Why do appraisers sometimes give such little value to something as important as square footage? It’s crazy that an appraiser gave $10,000 in value for 300 square feet, right? Maybe you’ve felt this way about an appraisal on your home or for one of your listings. Give me a minute to help clear up some of the confusion by explaining how appraisers are supposed to come up with value adjustments for house size.

Example 1: A Typical Size Scenario

Real estate appraisers should be giving value to square footage according to how the market sees the square footage. What does that mean? While it may cost $40,000 for a 400 square foot addition, based on an analysis of comps in a neighborhood, the appraiser might determine properties with an extra 400 square feet sell for $20,000 more than houses without that space. This means the market in this particular neighborhood really only rewards $20,000 in value for the size difference. This example of course assumes there are no other factors to consider such as lot size, location, upgrades, room count, financing etc….

Example 2:  The McMansion Mega House

Imagine your house is 6,000 square feet in a neighborhood where the largest model is 4,000 square feet. Do you think the market is willing to pay 50% more for you house because it is 50% larger than the 4,000 square foot model? Probably not. There are situations where the market is actually willing to pay very little or nothing for the extra square footage because it’s considered an overimprovement (or “superadequacy” for the fancy term). This can be very upsetting for home owners and agents, but the appraiser is not being mean or ruthless, but only interpreting the market properly (hopefully).

This is important to understand for the following reasons:

1. Cost vs. Value:  Appraisers do not give value to square footage based on construction costs, but rather the reaction in the marketplace to extra size. Think of it in terms of a kitchen remodel or pool. Just because a kitchen costs $75,000 to remodel does not automatically mean you’ll see $75,000 in value in the resale market. Or while a pool may cost $35,000, resale value will very unlikely include the total cost of the pool. Cost does not always equal value.
2. Additions & Conversions:  An addition or garage conversion may not always put your house on par with other larger houses. There are many factors to consider when it comes to valuing an addition. It’s important also to know the neighborhood before planning a huge addition because you don’t want to overbuild for the neighborhood.
3. The Largest House:  Larger houses tend to have an overall lower price per square foot than medium-sized houses, so applying a straight cost-per-sqare-foot for the neighborhood may not yield credible results for the largest house.
4. Big New Construction Premiums:  If you buy a newly constructed mega-house like in Example 2, you will likely pay a big premium for the extra square footage during the sale, but you may not see this premium again when reselling.
5. Real Estate Agents:  Agents who know the local market and how appraisers should look at square footage will be able to coach and resource home owners about the process and what to generally expect.
6. Unique Neighborhoods:  Each market is different. There is no standard price adjustment for appraisers to make because buyers in one area may be willing to pay more or less for size compared to another neighborhood.

All things considered, it’s not always easy to swallow that a big difference in square footage does not always translate into big value. Let me make it clear too that just because I explained how an appraiser is supposed to give value for square footage does not mean that the appraiser actually did that.

Any insight, questions or commentary? In appraisal reports you’ve read, how much value do you see appraisers give for square footage? I’d love to hear your comments.

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.

If you live in the Sacramento area or various portions of California, you’ve likely come across a “McKeon” property. Maybe you didn’t know the formal name, but chances are you’ve seen one since they are sprinkled throughout the Sacramento area. McKeons are named after the McKeon Corporation, which built a great deal of attached four-unit properties in the 60s and 70s that are either condominiums or fourplexes. Take a one-minute video tour with me below to see in person what a McKeon looks like.

Where have you seen McKeon properties? If you have lived in one or sold quite a few, I’d be curious to hear your perspective on which unit you think is most preferrable?

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. 

Sometimes banks seem cooperative when handling short sales and other times they don’t seem to want to budge from a certain price level – even if that price is above market value. Let me give you a real scenario so you can see this phenomenon at work and also how a BPO and appraisal fit into the story. I’ve included some tips below too.

Real Short Sale Scenario: The bank has stated they’ll accept a price for a Sacramento property at $200,000 based on a BPO. A “BPO” is a “Broker Price Opinion,” which is a valuation by a real estate agent (broker) of the subject property. This can be done from a desktop or a full interior or exterior inspection. In this case, I’m not sure what exactly was done or when the BPO was completed either, but the Listing Agent trying to sell this property ordered a full appraisal from my company to help show the bank what true market value looks like. The hope from the agent’s standpoint is that the bank will budge on their price. This particular agent orders appraisals from me regularly, so obviously this bank listens.

BPOs and Appraisals: Let’s back up for a second. Sometimes banks are ordering both appraisals and BPOs behind the scenes so they are equipped to make decisions about their inventory. The bank mentioned above is not ordering appraisals though, so each bank obviously has its own practices. Clearly banks want to minimize their losses, so they don’t want to accept an offer far below market value (well, you’d think). As an appraiser, I have banks hire me directly to help them decide on whether to accept an offer or not. In these cases my appraisal has nothing to do with the buyer or the buyer’s loan either, but it’s all about the current loan on the property (loss mitigation). On the other side, I do appraisals for real estate agents and home owners who are trying to doing a short sale. They hire me when the bank is seemingly out of touch with the market and only willing to accept offers far above real market value. Maybe the bank is relying on bad information for pricing or an outdated BPO or appraisal?

Crunching the Numbers: Put on your appraiser hat with me and look at the graph below. Does $200,000 maybe look high based on all recent model match sales and listings? The last sale above $200,000 was in 2008. The most recent sales are right around $180,000 or below, and the most recent listings are between $150,000-$160,000 with a clear trend downward. Whenever you see listings priced lower than recent sales, it could indicate aggressive pricing, a further decline in value, slow Winter months maybe, or possibly some external factor (economy, job losses, environmental disaster…). It’s always important to ask why listings are priced lower than the most recent sales, and decipher what that says about market value – if anything. In this case, the most recent sale in January actually had a contract date back in October, and the market has since declined a bit and softened due to Winter months. The current listings are actually a pretty good example of what buyer’s are willing to pay right now (slightly agressive pricing though).

If you’re in a situation as a home owner where you are trying to do a short sale, but the bank seems to not be cooperative to lower the price (if it’s legitimately too high), here are some tips for you.

1. First off, make sure you are working with a local real estate agent. It’s nice that your cousin in San Diego is a Realtor, but does your cousin understand the local market in Sacramento? No offense to your cousin of course. 
2. Make sure your agent has knowledge of the market area and a proven track record of short sale success. Everyone and their mom is a “short sale expert” these days. Just make sure your agent is equipped to really work hard to get results. There are so many good agents out there, and if you’re in the Sacramento area, I’m happy to point you in the right direction to someone trustworthy.
3. If the bank absolutely won’t budge on their price and you’ve exhausted other resources, it may be worthwhile to order a full appraisal to help illuminate true value. Think about this and talk with your agent about this option. Let me know if you have questions too.
4. Local agents say that short sales have been far easier to negotiate these days in comparison to several years ago. However, keep in mind that they are still difficult in many cases. I don’t want to deflate your optimism, but it’s important to be realistic that short sales don’t work out every time. Just do your best to really exhaust your options, work with a great agent, and don’t lose hope – no matter what happens.

What do you think? If you’re going through a short sale right now, I’d like to hear about your experience. Do you have any other tips you’d give to home owners about how to help the short sale process go as smoothly as possible?

If you have any real estate appraisal, valuation consulting, or property tax appeal needs, contact me at 916.595.3735, www.LundquistCompany.com or via Facebook.

Are you familiar with the “Woodlake” neighborhood in Sacramento? It’s in the “Del Paso” area just south of Arden Way in the 95815 zip code. When hearing “Del Paso” or “North Sacramento,” certain stigmas often come to mind, but when scrolling through pictures of the Woodlake neighborhood below, there’s actually a hint of “Land Park” or “Curtis Park” in terms of style and design (or is it just me?). 

As you can see, the Woodlake neighborhood (outlined in blue) is located in the southern end of the Del Paso area just above Highway 160 and below Arden Way. Did you know this neighborhood was there?

Click on some images below to get a get a feel for the Woodlake neighborhood. I snapped these photos on a rainy day after inspecting a Woodlake house for an appraisal. I’d love to hear your impressions. What do you think?

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If you have any real estate appraisal, valuation consulting, or property tax appeal needs, contact me at 916.595.3735, www.LundquistCompany.com or via Facebook.

I’m doing some market research right now in the Rosemont area of Sacramento. As an FYI, I thought locals might like to see all Rosemont sales graphed out over the past three years. There is a pretty clear trend downward when considering the entire spectrum of time, right?

The first graph contains all Rosemont sales with no parameters, whereas the second graph depicts only sales between 1300-1700 square feet built between 1950-1990. You can see how the second graph trims off some of the top and bottom of the market. If I were to continue to include graphs in this post, you’d see the data getting tighter and tighter as I narrow down the parameters on my data. This tightening phenomenon really helps to illuminuate the beginning part of my appraisal process in researching the big picture in a neighborhood, and then slowly breaking down the data into chunks more similar to the house I am appraising. The more research I do, the more I narrow down a realistic market value for a property.

Let me know if you have questions or any real estate appraisal needs. I do appraisals for estate settlement, bankruptcy, divorce, second opinions of value, investment, loans, and more. Call me at 916.595.3735 or email me.

By the way, if you live in the Rosemont area of Sacramento, what do you like most about the neighborhood?

I don’t think I’ve mentioned SacTube here since March, so I figured I’d give a little shoutout since I just posted video #202 yesterday. If you didn’t know, I launched a website eight months ago called Sacramento Real Estate Tube with the goal of creating a resourceful video real estate hub for locals and the general public.

It’s been neat to see the website improve over time and it’s been great to connect with local real estate professionals too. One of the byproducts for me hosting this site is that I’ve been able to connect with some solid real estate professionals like Chad Focht, Gena Riede, and The Ostroms, as well as learn a thing or two from their videos.

Sometimes agents ask me why I run ”The Tube”. Maybe it seems a little unexpected to see an appraiser spear-heading something like this. Basically the purpose of SacTube is threefold: 1) Be a non-spammy resource to the public by sharing good videos; 2) Help increase web exposure for local real estate professionals (free marketing never hurts, right?); and 3) Build strong business relationships. In all of this, I firmly believe in being authentic and genuinely resourceful and helpful. Did I mention too how relevant I think video is for conveying information too?

If you have any questions about the site or videos to share, let me know. There is zero cost to post videos. Thank you for listening to my great news.

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?

One of the tools in my real estate utility belt is making trend graphs. Why is this important? I find that being able to visually display all sales or listings on a graph is a very convincing resource. For example, when a home owner hires me to do an appraisal for bankruptcy or any other reason, and I include graphs of historic sales over the past three years, sales over the last twelve months, and then other graphs showing sales for 3-bedroom units, and properties similar in size to the owner’s house, it’s easy to begin to get a picture of what is happening in the real estate market. The great thing too is that you can graph so many different facets, whether square footage, age, date, bed-count, days on market, short sales vs. REOs vs typical sales, etc…

You can see some examples of trend graphs here if you wish. For now, I made a brief video tutorial to help local Realtors and real estate professionals in the Sacramento area export and work with data from our local MLS. It’s a huge benfit to be able to share things like this with clients, and once you have a little practice, you can crank out graphs very quickly. And don’t worry, if you don’t have Excel on your computer, simply download Gnumeric for free.

If you have any questions, let me know, particularly if you are a local Realtor. Call me at 916.595.3735 or connect with me on Facebook.

Dorothea Puente’s locally famous duplex at 1426 F Street in Sacramento has sold for $215,000. This foreclosure property originally listed at $309,800 on 02/26/10 and eventually went to auction after a series of price decreases and over 150 days of market exposure.

This property has a notorious history (can you say “stigma”?) from the 1980s when seven bodies were found on the premises buried in the backyard. Dorothea Puente ran a “boarding house” at this location where she drugged and murdered  tenants to cash their social security checks.

More information? I wrote previously about this property twice: Would you buy Dorothea Puente’s house? and Dorothea Puente’s duplex is still on the market. Any takers? The Sacramento Bee published a Puente article yesterday and KCRA did a story too.

What do you get when a builder runs out of money in the current economy, but is only half-way finished with a house? Answer: Probably a foreclosure. This was certainly the case with three 2,222 square foot 4/2.5 properties on the corner of 37th Street and 12th Avenue in the Oak Park Area of Sacramento. 

I am very pleased to see these foreclosures were purchased earlier this year in a bundle deal by the same buyer for $35,000 each, and they are currently being rehabbed. When I think of an area improving, this appears to be a win because improvement happens one house at a time, doesn’t it?

FHA loans have dominated the local market in the Sacramento area lately, haven’t they? This is why many buyers and sellers are paying careful attention to FHA guidelines. I get calls all the time from concerned sellers, prospective buyers, and real estate agents about FHA compliance issues. The question is usually, “will _________ be an issue for an FHA loan?”

FHA has a very specific set of minimum requirements. If you are planning to sell your house and you think the most likely buyer is going to be using an FHA loan, then strap on your “FHA goggles” to view your property like HUD does. Or if you are purchasing a house, it’s important to be aware of condition issues that may impact qualification for an FHA loan.

What does it take for a property to meet FHA minimum guidelines? FHA is primarily concerned that everything in a house functions properly and that there are no health and safety issues. FHA continually says, “Soundness, Safety & Security” as their motto. It’s okay if there is some deferred maintenance, but if there is any issue that may pose a threat to health, safety, soundness or security, then it needs to be solved. Examples might include chipping paint, mold, missing appliances, an inoperable HVAC, a broken water heater, dangling wires, trip hazards, etc… You can see a more detailed list of specific requirements in a previous post.

Quiz Time: Now that you have just a bit of information about FHA compliance, take a look at the image below. What do you see that might pose a safety risk and be unacceptable to FHA? Comment below.

Keep me in the loop if you have any questions or if you need to hire my “FHA goggles” to help you make a decision when selling or buying a house. And don’t worry, I don’t actually wear goggles like this on inspections. You can reach me at 916.595.3735, on Facebook, or ryan@LundquistCompany.com.

Did you know that beginning January 1, 2011, newly constructed single family homes in the State of California will need to have fire sprinklers installed? It’s true. A few days ago a story posted in the Sacramento Business Journal, but this news first broke a few months ago. According to the National Fire Sprinkler Association (yes, there is such a thing):

“The State of California has adopted building code changes that will require all new one and two-family homes and townhouses built in the state starting January 1, 2011, to be equipped with life-saving fire sprinkler systems.”

Do you think this is a good move? As a prospective home owner, would you favor a property with fire sprinklers? How much do you think this will raise the cost of a new home?