An appraiser’s view of cottage cheese ceiling texture

They say everything comes back in style, but I’m pretty sure cottage cheese ceiling texture isn’t one of those things. Well, I hope not. This style of texture is also known as popcorn, or more formally as acoustic or stucco ceiling. The house I grew up in had this texture, and a couple of rooms in the first house I bought did too. The other day on Twitter someone asked me how ceiling texture impacts value, and since we had a great conversation, I figured we could deepen the topic here. I’d love to hear your insight in the comments below.

cottage cheese ceiling texture - sacramento appraisal blog - image purchased and used with permission from 123rf dot com

3 things to consider about cottage cheese ceilings and value:

  1. The General Truth: Cottage cheese ceilings are from yesteryear, so they tend to make a home feel more outdated. Ultimately when a home has tired elements, it tends to sell for less or need to spend more time on the market to sell to the right buyer. Okay, that makes sense. But how much does this type of texture impact value? Well, that really depends on the following.
  2. The Whole Enchilada: I’ve found when a home has popcorn ceiling texture, it often has other outdated features. We might also see older wallpaper, an original kitchen and bathrooms, wood wall paneling, steel casement crank windows, etc… Thus the popcorn texture is only one symptom of an antiquated home. My sense is buyers tend to see the entire package of a home as outdated, so they become willing to pay a certain price for “the whole enchilada” so to speak. In other words, buyers don’t often segment one feature like popcorn texture to ask how much it might detract from value, but instead see the property as a whole and thus make one big value adjustment downward. Of course if a home is updated throughout besides popcorn ceiling texture, a buyer might realistically ask how much it is going to cost to remove the texture. The cost of the texture might be a reasonable value deduction, but not always as seen below.
  3. Different Expectations in Neighborhoods: I told a home owner the other day NOT to remove his cottage cheese ceilings for a planned renovation. Yes, install straight-edge granite counters in the kitchen and paint the cabinets. Yes, spruce up the bathrooms. Yes, paint the interior. Yes, lay new carpet. But leave the cottage cheese because all the remodeled comps still have texture on the ceilings. Since buyers were paying the highest prices in the neighborhood despite popcorn ceiling texture, it didn’t make financial sense for the owner to fork out a few thousand dollars to scrape his ceilings (this was in the Sunriver neighborhood in Rancho Cordova). This is a good reminder that it’s easy to bring in our own judgements and perceptions when valuing a home, but ultimately we have to look closely at the market to glean insight. We might be prone to think a home would sell for less because of the dated texture, but in this case it was best to look at other competitive sales in the neighborhood and let those sales set the standard for what we think. At the same time, if all the sales in the neighborhood do not have texture, it’s probably time to start scraping because owners need to eliminate obstacles and excuses for buyers making offers. In a neighborhood where ceiling texture is not common, scraping is a good move because it is a fairly minimal cost, and in my experience owners are often likely to recoup scraping expenses in the resale market because of the increased marketability. But remember, if all the comps already have no popcorn texture, scraping texture simply brings the home up to par with others in the neighborhood.

I hope this interesting and helpful. By the way, if you want to pave the way forward to help bring back popcorn texture, here is a DIY tutorial for you.¬† ūüôā

Questions: What else would you add? What is point #4?

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How do appraisers make value adjustments in their reports?

Have you ever wondered how appraisers make adjustments in their reports? Where do they get the numbers? Do they just make them up? Let me give you a little insight by comparing two model matches on the same street in Rancho Cordova.

Zinfandel Drive sale in Rancho Cordova - photo by Sacramento Appraisal Blog

House on Zinfandel Drive - photo by Sacramento Appraisal Blog

Comparing two houses: Both of these homes sold in a very similar period of time and had the exact same size. They are model match sales, though the exterior has a slightly different roof design above the garage. All things considered, one property was renovated throughout and sold for $160,000, and the other one was VERY average, which means it was outdated but in decent shape. The spruced-up house ended up selling for 26% more than the house in average condition, which means buyers were willing to pay $33,000 more for all the additional upgrades (this helps us see that cost and value are not always the same). In this case the updated house sold for $160,000 after an investor had previously purchased it for $100,000 on the court steps. The numbers could work to flip the property because there was enough of a difference between acquisition cost and resale value Рand some of the repairs may have already been there too.

Anyway, how do appraisers make adjustments in reports? We know the market paid 26% more for the remodeled property, so this adjustment would be very easy to do since there are¬†really few differences between these two properties other than condition. The appraiser probably shouldn’t be using these two sales in¬†an appraisal¬†report since they really aren’t competitive, but if that did happen, the adjustment for condition would be $33,000 because that’s what the market was willing to pay for the difference in condition (the appraiser would call this the “reaction in the market” to condition).

Built-in pool photo - by Sacramento Appraisal BlogOther non-model match examples & built-in pools: It would be a simple world if we only dealt with model match sales, but that’s¬†not always the case. Say we found another rehabbed sale that had¬†a GLA (Gross Living Area) of 1450 and¬†sold at $167,500. We could then compare the renovated house above with a GLA¬†of 1322 and a price at $160,000 to determine that 128 square feet (1450 minus 1322) is worth $7,500 – assuming there are no other differences. If this pattern kept showing up in the market, the appraiser would probably be making square footage adjustments at 55-60 per square ft since the difference here was¬†58.60 per square foot. The same holds true¬†when¬†comparing the¬†number of garage spaces, bedroom count, lot size,¬†or location. Appraisers analyze other sales and data in the neighborhood to decipher what buyers are willing to pay for a certain feature. You may¬†have noticed I keep mentioning what buyers are willing to pay rather than the cost of something. That’s a key point in how appraisers should make adjustments since they are essentially interpreting how buyers in the market respond to various features (as opposed to the cost of something or simply making up numbers- which I know happens). A last and perfect example would be a built-in pool with an¬†adjustment in the appraisal report that is often somewhere around $10,000 (despite a much higher cost to install a pool). Buyers are simply not willing to pay the entire installation cost of a pool in the resale market, so appraisers find what they are willing to pay by comparing houses with and without pools – and then extract an adjustment.

I hope this makes sense. Let me know if you have any stories or specific examples to share. I’m open ears.

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Is Zillow accurate? You be the judge.

After completing an appraisal recently on Ambassador Drive in Rancho Cordova, I wanted to see what Zillow said about values in the neighborhood (for kicks). While Zillow is sometimes not too far off in typical tract neighborhoods like this, I was very surprised in this case to see Zillow had not given more weight to recent sales prices in MLS to establish their Zestimates. See three examples below with my commentary. I did not appraise any of these properties, but I do know them well since I used them as comps in an appraisal report.

Example 1¬† –¬† 10703 Ambassador Drive: This property sold at $220,000 on MLS and is really the top sale in the immediate neighborhood. But to its credit it has recent upgrades, a larger than typical square footage¬†and it backs to the American River Parkway. Zillow recognizes the sale in MLS at $220,000, but¬†still assigns a value of $178,000 for their Zestimate, which is 19% less than the MLS sale. For reference, there were six offers on this property in 14 days when priced at $220,000.

Zillow Sale 1 by Sacramento Appraisal Blog

Example 2¬† –¬† 10625 Ambassador Drive: This renovated property sold at $194,000¬†in MLS,¬†but Zillow¬†assigns a Zestimate of $160,500, which is¬†17% less than the sales price in MLS. For reference, there were¬†six offers on this property when priced at $189,800¬†in only four days of market exposure.

Zillow Sale 2 by Sacramento Appraisal Blog

Example 3¬† –¬† 10504 Ambassador Drive:¬†This¬†house sold in only 9 days of market exposure and had 9 offers total. This property sold at $187,000 in MLS, which Zillow acknowledges, yet they still assign their Zestimate as $160,500, which is¬†14% less than the sales price in MLS. For reference, this property sold previously as a bank-owned fixer in the past six months, and was since rehabbed throughout.

Zillow Sale 3 by Sacramento Appraisal Blog

What can we learn from this situation?

  1. A machine can only do so much to value properties. The humans win in this case.
  2. Zillow doesn’t always do so great when the market is segmented like this neighborhood. There is a huge value difference between foreclosures needing fixing and renovated arms-length sales.
  3. Kudos to Zillow for recognizing that there is a difference between sales price and value. While their values are unfortunately way off in this instance, many in the real estate community confuse sales price with value. A sales price may or may not be the same as value.
  4. Real estate markets are complex and not easy to interpret – even for humans. The market has been changing quite a bit over the past few months as inventory has decreased in the Sacramento area. Zillow is not capturing this change for these properties at least.
  5. Find local real estate specialists you can trust.¬†So many people sincerely rely on¬†online valuation websites. “But Zillow says….” is a very frequent response to hear from home owners because they had a level of trust in the accuracy of data found there. I’d simply say to take the online sites with a grain of salt.
  6. Look up¬†Zillow accuracy tables¬†on their website and you be the¬†judge if the margin of error is reliable enough for you.¬†I recommend reading the definition of “median error” at the bottom of the accuracy page.

As an appraiser, I don’t have a¬†beef with Zillow at all, and¬†it’s not my mission in life to get¬†others to not use them either. In fact, one of the things I like about their website is the historic graphs they provide in the data section. This was simply an FYI post for consumers.

What do you think?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or ‚Äúlike‚ÄĚ my page on Facebook

Excuse me, but what do you mean by “Anatolia”?

Since the Anatolia area of Rancho Cordova is located four miles south of Highway 50 in a more secluded portion of the city, all the neighborhoods in that area are often referred to as “Anatolia”. There are actually currently three distinct communities in this area though and¬†only one of them is under the Anatolia HOA.¬†You can see the HOA outlined in red below and also the Sunridge¬†Park and Kavala Ranch neighborhoods nearby – both not a part of the HOA (yet identified as such at times).¬†

It’s important in real estate to understand neighborhood boundaries since buyers might be attracted to certain neighborhoods for a variety of reasons.¬†Some buyers might prefer the Anatolia HOA,¬†the clubhouse and¬†slightly older¬†houses (2005+), while other buyers might be attracted to new construction in Kavala Ranch or Sunridge¬†Park (over 50% of sales¬†last year were new construction). As you can see in the graph below, Anatolia¬†has the highest and lowest sales in the 95742 market, while Kavala¬†Ranch¬†and Sunridge Park seem to fit nicely in the middle of the range of sales in Anatolia.¬†

Can you think of any other neighborhoods in the Sacramento area that are lumped together under one title despite being distinct communities? If you live in the Anatolia area, what drew you to the community? Regardless of where you live, do you prefer an HOA or no HOA?

If you have any real estate appraisal, consulting, or property tax appeal needs in the Greater Sacramento Region, contact me at 916.595.3735, by email, on our appraiser website or via Facebook.