Tips for working with appraisers when they’re really busy

It’s been taking appraisers longer to get their reports done lately. Have you noticed? In many parts of the country appraisers have simply been flooded with work, so quick turn-times have suffered or vanished. In light of this I wanted to give some tips for working with appraisers during times like these. This is really geared toward appraisals for loans instead of private work (divorce, estate, litigation, etc…). Anything else you’d add? Feel free to comment below.

Working with appraisers - sacramento appraisal blog - image purchased and used with permission from 123rf

Tips for working with appraisers when they’re really busy:

  1. Turn-times: Sometimes agents say, “We really need the appraisal in three days because that’s when contingencies will be removed”. But the appraiser just got the order yesterday and the lender may be giving 7-10 days to complete the file. For whatever reason the appraisal was simply ordered way too late in the loan process (not the appraiser’s fault).
  2. Communication 101: If an appraiser emails you, I highly recommend emailing back. The appraiser may be trying to save time by avoiding a phone call. Or if an appraiser calls you, just call back (even if you don’t like to use the phone). These days it seems like good business etiquette to try to communicate with people in their preferred method. I know that sounds petty or even offensive, but it’s true. Obviously if an appraiser is asking a million questions via email, just email back and say, “I’d love to chat, but let’s make this a quick phone conversation instead.”
  3. Don’t call incessantly for status: It doesn’t help speed up an appraisal when everyone is asking for status updates. On a practical note, keep in mind appraisers don’t owe status updates to anyone but the client.
  4. Information up front: Take a few minutes to answer common questions and get this information to the appraiser (preferably during the inspection). I recommend using my Information Sheet. Sometimes agents wait to share information about the property until the value comes in too low. Why not be proactive instead about telling the story of the marketing of the property on the front end of the transaction? This just might save time in the transaction too by avoiding challenging a low appraisal.
  5. Offer a rush fee: If lenders or AMCs are concerned about turn-times, one of the best things to do is offer a reasonable fee to begin with AND also a rush fee. Right now many appraisers are still getting blasted with low-ball appraisal fees from Appraisal Management Companies. During such a busy season appraisers are frankly turning these orders down and gravitating toward working with clients who pay better fees and are easier to work with too. The truth is some AMCs are spending extra days or weeks searching for an appraiser who will take a lower fee (and then blaming appraisers for taking too long). Remember, a Borrower might fork out good money for an appraisal, but how much of the fee is the appraiser actually getting? If you find an AMC is scraping way too much off the top, maybe it’s time to do business with a lender or AMC who is actually paying the appraiser a reasonable fee. On a related note it seems like the market is experiencing an upward fee correction since appraisal fees have been undercut by AMCs for years.
  6. Longer escrows: It can be frustrating that turn-times change because we like to think they’re set in stone or always less than a week, but that’s what markets do. I find something similar has happened with contractors locally as many are absolutely swamped. In short, it might not be a good market to promise a 30-day escrow.
  7. Do repairs up front: If an appraiser is busy, the same appraiser may also need more time to go back out to the property to verify repairs were made. If you know there are obvious repairs, it might be a good idea to have the owner make them in advance so you can avoid a re-inspection. If you are concerned about repairs, reach out to a local appraiser or a loan officer before the property hits the market so you can maybe glean some wisdom.
  8. The little stuff: Some of the most common repairs are actually installation of smoke detectors and carbon monoxide alarms (in California). Even if the appraiser doesn’t care about these things since they have nothing to do with value, a lender may be asking the appraiser to verify they are there. As an FYI, it’s been law for 5 years in California for CO alarms to be in most residential properties, yet this is still one of the top repair issues.

I hope this was helpful.

Podcast with 2 Agents: By the way, last week I did a podcast with two local real estate agents (The Two Jakes). You can give it a listen below (or here) and check out iTunes or the Worley Real Estate website.

Questions: Anything else you’d add? Did I miss something? I’d love to hear your take and any stories you have to share.

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How much value does an extra bedroom add?

How much value does an extra bedroom add? The bad news is there isn’t a one-size fits all answer that makes sense for every neighborhood. But the good news is we can think through some of the key issues to respond intelligently. On that note, let’s kick around some ideas below. I’d love to hear your take in the comments.

value of a bedroom - sacramento appraisal blog

Things to consider about the value of an extra bedroom:

  1. More is often better: Let’s be realistic. More bedrooms is usually a better thing for value because a home with more bedrooms is more marketable to buyers. That’s obvious, though there comes a point when there are too many bedrooms, right? (like Evander Holyfield’s old house with 12 bedrooms and 21 bathrooms).
  2. Diminishing value with each bedroom: Generally speaking the added value of extra bedrooms tends to diminish with each additional bedroom. It’s sort of like how you pay less for each ounce of Starbucks coffee the more you buy. In other words, the value difference between a 1-bedroom home compared to a 2-bedroom home could be far more substantial than the value difference between a 2-bedroom home and a 3-bedroom home (or 3-bedrooms vs. 4-bedrooms).
  3. Canned adjustments: It’s tempting to give a token value adjustment for bedroom count differences. Maybe we heard it somewhere or learned from a “mentor” the value adjustment should be $10,000 for each bedroom. So we give this adjustment any time we see a bedroom difference. But does this amount really make sense if we are talking about 2 vs 3 bedrooms and 5 vs 6 bedrooms? Don’t you think the value variance could be huge for 2 vs 3 bedrooms but maybe minimal at best for 5 vs 6 bedrooms?
  4. Layout:  At times a 3-bedroom home may sell on par with a 4-bedroom home because of a stellar layout. Imagine a 1400 sq ft 3-bedroom house compared to a 1400 sq ft 4-bedroom house. One house obviously has more bedrooms, which on paper makes it sound more valuable, but the 3-bedroom house very likely has a larger Living Room, which could help it compete well with the 4-bedroom home. This is a good reminder to be careful about blindly letting bedroom count have the final say.
  5. It’s easy to adjust twice: If we adjust a comp for both square footage and bedroom count, we might actually double-dip on our adjustments. I’m not saying both adjustments are not needed, but at times it may suffice to adjust one or the other instead of both.
  6. The story of the comps: At the end of the day we need to find similar sales and let those sales tell the story of value. This means if we are valuing a 4-bedroom house, let’s use some 4-bedroom comps. Or if we are valuing a 3-bedroom house, let’s be sure we are using at least some 3-bedroom comps. Of course it’s okay to use sales with a different bedroom count and make value adjustments if needed. As a closing example, it’s easy to claim there is a huge price premium for that 5th bedroom, so it’s tempting to give an automatic canned adjustment. But have other 5-bedroom homes really sold at a premium? Let’s look closely at sales and try to find the answer.

I hope this was helpful.

Questions: What is point #7? Did I leave anything out? I’d love to hear your take.

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No man’s land & the aggressive real estate market

It’s easy to explain what the market did, but what is it doing now? Everyone and their Mom can sound like an expert with the benefit of hindsight, but how do we see the current market? Do we give more weight to recent sales or listings? Do we have to wait for sales to close to know how the market is unfolding? Let’s consider a few thoughts below. I also have my big monthly market update at the bottom of this post for those interested. Any thoughts?

aggressive market in sacramento - sacramento appraisal blog

Four points to consider:

  1. Sales show us the past: A sale might close escrow today, but does it really tell us about the market today? Not necessarily. A closed sale on April 12, 2016 probably got into contract in early March, so it likely tells us more about the market 30-45 days ago rather than today. The current market in April could actually be higher or lower, so it’s important to ask how value has changed if at all.
  2. Pendings help us see the current market: The current market is often better seen in the pendings and listings rather than the sales. This assumes we have enough solid data of course. One of the most practical questions we can ask is whether properties are getting into contract at higher levels or not. Simply put, if pendings are higher than the most recent sales (and they’re not padded with concessions), they helps us see the current market has probably increased in value. Other questions to consider: Are properties getting into contract more quickly? Is inventory going up or down? Is the sales-to-list price ratio increasing or declining in the neighborhood? Are sellers offering incentives to buyers or not? It’s easy to be so fixated on sales that we don’t ask these questions, but the answers help us gauge current trends. Remember though, sales might tell us about the past, but we still give them strong weight because they actually closed at that level. After all, pendings might not end up selling. In that sense we have to “appraise” the pendings too. Are they reasonable? Do they reflect the market? Or are they outliers?
  3. Getting bid up to “no man’s land”: Sometimes in a frenzied market, properties can easily get into contract for more than they are worth. Yes, the market has been aggressive and values have been increasing (see trends below), but sometimes properties are simply getting bid up to “no man’s land” so to speak. In other words, there just isn’t any support for a value that high based on all market data. Remember, even when housing inventory is incredibly sparse like it is right now, there still has to be support for the value. We can’t just list at an astronomical level or let offers get bid up way beyond what is reasonable and expect a magical appraisal to meet the contract price.
  4. Making or not making market adjustments: If the market has changed since the sales went into contract, appraisers may need to account for that with a market conditions adjustment. If you didn’t know, appraisers can give an up or down adjustment to the comps if the market has changed since the comps went into contract. In fact, if an adjustment is not given when it should be given, the appraised value could easily reflect the market in the past rather than today. Appraisers need to consider what a real market adjustment for time might look like. For instance, last week I used a comp that was nearly one year old since recent sales were sparse, and I gave an 8% adjustment up since the neighborhood market has increased in value by that much. I could have given a small token adjustment that I just made up, but 8% was very reasonable based on more recent sales and current pendings.

Any thoughts? I’d love to hear your take below.

—————– For those interested, here is my big 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 a few minutes digesting what is here.

DOWNLOAD 87 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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 Sacramento Market Summary: It’s been aggressive out there. This is why many real estate professionals are comparing the current market with the beginning of 2013. There are certainly similarities, though the market three years ago had very rapid appreciation and all the metrics show it was hands-down more aggressive than it is today. We can talk about the differences in the comments if you’d like. Values overall saw a healthy uptick last month, it took 12 less days to sell a house compared to the same time last year, and housing inventory is currently over 25% lower than it was last March. Sales volume was up about 4% last month compared with the same time last year, and interest rates declining has certainly helped draw more buyers out (which doesn’t help with the low inventory problem). FHA had been increasing in the Sacramento market, but in light of how aggressive the market is out there, FHA buyers have begun to get squeezed out. FHA buyers were still 23% of all sales last month, but that’s down from 25-28% for multiple months in a row. It’s worth noting bank-owned sales are up very slightly. Some REO brokers have said they are starting to see more action in their REO pipelines, though so far there really isn’t any big change as REOs were only 5% of all sales the past quarter.

SACRAMENTO COUNTY:

  1. It took an average of 37 days to sell a home last month.
  2. It took 9 less days to sell last month that the previous month.
  3. It took 10 less days to sell this March compared to last March.
  4. Sales volume was up nearly 4% this March compared to March 2015.
  5. There is only 1.2 months of housing supply in Sacramento County.
  6. Housing inventory is 26% lower than it was last year at the same time.
  7. The median price increased by 2% last month.
  8. The median price is 8.7% higher than the same time last year.
  9. The avg price per sq ft increased by 2.3% last month.
  10. The avg price per sq ft is 8.3% higher than the same time last year.

Some of my Favorite Graphs this Month:

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

inventory - March 2016 - by home appraiser blog

fha and cash in sac county - sacramento appraisal blog

sales volume and cash in sacramento - by home appraiser blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

REO and short sale trends - sac appraisal blog 3

median price and inventory since jan 2013 - by sacramento appraisal blog

price metrics since 2015 in sacramento county - look at all 2

SACRAMENTO REGIONAL MARKET:

  1. It took 9 less days to sell last month compared to the previous month.
  2. It took 9 less days to sell this March compared to last March.
  3. Sales volume was 2.5% higher in March 2016 compared to last March.
  4. Short sales were 3.5% and REOs were 5.2% of sales last month.
  5. There is 1.5 months of housing supply in the region right now.
  6. Housing inventory is 19% lower than it was last year at the same time.
  7. The median price increased 3% last month from the previous month.
  8. The median price is 7.2% higher than the same time last year.
  9. The avg price per sq ft increased 1.6% last month.
  10. The avg price per sq ft is 7.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price and inventory in sacramento regional market 2013

months of housing inventory in region by sacramento appraisal blog

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

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 14 less days to sell a house last month than February.
  2. It took 9 less days to sell this March compared to last March.
  3. Sales volume was 11% lower in March 2016 compared to last March.
  4. FHA sales were 18% of all sales last month.
  5. Cash sales were 20% of all sales last month.
  6. There is 1.8 months of housing supply in Placer County right now.
  7. Housing inventory is 3% lower than it was last year at the same time.
  8. The median price declined 2% last month (take with a grain of salt).
  9. The median price is up 6.5% from March 2015.
  10. Short sales were 3.2% and REOs were 2.4% of sales last month.

Some of my Favorite Placer County Graphs:

Placer County housing inventory - by home appraiser blog

Placer County price and inventory - by sacramento appraisal blog

number of listings in PLACER county - 2016

months of housing inventory in placer county by sacramento appraisal blog

interest rates inventory median price in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 87 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Questions: Any other points to add about sales vs. listings? How else would you describe the market right now? I’d love to hear your take and what you are seeing in the trenches.

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4 things to remember about increasing values and low inventory

Let’s talk about increasing values and low inventory. ‘Tis the season for this conversation because the market is heating up right now as we are on the cusp of spring. Here are a few things that have been on my mind, and then a huge local market update after that (for those interested). I’d love to hear your take in the comments below. Any thoughts?

values in real estate - sacramento appraisal blog - image purchased and used with permission from 123rf

  1. Front Loaded Market: In a normal market prices tend to heat up in the spring and soften in the fall. While this isn’t true everywhere in the United States (or for every year or type of property), this general reality reminds us that value increases are often loaded into the front part of the year rather than throughout the entire year. For instance, if values increased by 6% last year, it doesn’t mean value went up by 0.5% each month. Instead, any increase in value might actually have occurred from February to June.
  2. Rapid Appreciation: I’ve been hearing lots of chatter about rapid appreciation lately. The idea is the market has increased substantially in value over the past couple months and appraisals are lagging behind the trend. I know low appraisals are a reality, and if appraisers aren’t giving upward adjustments for value increases (when warranted of course), it can lead to conservative appraisals that probably reflect the market two months ago rather than right now. Whatever the case, the Sacramento market has felt extremely competitive lately because of freakishly low inventory, though actual value increases seem more nominal for the spring rather than exponential. Yes, there are some properties that have been bid up 10% or so, but those properties were probably priced far too low since increases that large have not typified this market. Moreover, sometimes markets feel more aggressive than they actually are, so a market’s mantra might be: “Aggressive demand, modest appreciation.”
  3. Not Every Neighborhood: Some neighborhoods and price ranges are trending differently than others. I know that sounds obvious, but it’s worth mentioning because it’s easy to lump all areas and price ranges together. For instance, the median price in the regional market last month increased by 2.5%, but that doesn’t mean values increased by 2.5% in every single neighborhood or price range. When valuing a property, we can keep an eye on trends from the wider area, but at the end of the day we need to look at competitive sales and listings in the subject property’s particular neighborhood. What is the competitive market doing in the neighborhood? If we impose the notion that “values increased by 2.5% last month” on every neighborhood, we’re probably going to make some valuation mistakes.
  4. Less New Construction is Starting to Matter: When the economy collapsed, new home construction sloughed off and has not yet recovered anywhere close to where it was during the glory years from say 2003 to 2005. This might not seem like a big deal, but now imagine the population has grown over the past 10 years, which essentially means there are now less available housing units for a larger population. On top of this, institutional investors bought homes in recent years and are holding on to them instead of selling. Moreover, some owners purchased several years ago are sitting on a sweet 3.5% interest rate and a low mortgage payment. Why would they sell in today’s market unless they really had to? Not all areas in the country are struggling with low inventory, but a lack of new home construction in recent years is actually a big deal, and it’s certainly contributing to a lower housing supply in many markets including Sacramento. Lastly, when there are less housing units for the population, it tends to create an environment where rents increase. This is an important trend to watch.

Any thoughts? I’d love to hear your take below.

—————– For those interested, here is my big 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 a few minutes digesting what is here.

DOWNLOAD 70 graphs HERE:
Please download all graphs in this post (and more) here as a zip file (or send me an email). 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 Sacramento Market Summary: The market in February was fairly normal in Sacramento. Values saw a modest seasonal uptick, sales volume increased, and inventory declined. This was all expected because it’s what we normally see at this time of year. But while market stats are more on the tame side, the market has felt anything but that in the trenches of house hunting. Multiple offers are commonplace and buyers are seeming to exude a 2004-ish frenzy to get into contract before values rise too quickly (does that concern anyone?). Despite housing inventory being extremely tight, properties that are priced too high are sitting instead of selling, and that reminds us how price sensitive buyers have become. The market is definitely a sellers’ market, though that doesn’t mean sellers can command any price they want. It’s interesting to note it took 12 less days to sell a house this February compared to last February, and only 3.4% of all sales in the region last month were short sales. One last thing. There is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

  1. It took an average of 46 days to sell in both February and January.
  2. It took 12 less days to sell this February compared to last February.
  3. Sales volume was nearly identical in February 2016 compared to last February.
  4. FHA sales were 24% of all sales last month.
  5. Housing inventory is 25% lower than it was last year at the same time.
  6. The median price increased by 6.7% last month (take that w/ a grain of salt).
  7. The median price is 6.7% higher than the same time last year.
  8. The avg price per sq ft increased by about 1% last month.
  9. The avg price per sq ft is 6% higher than the same time last year.
  10. Sales volume in 2016 is roughly the same as the same time last year.

Some of my Favorite Graphs this Month:

Median price since 2013 in sacramento county

inventory - February 2016 - by home appraiser blog

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

CDOM in Sacramento County - by Sacramento Appraisal Blog

Median price and inventory since 2001 by sacramento appraisal blog

market in sacramento - sacramento appraisal group

SACRAMENTO REGIONAL MARKET:

  1. It took 1 day longer to sell a house last month than January.
  2. It took 12 less days to sell this February compared to last February.
  3. Sales volume was 2% lower in February 2016 compared to last February.
  4. FHA sales were 22% of all sales last month.
  5. Short sales were 3.4% and REOs were 4.8% of sales last month.
  6. Housing inventory is 20% lower than it was last year at the same time.
  7. The median price increased 2.5% last month from the previous month.
  8. The median price is 3% higher than the same time last year.
  9. The avg price per sq ft declined slightly last month (less than 1%).
  10. The avg price per sq ft is 7.9% higher than the same time last year.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

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

median price and inventory in sacramento regional market 2013

number of listings in sacramento regional market

PLACER COUNTY:

  1. It took 7 more days to sell a house last month than January.
  2. It took 6 less days to sell this February compared to last February.
  3. Sales volume was 4% lower in February 2016 compared to last February.
  4. FHA sales were 20% of all sales last month.
  5. Cash sales were 19% of all sales last month.
  6. Housing inventory is 17% lower than it was last year at the same time.
  7. Sales volume is up 2.5% this Jan/Feb compared to last Jan/Feb.
  8. The median price increased 2.5% from the previous month.
  9. The median price is up nearly 11% from February 2015.
  10. Short sales were 1.5% and REOs were 4.3% of sales last month.

Some of my Favorite Placer County Graphs:

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog number of listings in PLACER county - January 2016 Placer County housing inventory - by home appraiser blog Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 70 graphs HERE:
Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Questions: Any other points to add about increasing values or low inventory? What stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

If you liked this post, subscribe by email (or RSS). Thanks for being here.