Home Appraiser

It’ll never sell that high (but then it did)

May 17, 2018 By Ryan Lundquist 8 Comments

There’s no way it’s going to sell that high. Have you ever thought that in real estate? Well, let’s talk about a property that many said would never sell at $4.1M, but then it did. I definitely have some takeaways about this lofty condo in Downtown Sacramento, and I hope non-locals will relate to the commentary. Then for those interested I have a huge market update below. Any thoughts?

A few things on my mind about this one sale:

1) Outlier: This sale is a total outlier. It is a big deal, but it’s also completely disconnected from the rest of the market. Can you tell based on the graph?

2) Thin history above $4,000,000: There have literally only been four residential sales ever above $4M in Sacramento County. EVER. So yes, it’s huge news to have a condo close this high, but at the same time let’s not think everything is now worth four million. Here are the sales:

a) Governor’s Mansion in Carmichael in 2004 at $4.1M
b) Sierra Oaks home in 2013 at $4.7M
c) Elk Grove estate in 2005 at $4.6M (sold $1.3M in 2011)
d) Downtown Condo at $4.1M

3) Lamborghini & Camry: Some have said things like, “I can’t afford the market any longer.” But this one “lone ranger” sale isn’t the new comp for everything in town. It’s tempting for sellers to price higher now, but it’s not like someone ten miles away is going to pay more at the $300,000 level because of a multi-million dollar condo sale. If my neighbor bought a Lamborghini, that doesn’t all of a sudden mean I have to pay more for a Camry…

4) An emerging market: There is definitely an appetite for high-end condos in Sacramento, so let’s expect to see this niche market find more expression in coming time. Ultimately the sales office at the Kimpton Sawyer Hotel has done well so far to sell units far above what many locals imagined. Of course the eventual test for these properties will be to see what happens when they hit the resale market in coming years without the benefit of marketing from a Beverly Hills sales agency.

I hope that was interesting or helpful. Anything to add?

-—-—- Big monthly market update (absurdly long on purpose) ———–

The market feels very normal for the spring. Well, I guess what I mean is all the stats are normal, but buyers are pulling the trigger very quickly and we’re seeing multiple offers on just about anything that is priced correctly. One of the bigger stories is sales volume so far in the beginning of 2018 is up 5% in the region. In fact, we’ve seen the strongest start to the year since 2013. Buyers have been starving for more inventory, so they’re gobbling up anything in site as long as it’s not overpriced. But part of the growth in volume these past few months could also stem from some buyers trying to get a slice of real estate pie before interest rates rise.

New recap images: Last month I introduced recap images. Here’s round two, though this month my data from last year is less complete since I tore my knee a year ago (I’m all better now). Anyway, what do you think?

Two quick things:

1) Inventory is increasing: We’re starting to see inventory increase a bit. For years it did nothing but decline, but toward the end of last year it seemed to flatten out, and so far this year we’ve seen some slight upticks. Granted, inventory this past month was only up 3% in the region compared to the same time last year, but that’s better than being perpetually down every single month.

2) The wrong comps with new construction: With more new construction lately, it seems like some sellers are using brand new nearby homes as “comps” for their older homes. Let’s remember the new ones often sell with a hefty price premium, so they really don’t make adequate comps. My advice? Don’t get distracted by the brand new stuff. Try to find older sales that are similar rather than assuming buyers are going to pay the same amount as a new home.

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

DOWNLOAD 52 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).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 52 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: What do you think of that $4.1M condo sale? What else are you seeing out there in the market? I’d love to hear your take.

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The myth of dollar for dollar in real estate

May 2, 2018 By Ryan Lundquist 19 Comments

I’m in the middle of a bathroom remodel, so things have been hectic in my world. But beyond the noise and dirty house, how much value is this going to add? If I spend $15,000, my home will be worth $15,000 more, right? Let’s talk about it.

Dollar for dollar: It’s rare in real estate to spend a dollar and get a dollar back in value. It seems like it should be easy to increase value like it is on HGTV, but even if you look at the Remodeling 2018 Cost vs. Value Report, hardly any items on the list give close to a 100% return compared to the cost. For instance, a bathroom remodel is said to only add 68.2% of the cost to the value, and an upscale kitchen remodel is said to only recoup 46.5% of the cost in the resale market. Yikes. That’s pretty far from 100%.

Tub example: Here’s an example about cost vs value. Tubs like this can easily run $3,000 to $5,000 for just the tub alone, and based on conversations I’ve had with owners it’s not uncommon for someone to have spent $6,000 to $15,000 for a set-up like this. The tub is wonderful for someone who needs it, but in terms of value it might add very little if anything (classic functional obsolescence). In fact, many buyers might count it as a negative because it’s something they’ll likely tear out. Thanks Gail Robards for the photo.

Big point: I’m actually not a huge fan of published cost vs value lists because I wonder where the data comes from. Also, do the numbers make sense in every neighborhood and price range? Probably not. Yet I find these lists are still useful in conversations. An owner might say, “I spent $22,000 on a bathroom remodel, so my home is worth $22,000 more now.” Well, firstly let’s realize the remodeling lists don’t even give you $22,000 in value, so it’s probably a good idea to lower expectations (before the appraiser gets out there especially). Most of all, let’s look to the comps with similar features. Are they selling for $22,000 more? That’s what matters most because real estate value is about what buyers are willing to pay for something – not the cost. Thus an owner might have spent $70,000 on a remodel, but what are buyers paying for similar remodeled homes in the neighborhood? That’s the most relevant question, and one which appraisers will focus on when coming up with a value.

My bathroom remodel: Here are some progress shots for my bathroom remodel. We went with a tile floor that looks like wood, subway tile in the shower (classic look in my mind), and a white quartz counter. This bathroom only had a stand-up 1950s shower, so part of the remodel involves moving the shower to the existing tub. This left a huge space, so I’m building out shelves in the old shower. Eventually these shelves will be stained a darker brown to match everything. And this is Ollie, our rescue dog.

I hope that was interesting or helpful.

Questions: What types of conversations do you tend to have about cost vs value? Have you ever used actual cost vs value figures like this to help conversation flow? I’d love to hear your take or any stories.

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Seeing the market while driving, crunching numbers, & eating tacos

April 13, 2018 By Ryan Lundquist 13 Comments

It’s not just about numbers. Look, I geek out over stats, but sometimes all we need to do is drive around town or have a few conversations to see the market. Today I wanted to share some trends I’m seeing by sharing photos I’ve taken recently. Then for those interested we’ll get into the numbers in my big monthly market update below. Anyway, let’s take a drive.

The rage of modern homes: Modern units like this are popping up in Sacramento in places that are typically close to Downtown. This small development is located in Midtown.

Flipping seminars: I’ve seen this guy on late-night TV promising to teach people how to flip homes. The problem? The market isn’t actually that great for flipping in Sacramento right now. Read about celebrity flipping seminars here.

The Prince tree: A local artist in Citrus Heights paid tribute to Prince in her front yard. I know something like this would not fly in an HOA community, but it reminds us there is maybe some room for creative expression in real estate.

Marijuana homes getting busted: There was a big raid last week where federal agents targeted 75 homes in the Sacramento region that were suspected to be “grow houses”. Remember, recreational cannabis is legal in California, but it’s never legal to have a commercial grow operation in a residential property. Anyway, I came across a different article in the SacBee that listed nine addresses of previous grow houses (golden data for appraisers).

Tearing down the neighborhood: A ranch house in Arden Park was purchased for $462,000 and torn down to build a custom home (currently pending close to $1.3M). This doesn’t happen in every neighborhood, so I’m always asking questions: What is being built? Who is buying? What is being flipped? Where is the bottom of the price market? Where is the top?

Neighborhoods that are changing: This is a colorful six-unit modern project in Oak Park off 2nd Avenue. Modern units like this are starting to pop up – especially around The Broadway Triangle.

Here’s a modern project under construction on 1st Avenue in Oak Park.

The word on the street (while eating tacos): Every few months or so I get together with a group of real estate friends to eat at Chandos (my fav taco joint). It’s not like we gather to have exclusive rigid market talk, but I always leave with some insight because our taco club has investors, a loan officer, and a Realtor / flipper. I find understanding a market is about crunching numbers, but it’s also about the word on the street. This is why I regularly ask people, “What are you seeing out there?”

I hope that was interesting or helpful. Anything to add?

And now for anyone interested in the numbers….

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

Spring is definitely here. Well, the market has been alive for a couple of months, but we’re now really starting to see it in the stats. The median price rose about 4% in the region last month and it’s up 9% from last year. Overall we’re seeing all the normal signs of a spring market in that it took 7 less days to sell last month, more listings are hitting the market, and sales volume is increasing for the season. Housing inventory is up slightly in the region from where it was last year and so is sales volume (though volume is down 1.5% in Sacramento County).

New recap images: I spend so much time putting together graphs, but I’ve struggled to figure out a way to quickly sum things up. Anyway, here’s a stab at a summary. Do you like these? Anything you’d change? Feedback is welcome.

A few quick things:

Not much cash actually: It’s easy to believe cash is dominating – especially from the Bay Area, but it’s really not (did you hear that sellers?). Cash sales were 15% of all sales last month in the region and in Sacramento County we actually have about 3% less cash this year so far.

Oh dang… the median price: If you didn’t know, the median price is now 6.9% lower than when the “bubble” burst in Sacramento County in 2005. I tend to see jaws drop when sharing this stat, but here are some things to keep in mind about bubble conversations. Remember, there is no formula that says our market will “pop” if we go 6.9% higher, so it’s important to not get too stuck on the previous peak. Today’s market certainly has an inflated feel, but it’s also being driven by different factors than 2005 too, so it’s not a perfect comparison to always look back to 2005. Anyway, let’s not get too side tracked, but navigating this conversation will be key in coming time for real estate professionals, and I’ve heard some sellers wanting to list too in light of how high prices are.

Zillow is going to sell homes: Yesterday HousingWire reported Zillow is going to be selling homes. There was suspicion this would happen, but The Big Z always denied it. Well, the cat’s out of the bag and I’m wondering how this will unfold. I’m also wondering if they’re going to try to chop agent fees. Let’s talk about this more as things develop. On a side note, will we have to watch listings and sales on Zillow in addition to MLS?

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

DOWNLOAD 61 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).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 61 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: What images around town remind you of what the market is doing? I’d love to hear your take.

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Can you use comps from a different neighborhood?

March 1, 2018 By Ryan Lundquist 6 Comments

One of the questions I get asked the most is, “Can I use comps from a different neighborhood?” Maybe. But then again, maybe not. Let’s talk about it, and I’ll show you what I do when making this decision. Of course there isn’t just one right way to go about this. Anything to add?

1) Compare sales over time: One of the most important steps is to compare similar properties in each neighborhood over time. If there aren’t many recent sales I have no problem going back year by year to compare older sales. That’s okay. Is there a price difference? Sometimes it’s very clear there is, so it’s probably not a good idea to use “comps” from a different neighborhood (unless I’m making a location adjustment). When looking at two areas I try to find a percentage price difference too where possible so I can say something like, “It looks like prices are 10-15% higher there.” This sounds time-consuming, but there’s no such thing as a 5-minute “comp check”, right? Nothing replaces putting in the time.

2) Let’s get visual: Here are a few visuals I made to compare two areas. Does it look like there might be a value difference? I know, you don’t know how to graph. Why not learn though? It’s an incredible skill to add to your bag of tricks. Here’s a video tutorial.

Truth: It’s easy to “cherry pick” sales from Elmhurst when in Tahoe Park or North Oak Park. Maybe it works out okay sometimes, but in other cases it could be a really bad move.

3) Word on the street: Talking with other real estate professionals about what they think can be insightful. Where are values higher? If you had a property in both areas, where would it sell for more? Of course someone’s perception might be off, but insight from other agents and appraisers can still be useful.

4) Crunch numbers: Why not run stats for both areas? Running the numbers might give us clues into how value works. If you don’t know how to pull stats, here’s a tutorial.

The numbers clearly show one neighborhood has higher prices, so I might need to give a location adjustment if I’m using a “comp” from a different area. For me I like to give location adjustments based on lining up neighborhood sales instead of stats like this, but I might still use these stats to help reinforce an adjustment I give. Let’s remember the market isn’t so mechanical to always apply the same adjustment either. Sometimes there are special properties that seem to buck the trend and ignore price differences (this is what makes value complicated). But in most cases I would be foolish to ignore stats like this and arbitrarily choose “comps” from an area with higher prices without consideration that there might be a location adjustment needed.

BIG CAUTION: If one area has smaller homes, heavy fixers, not enough data, more foreclosures, or more remodeled properties, we might draw the wrong conclusions when looking at stats if we’re not careful. In other words, we need to know how to think through the numbers rather than taking them at face value. For instance, in North Oak Park there are more fixers and some streets simply do not sell as high as others, so that might actually soften the stats a bit. I might also recommend pulling stats for the entire neighborhood as well as competitively-sized properties. This way we at least have two data sets and hopefully a little more balance. And of course do steps 1-3 above too.

I hope that was interesting or helpful.

Questions: What step do you think is most important? Did I miss anything? What else do you do or recommend? I’d love to hear your take.

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Home Appraiser

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