5 questions to ask yourself to be sure you’re NOT overbuilding

How would you know if you are overbuilding or not? Here are five questions to ask and then five golden rules of real estate to keep in mind. What do you think?

Five Questions to Ask to Make Sure You’re NOT Overbuilding

1) Will buyers pay for this feature in the resale market?
overbuilding - by Sacramento Appraisal Blog2) Is what you’re doing consistent with the neighborhood or will your property stand out too much in a bad way?
3) How much value will you recover in the resale market from the cost of your project? Is it worth it to you from an economic standpoint?
4) Will people think, “wow, I would NOT want to live next door to THAT house”?
5) What do buyers really expect in your neighborhood for both size and upgrades?

Five Golden Real Estate Rules to Remember

1) Be in Touch: What are buyers really looking for in your neighborhood? There is a place for making your home comfortable and doing some things that are just for you, but try to stay in tune with the expectations of buyers also. Do buyers really want that Olympic-sized swimming pool or an underground Bat Cave guest house? (well, I would want that).
2) Principle of Conformity: There is something about blending in with the neighborhood that is desirable for buyers. Generally speaking, be a nonconformist in life, but a conformist in real estate.
3) Cost Vs Value: There is a difference between what buyers will pay for a feature and how much it costs. A $100,000 remodel in a $200,000 neighborhood does not make a home worth $300,000. Likewise, a $70,000 backyard remodel probably doesn’t make your home worth $70,000 more.
4) Ugly Ducking: Nobody wants to live next door to an ugly duckling of a house. There is something about being artistic, but be careful to not become so odd that people start passing up nearby homes because of what you did.
5) Don’t be the Largest: Larger homes tend to have a lower price per square foot, so let someone else win the “You Built the Largest House” prize in your neighborhood. Besides, there is a price ceiling in a neighborhood market where buyers will simply begin to look at similar-priced homes in a better area rather than buy the biggest house in an inferior area at the same price.

This post wouldn’t be complete without an example of an overbuilt house I saw a few years ago. See if you can spot it in the short video clip below (or here):

Any thoughts or stories to share? Comment below.

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Neighborhood market trends & my wife’s 2nd book

We tend to get a different perspective of real estate when we look at market data in specific areas – as opposed to county or state-wide trends. Let’s glance at some local neighborhoods and property types to glean a bit of market insight.

Plastic-Polly-by-Jenny-LundquistFamily Announcement: Before diving deep into real estate though, I’d like to share some personal news. I am very proud to announce that my wife’s second book, Plastic Polly, hits the shelves tomorrow in book stores and online. She was published again by Simon & Schuster with her second middle-grade novel. Check out her website to learn more, or if you’re local I’d be honored if you would celebrate her book launch with us on this coming Saturday at Barnes & Noble in Citrus Heights from 1-3pm (click here for details).

Thanks for sharing the joy. Now on to some market trends:

All Midtown and Downtown Sales 900-1200 GLA - by Sacramento Appraisal Blog

Midtown Market: Here is a graph of all sales in Midtown/Downtown Sacramento with a living area between 900 to 1200 square feet. It’s amazing to see how the market has unfolded.

All duplex sales in Midtown and Downtown Sacramento

Downtown Duplexes: The duplex market in Midtown/Downtown has really followed the same trend as the single family market above. As you can see, property values showed an obvious decline from the peak, and have been stabilizing over the past couple of years (and flirting with an uptick lately).

All Duplex Sales in East Sacramento since 1998 - by Sacramento Appraisal Blog

East Sac Duplex Market: The same story can be told with duplexes in East Sacramento. There can be huge price differences between a standard ho-hum duplex and something really special (like the recent $900,000 sale that was an incredible two houses on one lot).

La Riviera Neighborhood Sacramento 2-story Sales - past 4 years - by Sacramento Appraisal Blog

Biggest House in the Neighborhood: When looking at all 2-story sales over the past four years in the La Riviera neighborhood of Sacramento, there are very few houses above 2000 square feet. In fact, the most common size for a 2-story unit is anywhere from 1600-1850 square feet. Here’s the thing. Since buyers tend to expect to find a 2-story house at about 1800 square feet, there tends to be a very small premium (sometimes none) for a house that is even larger in size by 400 square feet. This reminds us that price per square foot is not constant, but fluid. Know the expectations of the neighborhood and don’t build something too big that will suffer economic loss over time.

White Rock Neighborhood Sales in Rancho Cordova - by Sacramento Appraisal Blog

Post-Bubble Burst Bifurcation: A graph like this helps tell a compelling story in a neighborhood where 3 bed / 1 bath properties are most competitive to other 3/1 sales. The 3/1 sales are mostly all closer to 1000 square feet in the White Rock neighborhood of Rancho Cordova, and it’s pretty clear that most sales are under $150,000 besides one recent totally remodeled flipped property. Isn’t it interesting to see how tightly packed sales were before the “bubble” burst, yet now sales are spread apart further because of lower-end distressed sales (foreclosures and short sales) and higher-end flipped sales? This is a perfect example of bifurcation, which basically means the market is segmented into different price levels. The wild part is there are a couple flips listed around $160-170K right now. Is that reasonable or not? We’ll see. I talked with the agent of a recent sale that was one of the higher sales in the neighborhood. She said the buyer ended up offering $15,000 over list price to secure the contract. Ultimately the buyer thought the property was priced about $10,000 too low, but figured the added $5,000 would secure the deal (it worked). Is this now a good comp? Is this sale a good representation of the market?

McKeon Condo Subdivision in 95841 Zip Code - Sacramento Appraisal Blog

A Bell Curve & Condos: This graph is of a McKeon condo neighborhood in the 95841 zip code called Madison Villa Estates. It’s incredible to see the resemblance to a bell curve (or Christmas tree). The most recent highest sale in the subdivision over the past couple years is around $65,000 (renovated). There is currently a very average non-updated listing at $75,000. On one hand the market is appreciating, so we’d expect to see higher listings. Yet on the other hand, is this a reasonable price for the current neighborhood market? That’s the question appraisers are asking quite a bit. It’s important to weigh the reality of increasing values as well as the fact that some buyers are overpaying for properties.

Question: What are you seeing out there in the market right now? Any insight from the graphs or into the neighborhoods above? Feel free to share below.

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

10 signs your pool is too big for the neighborhood

This is what I’d call a super-sized pool. This house was purchased by Folsom Asset Management as one of their flip projects. For some perspective on the enormity of this swimming hole, look at my Realtor friend Whitney Johnson in the top image. Also, compare the 4400 sq ft house (single story with a 700 sq ft garage) with the pool. Have you ever seen a residential pool this big? What would you do with it if you were going to flip this house?

Overbuilt Pool. Photos by Folsom Asset Management & Compilation by Sacramento Appraisal Blog

Even if the pool was finished, it would very likely be a market liability since most buyers are not looking for a pool this big. On top of that, imagine the cost to heat the pool. It’s no wonder the investment company filled it in before selling the house.

Top-10-Image-purchased-by-Sacramento-Appraisal-Blog-from-www.123rf.comphoto_9840969_golden-top-ten-in-rank-list-trophy-isolated-on-white-background.htmlsgame-123RF-St-sm10 signs your pool is too big for the neighborhood

  1. If your backyard is a potential site for the next Olympics.
  2. If Google Maps mistakes your pool as a lake.
  3. If your pool looks like it should be at a resort.
  4. If prospective buyers think “Yikes, what were they thinking?”
  5. If aerial fire fighters use your pool to scoop up water.
  6. If the Coast Guard uses your pool for rescue training.
  7. If your pool yields little value in the resale market.
  8. If “block party” means the entire neighborhood can literally go swimming.
  9. If your buddies constantly ask you to use their jet skis in your pool.
  10. If buyers don’t have the expectation for such a large pool in the neighborhood.

Questions: What do you think of this pool? What is the 11th sign a pool is too big? I’d love to hear from you in the comments below.

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5 real estate words that make you sound smart

In case you want to win in the real estate category on Jeopardy or boost your real estate IQ, this post is for you. Here are five real estate words that will definitely might make you sound smart. Enjoy and find a way to use them soon.

This yard has a huge staircase to the front door (it's very odd for the neighborhood)1.  Superadequacy 
Superadequacy is basically a synonym for “overimprovement”. It’s when a property is overimproved and the cost exceeds the value it adds to the property. Examples of superadequacy would be an 8-bedroom house in a 3-bedroom neighborhood, an air conditioning unit in Antarctica or a $50,000 kitchen remodel in a $100,000 neighborhood.

Example: It’s nice that Lola’s McMansion gives shade to all the neighbors, but it’s still a superadequacy.

price reduced sign2.  Functional Obsolescence:
Functional obsolescence is “a reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed” (from Investopedia). In real estate, we see functional obsolescence when there is a feature of a house that is not useful to buyers for one reason or another. It may have been acceptable at some point in the past, but is now outdated, or it may simply be odd and less appealing. Examples include having to walk through a bedroom to get to another bedroom, having no dishwasher or laundry hook-ups, having a giant indoor spa that takes up half the master bedroom, having no bathrooms on the first floor or only having one bathroom in a 4-bedroom house.

Example: The property on Main Street sold for less because of functional obsolescence. Buyers just didn’t like only having a sink in the master bedroom instead of a full bathroom like all the other houses.

3.  Fenestration
space ship house on Garden HighwayFenestration is the design and placement of windows (and other openings) in a building. Most of us probably observe fenestration all the time by saying things like, “ooh, I love that big bay window off the front dining area” or “I like the house for the most part, but the windows make it look like a space ship.”

Example: Ginger loved the house, but wasn’t so sure about the fenestration. Would future buyers really buy a house with parallelogram-shaped windows next to a circular entry door?  

4.  Bifurcation
yodaBifurcation is a word to indicate something is split into parts. When it comes to the housing market, we’d say the market is bifurcated because there are different segments of the market. We see this clearly when there is a price difference between traditional sales, short sales and foreclosures. In this case the market would be bifurcated because the market is split into distressed sales vs. non-distressed sales.

Example: Johnny knew the market was bifurcated, so he hoped to buy a bank-owned fixer for less so he could “move up” into a more expensive neighborhood. 

5.  Easement Appurtenant
An easement appartenant is an easement which is annexed to the ownership of one parcel of land that allows one party the use of his or her neighbor’s land and which runs with the land when the title is transferred to another party (from RealEstateWords). The best example is one neighbor driving over another neighbor’s land to get to his lot.

Example: Everyone says I’m a nice guy for letting my neighbor use my driveway to get to his house, but it’s really just the easement appurtenant.

Picture from Wikipedia 200px-Kyle_Plante_mullet_5th_grade6.  Parcel Mullet (Bonus Word)
This word probably won’t make you sound smart, but since we’re talking about real estate words, it’s worthy of mention. My friend Heather Ostrom and I invented this one. A parcel mullet refers to the phenomenon of having a well manicured short lawn in the front yard, but a wild long yard in the back. Or in laymen’s terms, business lawn in front, party lawn in the back. If you didn’t know, the mullet is a hairstyle that is short at the front and sides, and long in the back (Wikipedia). Read more on the parcel mullet here.

Example: Bobby felt strangely proud of his parcel mullet being three feet high. 

I hope you enjoyed the post. If you want some practice using these words, I’d love to see you slip one of them in a comment below.

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