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Being neutral, price per square foot, and the Governor’s new digs

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I have a few things on my mind. Let’s talk about me being asked to recruit for a brokerage (really), price per sq ft, and the Governor’s new digs.

1) WHY I SAID “NO”:

A brokerage recently asked me if I would help them recruit agents. The idea was I could use my influence to attract agents to a certain brand and then get a commission for each person I recruited.

I said NO, and my answer will always be NO. I probably don’t even need to mention this, but I want to communicate clearly. As an appraiser I won’t take sides. I’m neutral in my work, but my independence also extends in the way I interact with the real estate community. This is why you’ll see me speaking in many different places and real estate offices. I’m here to educate, not advocate. The truth is if I said yes I would’ve instantly destroyed my credibility.

2) PRICE PER SQ FT:

Here’s a look at price per sq ft trends in a few local areas. I plan to share more graphs like this throughout the year if people like them. Does anyone want to see a video tutorial for how to make these? Let me know. What do you see?

Two Takeaways:

1) RANGE: There’s always a price per sq ft range, which means there’s never just one price per sq ft figure that applies to every property in a neighborhood. Sellers often want to hijack a price per sq ft figure from a sale down the street, but that’s one of the quickest ways to overprice. My advice? Pay attention to price per sq ft, but most of all ask yourself what the comps are selling for. That’s exactly what appraisers are going to do.

2) OUTLIERS: There are clear outliers. As an FYI, usually the highest price per sq ft figures end up representing the smallest-sized homes or over-the-top unique properties.

3) THE GOVERNOR’S NEW DIGS: 

Gavin Newsom is the new governor of California and he just bought a $3.7M house in Fair Oaks. This price point isn’t much in many areas of the country, but it’s actually the fifth highest residential sale ever in Sacramento County. This home is said to have over 12,000 sq ft and it’s located on 8 acres. It’s near the American River, but not on the river. Now two of the top five sales in the county have a connection to a governor (the other was the mansion Ronald Reagan started to build in Carmichael in the 1970s).

Here’s a picture I took of the front gate this week, and here’s a video from a previous listing if you wish to see the home. Not too shabby, right?

Value thought: In the future we’ll have to consider whether there will be a price premium or not for this home because a governor owned the property.

CLASS I’M TEACHING: I’m teaching my favorite class at SAR called How to Think Like an Appraiser on January 31st from 9-12pm. We’ll dig deep into comps and adjustments (and have some fun). I’d love to have you come out.

I hope this was helpful or interesting.

Questions: Would you pay more if a governor previously owned the home? What do you think of my recruiting story? I’d love to hear your take.

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At least read this part of the appraisal

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I know, nobody actually reads appraisal reports. Well, except for one thing – the value. But let’s talk about a critical place to look in an appraisal that can make all the difference. I have a story to share too about why this even matters.

BONUS: Check out the new new sales volume graphs below.

Look for these boxes: The bottom of page two in the appraisal has a few important boxes the appraiser can check, and these boxes help show if the value is “as is” or if there are required repairs, inspections, or other conditions. My advice? Be sure to look at these boxes carefully as well as any commentary listed in the space below (or the addendum if it says “See Addendum”).

If the value is “as is”, the appraiser is saying the property is worth that amount without any required repairs or further inspections needed.

If a “subject to” box is checked that likely means the value has already taken into consideration certain repairs or that the property will pass a future inspection (maybe a pest inspection, foundation inspection, two-year roof certification, etc…). So if an owner does the repairs listed, it doesn’t increase the value because the value was already based on the repairs being made.

In short, if you see a box checked besides “as is”, that’s a clue there is more to understand about the value.

An example of why this matters: A real estate agent uploaded an appraisal I did into MLS. This appraisal was completed for a lawyer and the value was not “as is”. In fact, this property had extensive damage, but the attorney asked me to value the property as if it was in average condition. This was spelled out blatantly in my report by using the boxes above (and in other places).

The problem here is the selling agent may not have realized the appraisal was not “as is” because the listing said something like, “Appraised at $670,000 in August 2018.” Yet the property was listed for $100,000 less because it was being sold “as is.” So the question becomes, could this be a liability for the agent? What if an out-of-town buyer bought based on thinking he/she was getting a discount because of the attached appraisal? Also, does this expose the appraiser to liability or reputation damage if people are reading the report and not understanding the value isn’t “as is”? I’m not a lawyer, but something doesn’t quite smell right here.

I’m not trying to make a big deal out of this, but sometimes details matter, so I caution real estate friends to look closely at the appraisal to understand the value. By the way, the agent was cool about removing the appraisal when I reached out about this.

The Big Point: Please read the bottom of page two to understand if the value is “as is” or if there are repairs built into the value. That can make all the difference.

I hope this was interesting or helpful.

SALES VOLUME SLUMPING: On a different note, here are some graphs I made yesterday to tell the story of sales volume slumping 11% in the Sacramento Region. I included a graph from 2005 also in case you’re wondering what volume did when the housing market imploded.

Questions: Any stories to share? Do you look at the boxes I mentioned above? When is it okay and not okay to upload appraisals in MLS?

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Seven years of price increases & my blue kitchen island

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Let me get straight to it. I’m excited to share some new visuals. I’m geeking out because these new images help tell a compelling story of seven years of price increases. Whether you’re local or not, I hope you can dig these.

A FEW QUICK THINGS THIS WEEK:

1) Loan Limits: You probably heard conforming loan limits were raised for the third year in a row. This basically helps buyers continue to afford higher prices. I’m not saying that’s bad, but it would be nice if wage growth more than anything was helping people afford the market.

2) Sign the Petition for Appraisers: Last week I wrote about a move to start getting rid of appraisers. This is a big deal with huge implications for the housing market and future escrows. I co-wrote a petition through change.org and I want to ask you to please sign it. SIGN HERE.

3) Cool Graphing Link: On a lighter note, Freddie Mac launched a new graphing tool where you can make quick visuals and even compare different markets throughout the United States. Not every city is listed, but it’s worth checking out and getting lost for a few minutes.

4) My Blue Kitchen: I talked about blue being the rage in kitchens, and I guess my post inspired me. During Thanksgiving break I built a new kitchen island and we painted it blue. Woodworking is definitely a passion and it’s something I do to help keep my sanity. Anyway, this was a fun project and I wanted to share.

SEVEN YEARS ON ONE GRAPH (NEW VISUALS):

Here’s some images for four counties (Sacramento, Placer, Yolo, & El Dorado). What I like is we see price trends for seven years on one graph. It may take a moment to figure out how to digest these images, but look for changes in price and volume over time. So far people who have seen these have noted rising prices and definitely vanishing affordability. Keep in mind they don’t include most of December for 2018, and that could change the look slightly by next month. 

What do you see?

SACRAMENTO COUNTY:

SACRAMENTO REGION:

PLACER COUNTY:

EL DORADO COUNTY:

YOLO COUNTY:


SHARE THESE IMAGES: You are welcome to share any of these images in your newsletter, on social media, or on your blog, etc… See my sharing policy for details and 5 ways to share (please don’t copy my post verbatim).

I hope that was interesting or helpful.

Questions: What do think of these images? Which ones do you like best? Any suggestions for improvement? I’d love to hear your take.

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Get rid of appraisers while nobody’s looking

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Did you hear the news? There’s a proposal from the FDIC, Federal Reserve, and others to not require appraisals for some mortgages under $400,000. This is a big deal and I have some thoughts. Actually, Ken Harney in the Chicago Tribune penned a fantastic piece about this today (I was quoted too).

Dude, this will save us money: The idea is to do away with traditional appraisals so consumers can save money and the loan process can speed up. Here’s the thing though. Regarding cost, the appraisal is one of the least expensive elements in a transaction. Of course to be fair the Borrower might pay a much higher fee for the appraisal because of what Appraisal Management Companies (AMCs) charge the consumer. Regarding turn-times, if an appraisal was ordered right away that would speed things up. It also doesn’t help if an AMC offers an absurdly low fee and shops around for an appraiser willing to work for that amount.

A 60% change in a slowing market: It’s troubling to hear a proposal to increase the appraisal threshold from $250,000 to $400,000. This 60% change hurts appraisers, but let’s be real about who it is helping. This is a ploy for banks and big corporations to make money by controlling the valuation process. This rule of course doesn’t necessarily mean appraisals won’t be required in all situations, but the danger is it paves the way. More than anything though this looks like a move in the agenda to usher in an era of “evaluations” (see below).

Systems of checks and balances: Consumers are certainly not being protected here. Why are we diminishing the role of the appraiser, one of the systems of checks and balances for our financial markets? What could possibly go wrong? This seems like very convenient timing for banks too because it helps position them to operate with looser standards as the market is softening.

The people behind the rules: We have nearly 95,000 appraiser credentials across the country, so changing the rules can put lots of people out of business.

Evaluations instead of appraisals: There’s been a big push to introduce “evaluations” in lieu of appraisals. As Ken Harney writes, “Instead of a formal appraisal, these homes would receive an “evaluation” by individuals who have no appraisal licenses or certification and would not be subject to current state regulatory oversight requirements that govern appraisers. The evaluators could be an “independent bank employee” or unnamed “third part(ies).” They would, however, have to be “competent” and possess “knowledge of the market, location and type of real property being valued.”” I’m guessing these “evaluators” will be real estate agents who do BPOs, employees at banks and data firms, and probably some appraisers who need the work at $75-$100 a pop.

Hybrid appraisals: Speaking of changing the appraisal process, it’s worth mentioning there is a hybrid evaluation product where someone else does the inspection part while the appraiser does the value part. I’m not certain if all evaluations would work this way, but here’s the gist. An individual would measure the property, take photos, make notes, and then send everything to the appraiser to do the value part. I really don’t like this idea because it treats value like it’s only crunching numbers at a desk instead of seeing the fuller picture of a property. I want to see the home, walk the parcel, smell the property, observe the street, understand the layout, etc…. instead of relying on someone else’s photos and notes – especially if that person is inexperienced.

But less appraisers is good news: I realize some might be excited to have less appraisers. I get it. But here’s some honest questions. If you work in real estate or you’re purchasing or refinancing a home, what’s going to happen when less experience is infused into the valuation space? Do you think that’s going to help protect consumers? If you’re frustrated now, what are you going to be feeling in the future? Does it bother you the banks are changing the rules to their benefit?

ACTION STEP: If it’s within your power to say something, please speak up right away. Maybe ask your local and state associations to make a statement and put pressure on the FDIC, Federal Reserve, and Trump administration. Thank you for your consideration.

SIGN THE PETITION: There is now a petition, so please sign here to make your voice heard.

I hope that was interesting or helpful.

Questions: What do think of this? Is this a good move? What are any positives and negatives you see? I’d love to hear your take.

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