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Noticing more foreclosures hitting the market?

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Have you started to notice a few more foreclosures lately? Let’s talk about that and interpret what is happening. Take a look at the graphs below and then let’s consider a few points.

foreclosures and short sales in sacramento county by sacramento appraisal blogforeclosure in sacramento county by sacramento appraisal blog

A Few Thoughts on the Foreclosure Market:

  1. Sifting Numbers Carefully: The percentage of foreclosures has technically increased lately. However, the most important thing to look at is the number of foreclosures. Since sales volume has been very sparse these past few months in Sacramento County, and foreclosure sales have been more consistent during that time, this naturally gives foreclosure figures a boost for the overall percentage of the market. For instance, we saw a 1% increase in foreclosures from Q3 to Q4 2013, yet we saw the same amount of foreclosures during each respective quarter. Or the numbers for January & February technically show another increase, yet the number of foreclosure sales thus far are actually consistent with the two previous quarters. This goes to show we can make numbers say whatever we want if we’re not careful.
  2. A Key Factor: However, there are definitely more foreclosure listings, which is exactly what we’ve all been seeing on MLS. For context, the past two quarters in Sacramento County each had about 210 foreclosure sales, and there were 139 bank-owned sales in January & February combined. But there are a total of 157 foreclosure listings and 157 foreclosure pendings on the market right now. If these properties end up closing escrow and others continue to hit the market at the same pace, we could see a difference in sales volume in coming time.
  3. No Tidal Wave: We’re not talking about a tidal wave or avalanche increase here, so call off the troops and don’t sound the alarms. But do be aware of some movement stirring in the foreclosure scene.

Paying attention to the trends helps us better serve our existing clients and it can help us see who our future clients are going to be. I hope this was helpful.

Questions: What are you seeing out there in the market? What are you hearing from clients? If you are a real estate agent, are you doing more REO BPOs or taking on more REO listings?

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The foreclosure limbo game in Sacramento

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I’m reminded of limbo when thinking about distressed sales in Sacramento County. Both short sales and foreclosures used to absolutely dominate the market several years ago, but nowadays they just keep going lower and lower and lower (like limbo). Let’s digest some market trends together below.

Short sales and foreclosures in Sacramento County - by Sacramento Appraisal Blog

Bank-owned sales used to represent over 70% of the market five years ago, but now they are only 4.7% of all sales in Sacramento. That is an amazing shift, don’t you think? Short sales have also seen a rapid decline as they have decreased by nearly 19% over the past 12 months so they now only make up 15.3% of all sales.

Short sales and foreclosures in Sacramento County - by Sacramento Real Estate Appraiser

It still sounds alarming to think that 1 in 5 sales in Sacramento County is either a foreclosure or short sale, but this is a significant improvement from five years ago when 84% of all sales were distressed (in the entire county). This is a good reminder that change takes time.

Share the Trends: Feel free to share the graph and chart above in your newsletter or on your blog, Facebook or any other social place. The only thing I ask is you keep the images intact and link back to my blog. See my sharing policy for more information. Enjoy.

Question: I’ve been seeing quite a few short sales sell VERY low. What are you seeing out there?

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What happens to foreclosure when prices go up?

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When prices increase, what happens to the rate of foreclosure (REOs)? Let’s take a look at price range segments under $500,000 in Sacramento County to see what we might discover. What stands out to you from the chart below? Generally speaking, the higher the sales price, the lower the percentage of foreclosure. There seems to be greater success with short sales at higher prices too, though the stats look pretty decent above $100,000. Does it shock you to see 83% of all sales under $100,000 as either bank-owned or short sales? Lastly, the total percentage of distressed properties consistently declines as price increases. What does that tell us?

Let’s look at all counties in MLS also to see if we might see a similar trend. It’s always nice to compare one set of data with a larger set as a safeguard. Counties in Sacramento MLS consist of Sacramento, Placer, Yolo, El Dorado, San Joaquin, Stainslaus and portions of Merced, Yuba/Sutter and a few other places.

What stands out to you? If you are a real estate agent, what are you seeing out there in the market? I’d love to hear your thoughts. Feel free to comment below.

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook or subscribe to posts by email.

Is a property worth less if it’s a short sale?

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No. A property is worth what it is worth regardless of being distressed or not. With that being said, when a house is a short sale it may need to be marketed at a more aggressive price level to dump the property before a foreclosure date or offset any negative perception in the market for being a short sale. Notice though we’re talking about an aggressive “price” and not “value”.

Here’s a good question to ask. If a short sale was not a short sale, would it sell for more? The answer is very often “yes” and that leads us to a better picture of what market value is. The truth is that properties are frequently marketed as short sales and end up generating little interest before resulting in foreclosure. But then after these same houses end up as bank-owned they generate very quick offers at or above the original short sale listing price. Of course part of this could be banks not cooperating with the short sale process and buyers tiring of waiting for months for the deal to close, but it’s hard to ignore that short sales often (not always) sell at lower levels.

Case-in-point: I appraised a house recently in the City of Galt where competitive properties in the neighborhood showed a distinct difference between short sales and everything else. Comparable non-distressed properties were selling around $105,000-$115,000, REOs were selling mostly between $85,000-$100,000 and short sales were selling closer to $85,000-$90,000 near the bottom of the competitive range. It’s certainly true that condition and quality of updates played a role in the price differences, but it’s not an accident either that short sales were consistently finding their place near the bottom of the market.

Why is this important to understand?

  1. Appraisers:  From the appraisal standpoint, if short sale comps are used in an appraisal report (without an adjustment upward), then the value in the report may be lower than what it should be. The value could really be a “quick sale” value rather than “market value”. That’s not good on many levels. Please understand though that short sales do not always sell less than fair market value, so an adjustment upward is not always warranted in an appraisal. It all depends on what is happening in the market.
  2. Investors:  I just spoke with a Sacramento investor yesterday who has been growing frustrated to see some of his properties compared to bottom-of-the-market short sales by appraisers. This investor found me online and he called me to see if I had any advice on how to deal with his situation. That’ll be a different blog post, but I did give him some tips, a few which I mention below.
  3. Real Estate Agents:  I recommend real estate agents (and investors) provide a detailed list of all updates to appraisers (with costs if possible). Send this via email or provide in person to the appraiser. You can also discuss any relevant marketing information (ie.. “There were 4 full-price offers in 3 days and I am still getting calls and back-up offers”). Lastly, feel free to share market research and properties that helped you establish your listing price. Don’t tell the appraiser which comps to use and how to do his job, but rather share data that helped you establish your price so the appraiser might understand your point of view. You are allowed to talk with appraisers about property specifics and the real estate market, but don’t coerce and pressure for a certain value.
  4. Sellers:  Know your market if you are selling. You will have to compete with distressed properties around you, which can impact your price, but that doesn’t necessarily mean you have to price your property the same as neighborhood short sales and REOs. A trusted real estate agent or pre-listing appraisal should be able to give you guidance to understand the market. Misunderstanding what the market is doing can cost you dearly.

What do you think? Agree? Disagree? Any stories to share?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook or subscribe to posts by email.