Housing inventory increased, which is also normal. Okay, I apologize because I’m repeating one word too often here. But do you catch my drift? However, I will say the bottom of the market and “entry-level” neighborhoods have felt a little more aggressive in terms of values, number of offers, and demand. In short, some neighborhoods have seemed to have more of a feel of a budding spring real estate market, while others have been cruising along waiting for the spring season to further ripen. As I said last month, if I had to sum up the market in 2015 I would say: Modest value appreciation, but aggressive demand. Yes, demand is very aggressive out there, but sellers really need to price realistically unless they want to sit on the market. One last thing, there is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

  1. It took 3 more days to sell a house last month than December.
  2. It took 14 less days to sell this January compared to last January.
  3. Sales volume was 2.5% higher in January 2016 compared to last January.
  4. FHA sales were 26.8% of all sales last month.
  5. FHA sales under $200,000 were 29% of all sales last month.
  6. Housing inventory is 30% lower than it was last year at the same time.
  7. The median price declined by 5.3% last month.
  8. The median price is 9.4% higher than the same time last year.
  9. The avg price per sq ft declined by about 1% last month.
  10. The avg price per sq ft is almost 11% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - January 2016 - by home appraiser blog

median price and inventory since jan 2013 - by sacramento appraisal blog

January market in Sacramento real estate - by sac appraisal blog - since 2008

sales volume in January

inventory in sacramento county Since 2011 - by sacramento appraisal blog

price metrics since 2014 in sacramento county

SACRAMENTO REGIONAL MARKET:

  1. It took 2 more days to sell a house last month than December.
  2. It took 15 less days to sell this January compared to last January.
  3. Sales volume was 7.9% higher in January 2016 compared to last January.
  4. FHA sales were 23.6% of all sales last month.
  5. Short sales were 3% and REOs were 3.5% of sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. The median price declined by 1.3% last month.
  8. The median price is 10.8% higher than the same time last year.
  9. The avg price per sq ft increased 2% last month.
  10. The avg price per sq ft is 11.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

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

sacramento region volume - 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 2013

number of listings in sacramento regional market

PLACER COUNTY:

  1. It took 4 less days to sell a house last month than December.
  2. It took 16 less days to sell this January compared to last January.
  3. Sales volume was 13.8% higher in January 2016 compared to last January.
  4. FHA sales were 16.7% of all sales last month.
  5. Cash sales were 19% of all sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. Sales volume is over 13% higher these past 12 months compared to the previous one year.
  8. The median price, average price per sq ft, and average sales price increased last month, but Placer County data seems to fluctuate quite a bit since there are fewer sales, so I don’t recommend putting too much emphasis on these increases unless they become prolonged over time.

Some of my Favorite Placer County Graphs:

Placer County price and inventory - by sacramento appraisal blog

number of listings in PLACER county - January 2016

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog - January volume

interest rates inventory median price in placer county by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 73 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 recommend for someone to find the mood of the market? Are there certain metrics you think best show the mood? Also, what stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

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

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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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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