No. A property is worth what it is worth regardless of being distressed or not. With that being said, when a house is a short sale it may need to be marketed at a more aggressive price level to dump the property before a foreclosure date or offset any negative perception in the market for being a short sale. Notice though we’re talking about an aggressive ”price” and not “value”.

Here’s a good question to ask. If a short sale was not a short sale, would it sell for more? The answer is very often “yes” and that leads us to a better picture of what market value is. The truth is that properties are frequently marketed as short sales and end up generating little interest before resulting in foreclosure. But then after these same houses end up as bank-owned they generate very quick offers at or above the original short sale listing price. Of course part of this could be banks not cooperating with the short sale process and buyers tiring of waiting for months for the deal to close, but it’s hard to ignore that short sales often (not always) sell at lower levels.   

Case-in-point: I appraised a house recently in the City of Galt where competitive properties in the neighborhood showed a distinct difference between short sales and everything else. Comparable non-distressed properties were selling around $105,000-$115,000, REOs were selling mostly between $85,000-$100,000 and short sales were selling closer to $85,000-$90,000 near the bottom of the competitive range. It’s certainly true that condition and quality of updates played a role in the price differences, but it’s not an accident either that short sales were consistently finding their place near the bottom of the market.

Why is this important to understand?

1. Appraisers:  From the appraisal standpoint, if short sale comps are used in an appraisal report (without an adjustment upward), then the value in the report may be lower than what it should be. The value could really be a “quick sale” value rather than “market value”. That’s not good on many levels. Please understand though that short sales do not always sell less than fair market value, so an adjustment upward is not always warranted in an appraisal. It all depends on what is happening in the market.
2. Investors:  I just spoke with a Sacramento investor yesterday who has been growing frustrated to see some of his properties compared to bottom-of-the-market short sales by appraisers. This investor found me online and he called me to see if I had any advice on how to deal with his situation. That’ll be a different blog post, but I did give him some tips, a few which I mention below.  
3. Real Estate Agents:  I recommend real estate agents (and investors) provide a detailed list of all updates to appraisers (with costs if possible). Send this via email or provide in person to the appraiser. You can also discuss any relevant marketing information (ie.. “There were 4 full-price offers in 3 days and I am still getting calls and back-up offers”). Lastly, feel free to share market research and properties that helped you establish your listing price. Don’t tell the appraiser which comps to use and how to do his job, but rather share data that helped you establish your price so the appraiser might understand your point of view. You are allowed to talk with appraisers about property specifics and the real estate market, but don’t coerce and pressure for a certain value.
4. Sellers:  Know your market if you are selling. You will have to compete with distressed properties around you, which can impact your price, but that doesn’t necessarily mean you have to price your property the same as neighborhood short sales and REOs. A trusted real estate agent or pre-listing appraisal should be able to give you guidance to understand the market. Misunderstanding what the market is doing can cost you dearly.

What do you think? Agree? Disagree? Any stories to share?  

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook or subscribe to posts by email.

Is there a price difference between bank-owned sales, short sales and regular sales in the Sacramento area? Usually there is, but the level of difference really depends on the neighborhood. The following two graphs are taken from pages 10-11 of The Wright Report and they show average sales price by type of sale.

Based on these graphs for the Sacramento area, there is an obvious difference between conventional sales and REO & short sales, don’t you think? Of course we need to consider that there could be condition issues that warrant a price variance too since many bank-owned sales are not in pristine “move-in” shape. But overall the difference is fairly obvious.

Neighborhood Mini-Case Study: Let’s look at a particular neighborhood to get a closer view of distressed vs traditional sales. The data below represents the “Bridgegate” model in Sun City Lincoln Hills. Less than 30% of all sales in Sun City Lincoln Hills last year were distressed, which is a low percentage for the Sacramento area. However, even with a lower distressed percentage, if appraisers and agents do not consider all the data points, it can be easy to get the value or marketing price wrong.

• REO sale on 02/28/2011 – $212,000 (cash)
• Traditional sale on 05/13/2011 – $248,000 (conv/20% down)
• Traditional sale on 06/17/2011 – $230,000 (FHA/ 2 days on market)
• Active traditional sale: $239,000
• Pending traditional sale: $359,900 (outlier: massive upgrades w/ a view)

It looks like the bank-owned sale sold at the lowest end of the market because it is not consistent with the rest of the sales or listings. At the same time, the latest traditional sale sold in only two days and that also might not represent the market, right? There was no short sale, but it would not be surprising to have seen a short sale sell anywhere from $220,000-$230,000. There are a whole host of value issues to consider for the properties above, and one of them looks to be the nature of the sale – whether distressed or typical (and even how long the property was marketed). A market may be driven by foreclosures, but if we assume that across the board, we could really get an off-base picture of the market.

It can be very challenging to see any differences between distressed and regular sales in a neighborhood where the market is far more saturated with REOs and short sales (say 95% of all sales were distressed), but ultimately appraisers and agents still need to do their homework and use the right data in a neighborhood to correctly interpret the market because there is usually a difference. Typically in the Sacramento area we see traditional sales on top, then bank-owned sales and then short sales. Agree? Disagree?

Implications for the Difference between REO and Traditional Sales:

1. Avoid REOs in appraisal reports: REO sales should be avoided in appraisal reports where possible. However, many areas in Sacramento have a percentage of distressed sales (bank-owned + short sales) near 70%, so it’s not always possible to use only traditional sales. I just appraised a condo recently and 35 of 36 sales over the past year were distressed.
2. Note the difference: If REO sales are used in an appraisal report and there is a difference noted in the market between distressed and traditional sales, an upward adjustment should be made (or at least less weight given to the distressed sale). The same principle applies to selling a property. A property is not worth less because it is a short sale. It is worth what it is worth, but it may need to be marketed more aggressively to offset any stigma in the market and avoid foreclosure. If the short sale was not a short sale, would it sell for more? That is the critical question to ask and leads us to a better picture of what market value is.
3. Marketing Strategy: Sometimes a property does not generate interest as a short sale, but that does not mean it is not worth the listing price or more. Short sales tend to have a stigma among buyers, so they often need to be priced more aggressively to generate interest. Moreover, it is very common to see short sales generate very little interest at a certain price, but the same property will sell quickly as an REO at that same price. The listing agent and/or home owner need to understand the market in order to set the right price for the property, whether a short sale, REO or traditional sale.
4. Quick Value vs. Market Value (tax appeals / FSBO): Avoid using only distressed sales when appealing your property taxes or listing your home as a FSBO. These sales may not represent the market. If they don’t represent the market, then you’re probably focusing on a ”quick sale” value instead of “market value”

How have you seen foreclosure sales impact pricing in a neighborhood? What other implications do you see when we misinterpret the market?

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. 

I recently came across yet another water spicket left on at a bank-owned property. This particular spicket was located in the backyard and was probably spewing water for a few days (despite the side gate being locked –> meaning someone had to jump the fence to turn this one on). The damage? At least half the crawl space had a couple inches of standing water. No bueno.

Why does the water get left on at foreclosed properties?

A) Disappointed owners wanting to stick it to the lender.
B) Squatters leaving their mark.
C) Vandals having “fun”.
D) Youth who don’t realize the costs and responsibilities of the adult world.
E) An accident.

It’s too bad things like this happen because if there is significant damage, the property will likely sell for less, and thereby hurt the value of other properties nearby. Foreclosure is such a difficult reality for so many in our local market. In no way am I trying to minimize the real pain that families go through when they have to let go of their property. I think by now we all personally know quite a few people who have been through the foreclosure process. I’m only thinking philosophically about why things like this happen. What does water being left on tell us about human behavior? What’s the psychology behind water faucets being left on?

UPDATE: Since sharing this post on my Facebook page this morning, two REO agents mentioned that winterizing has been the primary cause of running faucets. Interesting.

What’s been happening in the Rancho Cordova real estate market? I’d like to give you a glance below at the overall tend over the past few years as well as some current data tidbits too. Keep in mind that a specific property in Rancho Cordova may or may not fit in with the general trend shown below. 

As you can see, when looking at all sales from 2006, property values have clearly declined over time. There is a very obvious downtrend, wouldn’t you say? Additionally, there is a wide value spectrum too, which represents a big difference in neighborhoods like White Rock, Lincoln Village, Walnutwood, La Loma, Stone Creek, Sunriver, and Anatolia.

Let’s take a closer look at the 95670 zip code in Rancho Cordova(not Gold River – that’s a different market). Sometimes sales in Gold River and Rancho Cordova are grouped together on graphs because they have the same zip code, but that’s not proper in my opinion. Regarding the 95742 zip code, we can take a look at data in a future post if you’d like (just let me know). Overall it looks like there has been a decline in sales prices over the past year, though not as steep of a decline as in previous years. The trend toward more stability is similar to Citrus Heights.

Now let’s put an age parameter on the data to see if there is any difference between properties built before and after 1990. As you can see when comparing the graph above with the one below, newer areas in the 95670 represent the highest sales in the zip code (this would be basically be the Stone Creek area and Capital Village).

Here is a spectrum of price per square foot for all sales in Rancho Cordova (95670) over the past year. Remember though, don’t just take your square footage and multiply it by the average price per square foot. That’s not always the best idea to determine the value of your house. See my previous post entitled “Is price per square foot an accurate way to measure the value of a house?”

Specific Rancho Cordova Real Estate Market Data (95670 zip code):

• 165 sales over the past 90 days.
• 89 current active listings
• 55 current active short sale listings
• 42 current short sale contingent listings (this means an offer has been submitted already)
• 39% of all sales over the past year were REO (bank-owned)
• 22% of all sales over the past year were Short Sales
• Roughly 61% of all sales were distressed in some regard (REO or SS)
• Unemployment in Rancho Cordova is 14.6% per EDD (as of 11/2010)
• Unemployment in Sacramento County is 12.8% per EDD (as of 11/2010)

By the way, here is a video from the Rancho Cordova Historical Society with over ten minutes of old photos and maps of Rancho Cordova.

If you’ve been looking for Rancho Cordova real estate information, I hope this was helpful for you. What do you see in the data above? Does anything stand out to you? Keep me posted if you have any questions or a need for a real estate appraisal or property consulting. I am a member of the Rancho Cordova Chamber of Commerce, and I do appraisal work for estate planning, probate, divorce, second opinions, FHA, property tax appeal, private loans, bankruptcy, and so much more. Call 916.595.3735, email me, or visit my company website.

I am hired periodically from local real estate agents and home owners to do an appraisal during a short sale situation. Sometimes a bank will absolutely not budge to accept an offer lower than what they deem to be acceptable (even though their price is way too high), so the Listing Agent or home owner will hire me to do a full appraisal. The goal for the agent and owner is to show the bank what true market value is so that the sale can hopefully proceed at a more realistic price based on the market rather than a number the bank has picked. For example, if a bank says they will accept $200,000 for a property, but all other sales are at $175,000, a solid appraisal could potentially give the bank a realistic view of the market and thus help the home owner avoid foreclosure.

Should you hire an appraiser during a short sale situation? My advice is to first attempt to negotiate with your bank. Don’t spend money on an appraisal if you don’t have to. If the bank will absolutely not budge on their price though, and your sense is that market value is really lower than what they are saying, then it’s time to hire a local and experienced appraiser to provide you with a credible and detailed appraisal. 

Here is an example of some graphs below in a Sacramento neighborhood based on research I did during a short sale for a 2-bedroom house. All offers on this property had come in 10-15% lower than the bank’s approved number, but the bank would still not accept a lower price on this property. 

As you can see in the graphs, over the past few years and recently, the 2-bedroom units have tended to sell at the lowest end of the market. In this particular case, the final appraised value ended up being about 10% less than what the bank was willing to accept, which is very helpful and relevant information for the bank to consider. When dealing with a huge number of short sale and foreclosure inventory, a bank will not always be in touch with market trends, particularly when something like bedroom count might make a huge impact on the value of a property.

If you have any questions or a need for an appraisal or consulting in the Sacramento area, give me a call at 916.595.3735, send me an email, catch me on Facebook, or see my company website at www.LundquistCompany.com.

In May I posted about a major bank-owned fixer in the Oak Park area of Sacramento. Well, round 2 of video is now here as I shot the following promo a couple days ago as I met Housing Group Fund at this 36th Street property to watch tressels be installed.

If you cannot see the video in your RSS or email, click HERE. Thanks for watching. What do you think?

I recorded the video with my Flip camera, and the cool thing is my client kicked down a little money for me to do a video for them this time around.

I’m doing some research in the Meadowview area of South Sacramento right now, and I wanted to share a trend graph. Check out the past three years of sales for all properties south of Meadowview Road, east of Freeport Blvd, west of Detroit Blvd, and north of vacant land (excluding newer construction built in the past ten years – that’s really a different market despite being located in the same boundaries).

Based on the graph above, when do you think a wave of foreclosures hit the market in the past three years? You got it right. The market was really hurting during the last quarter of 2008 and the first couple quarters of 2009. There is evidence that the market was already struggling in 2007, but the decline really went into high gear in the latter part of 2008. This release of the foreclosure floodgates caused a hefty and quick decline in property value as can be seen above. You can see also that the market has since since experienced some recovery. In my opinion, beyond inventory decreasing, one of the things that has helped to shape property value over the past couple years in this neighborhood is investors purchasing and flipping properties. There have been an enormous amount of flips in this area.

If you have any questions, let me know. You can give me a call at 916.595.3735, email me, or comment below.

I wanted to give you a little tour of a dark boarded fixer-upper house in South Sacramento. Honestly, sometimes it feels a bit creepy to inspect houses like this because utilities are off and every window and door is boarded with plywood. You never know what or who might be lurking in the darkness, right? 

As always, I had permission from my client to shoot and share video. I take client confidentiality very seriously for every appraisal I do, and I never share information on my blog or elsewhere that is confidential.

Let me know if you have any questions. Call me at 916.595.3735, send me an email, or connect with me on Facebook or Twitter.

What do you think of the video?

Let me give you a little tour of a South Sacramento bank-owned property. Why do foreclosures often sell for less? Beyond any stigma for being ”bank-owned” and banks pricing these properties to move quickly, there is a very obvious reason why these REOs sell for less. They’re often not in very good condition – at all.

This is a very typical foreclosure scenario, so it’s no wonder why arms-length sales are usually not comparable and tend to sell for more. They’re usually in better condition and they come without a “distressed” nature.

By the way, what do you think of the bathroom. Is that mold? What is it?

My client did give me permission to share this video, by the way. If you have any questions, let me know. Give me a call at 916.595.3575, shoot me an email, or catch me on Facebook.

While appraising a triplex in Sacramento I came across an interesting property history of another nearby triplex in the “Gardenland” area of Sacramento in the 95833 zip code. As you can see below, this property has changed hands quite a bit in the past five years, and it has gone into foreclosure twice too. This is actually a fairly common phenomenon because investors and first-time buyers purchased properties several years ago when property values had already come down since 2005, but then the economy took a turn for the worse. Property values decreased even more and unemployment increased dramatically also.

Sales History of a Triplex Property:

10/01/2010  $117,500 (sold on MLS as bank-owned)
08/11/2010  $60,376 (foreclosure transfer)
02/28/2008  $180,000 (sold on MLS as bank-owned)
07/25/2007  $306,000 (foreclosure transfer)
06/22/2006  $399,000 (sale – not on MLS)
05/27/2005  $360,000 (sale – not on MLS)

It’s remarkable to think this triplex once sold at $399,000 and yet closed days ago for $117,500. This property seems to tell the story of the housing bust and current economy, huh? What do you see?

I inspected a condominium last week in the Hillcrest Park neighborhood in Vallejo, CA. I wanted to share a graph of sales within the subdivision over the past five years. What do you see?

While in the Hillcrest Park neighborhood, I shot the following video as I was considering the vast decline in property value and the impact foreclosure can have on a neighborhood – even beyond real estate values.  

Condominium properties have been hit hard in many niches within the Greater Sacramento Region because the price of single family detached homes has become so much more affordable, and an HOA fee plus a mortgage payment often does not make good economic sense for buyers. Why pay more for a condo when you can get a detached home without an HOA fee, right? That’s often the rationale.

By the way, if you are in the market to purchase a condominium, I would strongly suggest you research the health of the HOA before making a purchase. It would be tragic to purchase a condo only to find out the association is bankrupt.