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Midtown Sacramento

Condos, halfpipes, & cooling 2-4 units

October 26, 2020 By Ryan Lundquist 37 Comments

I have two compelling trends to share today, but fist let’s talk about a concrete halfpipe at an investor flip. I’d love to hear your take in the comments.

An investor friend just bought a house in Auburn with a halfpipe in the backyard. I’ll admit the middle school skater kid in me is stoked while the middle-aged man in me wants to relive my glory days… But what should Erin do as a flipper? Should she keep it or rip it out? Is this an asset or a liability?

This is a fun conversation, but there is a serious element here because investors come across interesting things all the time and have to make real-life decisions like this. So put your real estate cap on and let me know what you think in the comments.

Check out Erin’s Instagram (thanks for letting me share).

TWO TRENDS TO WATCH:

1) Condo sales are down 14.1% this year: I mentioned last month that condos haven’t been as popular and here’s a brand new visual to show what I mean. In short, buyers have been more focused on detached homes, which likely stems from wanting more space, privacy, and a larger backyard during the pandemic. Of course in the background low rates are a big factor because they give buyers more purchasing power (and thus shape what they can buy).

2) The cooling 2-4 unit market in Midtown: The single family market has been showing huge price increases in the Sacramento region, but the 2-4 unit market in Midtown isn’t the same temperature. When looking at the graph below do you see a flattening of prices lately? Does this surprise you?

This is something to watch and we have to keep rent control and eviction moratoriums on the suspect list when trying to understand this softer trend. Yet one of the bigger issues is these units have had massive price growth in recent years while rent growth has been slowing lately. Thus at some point when investors crunch the numbers it doesn’t make sense to pay more. For reference there isn’t an oversupply of listings in this market and demand is still strong.

Keep in mind other portions of Sacramento with lower-priced 2-4 units have still been showing an increase. These other areas have rent control too, which helps me think the flattening in Midtown is more related to flirting with a price ceiling.

Anyway, I’m thinking out loud and we need more time to see the trend. By the way, thanks to Brian McMartin and Franco Garcia for having conversations with me this week about this sub-market. I really value hearing what others are seeing out there as I run stats and interpret them.

Big point 1: The market isn’t the same everywhere.

Big point 2: Don’t take the trend in Midtown and project it on other 2-4 unit properties in the region. See point #1.

I hope that was interesting or helpful. Thanks for being here.

Questions: Should the halfpipe stay or go? Why? Any thoughts about the two trends I shared? I’d love to hear your take.

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

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Filed Under: Market Trends, Random Stuff Tagged With: after repair value, Appraisal, Appraiser, Bay Area buyers, buyers want a backyard, condo sales in Sacramento region, cooling 2-4 unit market, Erin Swanberg, fewer condos during pandemic, halfpipe in backyard, House Appraisal, investor decisions, investors, Midtown Sacramento, pandemic market trends, Resale Value, skate or die

When 1,000 square feet doesn’t count

September 25, 2019 By Ryan Lundquist 27 Comments

One of the most interesting homes I’ve seen just sold. It was brand new, four stories, and a halfplex. Oh, and on paper it was 3,000 sq ft, but about 1,000 sq ft didn’t count in the square footage. This is definitely a conversation piece, so I’m thankful Realtor Brian McMartin agreed to do a Q&A. I hope this will be valuable and interesting. Any thoughts?

Quick points:

  • This house has 1,000 sq ft that is not permitted as square footage.
  • The “non-conditioned” space looks just like square footage.
  • Understanding permits really does matter.
  • We discuss how to value a home like this.
  • This is ripe for lawsuits if square footage is misrepresented in the future.

Q&A with BRIAN McMARTIN

Ryan:  First off, how many stories did this property have? And how wide was it?

Brian: This halfplex has a total of 4 stories, including the ground floor where the garage is located. It is 17’ wide with a 3’ setback on the side. 

Ryan:  Tell us about the non-conditioned space.

Brian:  Ok – this can get a little confusing. This house has 2,065 sq ft as permitted living space, but the building has over 3,000 sq ft of usable space. It is hard to tell the difference between space that is permitted as square footage and other areas because the quality of construction is the same throughout (besides central heat and air not being present in the non-conditioned space).

Basically, the “conditioned” spaces that had permanent heat and air were on floors 2 and 3. On the first floor building plans show a non-conditioned “workshop”, but the sellers had it finished very nice and it presented like a huge game room or large living room. The 4th floor is described as a “sundeck” from the building plans, but again the sellers had the room presented nice with the same carpeting and fixtures as the rest of the home.

Ryan:  This sounds like a situation where someone is going to use the extra space as square footage.

Brian:  Even though it was not on the building plans, the sellers thought it would be okay to install separate wall mounted “mini-split HVAC systems”. However, during the final inspections the city made them remove these units as the building was not designed for habitable “conditioned” spaces on the 4th floor.

Ryan:  How did you treat this space in terms of giving it value?

Brian:  This was a huge challenge. The building has over 3,000 sf of usable space, but the property only has 2,065 of “conditioned” space. The room behind the garage and the 4th floor consisted of over 1,000 square feet of “non-conditioned” space. So, even though these rooms presented just like the rest of the home, they did not have heat and air. They have value, but I could not include these “non-conditioned” spaces in the square footage of the building any more than I could include a garage. These are permitted spaces, but not permitted for living area. Additionally, each floor of this property had two balconies, so I had nearly 600 square feet of balcony space to consider as well. 

I previewed every new home on the market in Midtown to review the competition. In the end, I came up with an estimated value based on the “conditioned” square footage and then added a range based on what value I felt the additional “non-conditioned” square footage added to the value. I had other challenges in marketing this property, but essentially we decided to “test” the market a little with a high range to see how the market would respond.

Ryan:  How did you report the non-conditioned space in MLS?

Brian:  I did not report the “non-conditioned” space in the MLS where you show the square footage of a home as this is not considered habitable square footage. However, I did mention the additional space in the marketing comments.  

Ryan:  This was incredibly smart of you to do. I can see someone not doing this in the future because this area looks just like square footage. It sounds like a lawsuit waiting to happen when the new owner finds out about 1,000 square feet not being permitted as living space.

Ryan:  Anyway, this is a unique layout to say the least. What sort of feedback did you get from buyers and agents about this one?

Brian:  Despite my best efforts to explain the difference between the “conditioned” and “non-conditioned” spaces, it was confusing to most agent and buyers which is understandable as this was very unusual. It was easiest to explain when I was at the property and was able to show people the building plans and answer their questions in person. 

Ryan:  How did you pull comps on a property like this since there wasn’t really anything out there?

Brian:  You are correct – there were no comparables in Midtown with this type of issue. In the end I used new construction comparable sales in Midtown and relied primarily on the “conditioned space” to come up with a base value.

Ryan:  What did you learn through selling this one?

Brian:  I learned a few things from this experience. In doing my homework on this property I learned that the there was a reason the builder did not have some of the areas as “conditioned” areas, especially on the 4th floor and it had something to do with the city requirements for having a habitable living area on a 3rd or 4th floor. I did not find out exactly what the conditions are with the city, but I was told that it had something to do with needing to install a separate egress when you build above the 3rd or 4th floor. Since the 4th floor was considered a “sundeck” and was not a habitable area, this requirement did not apply. This made sense to me later when I learned that the city made the builder remove the split HVAC systems from the 4th floor as it could not be considered habitable living areas and changed the nature of the intended use of that floor. Despite these area presenting as beautiful well-appointed rooms, it just created confusion for the buyers as to what the rooms could be used for and how it would benefit the homeowner. This confusion caused many difficulties in marketing this home.

Ryan:  What about the layout and interior?

Brian:  We had some design issues with this home and they were difficult to overcome. The exterior presented more of an industrial modern look, whereas the inside reflected more of a suburban contemporary look. Additionally, the floorplan was clunky and inconsistent. So, despite having a brand new home, nearly every buyer was considering how much it would cost to redesign the home to fit their needs and tastes.

Ryan:  Anything else you’d like to add?

Brian:  Yes, over the years I’ve noticed there is some general confusion over permitted structures and permitted habitable structures. For instance, I had a client once that had a small apartment in the back yard that they were renting to tenants. The sellers informed me it was built by a previous owner (and permitted). However, upon reviewing the apartment, it was apparent that modifications were made to the unit to add a small kitchen. Long story short, upon investigation we discovered and found that there were indeed permits for the structure, but it was not built as a habitable unit and at some point someone had added the kitchen to make it work for an apartment. The sellers were naturally upset as they purchased this property as a duplex or 2 homes on a lot and were not happy to discover that I could not market the home this way.

Ryan:  Any closing thoughts for real estate agents?

Brian:  Just because tax records shows a property as a certain size or having an additional unit does not always mean it is correct. I had a property in East Sacramento once that showed as a duplex but the downstairs unit was never properly made into a habitable unit. Additionally, I’ve found that the existence of separate meters on the property does not always mean the additional unit is permitted. In closing, if something doesn’t quite seem right about a unit or an additional space, be sure to ask more questions of your clients to make sure you are marketing the property correctly.  

Ryan:  Thank you Brian for doing this interview. You killed it. Everyone, you can check out Brian’s website here.

Closing appraisal thoughts: There is so much I can say, but the thing that stands out most is it’s really easy to include non-permitted space as square footage if we’re not careful. My advice? Don’t just ask an owner if it was permitted. What was it permitted as? That’s the better question. Moreover, if you see a huge discrepancy between Tax Records and what seems to be at the property, find out why there is a difference.

I hope this was interesting or helpful.

BEER & HOUSING CONVERSATION: Do you want to hang out at Yolo Brewing? On Saturday October 5th from 2-5pm we’re going to have a get-together. No presentations, agenda, secret handshakes, or geeky stats. This event was born on Twitter with Erin Stumpf. Hope to see you there. Details here.

Questions: What stands out to you most about the interview? Any thoughts on the house? I’d love to hear your take.

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Filed Under: Resources Tagged With: Brian McMartin, conditioned space, contemporary, intersting property, Midtown Sacramento, modern, non-conditioned space, not considered square footage, not permitted as living space, permits

5 things to remember about lofty list prices

May 17, 2017 By Ryan Lundquist 14 Comments

There’s huge buzz this week about a $4.1 million dollar condo that just hit the market. I know that’s chump change in other places, but it’s a conversation piece in Sacramento since we don’t see listings anywhere near that level in Downtown (or almost anywhere in the county). Anyway, there’s some good conversation to be had from this, so I hoped we could consider a few ideas and then unpack local market trends (for those interested). Any thoughts?

5 things to remember about lofty list prices:

1) Attention & buzz: A high list price for a luxury property is designed to get attention, create buzz, and help market a property. In this case the $4.1 million dollar condo listing is located in a development called The Residences at The Sawyer. This penthouse unit is 3323 sq ft and is located directly across from the new arena at 500 J St (killer location). 

2) Records & price context: When hearing of high listings it’s tempting to treat the list price like a record has been broken. But if we’re honest this list price doesn’t matter unless the property actually sells at that level. Last year in Sacramento we had a $5M listing, the year before it was a $7M one, and a few years back there was a $10M listing. None of them sold = No records. There have actually only been three sales on MLS in the past that have sold at $4,000,000 or above in Sacramento County. They include: 1) The Governor’s Mansion built in Carmichael when Ronald Reagan was Governor (sold in 2004 at $4.1M); 2) A property in Sierra Oaks in 2013 that sold at $4.7M; and 3) An estate in Elk Grove that sold at $4.6M in 2005, and then re-sold for $1.3M in 2011 after a foreclosure.

3) Marketing to non-locals: Most locals aren’t anywhere close to affording a $4,100,000 listing – not to mention the whopping $4,021 monthly HOA fee (that’s not a typo). But the thing is this property is probably being marketed to someone from the Bay Area, maybe one of the owners of The Kings, or one of the Kings players. The Beverly Hills firm who is running the sales office is likely focused on non-locals more than anything because this is the type of property that would appeal to a wider group outside of the region. In that sense the property is an anomaly of sorts. Of course there is no guarantee they can fetch a price that high. For reference, the highest condo price I’m aware of in Midtown is the L-Street Lofts penthouse which former NBA player Kevin Martin bought for $1.34M in 2008 (and it re-sold in 2014 for $1.3M). The location on J St is bound to fetch higher prices, but how much higher? We’ll see.

Here’s a Twitter pricing poll I ran yesterday.  🙂

4) Reductions and good deals: It’s tempting for sellers to list something at an absurdly high price level, reduce the list price, and still feel tied to the original list price. So the seller says, “Hey, we came down 30% in price already. The buyer is getting a great deal.” But the problem is the listing was priced 30% too high to begin with. We see this with outrageously priced high listings, but we also see it in just about every neighborhood too. Thanks Jonathan Miller for influencing my thoughts on this.

5) Freaking out: When hearing about a “4 million dollar” property, it’s easy to freak out and start saying, “Holy Batman, prices in Sacramento are now at LA and SF levels,” or “I cannot believe how high values have risen.” Take a breath though because this is just a listing right now. If it makes you feel better, remember that $250,000,000 listing in Bel-Air that garnered world-wide attention in January? Well, that one’s still listed for sale at the same price… In short, let’s give this one some space and see if this price pans out or not.

I hope that was helpful or interesting. Any thoughts?

———–——-——- big monthly market update below ——-———–——-

A LOCAL MARKET SUMMARY:

Values have continued to increase in the spring, though at the same time the market isn’t aggressive in every price range. When looking at Sac county and the region as a whole, both the average sales price and average price per sq ft saw increases last month. On the other hand the median price softened slightly (don’t make too much of that since the median can go up and down depending on what has sold). Housing inventory feels like it is doing the Limbo as it keeps going down and down. Seriously, inventory was already low last year, but it’s 20% lower this year. This is definitely putting pressure of values to increase in some price ranges. My sense is lower prices in just about every neighborhood are experiencing upward pressure because that’s what represents affordability to buyers for those areas. So buyers in La Riviera are feeling the pressure under $300,000, buyers in Whitney Ranch are feeling it under $400,000, and buyers in East Sacramento are feeling similar pressure under $450,000. Yet buyers at middle-to-upper ranges are not experiencing this same dynamic because the market is flat or soft in many areas at upper price levels (yet we still might see multiple offers though). As expected, last month it took about 5 less days to sell than the previous month. I could go on and on with words, but let me share some graphs to show the market visually. 

DOWNLOAD 53 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Sacramento County graphs this month (more here):

Sacramento regional graphs (more here):

DOWNLOAD 53 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: What do you think of the $4.1M condo listing? Did I miss anything? What are you seeing out there in the market? I’d love to hear your take.

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

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Filed Under: Market Trends Tagged With: anemic inventory, appraisal blog, appraiser in Sacramento, Downtown Sacramento, high list prices, low housing supply, low inventory, luxury, market stats, Median Price in Sacramento, Midtown Sacramento, pricing too high, sacramento housing market, Sacramento Market Trends, sacramento regional market update, soft top of market, The Residences at The Sawyer, The Sawyer, trend graphs, values increasing

Midtown Realtors plan a “Giving Day” to support the Sacramento Food Bank

February 18, 2011 By Ryan Lundquist 3 Comments

I brought my Flip and tripod yesterday to shoot a video for some real estate friends at the Midtown office of Better Homes & Garden Real Estate Mason McDuffie. The BHGR office is partnering with the Sacramento Food Bank to support locals in need. The Sac Food Bank is a very worthy charity, and it’s great to see some Realtors who are intentional about supporting their work. Please watch the video below to hear more about what “Giving Day” entails, and consider getting involved. If you have questions, contact Heather Pearce or Rob McQuade.  

 

If you have any real estate appraisal, valuation consulting, or property tax appeal needs, contact me at 916.595.3735, www.LundquistCompany.com or via Facebook.

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Filed Under: Random Stuff, Videos Tagged With: Better Homes & Garden Real Estate Mason McDuffie, BHGR, Giving Day, Heather Pearce, Lundquist Appraisal Company, Midtown Sacramento, Realtors doing good, Rob McQuade, SacFoodBank, Sacramento Food Bank

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