An open letter to buyers in an aggressive market

Dear Buyers,

Yesterday I talked with a few buyers who are in the trenches of the market. One is feeling frustrated at not getting offers accepted, and the other is starting to feel like affordability is beginning to vanish. I was actually taken aback with the sense of hopelessness felt by the latter individual, so I wanted to share some perspective as an appraiser when it comes to making offers in an aggressive-feeling market. Whether you are in Sacramento or elsewhere, I hope this helps. Any thoughts?

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Advice for buyers in an aggressive market:

1. Shop below your price range: We are in a market where multiple offers are commonplace in many price ranges and neighborhoods. This means if you are qualified up to $300,000 and money is tight, you might want to consider homes that are priced $270,000 to $300,000 instead of just $299,000. This allows you some space in case there is a bidding war.

2. Expect to get beat: Sorry to be a downer, but you probably aren’t going to get into contract on the first home you offer on. Remember, real estate is a bit like dating. You often don’t marry the first person you go out with. So take heart and expect you’ll submit many offers until something sticks.

3. Know when listings usually hit the market: There is a season in real estate, just like there is a season for baseball, weather, or elections. It’s true inventory is sparse, but it’s also true listings don’t start to hit their stride until March through August. Sometimes February will be a stronger than usual month, but we still don’t see the bulk of what’s going to hit the market until May through July / August. If you don’t believe me, look at the light green listings below over the past few years. In short, don’t freak out in February if there isn’t much on the market. 

listings in sacramento - sacramento appraisal blog

4. Don’t let sensational headlines stress you out: Headlines these days often talk about how hot the market is, but my advice would be to read stories carefully and ask a few real estate professionals what they think too. For instance, one headline says “Sacramento will be one of the hottest markets in the nation” as values are projected to increase by 7% in 2017. This one story has seriously saturated the market and I’m hearing this sentence about everywhere I go. The irony though is a 7% price increase is about what happened in 2016, which means the headline could have just as easily said, “The market looks like it’ll do about the same thing this year.” I don’t say this to gloss over how competitive the market is, but only to highlight we need to read articles carefully and think critically rather than immediately stress out.

5. Don’t mistake low-ball pricing for the market: Some properties are attracting 15-20 offers, but my sense is when that happens it’s usually more about low pricing than the actual market. This week I saw a property listed at $290,000 that probably should have been listed at $350,000. We can look at the 15 offers and bemoan how intense it is out there or we can realize this one was priced ridiculously low.

6. Be careful of bidding up to “no man’s land”: While it’s plausible to think the contract price might get pushed up a bit with multiple offers, don’t forget to be realistic about what the home is actually worth. If you know you don’t have cash to pay for the difference between a realistic appraised value and the contract price, you might not want to offer that high then. Somehow you’re going to need to stand out as a buyer to the seller, but an unrealistic offer well beyond a reasonable value probably isn’t going to help you in the long run.

7. Realize cash doesn’t always win: There is a false idea that cash investors from the Bay Area are beating out financed buyers all the time – especially those bringing very little money to the table. The truth is 1 in 4 sales last year in Sacramento County were FHA buyers who put down 3.5% (or less if they used down-payment assistance). Keep in mind only 14% of all sales were cash during this same time. Moreover, 27.4% of all sales under $500,000 had FHA loans in 2016 in Sacramento County.

8. Find a way to stand out: There could be multiple offers, so you need to figure out a way to stand out and make a positive impression on the seller. Of course the strength of your offer is the first place to start, but beyond that find a way to make an emotional connection with the seller too if possible. I might recommend brainstorming ideas with your agent. When my wife and I bought a house a couple of years ago there was actually a higher offer on the property, but the seller accepted our offer instead. When touring the home we were fortunate to meet the seller and we hit it off a bit. During the conversation the seller mentioned her son was going to start at a new private school. Anyway, when we submitted the offer we wrote a personal letter complimenting the house and reminding the seller who we were. We also looked up the school and found it was $1400 per month. We then wrote in our offer we were going to give the seller an extra $1400 at the close of escrow to help pay for her son’s school (The underwriter actually freaked out because she’d never seen a buyer do that). I’m not saying you need to do something like this, but in our case it definitely made a huge impression. It showed that we listened, we truly cared, and we were very serious about the home. 

9. Listen to your agent: You probably know the market pretty well by now because you’re scouring listings in an obsessive compulsive way on Redfin, Zillow, and MLS. This also means you are most likely going to find your eventual home before your agent does. That’s how it works these days. Just remember finding the home is the easy part, but the most important thing your agent can do for you is negotiate on your behalf and offer professional guidance and advice along the way. Will you listen?

I hope this was helpful.

Sincerely,

Ryan

Questions: What piece of advice resonates with you? What is #10? Did I miss something? I’d love to hear your take.

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An appraiser’s take on that $250,000,000 house

Have you seen that house for sale at $250,000,000 in Bel Air? After checking it out I’m certainly taken aback with its features, but I also have some things on my mind as an appraiser. Let’s kick around some ideas together. Any thoughts?

Bruce Makowsky BAM Luxury Development

Image Source: Bruce Makowsky/BAM Luxury Development

1) Listings vs Sales: Let’s be real. This listing isn’t a big deal unless it sells. If it only sits on the market at $250M, then it wasn’t a $250M house. We say things like, “This is the most expensive house in the United States,” but it really might only be one of the most expensive listings unless it sells.

2) Fat Concessions: This house comes with enormous concessions. According to Bloomberg, the listing comes with “150 pieces of original artwork, $30 million worth of classic cars (owner’s estimate), a dozen high-performance motorcycles, and a deactivated helicopter.” At the very least the owner is giving the buyer $30M in personal property, so it starts to sound like we might be dealing with a $220M house instead. This is exactly why appraisers ask agents if there were any concessions or credits in the contract price. Would the house have sold at the same price if the personal property was not included? In other words, did the sale at $500,000 only close that high because there was a $50,000 car included in the sale? If all the comps are around $450,000 and there is one “Lone Ranger” at $500,000 (with a car), then we probably have to subtract that car out of the purchase price if we’re going to use it as a comp. Here’s more information on concessions.

3) Publicity & Overpricing: For the sake of conversation let’s assume this house is overpriced. On one hand the benefit of the sensational figure of $250M is the property has generated an incredible amount of publicity. That’s huge in real estate because it can help find the right buyer. But on the other hand, if publicity doesn’t lead to contracts, then it’s really just temporary attention. It’s like Eddie Murphy’s former house in Granite Bay that was listed for $12M in January 2014. The property got some air time and print for sure, but guess what? After 954 days it is still on the market for $12M. Thus we remember the importance of being priced realistically according to the market. Does the price line up with other competitive sales and current pendings / listings? Or is the property priced far differently than anything else that is similar? Whether values are increasing or declining, we have to ask these questions and pay close attention to realistic comps (that’s what an appraiser is going to do). In this case I really don’t know if the property is overpriced, but the inclusion of personal property  at $30M+ is a tell that it might be.

4) Bathroom Adjustment: This home has 38,000 sq ft and a whopping 21 bathrooms, so if we see a comp with 20 bathrooms, we should make a value adjustment, right? I mean, we were taught by our mentors to give a standard $5,000 or $10,000 adjustment any time there is an extra bathroom, so there has to be one. Okay, hopefully you get I’m being facetious. This example reminds us to not give token made-up adjustments for differences in bedroom count and bathroom count unless it’s really reasonable to do so (and there is support to do so in the market). In this case I would be shocked to see someone adjust such a petty amount because it’s not like billionaires walk in there and say, “Shoot, I would’ve paid $10,000 more if there were at least 22 bathrooms.” More on adjustments here.

I hope that was helpful or interesting.

Questions: What else stands out to you? What is #5? I’d love to hear your take.

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Predictions, Trump’s impact on real estate, and a Sacramento market update

I reached the point of political exhaustion last week in a big way. This doesn’t mean I’m tuned out, but right now I find myself glossing over Facebook rants or skimming certain conversations because they’re only going lead to arguments. Yet still I hoped we could chat briefly about politics and real estate – without unfriending each other. Then let’s take a deep look at the Sacramento market. Any thoughts?

18345737 - the white house, view from the south, home of the president of the united states of america in washington dc usa

Huge Data Fail & Predicting Real Estate: The media laid an egg when it came to predicting the presidency. In fact, it seemed like many political pundits were shell-shocked when election results were coming in contrary to their predictions that Hillary would win. I don’t mention this so we can argue, but only to remind us of the danger of predicting, being wrong, and then having pie on your face (losing credibility). If some of the best political minds in America couldn’t predict the outcome of the presidential race, can we really predict the future of the real estate market with certainty?

Trump Presidency and Newlyweds: I’ve been asked a couple of times this week how a Trump presidency has impacted real estate so far. My answer is simple. Imagine asking a newlywed couple after one week of marriage to tell us how their marriage is going. It’s only been a week though. We probably need more time to really know how married life is going to unfold. The same holds true with Trump’s impact on real estate. We haven’t had enough time to see waves in the market yet, and nobody really knows how his policies will affect housing. There are many predictions right now, especially about repealing Dodd-Frank, but those are only guesses (see paragraph above).

Any thoughts?

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I figured it might be helpful to use while talking on the phone. I’m not sold on the look, but is this a step in the right direction? Download here.

Quick Market Summary: A brutal election season has ended (thank God), and many Americans feel worn out, but the market doesn’t feel that tired. The truth is when we look at the stats we are seeing about what we’d expect at this time of year. Ultimately prices are down 1-3% from the height of summer, it took two days longer to sell a house last month, and inventory is down 14% in the region from last year. It’s easy to see softer stats and assume the market is beginning to crash, but the market softens like this almost every single year (besides 2012 when Blackstone and friends gutted the market and we didn’t have a normal fall season). I’m not saying values are not inflated, affordability isn’t becoming more of a factor, or even the market won’t turn at some point, but only that things feel fairly normal right now for the season. Sales volume has been strong this year in Sacramento and is up slightly from last year despite cash and FHA volume both dropping by 7-8%. Inventory is anemic and there really isn’t a quick solution to deal with that problem, but buyers are still finicky about price despite very few homes being listed on the market. Sellers don’t get this, so they try to command whatever price they want, but that rarely works in this market. Keep in mind buyers are scouring Zillow and Redfin every single day, they are visiting properties with their agent, they are getting beat out on other homes, and they are often looking for MANY months before getting a contract accepted. Sellers frankly are not doing anywhere near this level of research, which is one reason sellers are less in tune with proper pricing. Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

  1. The median price is $320,000 and is down a few percent from the height of summer, but it’s 10% higher than last year.
  2. The average price per sq ft was $202 last month (down 1% from a few months ago, but 8.5% higher than last year).
  3. There were only 38 short sales and 31 REOs in the county last month.
  4. Sales volume was 5% higher this October compared to October 2015.
  5. It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 5 days longer to sell).
  6. Sales volume is up slightly this year compared to last year (1% or so).
  7. FHA sales volume is down 7% this year compared to 2015 (25% of all sales were FHA last month).
  8. Cash sales are down 8.5% this year (they were 12% of all sales last month).
  9. Housing inventory is 12% lower than the same time last year.
  10. The average sales price at $353,000 is down about 1% from the height of summer (but is 9% higher than last year).

Some of my Favorite Graphs this Month:

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SACRAMENTO REGIONAL MARKET:

  1. The median price was $357,000 in October. It went up slightly from September but is down 3% from the height of summer (up 9% from last year).
  2. The average price per sq ft was $208 last month. That’s down about 1% from the height of summer and 7% higher than last year.
  3. It took 2 days longer to sell compared to the previous month (but 5 less days compared to October 2015).
  4. Sales volume was 4% higher this October compared to October 2015.
  5. FHA sales volume is down 8% this year compared to last year.
  6. Cash sales were 13.5% of all sales last month (FHA sales were 21%).
  7. Cash sales are down 7% this year compared to last year.
  8. Housing inventory is 14% lower than the same time last year.
  9. REOs were 1.8% and short sales were 2% of all sales last month.
  10. The average sales price was $393,000 in October. It’s down about 3% from the height of summer but 8% higher than last year.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

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PLACER COUNTY:

  1. The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
  2. The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
  3. It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
  4. Sales volume was about 3% lower this October compared to October 2015.
  5. FHA sales volume is down 16% this year compared to last year.
  6. Cash sales were 17% of all sales last month (FHA sales were 13%).
  7. Cash sales are down 3.6% this year compared to last year.
  8. Housing inventory is 13% lower than the same time last year.
  9. Both REOs and short sales were each 1% of sales last month.
  10. The average sales price was $481,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

placer-county-sales-volume-by-sacramento-appraisal-blog

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interest-rates-inventory-median-price-in-placer-county-by-sacramento-appraisal-blog

placer-county-price-and-inventory-by-sacramento-appraisal-blog

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What impact do you think Trump will have for the real estate market (if any)? What are you seeing out there? I’d love to hear your take.

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Tips for working with appraisers when they’re really busy

It’s been taking appraisers longer to get their reports done lately. Have you noticed? In many parts of the country appraisers have simply been flooded with work, so quick turn-times have suffered or vanished. In light of this I wanted to give some tips for working with appraisers during times like these. This is really geared toward appraisals for loans instead of private work (divorce, estate, litigation, etc…). Anything else you’d add? Feel free to comment below.

Working with appraisers - sacramento appraisal blog - image purchased and used with permission from 123rf

Tips for working with appraisers when they’re really busy:

  1. Turn-times: Sometimes agents say, “We really need the appraisal in three days because that’s when contingencies will be removed”. But the appraiser just got the order yesterday and the lender may be giving 7-10 days to complete the file. For whatever reason the appraisal was simply ordered way too late in the loan process (not the appraiser’s fault).
  2. Communication 101: If an appraiser emails you, I highly recommend emailing back. The appraiser may be trying to save time by avoiding a phone call. Or if an appraiser calls you, just call back (even if you don’t like to use the phone). These days it seems like good business etiquette to try to communicate with people in their preferred method. I know that sounds petty or even offensive, but it’s true. Obviously if an appraiser is asking a million questions via email, just email back and say, “I’d love to chat, but let’s make this a quick phone conversation instead.”
  3. Don’t call incessantly for status: It doesn’t help speed up an appraisal when everyone is asking for status updates. On a practical note, keep in mind appraisers don’t owe status updates to anyone but the client.
  4. Information up front: Take a few minutes to answer common questions and get this information to the appraiser (preferably during the inspection). I recommend using my Information Sheet. Sometimes agents wait to share information about the property until the value comes in too low. Why not be proactive instead about telling the story of the marketing of the property on the front end of the transaction? This just might save time in the transaction too by avoiding challenging a low appraisal.
  5. Offer a rush fee: If lenders or AMCs are concerned about turn-times, one of the best things to do is offer a reasonable fee to begin with AND also a rush fee. Right now many appraisers are still getting blasted with low-ball appraisal fees from Appraisal Management Companies. During such a busy season appraisers are frankly turning these orders down and gravitating toward working with clients who pay better fees and are easier to work with too. The truth is some AMCs are spending extra days or weeks searching for an appraiser who will take a lower fee (and then blaming appraisers for taking too long). Remember, a Borrower might fork out good money for an appraisal, but how much of the fee is the appraiser actually getting? If you find an AMC is scraping way too much off the top, maybe it’s time to do business with a lender or AMC who is actually paying the appraiser a reasonable fee. On a related note it seems like the market is experiencing an upward fee correction since appraisal fees have been undercut by AMCs for years.
  6. Longer escrows: It can be frustrating that turn-times change because we like to think they’re set in stone or always less than a week, but that’s what markets do. I find something similar has happened with contractors locally as many are absolutely swamped. In short, it might not be a good market to promise a 30-day escrow.
  7. Do repairs up front: If an appraiser is busy, the same appraiser may also need more time to go back out to the property to verify repairs were made. If you know there are obvious repairs, it might be a good idea to have the owner make them in advance so you can avoid a re-inspection. If you are concerned about repairs, reach out to a local appraiser or a loan officer before the property hits the market so you can maybe glean some wisdom.
  8. The little stuff: Some of the most common repairs are actually installation of smoke detectors and carbon monoxide alarms (in California). Even if the appraiser doesn’t care about these things since they have nothing to do with value, a lender may be asking the appraiser to verify they are there. As an FYI, it’s been law for 5 years in California for CO alarms to be in most residential properties, yet this is still one of the top repair issues.

I hope this was helpful.

Podcast with 2 Agents: By the way, last week I did a podcast with two local real estate agents (The Two Jakes). You can give it a listen below (or here) and check out iTunes or the Worley Real Estate website.

Questions: Anything else you’d add? Did I miss something? I’d love to hear your take and any stories you have to share.

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