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Tips for finding an appraiser in this crazy market

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“Help. We can’t find an appraiser to come to the property. Everyone is saying NO. What do you suggest?” I’ve been getting this question multiple times every week, so here are some thoughts.

Market update: By the way, in case you needed some background noise, here’s an hour-long market update I gave for SAFE Credit Union this week.

The problem: Appraisers have been dealing with record refinance volume and strong purchase volume – even in the midst of more appraisal waivers happening. Seriously, there has been an avalanche of work and not enough hours in the day to finish it. Unfortunately finding an appraiser to do a job quickly is about as easy as finding a contractor.

Four considerations:

1) Expectations: Everyone wants speed, but the appraisal is one of the slower parts. Sure, some appraisers could be more efficient, but keep in mind there is an incredible volume of work right now AND the system has also helped create this problem. Appraisers are being asked to write longer reports than ever and the scrutiny after the appraisal is delivered is unreal. In short, it’s important to have reasonable expectations about appraisers being busy and that today’s reports simply take longer. I’d recommend ordering the appraisal sooner too rather than waiting until the last minute.

2) Is the appraiser getting the full fee? A buyer might be paying good money for an appraisal, but how much of the fee is the appraiser getting? If you didn’t know, Appraisal Management Companies (AMCs) skim part of the appraisal fee and then advertise a lower fee to an appraiser. Sometimes the skimmed fee can be a huge chunk of what the buyer paid too. No wonder why an AMC can shop a fee for weeks and not get anyone to say YES. Here’s the question to ask the lender: How much of the buyer’s fee is the appraiser actually getting? This is hands-down the starting place if you can’t find an appraiser.

3) Rush fee = silver bullet: Money talks and if you aren’t having success, pay a rush fee. If you want to go to the front of any vendor’s line, a higher fee can often help make that happen. I don’t say this to pad my pockets as I only do private appraisals these days (so I don’t benefit from this advice). I’m just saying if you are struggling to find an appraiser for a loan, paying a rush fee can matter. How much? I have ideas, but this really comes down to your market. Feel things out and find the sweet spot until an appraiser says YES. Two weeks ago I gave this advice to a Realtor friend and the AMC said they were not allowed to charge a rush fee. I told my friend to press the issue because that didn’t sound right. Well, it turns out when a rush fee was offered and pressure was felt they found an appraiser. Also, I would ask how much of the rush fee the appraiser is getting in case the AMC is skimming that too.

4) Cherry-picking easy stuff: I do hear of appraisers passing up difficult assignments because there are too many easier ones out there. I mean, why would an appraiser endure huge scrutiny on a complex property for the same pay? If the lender you use cannot seem to attract competent appraisers willing to say YES, then either they’re going to have to solve that problem by adding more appraisers to their panel or you’re going to have to go elsewhere.

5) Other: What has worked for you? What did I miss? Any advice to give the real estate community. I welcome tips from agents, loan officers, and appraisers.

Closing thoughts: Ultimately there isn’t a one-size-fits-all formula for finding an appraiser, but hopefully some of my basic advice is helpful.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add? Any stories to share?

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The housing market feels like chaos

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It feels like chaos out there. The housing market is on steroids and it’s mind-blowing to see such rapid growth lately. Today I want to unpack ten things I’m watching in today’s market. For my out-of-area readers, I’m guessing you are probably seeing the same trends. But please let me know. What is similar or different in your area?

MARKET UPDATE PRESENTATION: I’m giving a big presentation next week by Zoom for SAFE Credit Union. It’s free and you are invited to sign up here. It could be useful for background noise while working. Hope to see you there.

10 THINGS TO KNOW ABOUT THE MARKET

Skim or read in depth. The following post is organized around ten points.

1) PRICES ARE INSANE:

We’ve seen enormous price increases lately. It’s mind-blowing to see 20% increases because the market really was slowing down in recent years. Also, the median price in the region is up nearly 9% from two months ago in January.

Here’s a different way to look at prices. The orange line represents 2021. It’s an outlier market, right?

2) BUYERS MADE TWICE AS MANY OFFERS LAST MONTH:

Buyers made twice as many offers last month compared to the previous year. These figures are based on closed sales and MLS data.

3) MORE BUYERS ARE OFFERING 5-10% ABOVE THE ORIGINAL PRICE:

Here’s a look at what buyers are paying right now in relation to the original list price. One of the glowing stats is we’ve seen about five times as many buyers paying 5-10% above the original list price this year. Wild times, right? Of course only six percent of sales sold below the original list price last month too, which reminds us very few properties are overpriced. Yet nearly one in five sales sold at the original list price. I know, that almost seems like an error, but it’s really not because take a look at last year which represents what should be happening. As you can see if we were having a normal year we’d probably be seeing about half of all sales selling at the original list price. 

Takeaway: Be cautious about saying everything is selling 20% above the list price. The stats don’t support that claim.

4) HOUSING SUPPLY HAS BEEN CHOPPED IN HALF:

I feel like a broken record. Housing supply is about half of what it was last year. The truth is we have weeks of listings and months of buyers.

5) SALES VOLUME HAS BEEN UP FOR TEN MONTHS IN A ROW:

There aren’t enough listings out there to satisfy demand, but for ten months in a row buyers have been buying basically everything, which means we’ve been able to surpass numbers from last year. Some people don’t believe it when I tell them this, but it’s the truth. In short, it is not easy out there, but buyers are getting it done.

NOTE: I have images like these for Placer, El Dorado, and Sacramento County too. Send me an email if you need something.

6) MORE LISTINGS ARE FINALLY COMING:

We are starting to see more listings hit the market. It really is a normal seasonal amount so far, so it’s nothing to write home over, BUT during a pandemic anything that feels close to normal is something we covet. Granted, there are not enough listings to satisfy crazy demand yet or slow down the market, but at the least we’ve seen more lately.

Mortgage applications drop: Speaking of shopping for homes, for three weeks in a row we’ve seen mortgage applications drop. This seems to be a reflection of rising rates and prices lately and it’s one small metric to watch to get a sense of demand in the market. 

7) THE REST OF THE COUNTRY FEELS LIKE SACRAMENTO:

I love this image from Altos Research because it helps show depleted inventory is something happening across the entire country. This is a good reminder because it’s tempting for locals to blame the aggressive market on Bay Area buyers when in fact many markets feel just like this. I’m not diminishing the reality of what seems like increased Bay Area migration, but let’s not forget we’re seeing an ultra-competitive market almost everywhere due to crazy low rates and anemic housing supply during the pandemic.

8) IT’S NOT A DISTRESSED MARKET:

There is so much talk about a coming foreclosure wave, but for now it doesn’t look like there is one on the horizon as forbearance rates are heading in the right direction. We are still in the thick of the pandemic of course, so we are certainly not out of the woods. All I’m saying is I’d recommend being cautious about embracing a doom and gloom narrative because so far the stats don’t support this idea. Let’s stay tuned though. And for the record I will be the first to change my narrative if the stats change… In terms of distressed sales at the moment, we really have bottomed out. It’s hard to get too much lower than 0.39% of sales being bank-owned and 0.30% of sales being short sales.

9) HUGE GROWTH AT THE TOP:

The market is very much top heavy right now. What I mean is we’ve seen explosive growth at higher prices – especially above $1M. This is a dynamic being mirrored in many markets across the country too.

BIG TAKEAWAY: When talking about price stats being 20% higher it’s important to realize some of that growth has to do with the types of homes selling. In short, less at the bottom and more at the top naturally elevates price stats.

10) CONVENTIONAL IS MORE DOMINANT THAN CASH:

The narrative is that cash buyers are gutting the market, but it’s not technically true. Cash really isn’t king these days because it’s so cheap to borrow money. Locally we’re seeing 7 out of 10 sales go conventional. BUT cash is absolutely winning when conventional buyers can bridge the appraisal gap and offer other incentives to the seller. It’s not so easy to get an FHA offer accepted either, but at least 1 out of 10 sales were FHA last quarter.

BONUS: Here are two visuals to show what the median price looks like over the past few decades. In one visual I adjusted for inflation too (which can be an important consideration when comparing today with 2005). Here are some thoughts on how long this market can keep going.

Other visuals: Not that you needed more, but check out my social media in coming days and weeks for extra visuals and commentary. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

Thanks for being here.

Questions: What stands out to you about the market lately? I’d love to hear your take.

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Skyrocketing prices aren’t happening everywhere

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The market is ultra hot, but it’s NOT the same speed everywhere. It’s tempting to impose the idea of a blazing market on every single neighborhood and property type, but that’s a quick way to get into value trouble. Let me share exactly what I mean by looking at the condo market. If you are not local, are you seeing something similar in your area? 

BIG POINT: The condo market is NOT showing skyrocketing prices like the rest of the single family market this year.

1) Slower price growth The median price for single family detached homes in 2021 is up a whopping 18.3% so far in the Sacramento region. In contrast, condos are only up 9.7% so far. Yes, I just said they’re only up 9.7%. I know how that sounds, but that’s about half the growth we’ve seen in the rest of the market. In short, condos have definitely been increasing, but the speed is WAY slower.

2) Condos are still moving quickly though: Even though condo prices aren’t rising as quickly, they are still selling about as fast as single family detached homes. This reminds us the market moving quickly doesn’t always mean we’re seeing rapid price growth.

3) The pandemic x-factor: Everyone wants that perfect backyard paradise to quarantine in style (especially with a pool). This sounds like a rosy made-up narrative, but the stats actually back it up. If you didn’t know, condo sales volume dropped 10% from 2019 to 2020 in the Sacramento region, so clearly buyers turned their gaze away from condos. 

4) BUT condos represent affordability today: So far in 2021 condo volume has been up slightly for the first two months compared to last year. Remember, condos represent one of the most affordable products in the market, so with skyrocketing prices in the single family detached world, a condo may represent a more viable option for some buyers today. Keep in mind there aren’t many condo sales each month, so we need a few more months to see if this is a solid trend or just a fluke for the first two months. In other words, don’t write home over this, but let’s stay tuned because this could be interesting. 

APPLICATION STEP: When valuing properties in today’s lopsided market, be sure to look at actual comps and pendings in the neighborhood rather than imposing a hot headline on the market. 

By the way, here’s a YouTube Live conversation I had with Matt the Mortgage Guy yesterday. Enjoy if you wish (it’s an hour).

Thanks for being here.

Questions: What stands out to you about the points above? What are you seeing out there right now? I’d love to hear your take.

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How much have prices risen since the bottom of the market?

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Crazy price growth. That’s what the market has seen lately. But let’s take a step back to look at how much growth has occurred since the market bottomed out in 2012. With so much talk about rapid price appreciation lately, I figured this would be interesting. Enjoy if you wish.

DOWNLOAD TEMPLATE FOR YOUR AREA: I created a template to help anyone quickly make charts like this. Download HERE. See video for how to make these too.

QUICK POINTS:

1) Huge growth: In many areas of Sacramento we’ve seen $300,000+/- price growth since January 2012, which was the bottom of the market in our area. Remember, just because the median price rose by $300,000 or so since 2012 doesn’t automatically mean your home is worth that much more.

2) Not adjusted for inflation: These stats are not adjusted for inflation. If you want to adjust them, by all means please do so.

3) Limitations: I didn’t include every area locally because I don’t have time, but most importantly if there aren’t enough sales, it’s just not going to be meaningful to compare only one month of data. This is where I would suggest maybe comparing an entire quarter or year if you’re working in an area with few sales. If you want bonus points too, maybe look at the average price and average price per sq ft to see if you observe anything different.

4) Huge percentages at lower prices: The lower the price in 2012, the higher the percentage change. Do you see that in the charts? For instance Oak Park had over 600% growth, which is just completely unreal. Someone even asked me on Instagram if this stat was accurate. It is. But here’s the thing. Part of the percentage being so high is simply a result of the first number in 2012 being so low (typically foreclosures and fixers selling then). When we look at the dollar change in Oak Park, the number is fairly consistent with the rest of the market in how much prices have risen. I’m not saying this to diminish the pain of gentrification or lower-priced areas increasing exponentially. I only want to say it’s helpful to be aware of both percentage and dollar growth so we are well-balanced in what we understand and say about the market.

I hope that was interesting or helpful.

Are Bay Area buyers dominating? One more thing. Here are some thoughts about Bay Area buyers in the Sacramento market.

Questions: What stands out to you most about the stats above? Any other points to add? I’d love to hear your take.

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