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Med Center

The smell of gentrification in Oak Park

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Gentrification is either a dirty word or something wonderful depending on who you ask. One of the best examples of gentrification locally is the Oak Park area of Sacramento. Let’s take a deeper look at this neighborhood that is in the process of change. I’d love to hear your take in the comments below.

Oak Park high sale

Seriously, $428,000? When telling a few locals on Twitter last week that a property on 34th Street recently sold for $428,000, the responses were mostly, “What the heck? Really? Wow!!” I know that doesn’t sound like much for certain areas of the country, but it gives pause for Oak Park because it seems symbolic of what is happening in the neighborhood as well as indicative of values that have risen dramatically in recent years.

What is gentrification? According to Merriam Webster, it is the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents.

1) Neighborhoods Have Life Cycles:

Growth: A period during which there are gains in public favor and acceptance. Demand increases.
Stability: A period of equilibrium without marked gains or losses. No real obvious change.
Decline: A period of diminishing demand and acceptance.
Renewal: A period of rejuvenation and rebirth of market demand.

2) The Good & Bad: Blight needs to be cleaned up, so it’s a good thing when that begins to happen in neighborhoods. However, it’s a bad thing when native residents are displaced because they can no longer afford the neighborhood.

An Example of Gentrification: The Oak Park area of Sacramento has been gentrifying for more than a decade. In some portions of the neighborhood there are signs of revitalization as residential properties are rehabbed, chain link fences are removed, and commercial businesses along Broadway are starting to attract outsiders (which is something that rarely happened in previous years). Overall a shift in attitude is taking place, and that is being reflected with greater demand and higher home prices. There are “gentrification pockets” so to speak in various areas of Oak Park, but not all areas.

Oak Park Sales in Sacramento - by Sacramento Appraisal Blog

Here are all Oak Park sales over the past 6+ years. This graph shows all portions of Oak Park including North Oak Park (not Med Center). These are residential sales from MLS (no private sales). The highest sale in Oak Park recently closed at $428,000. On one hand this sale is higher than anything else, and that gives us pause, but on the other hand it is larger in size and new homes tend to command a value premium.

Oak Park and Med Center Sales in Sacramento - by Sacramento Appraisal Blog

Med Center Thoughts: North Oak Park has been a very hot market, and some would say the line between Med Center and North Oak Park has been blurred in recent years, meaning higher values of the Med Center area have trickled throughout North Oak Park. If you are a buyer, would you pay a premium for Med Center or do you not care? As an appraiser I like to graph Med Center separately because some properties in Med Center can still command a premium. However, the graph does show the highest prices in Oak Park are more readily competing with Med Center prices.

SNL’s Gentrification Skit: By the way, if you haven’t seen Saturday Night Live’s skit on gentrification, they nailed it. Watch below (or here). There is some language, so be careful about kids being present.

Questions: Any thoughts, stories, or points to share? I’d love to hear your take. How has your perception of Oak Park changed over the past decade? Do you think there is a price difference between Med Center and North Oak Park? What are the strengths and weaknesses of gentrification?

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The myth of the one-mile radius in appraisals

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It’s often believed that appraisers need to use comparable sales only within a one-mile radius. But that’s not really accurate or a good methodology for valuing a property either. Appraisers should really use competitive sales located in the neighborhood or a similar neighborhood – regardless of whether they are located within one mile or not. Besides, has there ever been a neighborhood in the shape of a one-mile radius anyway? That would be interesting.

The Danger of a One-Mile Radius: Take the following image for example in the northern portion of Oak Park in the Sacramento area. If I were to search for comparable sales within a one-mile radius of the red dot below, a return of sales from all sorts of neighborhoods would come back. Portions of Med Center, Elmhurst, Curtis Park, West Tahoe Park, Midtown and East Sacramento really don’t compare well with the location of the house (red dot) despite being within one mile. This example shows very clearly how inaccurate it can be to simply use a radius to measure a real estate market.

One Mile Radius for Comps - Sacramento Appraiser

Lender’s One-Mile Guideline: It’s true that most lenders have guidelines wanting appraisers to stay within a one-mile radius, but there is actually no official “one-mile rule” from Fannie Mae that appraisers have to follow. Of course, in a tract neighborhood with ample sales, there probably isn’t a good reason to use comps outside of one mile anyway, so that’s why lenders issue their own guidelines to say appraisers need to stay within one mile. But the appraiser can definitely travel outside of one mile if need be. Check out the video below (or here) on Fannie Mae’s guidelines for distance in appraisal reports:

Which comps should the appraiser use? Ultimately appraisers should utilize sales in competitive neighborhoods – whether those are inside or outside of a one-mile radius. Where would a typical buyer consider making a purchase instead of the subject property? That’s a critical question to ask when defining the boundaries of a neighborhood. In the case above, it would be highly important to stay as close as possible to the red dot in the photo, and not cross the freeway either because a typical buyer looking in Oak Park would not simultaneously be looking in Curtis Park, Elmhurst or other portions of Tahoe Park due to price differences. By the way, New York appraiser Jonathan Miller has an outstanding post entitled “What is a Comp?”

Why does this matter?

  1. Appraisers: Appraisers need to select the best comps in their reports.
  2. Not Bound: It’s important for everyone to know that unique properties, major fixers, historic homes, rural homes and oddballs are not bound by a one-mile radius.
  3. Resale Value: Sellers and investors need to understand the neighborhood and how appraisers are going to view the subject neighborhood too in order to gauge resale value. Be careful not to base your price on a superior tract nearby outside of your neighborhood boundaries. Check out a post on the importance of knowing your neighborhood boundaries.
  4. Giving Comps to Appraisers: When agents give “comps” to appraisers while at an inspection, it’s best to give properties that are actually located in the same neighborhood or at least deemed competitive in a similar neighborhood (as opposed to nearby sales that meet a certain price level). Moreover, the “comp” should really be similar enough that the buyer would have theoretically considered it as a replacement instead of the subject property. I had an agent give me “comps” recently and one sale was located 7 miles away from the subject property. While the subject property is a bit on the unique side in a standard subdivision, the sale 7 miles away was in a totally different and superior market – and therefore not similar at all.
  5. Zillow and Online Sites: Zillow has value for what it is, but doesn’t always understand the importance of tight neighborhood boundaries. See a previous post on Zillow and comparison to actual appraisals.

Any thoughts?

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