Seeing the forest & the trees in real estate: Part II

Two weeks ago I talked about seeing the forest through the trees in real estate. The big point was it’s easy to look so closely at the most recent stats that we don’t see the bigger picture of the market. It’s sort of like noticing only the trees instead of the forest (hence the title). Anyway, in today’s big monthly market update I wanted to show how this concept actually works in real life when crunching numbers in the Sacramento area. Whether you’re local or not, I hope this will be interesting or even provocative for how you think about and share housing trends. I’d love to hear your take in the comments below.

The forest and the trees image - sacramento appraisal blog - image purchased and used with permission from 123rf dot com

Interest Rates & Nerf Battle: Before diving in, I have two quick things to share. Unless you’ve been in a bunker without internet access, you’ve probably heard the Fed finally increased rates. There is some good discussion unfolding on a post on my Facebook page. I’d love to hear your take there or here. Also, in non-real estate news, I recently built a Nerf gun battlefield out of pallet wood for my son’s birthday. Check out a quick video tour at the bottom of the post (or here).

Recommendations for reading THE BIG MONTHLY POST: Compare the numbered bullet points to get a sense of the latest numbers (the trees) with older stats (the forest). If you’re short on time, just skip the graphs or download them for later use. The big question today: What difference does it make to look at both recent numbers and year-old numbers? If you’re new here, once a month I do an in-depth market update, whereas other posts are short and sweet. I know the post is long, but it’s on purpose (thanks for reading).

SACRAMENTO COUNTY:

The Latest Numbers (Trees):

  1. DOM: It took 3 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 18% from the previous month.
  3. Inventory: Housing inventory stayed about the same as the previous month.
  4. Median Price: The median price has been the same for 7 months.

Last Year’s Numbers (Forest):

  1. DOM: Last year in November 2014 it was taking 6 days longer to sell.
  2. Volume: It’s normal for volume to decline from October to November, so highlighting an 18% “decline” is silly. The bigger story is volume this November is actually 12% higher than last November.
  3. Inventory: Current inventory is 36% lower than last year at the same time.
  4. Median Price: The median price was 5.8% lower last year, which reminds us values have seen a modest uptick this year.

Some of my Favorite Graphs this Month:

price metrics since 2014 in sacramento county

inventory - November 2015 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

seasonal market in sacramento county sales volume 2

market in sacramento - sacramento appraisal group

DOWNLOAD 61 graphs HERE: I have many more graphs you can download for study, use in your newsletter, or share some on your blog. See my sharing policy for ways to share (please don’t copy this post verbatim).

SACRAMENTO REGIONAL MARKET:

The Latest Numbers (Trees):

  1. DOM: It took 4 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 20% from the previous month.
  3. Inventory: Inventory increased by 3% from the previous month.
  4. Median Price: The median price is down 1% from a few months ago.

Last Year’s Numbers (Forest):

  1. DOM: It took 5 days longer to sell a house the same time last year.
  2. Volume: Sales volume in 2015 is actually 9% higher than last year. Also, in 2014 sales volume declined 23% from October to November, so let’s not freak out about the 20% “decline” above.
  3. Inventory: Current inventory is 28% lower than last year at the same time.
  4. Median Price: The median price was 9.7% lower last year at the same time.

Some of my Favorite Regional Graphs:

prices in sacramento region - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

days on market in placer sac el dorado yolo county by sacramento appraisal blog

median price and inventory in sacramento regional market

number of listings in sacramento regional market

PLACER COUNTY:

The Latest Numbers (Trees):

  1. DOM: It took 4 more days to sell a house last month than two months ago.
  2. Volume: Sales volume declined 22% from the previous month.
  3. Inventory: Inventory increased by 10% from the previous month.
  4. Median Price: The median price has been jumping up and down for the past few months (generally hovering between $390-400K).

Last Year’s Numbers (Forest):

  1. DOM: Last year it took an average of 5 days longer to sell.
  2. Volume: Sales volume this November was 12% higher than last November.
  3. Inventory: Current inventory is 23% lower than last year at the same time.
  4. Median Price: The median price was 5-7% lower last year at the same time.

Some of my Favorite Placer Graphs this Month:

Placer County sales volume 2 - by sacramento appraisal blog

number of listings in PLACER county - November 2015

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County price and inventory - by sacramento appraisal blog

Quick Market Summary: On one hand the market in Sacramento has been slowing down. This is normal to see during the fall, and we see a slowness with less sales volume compared to a few months ago, increased days on the market, and a slight increase in housing inventory. The bigger story though is how much different the market is this year compared to last year. In 2014 the fall was extremely dull and incredibly overpriced (as evidenced by 300-400+ price reductions every day). This year housing inventory is over 20% lower, sales volume has been roughly 10% higher, it’s taking 5-6 days less to sell a house, and price reductions have been far less of an issue. However, even with strikingly low housing inventory and more glowing numbers this fall, if the price is not right, buyers are not pulling the trigger. Bottom line. Well-priced listings are tending to attract multiple offers, but otherwise there are homes that are being priced higher that are sitting instead of selling. Sellers would be wise to remember prices tend to soften in the fall, which means pricing like it’s the spring probably isn’t a good move.

Nerf Battlefield I built: Okay, now let me give you a quick tour of a pallet wood Nerf battlefield I built for my son’s birthday. Yes, an epic war happened just two weeks ago in my backyard. Check it out below (or here). Locals, if you want to borrow it for a birthday party, feel free to reach out (you have to pick it up, return it, sign a liability waiver, and of course be trustworthy).   🙂

DOWNLOAD 61 graphs HERE: I have many more graphs you can download for study, use in your newsletter, or share some on your blog. See my sharing policy for ways to share (please don’t copy this post verbatim).

Questions: What stands out to you when comparing the latest numbers with older stats? What impact do you think an increase in rates will have on the housing market? I’d love to hear your take.

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4 questions to ask when giving real estate value adjustments

Let’s talk about adjustments. Last month I wrote about being a trigger-happy real estate adjustment giver, and I had some great feedback. One appraiser told me she is going to stop adjusting for some of the very minor stuff like fireplaces and covered patios, and an agent told me his list of adjustments was basically the one I shared as an example of what not to use. It’s great to hear of growth like this, and I love the honesty, yet I think anytime we start talking about adjustments, it can also make us feel insecure because we begin to question everything we are doing. So for the sake of growth and conversation, let’s kick around the topic a bit more. I’d love to hear your take in the comments (or send me an email).

giving real estate adjustments - by sacramento appraisal blog - image purchased and used with permission from 123rf dot com

4 questions to ask when giving real estate value adjustments

Does the adjustment represent how buyers behave? When valuing a property, we adjust the comps when there are value-related differences compared to the subject property. The adjustments are not about what one buyer would pay, but rather what a representative buyer in the market might pay. In other words, if you lined up a group of 100 interested and qualified buyers, and they would pay a difference for that certain feature, we then adjust by that difference. Remember, there is always going to be one buyer who is going to love a feature, and pay way more because of it, but we have to ask, “How much is the market going to pay for this?” Example: House shaped like Darth Vader’s light saber.

Does the adjustment seem reasonable? Take a step back from the adjustment you are giving and just ask, “Is this reasonable?” If you’re giving a $500 fireplace adjustment, does that really seem like a reasonable adjustment, or is it purely made up? Does a $10,000 location adjustment for the busy street really represent what the market is willing to pay? Or does a $25,000 condition adjustment between the fixer and remodeled home make reasonable sense? This is a big question to filter our adjustments through, and I recommend getting into the habit of asking it. By the way, I find sometimes when it comes to condition, the adjustment might be more like 20% instead of $20,000.

Is the adjustment supported? It’s easy in real estate to pull out a list of canned adjustments and start giving them whenever we see any difference between a comp and the subject property. So we see a built-in pool and automatically give a $10,000 adjustment for the difference. Yet we need to do some research in the neighborhood. Is there a price difference between similar homes with and without pools? At times our canned adjustment at $10,000 might actually make really good sense, so it’s perfect to use, but other times we might see a different story of value. It’s easy to get stuck giving that $10,000 adjustment in every case, but this is where we need to let the market speak to us. Research the sales and let them set the tone. This means the adjustment might look different in each valuation. Maybe you’ll have no adjustment at all for a pool if there really isn’t a discernible price difference, while other times you might adjust twice as much as you normally do because the pool is something special and it looks like buyers paid a premium for it. Remember, the goal ought to be to find other homes that actually don’t need any adjustments at all because they are truly comparable. I know that’s a fat chance, but keep that in mind.

Does the adjustment fall in the range of value? As much as we’d like to think there is one perfect and precise adjustment out there to give, it’s most likely we will see a range of value emerge. For example, if we surveyed a neighborhood and found homes with built-in pools were tending to sell between $8,000 to $15,000 higher in price, we have to make a decision. What should the adjustment be in the case of the subject property’s pool? If it’s an older pool, maybe we end up giving a value adjustment closer to $8,000. But if it is a higher quality newer pool we might reconcile the adjustment closer to the top of the range.

I hope this was helpful.

Questions: What is question #5? Anything else to add?

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How much does a busy street impact the appraised value?

How does a location on a busy street impact value? It’s sometimes easy to think a busy street might have only a minimal effect on value of $5,000 to $10,000, but it can actually be quite significant. Let’s take a look at the Arden Manor neighborhood in Sacramento for reference. What do sales on Watt Avenue, a busy 4-lane street, sell for compared to the rest of the neighborhood?

Watt Avenue street view

Arden Manor Neighborhood and Watt Sales - 530 - by Sacramento Appraisal Blog

What do you see when looking at sales over the past ten years?

Arden Manor Sales Since 2008 - 530 - by Sacramento Appraisal Blog

The best way to determine an exact value adjustment for sales on Watt Avenue is to compare similar sales on Watt Avenue to similar sales in other parts of the neighborhood. For instance, if a 1081 sq ft model sold on Watt Avenue, how much did a competitive model sell for on a more standard street without an adverse location? When we find a few data points like that, we can begin to get a sense of a percentage adjustment. However, let’s make some general observations so this doesn’t end up being an exhaustive blog post.

Observations about Value on Watt Avenue:

  1. Sales on Watt Avenue tend to sell at the bottom of the market unless they are updated.
  2. Even when properties on Watt Avenue are upgraded, they don’t sell at the top of the market. You might see the one sale in 2005 though that closed at $385,000. I’m not sure how that happened, but I will say this same property actually just sold the day after I made this graph for $155,000 (not at the top of the market).
  3. If an appraiser or agent adjusted $5,000 for the location difference, do you think that would be enough? Would you only pay $5,000 for the difference? That’s probably not very close, right? For instance, currently there is a renovated listing on Watt Avenue at $169,000, while other competitive sales on standards streets have closed on the lower end at $180,000, but mostly between $200,000 to $212,000. This means a quick conservative adjustment would be closer to $10,000 (6%), but otherwise there are quite a few sales that sold for $30,000+ more (15-20% easily). A reasonable adjustment could only be narrowed down with research, but at face glance $5,000 doesn’t look like it cuts the mustard so to speak.

The houses literally across the street: Arden Park

Arden Park and Arden Manor Sales on Watt Avenue - 530 - by Sacramento Appraisal Blog

The interesting thing about Watt Avenue is that the Arden Manor neighborhood on one side of the street has profoundly different values compared to Arden Park that is literally on the other side of the street. For the most part it looks like there is a difference of close to $100-150K, right? Some properties have sold at similar levels of course, and we have to consider the impact of low-ball bank-owned sales and/or aggressively priced short sales in 2010-2012, but otherwise the value difference is striking.

Things to Remember About Location Adjustments: 

  1. The best way to find out how much a busy street (or any adverse location) is worth is to start comparing sales on a busy street with other similar sales on standard streets.
  2. There is no adjustment that will work for every neighborhood because real estate adjustments are about location, location, and location.
  3. Location adjustments tend to get larger when a market is soft since buyers have their pick of properties, but when inventory is tight, adjustments might be smaller.
  4. If there are no recent sales on a busy street for comparison, go back in time to find older sales. What were those sales selling for at the time compared to other properties on streets with less traffic flow? Get a good sample too because having only one pair of sales isn’t enough to establish a solid adjustment.

Questions: How have you seen location impact value? Any further insight, questions, or stories to share?

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