That place where the internet and real estate values meet

My Grandma never considered the internet when buying her first house, but these days it’s on all of our minds. Think about it this way. Would you buy a house if internet access was going to be impossible for some reason? Assuming we’re not talking about a secluded cabin somewhere, it’s safe to say most buyers would have a huge problem with that (not just Millennials either). Yes, there would probably be a value impact to not have internet, but the really intriguing part begins when we consider that what happens online or digitally at or around an address can also potentially impact value. This wasn’t even a part of the conversation just a handful of years ago, yet here we are.

Guy on computer - Image purchased by 123rf dot com and used with permission by Sacramento Appraisal Blog

Digital World Meets Real Estate: A few months back I heard of a house in Kansas that had 600 million IP addresses pointed toward it. If you don’t know, every computer has what is called an IP address, which is basically a string of numbers to identify that individual computer. Well, in this case due to a company’s digital mapping error it looked like 600 million computers were being used from this one location in Kansas, which led to a whole host of problems for the occupants. As the article states, the owners and tenants have “been accused of being identity thieves, spammers, scammers and fraudsters. They’ve gotten visited by FBI agents, federal marshals, IRS collectors, ambulances searching for suicidal veterans, and police officers searching for runaway children. They’ve found people scrounging around in their barn. The renters have been doxxed, their names and addresses posted on the internet by vigilantes. Once, someone left a broken toilet in the driveway as a strange, indefinite threat.”

Yikes. Assuming buyers knew about the IP address problem and unwanted visitors and threats, couldn’t a mistake in the digital world cause buyers to pay less? Or maybe renters would pay less? Appraisers, would this be considered external obsolescence?

BIG POINT: What happens online or digitally around an address just might impact value. Think of the advent of Pokemon Go and how a digital game has the power to bring customers to commercial properties or maybe even help increase use of neighborhood parks. Remember, if you’re tired of hearing about Pokemon Go, don’t worry because there will be many more games just like it in the near future. Again, the digital world and real estate are colliding, and we can expect more of that in coming years.

Pokemon Go Real Estate

Questions: Would you buy a house without internet capabilities? What other types of activity online might impact a home’s value?

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How much value do higher ceilings add to a home?

Would you pay more for a house with higher ceilings? I probably would, but I guess it depends. The ceilings in my home are a standard 8 ft. Would I have paid more if they were 9 ft? Probably. But what about 23 ft? No, that would be too high.

high ceilings in real estate - sacramento appraisal blog

Someone asked me a question recently about the value difference of ceiling height, and I thought kicking around some ideas here could open up a great discussion. Anything else you’d like to add? I’d love to hear your take.

Question: What is the difference in value for ceiling height? For instance, 8ft to 9 ft, 9ft to 10ft, etc?

Answer: That’s a great question. On one hand higher ceilings are a more custom feature, so buyers are likely to pay more for them. This is particularly true for single story homes. However, there isn’t some sort of ceiling height market formula we can apply to every property because real estate adjustments are frankly going to be different depending on the neighborhood, price range, and market. We often hope to extract the value of one particular feature, but let’s remember many times buyers are actually looking at the entire package of a home instead of parsing individual features. In reality ceiling height is only one part of the package when it comes to buying a home. For instance, 10 ft ceilings sound like an asset, but if they’re found in a home with a terrible layout, they might not command a premium at all. So just because they are there does not make them inherently valuable. This underscores the importance of using an “apples to apples” approach when selecting comps, meaning the goal is to compare the subject property with homes that are overall similar so we get a sense what the market has been willing to pay for such homes. We might not find homes that are exactly the same, but that’s okay because we can use homes that are deemed overall competitive. Thus as an appraiser, rather than isolating my search for comps to just ceiling height, I would simply try to find other homes that represent a realistic comparison. If an Excel Jedi wanted to geek out and crunch numbers to try to prove a value difference, maybe that could be done with extensive research (sort of like Jonathan Miller measuring value by floor location in New York). But keep in mind how difficult that would be since ceiling height levels are not recorded in MLS or Tax Records (in Sacramento at least). Most of all though, buyers don’t bring measuring tapes to properties, which reminds us to think in terms of the total package.

Questions: How would you answer the question if someone asked you? Anything else you would add? What did I miss?

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10 quick talking points when someone asks about Sacramento real estate

The holidays are here, so if your Uncle Bob asked you next week at a family gathering what the real estate market is doing, what would you say? Or if a neighbor heard the market has been slow, how would you respond? Below I have 10 quick talking points to help you impress your Uncle Bob or anyone else with your knowledge of the local market. So let’s unpack some real estate trends in Placer County and the Sacramento region to hone in on two important questions: What are values doing? And why are they doing it?

Two ways to read this post:

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

 

PLACER COUNTY

1)  The median price dipped about 2.5% last month:

Placer County median price since 2013 - by home appraiser blog

It’s not surprising to see the median price dipped last month by about 2.5% in Placer County. The median price had been at $375,000, and now it’s at $365,000. It is very normal for prices to soften at this time of year, which is seen in the graph below. Yet at the same time, the market really is getting much softer in light of increasing inventory, which is also important to watch.

Placer County median price since 2012 - Fall season - by home appraiser blog

2) Inventory increased to 3.24 months last month.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Housing inventory saw an increase from 2.75 months to 3.24 months from October to November 2014. This increase sounds dramatic, but fewer sales last month played a big role in seeing inventory increase. Remember, housing supply is calculated by dividing the number of current listings by the number of sales over the past 30 days, so a lower amount of sales will naturally drive inventory up. As you can see, inventory is not the same at ever price level, is it?

number of listings in PLACER county - October 2014 - by home appraiser blog

3) It’s taking an average of 55 days to sell a house in Placer County:

days on market in placer county by sacramento appraisal blog

It took one more day this month to sell a house compared to the previous month, and about 10 more days compared to mid-Summer. It’s still taking much less time to sell a house than it used to about 5 years ago, but it is still very important to price listings correctly. When prices are softening and houses are taking longer to sell, this means overpriced homes are simply going to sit. Generally speaking, the higher the price, the longer the marketing time. Keep in mind sales above $1M took only 91 days, but there were only 12 sales, so take that stat with a grain of salt. Realize too that current actives above $1M have been on the market for 198 cumulative days.

4) Sales volume is slightly lower right now compared to last year:

Placer County sales volume - by sacramento appraisal blog

There were only 345 sales in Placer County this past month, and that’s a fairly low number, though last year in November the figure was only 365.

SACRAMENTO REGION:

5) Regional values in Sacramento softened by about 2% last month:

median price sacramento placer yolo el dorado county

The regional market was extremely flat for about six months, but it finally dipped over the past couple of months in light of the onset of Fall. An increase of inventory is definitely putting pressure on values too. Housing supply lately has been hovering about where it was when prices hit bottom in January 2012.

Regional market median price - by home appraiser blog

When watching real estate, it’s important to take a broad look at how values are unfolding in surrounding counties as well as the entire region. If we look too closely at any given county, we might not be able to see the bigger picture. By the way, the median price in Placer County is $100,000 higher than Sacramento County. Does this mean prices are $100,000 higher in Placer County? Nope. Keep in mind the average size of house that sold last month in Placer County was about 450 sq ft larger in size than in Sacramento County. This makes for huge price differences, don’t you think?

6) Sales volume is down 7.5% this year compared to last year:

SALES volume in sacramento region - by home appraiser blog

Sales volume is down in 2014 by about 7.5% when compared to the same time period in 2013. This might seem like a trivial number, but it equals about 1900 less sales on MLS so far this year.

7) Cash sales are down 34% in the Sacramento Region in 2014:

cash sales and volume in sacramento region - by home appraiser blog

Our regional market was heavily driven by cash investors over the past couple of years, but cash is no longer king. In fact, there have been 34% less cash sales in 2014 compared to 2013, which effectively means there have been 2186 less cash sales so far this year. This is a huge reason why housing inventory has increased this year because there are simply less buyers in the market right now. As time goes on, non-cash sales continue to show an increase as owner-occupant buyers are ultimately beginning to drive the market more and more. Some good news in the market is that FHA, conventional, and VA buyers have been increasing in numbers.

8) It’s taking an average of 50 days to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blogIt took one more day last month to sell a house compared to the previous month (10 more days since July 2014). It’s important to be in tune with the trends of each price range too since the market is not the same at each segment.

10) Housing inventory is a HUGE driver for the regional market:

months of housing inventory in region by sacramento appraisal blog

The higher the price, the more inventory there is (generally speaking).

number of listings in Placer Sacramento Yolo El Dorado county - Oct 2014 - by home appraiser blog

median price and inventory in sacramento placer yolo el dorado county

As you can see, housing inventory in the region is definitely increasing, and that has dramatically slowed values over the past couple of years. Remember that housing inventory was artificially low at times in 2012 and 2013 because of the massive influx of cash investors who came from outside of the market to take advantage of the lower prices at the time.

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

Since the current market is no longer driven by cash investors, real estate is more prone to be strongly influenced by the health and strength of the local job market as well as increases in inventory.

I hope this was helpful, and I do hope you can share something here in a conversation soon. Thank you so much for being here.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? What are you seeing out there?

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5 things appraisers want from real estate agents

Let’s be real. There is often tension between real estate agents and appraisers. And there is definitely room to help improve communication between both parties. That’s why this post is relevant from an appraiser’s perspective. Part of me hopes in response someone will write “5 things real estate agents want from appraisers”. I hope this will highlight a few basic and practical ideas for how to better work together. Read over the short list, apply what seems reasonable and let me know what you think in the comments.

meme generator

5 things appraisers want from real estate agents:

  1. Photos: Insert 20-25 photos in MLS so appraisers can get a better sense of your listing. Having pictures of the main rooms, a few of the kitchen and bathrooms, some of the rear landscaping and any to highlight remodeling or upgrades can help us visualize the home. Or if you mention there is an addition, please include a photo of the addition. Ultimately, words in MLS like “remodeled” or “upgraded” can mean something different to everyone, so images can help tell a better story. When you take photos for a listing, just think about how snapping a few extra shots on the front end will save you time on the back end from answering questions from appraisers on the phone.
  2. Concessions: It’s very helpful when you let us know in MLS if there were any concessions paid or given to the buyer by the seller. Appraisers have to list any concessions in the appraisal report, and beyond that consider if any concessions or credits had any impact on the price. In many cases instead of listing out the dollar amount of concessions our local MLS says “CLA” which means “Call Listing Agent”. If your client does not want this information listed for confidentiality purposes, that is understandable, but if that’s not the case, including the amount is one less thing we are going to be asking you about. This will save you time on the phone with appraisers.
  3. Return phone calls quickly: Appraisers are often working on a tight deadline to finish a report. This means the appraiser is probably hoping to get the report out by the next day or even in a few hours. When you call back right away, it can be amazingly helpful. Of course the appraiser needs to plan adequately too and not expect you to respond in lightning speed (One of my favorite sayings is: Your lack of planning does not constitute my emergency). On a related note, remember if the appraisal is delayed, it can delay closing in light of QM guidelines that state a Borrower needs to see the appraisal at least three days prior to escrow closing.
  4. Tell the truth: This probably goes without saying, but please tell the truth. If appraisers get incorrect details from you and end up using what you told them to help shape an opinion of value, that’s not good. If you didn’t know, what you say and think can really matter because you provide an insider look at the market. This means if there were not multiple offers, please don’t say there were. Or if the property had some issues not listed in MLS, let the appraiser know what was wrong when asked. Sometimes I’ll call a Listing Agent for a recently closed sale and I’m told very confidently it was a fixer, but then the Buyer’s Agent will tell me it was a total remodel (this is where including photos in MLS can make a difference). At the same time, it’s understandable to forget an older listing. The same thing happens with appraisals because they all blend into one after a while.
  5. Manage Irritation: It can feel like an inconvenience to talk to appraisers – especially when you’re really busy. But if you’re giving off an irritated or “I’m too busy for you” vibe when appraisers call, it’s time to find a way to be present and pleasant for the conversation. Talking to appraisers is simply a part of business. Appraisers should be respectful of your time too, but remember that appraisers are not calling to bother you, but rather do their job. Keep in mind they are also trying to get information from other agents for the comps they’ll use to appraise your listings. If they cannot glean insight from agents for those properties, it could potentially harm your deal. By the way, check out 7 things real estate agents should know about appraisers to glean some context to help understand appraisers.
  6. Upgrades: I’m adding an honorary item #6 in light of my friend Joe’s comment below. Appraisers really do want to know about upgrades directly from the Listing Agent or owner. I’ve written about this before, so I did not include this point above, but it is definitely a top-notch item. How has the property been upgraded in recent years (think inside and outside)? Make a list and give it to the appraiser. If it’s relevant, read more about information to provide the appraiser during the inspection.

NOTE FOR APPRAISERS: The appraisal industry is not known for its exemplary people skills. I hear continuous feedback from the real estate community about appraisers who are impersonal and come across as very anal. It’s okay to be introverted or focused on work, but at the same time the appraisal industry needs to freshen up a bit on communication skills, stop incessant complaining and be proactive about building a better reputation. It’s still possible to remain neutral and unbiased while being nice. I have nothing but love for my colleagues, but appraisers can do better (which can be good for business also).

Questions: What do you think of the advice? If you are a real estate agent, what advice do you have for appraisers? Feel free to comment below.

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