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Jonathan Miller

The danger of overpricing & chasing real estate unicorns

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Overpricing. It happens all the time in real estate – especially in today’s market. I get where sellers are coming from because we’ve had so much glowing real estate news for more than five years. But that doesn’t mean we’re in a market where you can command whatever price you want. 

Chasing the unicorn: Many sellers are pricing their properties too high. It’s as if they expect record-breaking prices and multiple offers every time because of how “hot” the market is. Homeowners get so fixated on the idea of a fiery market that they price for that one unicorn buyer who’s going to mysteriously pay more than anyone else. This “unicorn” will ignore all recent sales and listings and magically offer 10% higher than anything. In Sacramento the idea is a Bay Area “unicorn” will swoop in with fat stacks of cash and totally ignore similar comps that are selling for less. It’s nice when sellers get lucky like that, but in today’s market buyers are actually much more finicky about price. Despite a legitimate housing shortage we don’t have a market where buyers are willing to pay crazy prices that are totally disconnected from reality. In other words, we don’t have a market where pricing for the “unicorn” makes good sense (unless you want to sit on the market instead of sell). Take a look at the image below that shows price reductions over the past 24 hours in the Sacramento region. These 78 properties have been priced too high for the market.

My advice? Price for the real market instead of the unicorn. Give the most weight to similar sales and similar listings that are actually getting into contract.

Aspirational pricing: If you aren’t familiar with the term aspirational pricing, Jonathan Miller coined this phrase. It’s a great way to describe the phenomenon of sellers fixating on prices that are simply disconnected from the real market.

10 reasons why sellers overprice:

1) Hot headlines are imposed on the price instead of looking at comps. 

2) Dissimilar sales are used as “comps” to price the home.

3) Too much emphasis is put on price per sq ft instead of actual comps.

4) A property is priced like it doesn’t have a busy street or adverse location.

5) Sales from a higher-priced area are “cherry-picked” to price the property.

6) The seller is too subjective and feels “my house is better.”

7) The owner believes the cost of any upgrades should be paid for by buyers.

8) A more aggressive trend from a lower price range is assumed to be present at a higher price range.

9) It’s a tricky property and not easy to come up with a price.

10) What else?

My article in Comstock’s: By the way, I wrote an article in Comstock’s Magazine this month on the value of upgrades. Check it out if you want.

I hope this was interesting or helpful.

Questions: Are you seeing sellers price for “unicorns”? What reasons do you think sellers overprice? Did I miss something?

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Bad real estate advice & blue bathrooms

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There’s no shortage of bad real estate advice out there. Today let’s look at a few common examples and talk through Zillow’s recent claim that blue bathrooms add $5,400 in value. Any thoughts? I’d love to hear your take.

Common bad real estate value advice:

1) Solar Salesman: “You will get $20,000 in value if you buy this $20,000 solar system. Buyers always pay for the full cost of the system in the resale market”

2) Enclosed Patio Contractor: “This 400 sq ft enclosed patio will definitely add 400 extra sq ft of living area to your home when you sell it.” 

3) Energy Salesman: “If you do these energy upgrades for $28,000, you’ll get $28,000 back in value. There won’t be any trouble selling your home after going through the PACE program either.” 

4) Landscaper: “Studies show doing $2,000 of landscaping will yield about $10,000 in value.”

5) Zillow’s Blue Bathroom: “Homes with blue bathrooms sell for $5,400 more than expected.”

What other examples can you think of?

Thoughts on Zillow’s blue bathroom:

Zillow put out a press release last week stating, “Homes with blue bathrooms, often found in hues of powder blue or light periwinkle, sold for $5,400 more than expected.” Thanks Jonathan Miller for writing about this. A few thoughts:

a) False hope: Consumers hear they can increase their value by $5,400, so they think they can just buy a gallon of paint for $30 and make some huge profit. As Jonathan Miller said, “The consumer absorbs the results as gospel without challenge.”

b) Location: Which market would this idea of blue paint apply? Is it true in Portland, Sacramento, Birmingham, and Baton Rouge? Is it equally true at $200,000 as well as $900,000? Was it true when the market was collapsing in 2007 or is it only true right now? How long will it continue to be true? 

c) Buyer Behavior: When we hear such precise value claims, let’s take a step back and ask if buyers actually behave that way. Have you ever met a buyer who said, “Oh snap, that blue is on point. I’m gonna pay $5,400 more for this house now”? Probably not. To be fair we all know color does make a difference for value. Yet making such a precise value claim at $5,400 ironically doesn’t line up with how buyers tend to behave in real life.

d) Multiple factors: There are so many factors when it comes to a house selling at a certain price. Maybe the blue paint is part of the package, but what if it’s also the condition, remodeled kitchen, refinished wood floors, landscaping, updated bathrooms, location, garage size, multiple fireplaces, school district, built-in pool, etc… Maybe it’s just me, but isolating only one inexpensive factor and attributing a large value boost seems like a stretch.

My advice? Be careful when individuals without local real estate expertise start giving you specific value advice. Of course their advice might be spot on, but sometimes people say things in order to get a contract signed. Also, be wary of general stats because they might not make any sense for the local real estate market or for every property type (or market). Lastly, before doing something significant to your home, you might consider finding trustworthy real estate professionals in your local market who can help give advice or steer you in the right direction.

I hope this was interesting or helpful.

Questions: What other examples of bad real estate advice can you think of? What do you think of studies that make specific value claims? Anything else to add? I’d love to hear your take.

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Eating tacos and 10 housing market truths

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I eat tacos with investors. That’s right. A few times a year a group of real estate friends get together to talk shop at the best taco joint in town. It’s informal and fun because we’re friends, but it’s also valuable to get a sense for what everyone is seeing out there in the trenches. Anyway, despite not having tacos in front of me at the moment, I wanted to share some of the things that have seemed to come up lately in housing market conversations. Anything to add?

33102060 - top 10 - businessman with chalkboard

10 truths about the housing market

1) One high or low sale doesn’t make or break a market.

2) Just because inventory is low doesn’t mean buyers will pay any price.

3) The market isn’t doing the same thing in every neighborhood or price range.

4) There is no such thing as a national housing market. The “national” market is actually made up of thousands of local markets (Jonathan Miller).

5) Appraisers only measure the market. They don’t make values go up or down.

6) There is no recipe or formula for the way a housing “bubble” has to pop. In other words, for all the conversation about a current “bubble”, if the market did “pop” it wouldn’t necessarily have to look the same way it did 10 years ago.

7) Real estate advice has a shelf life, which means it might not be good for every market (or every price range or location).

8) Markets aren’t so perfect that we can say a property is only worth one certain amount like $336,456. It’s best to recognize there is a reasonable range for what the market might be willing to pay (say $330,000 to $340,000). Is there any support for the appraised value to come in at or near the list price or contract price? Does this price fall within the range of what is reasonable?

9) “Negative market trends are not the end of the world. They represent opportunities for some” (from Jonathan Miller).

10) Thinking positively or talking positively about the market doesn’t drive the market. In other words, “you can’t overpower the market with the power of positive thinking. The market doesn’t care what you or your client thinks” Jonathan Miller.

You may notice I referenced New York Appraiser Jonathan Miller a few times above. I realize that makes me look like a fanboy, but that’s okay because he’s an influential voice in my life and I appreciate his weekly notes every Friday. Last week Jonathan knocked it out of the park in his section entitled “McMansions, McEgos, McPrices and McHonor” (that’s where I picked up point #9 and #10).

how-to-think-like-an-appraiser-class-by-ryan-lundquist-150x150Class I’m teaching on Thursday: On September 29 from 9am-12pm I’m doing my favorite class at SAR called HOW TO THINK LIKE AN APPRAISER. We’re going to have a blast talking through seeing properties like an appraiser does. We’ll look at comp selection and talk through so many issues. My goal is to help you walk away full of actionable ideas. Register here.

Questions: What types of conversations are coming up in your circles right now? What is #11? I’d love to hear your take.

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10 things appraisers can do to improve the appraisal industry

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The appraisal industry is in a funk. There is a lack of national unity, but more than that there is a culture of isolation and negativity that seems to leach the industry of forward progress. I was reminded of this recently while reading an article by Jonathan Miller, so I thought it might be fitting to share some practical and actionable steps to improve the appraisal profession. I’m not pointing fingers or talking down to anyone, but rather hoping we as appraisers can get on the same page about some of the basics. This is coming from a guy who frequently collaborates with other appraisers, and serves as a board member for an appraisal organization in Sacramento. What do you think?

isolation in appraisal industry -image purchased by sacramento appraisal blog

10 things appraisers can do to improve the appraisal industry:

  1. Increase your skill set. Study the market. Become a local expert.
  2. Think of appraisers as peers or potential collaborators instead of the enemy.
  3. Learn to visually illustrate the market by graphing trends. This can help you be relevant, show support for market trends instead of using boiler plate lingo, and ultimately tell a more compelling story of value in reports.
  4. Stop working for clients who pay too little. Expand your skill set so you are more marketable to a better clientele, and then break up with your old clients. Marketing to new clients can feel scary for anyone, but if you don’t step out to do it, you’ll never get those clients. Remember, waiting for the phone to ring is not a marketing plan.
  5. Don’t be afraid to ask questions. You will never grow if you do not ask questions and reach out to other appraisers for help. Don’t be a lone ranger.
  6. Be friendly. Appraisers are not known for their warm people skills, but it’s still possible to be personable while remaining objective.
  7. Be professional. Incessant complaining about other real estate professionals is a bad look. Why would a real estate agent, attorney, or CPA want to work with you if you are a toxic person?
  8. Be humble since no appraiser gets value absolutely right 100% of the time.
  9. Be a mentor by answering questions to other appraisers (whether they are younger or older). Too many appraisers think they are right about everything, but at the end of the day being right doesn’t help anyone grow. Find ways to share your knowledge and build others up. Realize lots of appraisers need your help because they had poor training or were taught to “hit the number”. Many of these appraisers are isolated, so help draw them out.
  10. Join a local appraisal organization that meets together regularly. Isolation is hands-down one of the biggest threats in the appraisal community, so this is a necessary solution. Think about how you can improve the organization too. Or better yet, become a board member or volunteer.

The truth is we all have room to grow in life and business, and there is no such thing as a perfect appraiser either. There are surely some big things that need to happen to help steer the appraisal industry toward health and national unity, but if we begin to focus on some of the small steps above, it just might help put us on the right track.

If you have further thoughts, ideas, constructive feedback, or feel inspired about something, I’d love to hear from you in the comments.

Questions: Any thoughts or stories to share? What is #11?

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