Making the numbers say what we want (and a Sacramento market update)

We can make numbers say whatever we want. We see this all the time in the media, politics, and even in real estate. Sometimes it’s a matter of intentionally fudging the numbers, but other times we might be honest about sharing something but actually still get it totally wrong. Today I want to highlight a real life example how we can end up saying something totally different about the market depending on the numbers we’re looking at. Whether you’re local or not, I hope you can take something away from this post. Then for those interested we’ll dive into a big Sacramento market update. Any thoughts? I’d love to hear your take.

Example 1: Sales price to list price ratio:

sold-vs-list-price-percentage-in-sacramento-county

The sales vs. list price percentage is the ratio between the sales price and whatever the most recent list price was before a property got into contract. For example, imagine a property listed at $100,000, was reduced to $98,000, and then went into contract at $98,000. The sales to list price would be 100% (98/98). If we look at this metric alone and see a county average of 100%, it looks like properties are selling for whatever they’re listed for. Woohoo, the market is hot!!!

Example 2: Sales price to ORIGINAL list price ratio:

sales-price-to-original-list-price-in-sacramento-county-by-sacramento-appraisal-blog

The sales to original list price ratio is the relationship between the original list price and the final sales price. For example, imagine a property listed at $100,000 but was reduced to $98,000, and then went into contract at $96,000. The sales to list price ratio would be 96% (96/100). This metric takes into account ALL price reductions, and in my mind tells a more fuller story of the market.

KEY QUESTION: Which one above does your CMA report?

BIG POINT: If we look at the sales price to list price ratio the market seems like it’s NOT softening. But if we take a deeper look at the sales price to ORIGINAL list price ratio, we see properties on average sold for 4% less than their original list price last month. This is definitely a more telling stat because it reminds us how many properties have been overpriced lately. Remember, there were nearly 1800 sales last month, so an average 4% decline is a big stat. But it’s easy to miss that if we don’t know what to look for and end up reporting the first stat above.

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market feels like it should at this time of year. It’s taking slightly longer to sell than it was a couple of months ago, the sales to original list price ratio has been declining, and prices are softening as the hot summer fades away. This doesn’t mean the market is dull at every price range though. In fact, the bottom of the market under $300,000 is definitely more aggressive than properties above $500,000. Right now housing inventory is 11% lower than it was the same time last year and a whopping 35% lower than it was in 2014. If you remember, two years ago the market felt extremely dull and there were about 400 price reductions every day when logging in to MLS (this year price reductions are hovering around 200 tops every day (that’s for the entire MLS coverage area)). This reminds us some fall markets are softer than others. Sales volume this year has been about the same as it was last year, though it’s important to note FHA is down 6% and cash is down over 8% so far. Celebrity house flipping seminars are coming to town frequently in Sacramento, but keep in mind only 2% of all sales in the region last month were bank-owned, which reminds us low-priced fixer deals on MLS are pretty much a thing of the past. Lastly, there has been lots of talk about the market having shifted or beginning a downturn, but right now the stats look to be showing a normal seasonal slowing. We often hear things like, “the market is starting to tank”, but unless we see a real change in the stats or hear something more definitive from the real estate community about values declining, let’s be in tune with the slowing seasonal market. In case it’s useful, here is a video tutorial I did a couple of weeks ago to walk through the slowing season and what it looked like in 2005 also.

Sacramento County:

  1. The median price is 102% higher than it was in early 2012.
  2. Sales volume was up 8.5% this August compared to August 2015.
  3. There were only 4 sales under $100K last month (single family detached).
  4. Sales volume is up about 4% this year compared to last year.
  5. Housing inventory is 11% lower than the same time last year (only 1.57 months of inventory).
  6. FHA volume is down about 6% this year compared to 2015 (though they were 26% of all sales last month).
  7. Cash sales were only 14% of all sales last month.
  8. It took an average of 26 days to sell a home last month, which is 1 day less than the previous month (and 8 less days compared to last year).
  9. REOs were only 3% of all sales last month and short sales were 2.8%.
  10. The median price increased by 1% from last month, is down 3% from two months ago, and is up nearly 12% from last year at the same time.

Some of my Favorite Graphs this Month:

inventory-in-sacramento-county-since-2013-part-2-by-sacramento-appraisal-blog

median-price-context-in-sacramento-county

median-price-since-2013-in-sacramento-county

price-metrics-since-2015-in-sacramento-county-look-at-all

inventory-august-2016-by-home-appraiser-blog

cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

sales-volume-in-sacramento-county-since-2012

SACRAMENTO REGIONAL MARKET:

  1. The median price is 98.5% higher than it was in early 2012.
  2. It took the same time to sell last month compared to the previous month (but 8 less days compared to August 2015).
  3. Sales volume is about the same as it was last year at the same time (very slightly more this year so far)
  4. Cash sales were 15% of all sales last month.
  5. Cash sales volume is 6.4% lower this year than last year.
  6. FHA sales were 22% of all sales last month.
  7. FHA sales volume is down nearly 7% this year so far.
  8. There is 1.77 months of housing supply in the region right now, which is over 13% lower than the same time last year.
  9. The median price increased last month, but it’s down from two months ago. The median price is up nearly 9% from last year at the same time. The average sales price and average price per sq ft are both up about 8% from last year too.
  10. REOs were only 2% of all sales last month and short sales were the same.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

regional-inventory-by-sacramento-regional-appraisal-blog

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

days-on-market-in-placer-sac-el-dorado-yolo-county-by-sacramento-appraisal-blog

number-of-listings-in-sacramento-regional-market

interest-rates-inventory-median-price-in-sacramento-regional-market-by-sacramento-appraisal-blog-market

number-of-listings-in-placer-yolo-el-dorado-sacramento-by-home-appraiser-blog

PLACER COUNTY:

  1. Today’s median price is 70% higher than it was in early 2012.
  2. It took 4 more days to sell a house last month than the previous month (but 6 less days than last year at the same time).
  3. Sales volume was down less than 1% in August 2016 compared to last August and is down slightly for the year about 3%.
  4. Both FHA sales were 16% and cash sales were 19% of all sales last month.
  5. There is 2.05 months of housing supply in Placer County right now, which is down nearly 13% from the same time last year.
  6. The median price declined about 1% from the previous month, but for a better context it’s up 7% from last year at the same time.
  7. The average price per sq ft was $214 last month (was $202 last year at the same time).
  8. The average sales price was $472K last month (up about 4% from last year).
  9. Bank owned sales were only 1% of all sales last month.
  10. Short sales were 2% of sales last month.

Some of my Favorite Placer County Graphs:

placer-county-median-price-since-2014-part-2-by-home-appraiser-blog

placer-county-housing-inventory-by-home-appraiser-blog

months-of-housing-inventory-in-placer-county-by-sacramento-appraisal-blog

number-of-listings-in-placer-county-2016

days-on-market-in-placer-county-by-sacramento-appraisal-blog

placer-county-sales-volume-by-sacramento-appraisal-blog

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

how-to-think-like-an-appraiser-class-by-ryan-lundquistAppraisal Class I’m teaching: On September 29 from 9am-12pm I’m doing my favorite class at SAR called HOW TO THINK LIKE AN APPRAISER. This is a tremendous time where we’ll talk about seeing properties like an appraiser does. We’ll look at comp selection, using price per sq ft properly, and so many issues. My goal is to help you walk away glad you came and full of actionable ideas for business. Register here.

Question: Did I miss anything? Any other market insight you’d like to add? What are you seeing out there? I’d love to hear your take.

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How do appraisers deal with cracks?

Is it going to be an appraisal problem if there are cracks in a home’s foundation or walls? I saw the crack below in a home in Sacramento, and stuck a pen in the wall to show how big it was. What do you think? No biggie or big deal? I’d love to hear your take in the comments below.

cracks in walls in appraisal - sacramento appraisal blog

Here are a few things to consider about cracks:

  1. Cracks are Common: Buyers buy homes all the time with cracks – especially on the exterior when there is stucco. Cracks are a bit like wrinkles in that they are inevitable at some point as a home ages. Yet sometimes we see a crack like the image above and think, “Yikes, what is going on?”
  2. Cracks are Subjective: Some cracks might be deemed “normal” by an appraiser because nearly every house in the neighborhood has cracks as such. I know it sounds a bit subjective to talk like this, but after seeing thousands of homes in an area, appraisers have to consider what normal looks like. Yet other times cracks might indicate something is clearly not right. So will the appraiser call for repairs? Well, there really isn’t a one size fits all answer because not all cracks are created equally.
  3. Fannie Mae Structural Integrity: If you didn’t know, Fannie Mae’s appraisal form asks appraisers to state whether there are any adverse conditions or physical deficiencies that impact the livability, soundness, or structural integrity of the property. Side note: Is it just me, or is it a bit odd that Fannie Mae asks appraisers to verify something like this? Anyway, appraisers either select YES or NO to this question in their appraisal reports. This means if an appraiser observes a crack that looks beyond what might be “normal”, the appraiser will describe the issue, include photographs, and possibly call for repairs or further investigation by the client. If an appraiser essentially believes there could be a problem, it’s prudent and professional for the appraiser to bring the issue up rather than ignore it.
  4. Qualified Professionals: Lenders sometimes ask appraisers to state that cracks are normal or okay, but since appraisers aren’t crack specialists they need to outsource making that call to someone else – a qualified professional. I do this from time to time in lender reports when I see an iffy crack. I don’t know if there’s an issue or not, but if a crack looks suspicious or too big, I’d rather not guess that things are okay. So I make the value subject to further inspection to make sure things are alright. I don’t do this for every single crack I meet because then I’d be asking for an inspection on virtually every single property. It’s really only when something looks out-of-the-ordinary (or there is a clear trip hazard for FHA). What type of professional should look into the situation? As an appraiser I simply say “qualified professional” and let the client decide. Often times a lender will send out a structural engineer or some other individual they deem qualified, and I can then include that person’s written professional opinion in the appraisal if needed. Keep in mind this is important because a lender will want to be sure there are no structural issues before lending on a property. However, during a cash transaction or private appraisal, an appraiser might not have access to a “qualified professional’s” opinion. Thus the appraiser will render a value, but make assumptions and disclaimers about the cracks – and reserve the right to adapt the opinion of value based on new information. Lastly, in other cases an appraiser might have a documented cost-to-cure from a qualified professional. In a case like this an appraiser would entertain what sort of value impact exists for the repairs so the appraiser can render an “as is” value.

I hope that was helpful. Any thoughts? I’d love to hear your take.

Class I’m Teaching: By the way, I’m teaching a class called How to Think Like an Appraiser at the Sacramento Association of Realtors on March 10 from 9-12pm. This is my favorite class to teach because we set aside a few hours to really tackle issues and get valuation training. You can register here if interested. Thanks.

how to think like an appraiser class - sacramento appraisal blog

Questions: Any stories, insight, or ideas to share? Did I miss anything? What is point #5?

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How much value do higher ceilings add to a home?

Would you pay more for a house with higher ceilings? I probably would, but I guess it depends. The ceilings in my home are a standard 8 ft. Would I have paid more if they were 9 ft? Probably. But what about 23 ft? No, that would be too high.

high ceilings in real estate - sacramento appraisal blog

Someone asked me a question recently about the value difference of ceiling height, and I thought kicking around some ideas here could open up a great discussion. Anything else you’d like to add? I’d love to hear your take.

Question: What is the difference in value for ceiling height? For instance, 8ft to 9 ft, 9ft to 10ft, etc?

Answer: That’s a great question. On one hand higher ceilings are a more custom feature, so buyers are likely to pay more for them. This is particularly true for single story homes. However, there isn’t some sort of ceiling height market formula we can apply to every property because real estate adjustments are frankly going to be different depending on the neighborhood, price range, and market. We often hope to extract the value of one particular feature, but let’s remember many times buyers are actually looking at the entire package of a home instead of parsing individual features. In reality ceiling height is only one part of the package when it comes to buying a home. For instance, 10 ft ceilings sound like an asset, but if they’re found in a home with a terrible layout, they might not command a premium at all. So just because they are there does not make them inherently valuable. This underscores the importance of using an “apples to apples” approach when selecting comps, meaning the goal is to compare the subject property with homes that are overall similar so we get a sense what the market has been willing to pay for such homes. We might not find homes that are exactly the same, but that’s okay because we can use homes that are deemed overall competitive. Thus as an appraiser, rather than isolating my search for comps to just ceiling height, I would simply try to find other homes that represent a realistic comparison. If an Excel Jedi wanted to geek out and crunch numbers to try to prove a value difference, maybe that could be done with extensive research (sort of like Jonathan Miller measuring value by floor location in New York). But keep in mind how difficult that would be since ceiling height levels are not recorded in MLS or Tax Records (in Sacramento at least). Most of all though, buyers don’t bring measuring tapes to properties, which reminds us to think in terms of the total package.

Questions: How would you answer the question if someone asked you? Anything else you would add? What did I miss?

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Thoughts on real estate agents influencing the appraised value

I wish every agent would be proactive about talking with appraisers, yet not everyone is on board with that. In fact, someone recently told me he thinks using my appraiser information sheet is a violation of Dodd-Frank. So I’d like to unpack two thoughts when it comes to influencing appraisers, and then give a helpful statement that might be useful for agents when sharing information with appraisers. I’d love to hear your take in the comments.

providing comps to the appraiser - sacramento appraisal blog

Two Things About Influencing Appraisers:

  1. Providing Data: As an appraiser I want as much information about the property as possible. I want to hear how the market responded to the home. How many offers were there? What price levels? What type of feedback was given from buyers and other agents? What recent upgrades have been made? The answers to these questions can be helpful since my end goal is to figure out how the subject property fits into the context of the market. Sometimes these insider details really can help paint context, so I need to be in tune with the details. I definitely prefer agents to share any sales, listings and data that were used to price the property too if possible because I want to understand the mindset of the agent or seller. Yet I am not a lawyer, so I cannot tell anyone for sure that providing sales is okay in the eyes of Dodd-Frank. I recommend each agent and brokerage to figure that out. However, on a practical level as an appraiser I know I want to get as much information as possible about the property, so I am in the habit of asking many questions. This is one of the reasons why I developed an appraiser information sheet so agents can be proactive about answering questions appraisers tend to ask.
  2. Hiding Stuff: Sometimes I hear the real estate community say, “It’s not okay to give appraisers comps because it’s an attempt to influence the value.” I get that because trying to pressure or coerce for a certain value is off-limits. That’s so 2005, right? Yet is giving appraisers “comps” the only way influence can happen? What about all the documents that are hidden on purpose from the appraiser? Pest reports, agent visual disclosures, contract addendums, repairs negotiated between the seller and buyer not mentioned on purpose in the contract, documents uploaded to MLS during the listing but then removed before the appraisal is ordered, etc… I’m not pointing fingers or sitting on a moral high horse by any means, but only saying influencing an appraiser can show up in many different ways. Sometimes it’s about what is said, but can it also be about what is not said or disclosed? Thus the conversation about influence seems to be about more than just giving an appraiser “comps”.

Agents need to take Dodd-Frank very seriously because it is professional and ethical to give appraisers space to be an unbiased neutral party in the transaction. Bottom line. Yet in my mind it is also professional for agents to serve their clients well and be proactive and prepared to answer questions appraisers tend to ask. Bottom line. Thus if you use my info sheet or something like it, I recommend using a statement like the following to explain why you are providing this type of information to the appraiser during the appraisal inspection.

A Statement I Recommend Agents to Use:

“Appraisers normally ask me questions like this, so I answered them for you to be proactive and professional. Would you like this information?”

information-to-give-to-the-appraiser

I hope this was helpful.

Action Steps: 

  1. Consider using the statement I mentioned above to help clarify and describe your actions as being proactive about answering questions rather than trying to steer a value. If an appraiser doesn’t want to take your information, respect that decision and move on.
  2. Feel free to use the “information sheet” I developed. If you think any portion of it could potentially improperly pressure an appraiser, then edit or change that portion. You be the judge.

A Quick Year in Review to Use: Here is a quick year in review graphic for the Sacramento housing market. Feel free to use it unaltered on your blog, on Facebook, Twitter, etc… I always appreciate a link back.

year in review - sacramento real estate market - 2015

Questions: Agents, what do you tend to hear in your office about what is okay and not okay to share with appraisers? Appraisers, in what ways are you being pressured right now to “hit the number”?

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