Home Appraiser

That place where shiplap & murder meet

October 29, 2019 By Ryan Lundquist 24 Comments

There’s going to be a new home renovation show that focuses on murder houses. How crazy is that? It’ll be called Murder House Flip and it’s going to air in 2020. I can already imagine adding shiplap to the walls to erase a heinous history… Anyway, here are some things on my mind.

1) Not the home’s fault: Often when talking about notorious homes we hear things like, “It’s not the home’s fault” or “It’s unfair to penalize the house.” I get that, but let’s remember buyers aren’t just purchasing the home. They’re inheriting all the stories and history too. Anyone who has ever owned a home knows this is true because neighbors will definitely tell you about the previous owners and especially anything big that happened at the property. While a home is technically innocent, it doesn’t mean buyers aren’t discerning or making judgement calls about value.

2) Stigma fades: A property with a crime in its past can certainly have a diminished value, but the loss in value may not last forever. What I mean is right after a gnarly situation buyers might react quite negatively, but over time the tendency is to care less, forget, move on, or not even know what happened decades ago. It would be like saying, “A man was murdered here yesterday” compared to “A man was murdered here in 1917.” Would there be a difference in your mind? Maybe so. But for something really notorious the question becomes how long stigma can last. This is why I’m watching the John Wayne Gacy property. The original home was actually demolished, but can stigma remain with the site despite the new home?

3) No one-size-fits-all adjustment: How much does a murder affect value? There’s no one answer to satisfy all situations. It likely depends on when the murder occurred, the nature of what happened, and whether it took place inside or outside. It could also depend on the price range or location as some sub-markets are more sensitive than others. My experience locally is buyers at lower price points tend to be more forgiving about certain issues compared to higher price points (generally speaking).

4) One buyer vs the market: It’s possible a particular buyer might not care about a property’s history, but market value isn’t just about one buyer. What would most buyers pay? Last year I ran a poll about the alleged Golden State Killer’s house and asked people to consider if there would be any price impact if this home came to the market. It was a fascinating conversation with many layers, but one thing that kept coming up was the idea that one buyer might not even care. That’s true. But again, market value isn’t just about what one buyer would do. It’s like this. Imagine lining up 100 qualified and interested buyers. What would be reasonable for them to pay? That’s sort of what market value looks like.

5) Crunching numbers: I appraised a murder house recently and interviewed about ten local real estate agents who sold a murder property in the past. Here’s a blurred view of my data collection. Some agents said there wasn’t any impact to price and others would say stuff like, “It probably sold $25,000 lower.” In short, the answer wasn’t always the same, which meant I had to consider which data points were relevant for my situation. This is huge because it’s easy to find one murder house and call it a day because now we have data. But what happened with one home under $200,000 may not mean anything at the $800,000 price point. Thus some data toward the lower end of the market ended up being less relevant during my appraisal.

An episode of Murder House Flip in Sacramento: There’s going to be an episode set in Sacramento to focus on the Dorothea Puente property. If you didn’t know, she was an older woman who ran a “boarding” house in the early 80s, but instead of giving clients respite she drugged them, buried them in the backyard, and collected their social security checks. This property has sold four times in the past twenty years as seen below.

By the way, there was a documentary made about this house and the owner has even given tours. This goes to show another aspect of a famous home is monetization. In this case though the owner donated tour proceeds toward organizations working with the homeless.

Keep in mind entire books are written about this stuff and I’m only scraping the surface here. I hope it was interesting or helpful though.

Questions: Are you going to watch this new show? What stands out to you above? Any other thoughts?

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When sellers care too much about the Zestimate

October 16, 2019 By Ryan Lundquist 10 Comments

A seller’s Zestimate is really low and he’s pretty worried about it. It might seem a bit vain to care so much, but the seller is concerned since he’s heard buyers might offer less on his home if Zillow’s estimate is too low. Is that legit? Let’s talk about it. Then for those interested I have a huge market update below.

Three things about sellers caring too much about Zillow:

1) Some buyers need education: Some buyers do get hung up on Zillow, but these buyers are very likely the minority. Frankly, a buyer putting more weight on Zillow than actual comps or neighborhood trends is simply coming to the market as misinformed.

2) Obsession means more: If a home really is worth more than a Zestimate, buyers will recognize that and offer accordingly. In other words, the vast bulk of buyers won’t be getting stuck on a lower Zestimate when they know value is there. Will some? Maybe. But let’s remember the obsessive nature of buyers today. They scour all homes as soon as they hit the market, they’re in tune with every price reduction, and they often get a sense for what is both overpriced and underpriced in a neighborhood because they’re paying such close attention. Thus to think a buyer in today’s big data climate would forget about all the hours of obsessive research and get stuck on a Zestimate is out of sync with how buyers are approaching the market today.

3) Matching the list price: The irony is the Zestimate might actually end up chasing the list price when the home does come to the market. This doesn’t always happen, but there are numerous examples online of a Zestimate being really low only to be changed within days of the listing to match whatever the list price ends up being. Here’s a lopsided example I noticed with a Chip & Jo house and here’s a recent example from Jim the Realtor in San Diego.

NOTE: I wrote about Zillow two weeks in a row. It won’t be three next week.

Any thoughts?

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

If I had to boil down the market to a few phrases I’d say fairly normal stats, slumping sales volume, modest price growth, overpricing sellers, and some hesitancy among buyers. Ultimately stats are showing about what we’d expect for this time of year, which is why I’m saying the market feels mostly normal. This doesn’t mean there aren’t red flags of course.

DOWNLOAD 90+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

Stats feel mostly normal
Not every fall season is the same
Rent control hasn’t stopped the market
Year-over-year price growth is modest
Sacramento is busting landlords for MJ
Distressed sales hardly exist
Volume was up this past month (but it was still a low month)
We’re about to have a new soccer stadium

THE LONGER VERSION:

Here are some of the bigger topics right now:

Prices likely peaked for the season: Prices have been flattening or softening in most areas in the region. This doesn’t mean the market is dull or not competitive. It simply means prices are softening and we’re not surprised because that normally happens around this time. For reference, the median price often dips about 5% or so during the fall.

PG&E shutting off power: If you didn’t know, PG&E shut off power to more than 700,000 customers for a couple days last week in light of a perceived risk of fire. I’ve been asked if this is going to affect the real estate market. Here’s my take. If this became a frequent issue it’s hard to imagine buyers not considering it when making offers and choosing where to live. If this is an isolated incident though, it’s likely to have no real impact. Of course one other layer here is we could see buyers expecting or appreciating generators being present.

Not all falls are equal: It’s good to remember not all fall seasons are created equal. What I mean is sometimes the fall season will feel pretty dull with larger price cuts and other times the market just feels a little more flat. The verdict is still out on what this coming fall season will look like exactly, but there is no mistaking we are in the midst it now.

The last run on the market before Thanksgiving: There is typically a last run on the market about this time of year. Now that everyone is settled in from vacations and the kids are in school, we usually see a last move to buy before the holidays arrive. This is exactly why there is almost always an uptick in sales volume in December. It’s not that there are more homes that actually sell in December. It’s just there are a higher number of pendings from October and November that end up closing in December.

Rent control: The market hasn’t stopped because of rent control in the City of Sacramento. I wanted to mention this because sometimes we lose sight of seeing the market in the midst of strong feelings and sensational headlines. When looking at 2-4 unit sales there were slightly more this September compared to last year, and pendings are fairly normal for the time being. This doesn’t mean everything is going to be peachy. I’m not saying that at all. I only want to emphasize the market is still moving and over time we’ll understand how it’s all going to play out. By the way, I’ll be doing a rent control Q&A soon.

Modest price growth: Last month we saw most price metrics were up about 2-4% compared to the same month last year in 2018. This is much more subdued growth compared to previous years.

Busting landlords for illegal marijuana grows: The City of Sacramento has been busting landlords for tenants growing cannabis over the legal limit (six plants). This is a huge deal and something to watch because some landlords have been getting excessive fines (we’re talking hundreds of thousands of dollars). This story is seeming to fly under the radar, but there are huge implications for property rights and investing in Sacramento and beyond. The silver lining for many landlords though is the courts have seemed to shoot down the city’s tactics lately.

Meth houses & El Camino: If you’re a Breaking Bad fan you probably already watched El Camino. It only seemed fitting to share the DEA’s published list of known drug labs. Unfortunately the list has not been updated in years, but it’s better than nothing. Here’s a study also on the impact of drug labs on surrounding homes (PDF).

Distressed sales: Ten years ago distressed sales dominated the market and were about 80% of all sales in the region, but now they’re hardly even 1% of sales.

Slumping sales volume: It’s been a lower year of sales volume as we’re down about 7% compared to last year. I know that doesn’t sound like much, but it does translate to about 2,000 less sales. I wouldn’t call this a market meltdown, but we’ve definitely seen a slowdown since sales volume has been lower 15 out of the past 17 months in the Sacramento region. This is still on the lower side of normal, but it’s something to watch over time to understand exactly what it means.

Hesitancy: Buyers are picky about getting into contract as well as staying in contract. On top of that some buyers are feeling hesitant. They wonder if we’re near the peak for this cycle, so they feel less confident about playing the game.

New soccer stadium: We’re finally getting an MLS soccer team in Sacramento after years of drama. Someone asked me if this will affect the market. In short, the stadium is only one piece of the pie in the entire Railyards development. There will be 6,000 to 10,000 housing units and millions of square feet of commercial space including a Kaiser campus. So buyers focus on the entire package including the stadium rather than saying, “Yo, I’m only buying because of the stadium.” Oh, and buyers located multiple miles away are very unlikely to look at fresh neighborhood listings now and say, “Dude, I’m totally going to pay more because there’s a soccer stadium ten to twenty minutes away.”

Soccer KCRA interview: By the way, I did an interview with Channel 3 yesterday about the new soccer stadium.

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

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH: The market has continued to show price growth, but it’s been a more modest rate of growth. This is why I’m saying the market is slowing. Let’s remember “slow” is not a dirty word in real estate.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: Last year the market felt dark and many wondered if it was about to take a turn downward. That hasn’t been the vibe so far this year though. Most price metrics are up 2-4% or so this year. I’m not saying the market is perfectly healthy, but it feels profoundly different this year so far. It’s amazing what happens when mortgage rates slide down and help the market feel more normal….

4) VOLUME SLUMP: Volume was actually higher in September compared to last year at the same time, but it was still a pretty low September. In fact, in Sacramento County it was the second lowest September over the past 11 years. It’s important to remember last year was painfully dull, so it’s not all that hard to have a higher sales volume this year, right? The bigger story is sales volume is down in the region by about 7% over the past year. Moreover, volume has been down in the region for 15 out of the last 17 months. This is definitely something to keep on the radar. In my mind this is one of the most important trends to watch because it tells us whether buyers have their foot on the gas or brakes.

5) PRICES ARE SOFTENING FOR THE FALL: The market generally slowed in September in terms of price growth. This is why I’m saying prices feel a bit flat (even though they’re up from last year). This is normal for the time of year.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

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SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 90+ visuals: Please download all graphs 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? Any interesting trends you’re watching? What are you hearing from buyers and sellers lately?

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Zillow has officially entered the market

October 9, 2019 By Ryan Lundquist 44 Comments

Zillow is here. As of two days ago they’ve officially entered the market in Sacramento and they have big plans to expand to other territories too. Let’s talk about this. Here’s what’s swirling through my mind. Anything to add?

Corporate flipper: Zillow is basically going to be flipping homes. Their website doesn’t use this language because “flipping” has a negative connotation sometimes. But they’ll be buying below market value, doing repairs as needed, and then selling higher. If it looks like a duck, quacks like a duck…

Narrow focus: Like many tech companies we’re going to see Zillow with a buy list. I’ve yet to see something published, but they’ll likely focus on conforming homes in a specific price range rather than unique or high-priced homes that might be more difficult to sell. This reminds us of Blackstone from 2012 and 2013 as they had specific standards for what they were looking to purchase. On a side note, if you work in real estate and you’re worried about the invasion of tech companies, then diversify into places and price ranges where iBuyer models aren’t going.

There is a place for tech: This may be an unpopular opinion and I may have a few people want to fight me, but there is a place for big tech companies in real estate. This doesn’t mean I’m excited about Zillow and Opendoor, but the world has changed and speaking objectively there are other models beyond the traditional model that will appeal to certain buyers and sellers.

Trust & getting a pass: Consumers tend to trust anything that’s online, so there’s already a high degree of trust with a brand like Zillow, and they’re now here to capitalize off of it. It’s as if they get a pass though because they’re not real estate agents or flippers (and they’re trying hard not to be seen that way). But let’s remember the obvious. They are here to work the system to their advantage and make money off consumers.

Tech is the minority: Tech companies are getting a ton of press, but these brands are the minority in the market right now by a long shot. For instance, Opendoor has 70 listings in the Sacramento region. That’s impressive for a start-up, but at the same time it’s only 1.4% of all listings. My guess is Zillow will be aiming to represent 2-3% of the market this year in terms of sales volume. Again, this is impressive, but let’s remember the vast bulk of sales in coming time are going to be sold traditionally.

The irony of the Zestimate: Zillow won’t be using their Zestimate as a basis for making offers. I get it, but I also find it ironic since they’ve built their brand around the legitimacy of the Zestimate.

Affordability: The unfortunate thing here about big corporations entering local real estate is it doesn’t help affordability. I’m not saying tech companies are going to cause prices to rise, but when the focus is on flipping homes, this won’t help keep prices lower.

Service fee vs commission: Lots of tech companies say stuff like, “Hey, we don’t charge commissions like real estate agents,” but this is disingenuous because there is a “service fee” that is basically the same amount or even more than we find in a typical real estate transaction.

The narrative of convenience & profit: Like many tech firms, Zillow is preaching the idea of convenience rather than profit. Their goal is to make escrows easier and smooth rather than helping a seller net the most money. If you listen carefully, few of these companies are saying sellers will actually make more because it’s simply not true in most cases. Remember, these corporate real estate machines have to buy low in order to make a profit. They’ll also be asking for credits for repairs, which makes sellers net even less.

Doing math: I strongly recommend for consumers to do the math when it comes to selling to a tech company vs selling on the open market. You’ll likely yield more profit on the open market if money is your concern.

Data issues: The data geek in me is thinking about numbers. I’m worried about properties being listed off MLS and data being watered down because there are missing sales. The good news here is I’m told homes bought by Zillow are going to be listed for sale on MLS (fingers crossed this happens). By the way, Zillow is going to be using a local brokerage for their acquisitions and sales.

Small investors: Corporate flippers coming to the market will make it more difficult for small investors because there’s an extra layer of competition now.

The price cycle: We are closer to the top of a price cycle, so I find it ironic to see tech brands jumping into the game. My guess is it’s much easier to find success in an up market than a down one. We’ll see how it pans out.

Other: What else? Please comment below.

Closing thoughts for real estate friends: It’s not easy when change happens and I know lots of people are worried about the future of real estate because of what we’re seeing right now. If I could offer any advice though, I’d say to accept the reality that tech companies are going to be a part of the real estate scene. For now it looks like the vast bulk of homes are going to be sold traditionally though, so I recommend focusing your time and energy on the larger portion of the population that won’t be working with these tech brands. Most of all, prove your worth. Why should someone hire you instead of a tech firm? What is your value proposition in a changing market? Prove it with uncommon service, deep knowledge, and results.

I hope this was interesting or helpful.

MY COMSTOCK’S ARTICLE: I wrote a piece in Comstock’s magazine this month on the invasion of tech companies in real estate. I can’t believe it happened to be published on the same day Zillow made their big announcement.

Questions: What stands out to you most above? What are your thoughts about tech companies entering real estate? I’d love to hear your take.

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Not everything is getting multiple offers

October 2, 2019 By Ryan Lundquist 14 Comments

Everything is getting multiple offers, right? Many sellers feel that way, but it’s just not true. Today let’s dive deeply into what is actually happening with multiple offers. I’m excited about this and I hope you like it too.

Non-locals: If you’re not local, would understanding more about multiple offers help you? Could you ask your MLS about including a “multiple offers” field? This is how I’ve been able to extract data like this for my market.

FIVE THINGS ABOUT MULTIPLE OFFERS

1) A rhythm of multiple offers: There is a rhythm to seeing multiple offers in the Sacramento region. There are more multiple offers in the spring and less as summer and fall unfold. This isn’t a huge surprise, but it’s cool to see on paper. If you wanted to know, 42% of sales last month had more than one offer (which is what I mean by “multiple offers”).

2) The market isn’t always hot: It’s tempting to talk about real estate like it’s always “hot”, but it’s not. Every year the market heats up and cools as you can see in the images below. But on top of a normal seasonal up and down dynamic we’re seeing price growth slow too. In other words, prices just haven’t been rising as fast as they used to. When it comes to multiple offers, we’re seeing fewer these days compared to the past couple years. This is such a good point for sellers to understand. The market isn’t what it used to be. It’s still very competitive if you’re priced right, but it’s not like it was in the heyday of 2013.

3) Sellers, you might just get one offer: It’s easy to think everything is getting multiple offers, but it’s not true. When looking at thousands of current pendings, 59% of homes have only one offer while 20% have two offers. Thus 79% of properties in contract right now have two offers or fewer. My advice? Price realistically for today and you might get a couple offers. But you might only get one. Oh, and if you overprice you likely won’t get any offers at all.

4) It’s more aggressive at lower prices: This won’t come as a shock, but we’re seeing more multiple offers at lower price points. Here’s a look at multiple offers among current pendings as well as recent sales. Keep in mind there aren’t many sales and pendings above $700,000, so I wouldn’t put too much weight on these categories showing a higher percentage.

5) Many layers to the onion: Looking at multiple offers is just one way to see what the market is doing. The truth is there are many layers of the onion when it comes to real estate data, which is why I advise looking to many different metrics to understand the market. In other words, it’s not just about multiple offers to me (but this is cool to see).

QUESTIONS:

How did I get this data? A few years ago our MLS started including fields for “multiple offers” and “number of offers”. I’ve been watching these metrics and reporting on them for the past year or so, but today I’ve taken it to the next level.

Is this data reliable? I’ve had a few people question whether this data is reliable. Of course data is only good as the input by real estate agents and hopefully the truth is being told. Do some people fudge the numbers? Probably. But keep in mind we’re looking at thousands of sales and pendings, so a few outliers won’t sway the trend. Moreover, the bulk of pendings actually show just one offer, which helps support the notion of agent honesty.

I hope this was interesting or helpful.

RECESSION PRESENTATION: I keep getting asked about home prices and a looming recession, so I put together a quick presentation to download.

BEER & HOUSING CONVERSATION: Do you want to hang out at Yolo Brewing? On Saturday October 5th from 2-5pm I’m co-hosting a get-together. Hope to see you there. Details here.

Questions: What stands out to you most about the images above? What are you seeing with multiple offers these days? I’d love to hear your take.

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Home Appraiser

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