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Bad real estate advice & blue bathrooms

June 8, 2017 By Ryan Lundquist 11 Comments

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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Filed Under: Appraisal Stuff, Resources Tagged With: appraisals in Sacramento, bad real estate advice, blue bathrooms, buyer behavior, Jonathan Miller, national stats, real estate advice, Sacramento Real Estate Appraiser, solar salesman, Zillow

Eating tacos and 10 housing market truths

September 26, 2016 By Ryan Lundquist 6 Comments

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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Filed Under: Market Trends, Resources Tagged With: appraisal in Sacramento, Appraised Value, bifurcated market, housing market trends, Jonathan Miller, negative market trends, positive thinking in real estate, range of value, real estate advice, real estate bubble, Sacramento appraisals

An open letter about celebrity flipping seminars

May 31, 2016 By Ryan Lundquist 34 Comments

Dear Public,

Last week I got an invite to a celebrity flipping seminar. That’s right, I can go learn how to flip houses from Tarek & Christina, the stars of HGTV’s Flip or Flop. Being that this is the second celebrity event to come to town this year, let’s talk about some of the dangers of these events and the real temperature of the flipping market. Please note: I’m not angry. I’m not a hater. I’m not jealous. I only want to give thoughtful commentary for the sake of others.

Celebrity flipping event HGTV Sacramento Appraisal Blog

Some things to know about these events

1) The reality stars won’t be there: This may come as a surprise, but the stars are not likely going to be there unless you consider a video appearance as being present.

2) The goal is to make money off you: The event is designed to whet your appetite only to invite you to go deeper by paying for courses. From the reading I’ve done it sounds like the next step costs $1,000 to $2,000, but some students end up spending far more over time ($5000+ easily). The event will feel good and you’ll probably be inspired, but make no mistake the real goal is to get you to open your wallet.

3) Flipping formulas don’t work everywhere: There is no such thing as a flipping model that will work in every location and every type of housing market in the United States, yet this event is being hosted in many cities and states. Moreover, it may be wise to be cautious about listening to a company coming from the outside, knowing far less about the local market, and using a celebrity’s star power to talk about flipping.

4) It’s no longer a foreclosure market: The market used to be full of bank-owned properties, so it used to be much easier to buy low-priced homes to make a quick buck. For example, in 2009 over 70% of all sales in Sacramento County were bank-owned, but now that number is 3%.

5) Experienced investors are struggling to find good deals: This event touts attendees will “gain insider access to private pre-auction real estate inventories.” Keep in mind even seasoned investors are struggling to find good deals right now because housing inventory is sparse and the foreclosure market dried up. Just last week I talked with an investor who was once easily in the top 10 in my market a few years ago, but is having a hard time finding deals lately. This doesn’t mean flipping is impossible, but it’s currently a really competitive market. That might be good to know before forking out thousands of dollars so you can “retire rich”, right?

6) More skill is required: Today’s market in flipping is much different than it used to be. A friend on Twitter said it perfectly: “The anybody flip market has dried up. It’s a contractors-special flip market now. Serious add-value needed.” I agree with this as today’s flippers often need to add square footage, add a second bath, maybe do a more substantial kitchen remodel, etc… It’s often not just a matter of picking up a property, putting on some “lipstick”, and re-listing it. The rules have simply changed since the “foreclosure flood” ended. In short, it takes more skill to flip in today’s market.

My advice? Be careful. We all want financial freedom, but you could easily spend thousands of dollars on these seminars to obtain “secret flipping knowledge” (that you can probably get for free). If you want to get into flipping I suggest meeting investors in your local market and scouring the forums on BiggerPockets.com for free flipping advice.

I hope this was helpful.

Sincerely,

Ryan

Questions: What is your favorite HGTV show? Did I leave anything out? What point resonates with you the most? If you’ve attended an event like this, was it valuable? If you are currently flipping properties, what advice would you give to a newbie? Any suggestions for places to meet local investors?

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Filed Under: Resources Tagged With: appraisals Sacramento, appraiser in Sacramento, bank-owned sales, celebrity flipping seminars, Flip or Flop, flipping market in Sacramento, Flipping Sacramento, HGTV, honest advice, investors, low inventory, real estate advice, REOs, Tarek & Christina

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