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Is the public trusting Zillow too much?

September 18, 2018 By Ryan Lundquist 52 Comments

I don’t have an axe to grind. I’m not angry. And I’m not worried about Zillow replacing my job. I am concerned about the public trusting Zillow way too much though, so I wanted to share an eye-opening “Zestimate” example to help create conversation. Please give it a read and let’s talk in the comments.

Here’s the Zestimate history of a single family home in Carmichael, CA. I’ve been following this property for the past two months.

1) OVERPRICED: This home was originally overpriced in MLS at $380,000 and the Zestimate happened to be $380,414 when the home listed for sale.

2) PRICE & ZESTIMATE REDUCTION: The price was reduced to $335,000 in MLS and very soon after the Zestimate was changed to $346,364. Seeing this definitely gave me pause and made me wonder how much weight Zillow’s algorithm gives to the list price. Does it usually match the list price when a property is first listed? How much do price changes affect the Zestimate? These are reasonable questions. By the way, I shared about this house on Twitter and Inman News included it in a story.

3) ZILLOW DIDN’T GIVE MUCH WEIGHT TO THE SALES PRICE: The property sold at $350,000 eventually, but then Zillow’s estimate said the property was worth $327,960 after the property recorded at $350,000. So it looks like Zillow’s algorithm did not automatically give strong weight to the actual sales price.

4) ZESTIMATE DECLINES 8% IN 30 DAYS: Despite selling at $350,000 one month ago, Zillow now says this property is worth $301,972, which is a whopping 14% less than it actually sold for last month. Moreover, in just 30 days Zillow states the value of this home has gone from $327,960 to $301,972, which is an 8% loss in value. Did the market really decline by 8% this past month?

ZILLOW’S TRENDS ARE OUT OF SYNC: I can’t speak for every property listed on Zillow, but the Zestimate history in this case is definitely out of sync with the market in Carmichael. Values are certainly softening for the season like I talked about last week, but a decline of 8% in 30 days is simply not accurate. Look at the trend line in my graph that shows the market balancing out, and then look at the Zestimate connected by dots. That’s a huge difference in direction, right? Obviously Zillow hasn’t been inside this house, so we can give grace to an algorithm not knowing the full picture of value for an individual property, but to say the market has dropped by 8% is just inaccurate (and you don’t need to go inside a house to know that).

QUICK STUFF ON MY MIND:

1) It’s not just a “ballpark” for consumers: Despite Zillow touting itself as a “ballpark” valuation or starting point for consumers, many people treat it like a definitive value. Bottom line.

2) Blind trust: I find many consumers trust Zillow without thinking too much about accuracy. I don’t say this to be insulting, but there is a deep trust with this brand right now without many questions being asked. My advice? Think critically about examples like I showed above before you trust with all your heart.

3) Pricing according to Zillow: Many sellers are growing disconnected from the real market lately and they’re prone to overprice. Having sensational real estate headlines for six years is definitely one of the reasons why this is happening, but I think some of it comes down to consumers having more information than ever about prices and value. The struggle is when sellers feel so strongly that a Zestimate is legitimate that they aren’t willing to price below it or hear pricing suggestions from others. My advice? Listen to the market around you as well as real estate professionals. Don’t get so caught up in a Zestimate that you cannot see anything else.

4) Feeling stressed: I had a friend who used to get stressed out when his Zestimate would dip. He has since passed away, but I can only imagine how he’d feel about an 8% price decline in 30 days if that’s what Zillow said about his home. He’d be freaking out, and the truth is he wouldn’t be alone because there are lots of people who think of Zillow as way more than just a “ballpark”. In short, I recommend being careful about letting a website’s value claim affect your mood or even your real estate decisions. By the way, the New York Time’s wrote a piece last week called Why Zillow Addicts Can’t Look Away.

I hope that was interesting or helpful.

SPEAKING GIGS: By the way, if you’re around, I’ll be speaking at the Appraisal Institute’s 2018 Fall Conference in San Francisco on October 19th and AppraiserFest in San Antonio on Nov 1-3. I’m also doing a real estate blogging class locally on October 11th at SAR. Just a heads-up.

Questions: What do you think of Zillow? Is the public trusting this website and brand too much? Any stories to share?

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Filed Under: Resources Tagged With: accuracy of Zillow, Appraisal, appraisal vs Zestimate, Appraiser, appraisers in Sacramento, Carmichael, Carmichael property, example of Zillow being off, market softening, sacramento home values, zEstimate, Zillow, Zillow's algorithm

The problem of not listening in a slower market

September 12, 2018 By Ryan Lundquist 9 Comments

It’s not easy to listen when the market is slowing. This is true for sellers taking in pricing advice, and it’s also true for the average person reading national headlines. Let’s talk about this. Then for those interested I have a big market update. Anything to add?

Sellers not listening: All year it seems sellers have struggled to listen to pricing advice from their real estate agents. I guess I can understand because they’ve had nothing but “hot” headlines for six years. But I think there’s another issue too. Maybe we’re seeing some of the effect of sellers having more real estate data at their disposal than ever because of Zillow, Redfin, Metrolist, blogs… So right or wrong, we have sellers who now they think they know better than anyone. Whatever the case, sellers are making real mistakes out there by not listening to pricing advice and instead pricing for a much hotter market than we actually have. In case it’s useful, I wrote an article in Comstock’s magazine with some practical advice for sellers.

Listening to national headlines: There have been sensational headlines about the market beginning to crash, and it’s difficult at times to think past these headlines and be objective. Let’s remember though that headlines are designed to get clicks, and a headline may or may not mean anything for a local market. My advice? Don’t let any headline cloud your judgement of local trends.

Listening without enough context: This sounds like such a geeky point, but hang in here with me because it matters. Lots of times in real estate we end up comparing the current year with the previous year, and that’s actually a good thing. But my sense is we’re missing something if we pay too much attention to last year only and ignore prior years. In Sacramento at least it’s been a few seasons since we’ve had a dull fall, so it’s easy to forget what that feels like. Moreover, if we look at current inventory levels beginning to push a two-month housing supply, that looks huge compared to the past couple years. But if we look at inventory from 2014 when we had a dull fall season, it was hovering between 2 to 2.75 months at the time. This reminds us it’s possible to have higher inventory at this time of year without the market utterly tanking. I don’t say this to diminish the importance of rising housing supply right now, but only to highlight the need to look to a few more years of data as we interpret what is happening. After all, sometimes pulling stats is like pulling comps. If we only look at the past 90 days of sales, that might not be enough. At times we need a much wider view to really see the market. The same thing happens with real estate data. Know what I’m saying?

I hope that was helpful. Do you “hear” what I’m saying?

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

The market has been slowing. Duh, we know that. Everyone’s talking about it. Let me unpack what I mean below with some comments on some of the bigger themes right now:

Coffee vs. skimming: This post has lots of information. It’s designed to skim until you find something you want to read, or pour a cup of coffee and really spend some time digesting stuff.

BIG ISSUES IN SACRAMENTO:

Prices softening: Most price metrics in the region softened between 1-2% last month, though the median price in Sacramento County was flat. Around this time of year we normally see prices dip (as graphs show below).

Slowing momentum: We know the market is slowing for the season, but it’s also slowing down in terms of overall momentum. What I mean is in years past we’d look at stats and see price metrics were up a good 8-10% over the year, but these days they’re only up closer to 4-6% instead.

Slowing rent: Rent growth has been flattening lately, which is a good thing since rents sprinted way ahead of actual wage growth. Keep in mind this doesn’t mean rents have declined. It just seems the rent trend is flattening.

Sales volume is not crashing: One of the bigger issues to watch to know if a market is crashing is a change in sales volume. In other words, if properties stop selling, we have a big problem. Last month sales volume was down about 6% in the region and 2.6% in Sacramento County. Uh oh, is that a warning sign? Look, this is important to watch over time to know if we have a trend on our hands, but before making too much of one month of data, let’s look to the bigger picture. The truth is sales volume is actually higher so far this year in the region than last year and it’s up 1% in Sacramento County too. No mater how we look at it, volume has actually been strong. This isn’t spin, but fact. Please see my charts below. So on one hand let’s watch these next months carefully because it could be a problem if monthly sales volume does start to come in lower, but let’s also not give laser focus to a weaker August while ignoring the bigger context either.

Inventory is definitely up: It’s really noticeable to see more inventory right now. Even my non-real estate wife has said she’s seeing more listings when driving around town. Housing supply is actually up 25% compared to the same time last year, and it’s literally the first time in three years since we’ve had more than a two-month supply of homes for sale. Obviously if the rate of increase keeps climbing and the market doesn’t absorb new listings, we could have a problem on our hands. But let’s also remember when the market was very dull in the fall of 2014 we saw inventory hover between 2 to 2.75 months at the time.

Taking longer to sell: It took five days longer to sell last month compared to the month before. And this year it took 4 day longer than last year at the same time. So the market has slowed down from last year, but it’s definitely slowing from the past few months too. Sellers, did you hear that? You are losing power in this market and buyers are gaining it. My advice? Price according to listings that are actually getting into contract rather than the highest glowing sales from the spring. This week I talked with an agent about the market feeling really soft in a particular area because listings weren’t moving. But sometimes I wonder if it’s the market or just overpriced listings. From my vantage point almost every listing in the neighborhood was priced 5-10%+ too high, so it wasn’t a real shocker they weren’t selling.

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

DOWNLOAD 72 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from July to August?

3) Is sales volume really crashing right now?

4) How does the current market compare to the previous peak?

2005 vs CURRENT: A few months ago I talked about peak prices because some metrics were showing 2005 levels. But with the market softening right now prices are growing further apart from the “top” so to speak.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 72 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: Do you think sellers are struggling to listen right now? What are you seeing out there in the market? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: Appraisal, appraisals, appraisers, Housing Bubble, inventory increasing, more listings, peak prices, Real estate agents, sacramento housing blog, Sacramento Market Trends, sacramento regional appraisal blog, sacramento regional market, sales volume, sellers and agents, sellers not listening, softening market, trend graphs, valuations

Slumping volume, too many million dollar listings, & rising rates

February 22, 2018 By Ryan Lundquist 14 Comments

We love sensational real estate headlines, but here’s what tends to happen. We talk about something like it’s the biggest thing ever, it ends up being no big deal, and then we move on to the next thing. It sort of reminds me of Y2K because there was so much fear about worldwide chaos, but then nothing happened. All bark. No bite. Anyway, let’s talk about a few issues, and you decide if these are hyped-up “Y2K real estate trends” or not. Then I have a big Sacramento market update for anyone interested. Any thoughts?

Rising interest rates:

For years we’ve heard interest rates would rise, but nothing really happened. Well, now things have begun to change. It’s like Mom & Dad were threatening a punishment, but they never followed through, so we didn’t believe them…. until now. Interest rates are finally ticking up and it’s bound to make an impact on prices if the increase hits buyers in the wallet. What I mean is if buyers in mass can afford the increase, then it’s not a big deal unless buyers start showing resistance. An increase in rates won’t hit everyone the same either as buyers at the lowest price ranges will feel it the most. Keep in mind rising rates in the near future could actually lead to buyers rushing the market instead of withdrawing from it. What will happen? Nobody knows. Heck, rates are still incredibly low, and we don’t even know if they’ll continue to rise. But the Fed has been more forthright about coming rate hikes, so that’s why this feels like more than pure hype. Anyway, let’s see how this plays out and keep an eye on creative financing from lenders too.

Are there too many million dollar listings?

Headlines are talking about the high-end market softening in portions of the country. Locally I’ve heard that sentiment since inventory seems imbalanced at the top right now in the Sacramento region. It sounds alarming to think there is a year’s worth of million dollar listings, so it’s easy to conclude the high-end market is sagging. But last year at the same time we saw nearly the same number of listings. If you need to see the numbers, at the beginning of February 2017 there were 213 listings above $1M and this year there were 220 listings at the beginning of the month. It would be insanity to see twelve months of housing inventory at the lowest prices, but it’s actually fairly normal for January stats for the high-end. In short, it could be possible the million dollar market is softening, but for now let’s not use the number of listings alone as evidence.

Is sales volume slumping?

I’ve been noticing real estate headlines talking about slumping sales volume in many markets across the United States. For Sacramento County we actually had the strongest January since 2013, yet it is true that yearly volume is down 2.5%. This isn’t shocking news because nearly all of last year volume was down 1-2% depending on the month. Here’s the thing though. Sales volume in 2017 was slightly lower than 2016, but it was actually higher than 2015. This reminds us if we only look at one year of sales we might miss the bigger trend. Anyway, volume is also down in the entire region, though only by 1%. Overall it’s fair to talk about lower volume because that’s a fact, but it’s probably not fair to hype the issue too much – especially since volume is actually higher than 2015. Let’s keep watching though because it would be a huge deal if sales volume really did start to decline significantly.

Overpricing because the market is so “hot”:

In case you wanted some background noise while working, I did a Facebook Live Q&A last week with Realtor Justin Vierra and we talked about pricing for the “unicorn.” Overpricing is a real issue in today’s market. By the way, if anyone wants to do podcasts and interviews, I love that stuff. You can listen to our hour-long conversation here too in case you wanted more than just this clip.

I hope that was interesting. Anything to add?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

Right now we’re in that weird place where sales stats are sagging from a slower fall season, but the market is heating up. For January stats we saw all the typical signs we’d expect to see. Sales volume declined, it took an extra day to sell, most price metrics sloughed, and inventory increased. The median price in Sacramento County actually has been fairly flat, but last week I talked about how the market really did slow down despite the flatness. Anyway, I have quite a few visuals below to help show how the market has moved in recent time.

Housing supply: Inventory is up a bit right now. It’s not much, but this January was up 6.5% in the region compared to last year at the same time. Over the past few months inventory has actually ticked up slightly, and that’s welcome news for the market. Yet before writing home to say the housing shortage is over (it’s not), let’s wait to see what happens during the spring market. I’m not overly impressed at a few months of slightly higher inventory around the slower fall months. Let’s watch the spring market, which will be the bigger test.

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

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

NOTE: I cut out a few graphs and data this month. If you miss something, let me know.

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there in the market? Is the top softening? What are buyers saying about interest rates? Anything I missed? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: 2018 market trends, Appraisal, appraisers, housing shortage, interest rates increasing, Justin Vierra, low inventory, Placer County, price metrics, Sacramento County, sacramento housing market, sacramento regional appraisal blog, sacramento regional housing market, sales volume in Sacramento, trend graphs, Yolo County

Speed bumps, neighbors, & real estate logic

October 18, 2017 By Ryan Lundquist 14 Comments

Are speed bumps a big deal for value? That’s what a friend asked me, and since she gave me permission to share her situation with a neighbor, I hoped we could chat. If someone asked you, how would you respond?

The situation: My friend said, “We live on a busy-ish street with lots of kids walking to and from school, and neighbors are talking about requesting speed bumps to slow cars down. One neighbor who is against this says, “adding speed bumps will decrease the value of a home by 20%.” What do you think of that?”

My response: I’ve got a few things on my mind.

1) Making value claims: Whenever someone makes a value claim, my market antennas go up. What is 20% based on? Is it just an arbitrary number? Or is it based on market research? A study? Does it even seem realistic? These are questions we have to ask to have an informed conversation.

2) It’s busy already: Speed bumps are usually installed because the street is busy and has traffic issues, so there might actually already be a negative impact on value because of the busy street. To be clear I’m not saying speed bumps cannot potentially negatively impact value, but let’s not forget the busy street in the first place, which could be the bigger issue for value.

3) Crunching numbers with logic: Thinking logically is actually one of the best things we can do when having value discussions with neighbors. Sometimes we just need to step back from our ideas and start talking numbers. For instance, if homes are selling for $400,000, and your neighbor is correct about a 20% reduction in value, would these homes really sell for $320,000 if speed bumps were installed? Does that sound reasonable? Does it seem logical for buyers to make a reduction that large based on what you know about the neighborhood market? Moreover, if your neighbor listed his house for sale, would the list price be anywhere close to 20% less if there were speed bumps?

4) The noise factor: To be fair your neighbor is smart to think critically about this issue because we have to consider what speed bumps will do for traffic, the feel of the street, and noise. I recall talking with a city planner once who said neighbors would complain about a busy street and request speed bumps, but after they were installed the same neighbors would complain about the noise of the bumps when cars were speeding over them. Could noise be an issue?

Anyway, that’s how I answered my friend. If you notice, I didn’t make a specific value claim on purpose because as an appraiser I can’t just make stuff up without really supporting the value I say exists. Sorry if that’s frustrating, but for me the big takeaway here is actually how important it is to sometimes step back from our ideas and think critically about value issues. At the same time I’m hoping to open up some conversation, so I would absolutely love to hear your take.

Questions: How do you think speed bumps might impact value? Big deal or no biggie? Do you think it’s possible to measure the impact of speed bumps? Why or why not? What is #5? Did I miss something?

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Filed Under: Appraisal Stuff, Random Stuff Tagged With: Appraisal, appraisals, arguments with neighbors about real estate, busy street location, logic and real estate, negative impact, neighbors and value, speed bumps, talking about value with neighbors

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