An open letter about celebrity flipping seminars

Dear Public,

Last week I got an invite to a celebrity flipping seminar. That’s right, I can go learn how to flip houses from Tarek & Christina, the stars of HGTV’s Flip or Flop. Being that this is the second celebrity event to come to town this year, let’s talk about some of the dangers of these events and the real temperature of the flipping market. Please note: I’m not angry. I’m not a hater. I’m not jealous. I only want to give thoughtful commentary for the sake of others.

Celebrity flipping event HGTV Sacramento Appraisal Blog

Some things to know about these events:

  1. The reality stars won’t be there: This may come as a surprise, but the stars are not likely going to be there unless you consider a video appearance as being present.
  2. The goal is to make money off you: The event is designed to whet your appetite only to invite you to go deeper by paying for courses. From the reading I’ve done it sounds like the next step costs $1,000 to $2,000, but some students end up spending far more over time ($5000+ easily). The event will feel good and you’ll probably be inspired, but make no mistake the real goal is to get you to open your wallet.
  3. Flipping formulas don’t work everywhere: There is no such thing as a flipping model that will work in every location and every type of housing market in the United States, yet this event is being hosted in many cities and states. Moreover, it may be wise to be cautious about listening to a company coming from the outside, knowing far less about the local market, and using a celebrity’s star power to talk about flipping.
  4. It’s no longer a foreclosure market: The market used to be full of bank-owned properties, so it used to be much easier to buy low-priced homes to make a quick buck. For example, in 2009 over 70% of all sales in Sacramento County were bank-owned, but now that number is 3%.
  5. Experienced investors are struggling to find good deals: This event touts attendees will “gain insider access to private pre-auction real estate inventories.” Keep in mind even seasoned investors are struggling to find good deals right now because housing inventory is sparse and the foreclosure market dried up. Just last week I talked with an investor who was once easily in the top 10 in my market a few years ago, but is having a hard time finding deals lately. This doesn’t mean flipping is impossible, but it’s currently a really competitive market. That might be good to know before forking out thousands of dollars so you can “retire rich”, right?
  6. More skill is required: Today’s market in flipping is much different than it used to be. A friend on Twitter said it perfectly: “The anybody flip market has dried up. It’s a contractors-special flip market now. Serious add-value needed.” I agree with this as today’s flippers often need to add square footage, add a second bath, maybe do a more substantial kitchen remodel, etc… It’s often not just a matter of picking up a property, putting on some “lipstick”, and re-listing it. The rules have simply changed since the “foreclosure flood” ended. In short, it takes more skill to flip in today’s market.

My advice? Be careful. We all want financial freedom, but you could easily spend thousands of dollars on these seminars to obtain “secret flipping knowledge” (that you can probably get for free). If you want to get into flipping I suggest meeting investors in your local market and scouring the forums on BiggerPockets.com for free flipping advice.

I hope this was helpful.

Sincerely,

Ryan

Questions: What is your favorite HGTV show? Did I leave anything out? What point resonates with you the most? If you’ve attended an event like this, was it valuable? If you are currently flipping properties, what advice would you give to a newbie? Any suggestions for places to meet local investors?

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12 market trends and tips for real estate professionals to watch in 2015

It’s a new year, which means it’s crucial to take a look at the housing market. If you work in real estate, ask yourself these two questions: What is the market doing? And who are your clients going to be this year? The truth is if we do the same thing each year without really considering how the market is evolving, it’s easy to miss out on being relevant to clients.

The 2015 housing market

Here are some trends and tips on my radar as 2015 begins, and I wanted to share them because I thought some of them might be good conversation fodder for business plans or with clients. These trends are relevant for Sacramento, but I have a feeling they might be showing up in many markets across the country. Enjoy.

12 trends and tips for real estate professionals in 2015

  1. Buyers’ Market: The market is definitely morphing into a full-fledged buyers’ market. In light of more houses for sale, buyers simply have more options. This means properties will generally take longer to sell, and buyers will have more room to negotiate.
  2. Pricing Correctly: As the market changes and inventory increases, it will be paramount this year to price properties correctly. When a market grows soft, buyers tend to become more picky about pricing and making offers, which means overpriced listings will sit on the market instead of sell.
  3. image purchased from 123rf and used with permission by sacramento appraisal blog - distressed sales fishingThe Small Distressed Sales Pond: Foreclosures and short sales used to drive the market, but that’s not the case any longer these days. Being a distressed property specialist is still a relevant avenue of business, but it’s also a crowded pond to fish in. Remember that owners who went through a foreclosure or short sale several years ago may actually now be able to re-enter the market (these buyers are called “Boomerang Buyers”).
  4. Equity Sellers: Some home owners do not realize how much the market surged in recent years. They may actually be surprised to know they have equity again after the recent increases from 2012 to 2014. This can open up options for moving up or downsizing.
  5. Dispelling the Want to Buy at the Perfect Time: With the advent of vast online real estate data, many buyers are watching the market carefully and wanting to time the market perfectly to be sure they are buying at a time when values are increasing. The reality is it’s not easy to pull this off. In fact, many home owners who purchased at the bottom of the market in early 2012 didn’t actually realize they were doing so. They were simply lucky and bought at a time they could afford. When I ask, “Do you realize you purchased at the bottom?”, their response is often, “Really? I had no idea at the time.” In short, in a market that is no longer rapidly appreciating in value, buyers need to focus on being sure they are comfortable with the price and monthly mortgage payments rather than looking for that perfect market moment to get rich in real estate.
  6. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerDivorce: As the economy improves, divorce has been more common (the LA Times says so too). I easily did three times as many divorce appraisals last year compared with previous years. Divorce is a very difficult time in a client’s life, so it’s important to be able to serve clients in their time of need, and to be aware that divorce stats may be increasing as the economy heals.
  7. FHA Buyers Increasing: Despite some in the real estate community saying FHA would not increase due to permanent mortgage insurance being required, it has definitely increased over the past 18 months in the Sacramento region. FHA has been a relevant product for many buyers since there is little money down required. Of course we can expect to see some more creative financing options emerge as the market softens, but in the mean time, if you are not in tune with FHA appraisal standards, it’s time to brush up so your buyers and sellers know what to expect. I have seen several properties recently trying to use traditional FHA financing that were blatantly not acceptable for FHA (maybe a 203K loan though). This is where knowing the standards becomes important.
  8. Rentals Hitting the Market: Some investors who purchased in 2012 and 2013 are beginning to sell their properties. I have yet to see Blackstone do this, but I have seen some smaller funds with 30-40 properties begin to unload. I talked with an investor recently who has a few dozen properties, and he wondered how strong the market is to sell. What would you say?
  9. Not as Easy to Flip: Everyone and their Mom wants to be a house flipper, but buying distressed inventory on MLS these days isn’t as easy as it used to be because there just aren’t as many low-priced foreclosures. Since there is less room to buy at a discount on MLS, it’s important for would-be flippers to explore alternative ways of picking up properties, and to be extra sure they are purchasing with enough room to rehab and sell. Being realistic about the ARV (After Repair Value) is key – especially in a price-sensitive market.
  10. Exit Before It’s Too Late: Some property owners are concerned about the future direction of the market, so they will be interested in selling this year “before it’s too late” (in case the market begins to decline in value).
  11. The Granite Wave: Having granite counters used to be such a custom feature a decade ago, but it’s become a bit stale in the current market. Don’t get me wrong, buyers still like granite, but at the same time there is a growing sense of the market becoming saturated with granite. What advice would you give clients about making a kitchen shine in today’s market?
  12. Standing Out: As housing inventory presumably increases this year, it will be important for properties to stand out from others to compete for a limited pool of buyers. When inventory increases, buyers tend to become more finicky about location, condition, and upgrades (which underscores the need to price properties correctly).

NOTE: These trends may not be present in every neighborhood or price range in Sacramento, or in every area of the United States.

I hope this was helpful in some way, and I hope you have a profoundly successful year in real estate. I look forward to watching the market carefully this year, and to all the discussions we’ll have together. May you have a very prosperous 2015.

Questions: Anything else you’d add? If you are not in Sacramento, are there some parallels here that also resemble your market? I’d love to hear your take.

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The Sacramento market in 30 seconds or 3 minutes

Are you ready? It’s time again for a monthly beefy play-by-play of the Sacramento real estate market. There are many things to talk about, but fortunately there are two options for reading this post:

  1. 30 Seconds: Briefly scan the graphs below in 30 seconds.
  2. Three Minutes: Take a few minutes to digest the graphs and commentary.

Enjoy. By the way, should I keep doing this format? Is it helpful or too much?

housing supply and median sales price by sacramento appraisal blog

Warning – Traditional Economics at Work: As inventory has increased, the median sales price has decreased. It’s always a bit normal to see values cool off during colder months, but it’s also a function of basic economics. When supply increases, prices tend to go down. Let’s look at a closer view below.

housing supply and median sales price trend graph by sacramento appraisal blog

A Closer Look at Price & Inventory: The median price in Sacramento County for November 2013 was about $245,500, which is down from a high of $253,000 a few months ago. Housing inventory is now at 2.5 months, which is a dramatic change from being at a one-month supply for nearly one year until about six months ago when inventory began an upward trek.

absorption rate sacramento county - november 2013

How Fast are Listings Being Absorbed? The absorption rate is basically how fast current listings are being sold or pended each month. It’s an inverse of the months of inventory really, so this rate declines as inventory increases. Right now the absorption rate is 40.4%, which means that roughly 40% of all listings entered “pending” status on MLS or closed escrow last month. All you need to do to figure out the monthly absorption rate is divide the number of sales over the past month by the number of current listings. By the way, here is a quick tutorial on how to calculate housing inventory in case it’s useful (YouTube video).

Foreclosures and Short Sales 2009 to 2013 in Sacramento County - by Sacramento Appraisal Blog

Same Old Distressed News: Foreclosure sales used to dominate the market, but now they’re only hovering at about 5% of all sales in Sacramento County. Short sales have persisted to decline and only represent about 10% of all sales so far this quarter.

Foreclosures and short sales in Sacramento County - by Sacramento Appraisal Blog

The Difference of Five Years: It’s incredible to see that in five years the market has gone from being 84% distressed to roughly 16% distressed. Isn’t that an amazing stat?

cash and FHA sales in Sacramento County - by Sacramento Appraisal Blog

Trading Places in the Market: Cash sales have seen a hefty 14% decline over the past few quarters, and this is creating more space for FHA and conventional buyers to actually get offers accepted. On a personal note it means I’ve been doing quite a few FHA appraisals. An increase in inventory also means buyers can be more picky, which is also why we’re seeing sellers beginning to offer closing costs again as an incentive to “seal the deal”. This is no longer a “price it however you want” market.

cash and FHA under 200K in Sacramento County - by Sacramento Appraisal Blog

Changes at the Lower End: The market under $200,000 was basically gutted by cash investors over the past year, but FHA is gaining ground again as you can see in the graph above.

cash sales under 200K in Sacramento County - by Sacramento Appraisal Blog

A Return to the Bottom: Right now cash sales are at a level close to when the market hit bottom in early 2012 for under $200,000 and even before for the entire county. This is significant because investors swooped in when values bottomed out in the first quarter of 2012 and were one of the big factors for helping create the latest real estate boom. The exponential increases in value were primarily driven by investors, low interest rates and low inventory. Rates are still really low, but things are clearly changing in the cash and inventory department.

Sacramento real estate market stats through 2013 - by sacramento appraisal blog

A Different Market: A chart like this helps to show that the market is now different from even six months ago. Cash is down and conventional and FHA are up. This is true for the entire county, and it’s also true for the lower end of the market under $200,000. Some believe that FHA has not been increasing because of mandated mortgage insurance, but that is simply not true.

sacramento real estate market trend graph closer look by sacramento appraisal blog

The Forces of the Market: Real estate is not just about supply and demand. There are some many “layers” of the market that help create or impact value. As you can see, a decline of interest rates, improving job market and increase of housing supply tends to impact price over time.

sacramento real estate market trend graph by sacramento appraisal blog

A Busy Graph Worth Digesting: Here is a panoramic view of the same trends above, but with ten more years of data. I know this is a VERY busy graph, but it’s also really telling. Spend a minute digesting what is going on here.

unemployment rate US CA Sacramento by sacramento appraisal blog

The Word on Jobs: Sacramento and California both saw an exponential increase in joblessness after the previous real estate “bubble” burst. Both the state and county since have been slowing getting back to levels more consistent with the rest of the nation.

jobs and median sales price by sacramento appraisal blog

unemployment rate and median sales price trend graph by sacramento appraisal blog

Specifics on Jobs: Unemployment in Sacramento County has been declining since the summer of 2010. Currently the unemployment rate as of October 2013 is 8.4%. It’s still definitely not where we’d like it to be closer to 5%, but at least it’s not still 13% like it was, right? This graph pairs jobs with the median price. Jobs are a layer of value in the market that can impact the overall direction of values, but they are really only one layer. Ultimately the Sacramento real estate market will be healthier and stronger when the local economy improves and it’s easier to find good jobs. Bottom line.

Video of Trends: If you’d rather watch or listen to my interpretation of the market, check out the video above (or here). Feel free to share this video on your blog of social media too.

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details.

Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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The condo market in Sacramento County

If you’ve been surprised at how cash is dominating the single family market, take a look at what’s happening with condominiums specifically.

The condo market in Sacramento County has some similarities to the overall single family market since foreclosures are down, short sales are up and FHA has decreased, but there are also some differences. One of the biggest distinctions is the whopping sum of 65% cash sales among condominiums compared to 38% cash purchases in the overall single family market. Moreover, it’s interesting to note that over 50% of condo sales have been cash purchases for over three years, which tells us investors have been a major force in this niche for some time.

Condominium trends in Sacramento County - by Sacramento Appraisal Blog

Condo Issues: Since many condominium complexes have too many rentals, pending litigation or low reserves, quite a few have struggled to be loanable (and some are not on the approved FHA list). This has naturally given the green light to cash investors to hoard the condo market. Some complexes are advertising they will not accept cash offers since they are trying to get their owner-occupancy rates to adequate levels again. Yet clearly many complexes are accepting cash offers, which begs the question of what the future of the condo market will look like.

All Condo Sales in Sacramento County Graph from 2008 to 2013 - by Sacramento Appraisal Blog

I asked real estate broker Bruce Slaton to lend some insight into the condo market, and here is what he said. Bruce really knows his stuff, and you can check out his website at www.SacramentoCondos.com.

Bruce_Slaton_reasonably_smallBruce Slaton – RE Broker & Condo Expert: What I am seeing both in inquires and in activity is almost a turning point in the condominium market. We are getting a lot of inquires from condo community owners who have been following the media claims of a recovering market and cash buyers driving up pricing, and the results have been surprising to a few owners who thought they would be less under water than they are. What we are seeing is complexes that do not qualify for FHA or Conventional financing coupled with Rental Limits leading to limited appreciation. We also see new litigation claims which tend to happen with newer complexes within a few years of release from the developer to the HOA, and end up hindering FHA and Conventional financing in those complexes. We are seeing premiums for Homepath listings and HUD homes in those complexes due to the availability of financing. We are seeing heavy interest in complexes in Elk Grove, Natomas, Roseville, Folsom and West Sacramento. In the last several weeks we have seen a large increase of requests for Midtown Sacramento which is probably a result of the NBA decision for the Kings and the anticipated future demand and appreciation possibilities for properties around the Midtown Sacramento area. We have recently had inquiries from investor groups asking about stalled condominium or loft projects as well in the Midtown area. We are seeing popular communities like Riva in West Sacramento emerge from settled litigation suits and approaching increased financing possibilities with the introduction of several credit unions and local banks who are now willing to do conventional loans in these complexes. We are still seeing lack of inventory, and many reasons are homeowners who have not recovered enough equity yet to be able to sell their units. The increase in cash sales and decrease in FHA or Conventional financing can be attributed to the lack of financing in condominium complexes and also real estate agents not familiar with financing options and therefore marketing their listings as Cash Only instead of finding alternative financing options for their buyers.

Question: How do you think it impacts property value in a condo subdivision to have so many cash purchases?

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook