Choosing comps when there is a gated community

I had a real estate agent ask a fantastic question recently about choosing comps when there is a gated neighborhood. Here’s the issue: If the subject property is NOT located in a gated community, can an appraiser use “comps” that are similar and within 0.25 miles but are in a gated community? My answer is YES and NO.

45853684 - iron gate

YES: An appraiser can definitely use sales from a gated community. If there isn’t a price difference inside and outside the gate, an appraiser can use gated sales and make no value adjustment. Or if there is a price difference between the two locations, an appraiser can always choose to use gated “comps”, but also make an up or down adjustment to account for the value difference.

NO: Sound the alarm because it’s a red flag if you are valuing something outside a gate but only using gated “comps”. After all, what is the gate keeping in? And what is it keeping out? Despite being nearby, a gated subdivision could be a much different market that is higher or lower in price. Realistically, if I am only using gated sales for my “comps”, I haven’t really shown what the market is willing to pay outside the gate. There could be a value difference, which is why it’s critical to find non-gated sales to help tell the story of value for the subject property (even if the sales are older). It goes back to an “apples to apples’ comparison where we want to try to use the most similar sales in terms of size, location, condition, quality, bed/bath count, etc… Ultimately as we study the market we can make the distinction between properties that are truly “comps” from ones that are merely sales.

A local example: Here is a graph of all 2500 to 3500 sq ft sales in the Crocker Ranch area of Roseville. The blue dots are the gated sales and the yellow dots are the non-gated sales.

Crocker Ranch Neighborhood - Sacramento Appraisal Blog

The graph helps show larger-sized properties inside the gated areas tend to command higher prices. Obviously there are some higher non-gated sales too, but the highest sales in the area over the past 7 years have come from within the gate. This is why we have to study sales and then choose “comps” accordingly.

choosing comps in appraisal - sacramento real estate appraisal blog

Questions: Do you find values to be higher or lower outside of a gated community? Any other advice or wisdom you’d offer when it comes to choosing comps? Did I miss anything?

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That awkward moment when the market changes

Have you ever met someone who looked really good on the outside, but the inside was a different story? That’s sort of like the housing market right now. Sales stats look super attractive, but if we really consider listings and other metrics we begin to see a different story. The market is slowing. Since it’s not always easy to explain that, here are a few analogies to help describe how important it is to look beyond just sales to gauge the temperature of the market. Then for those interested, let’s take a deep look at Sacramento trends. Any thoughts?

Examples to explain the market when it begins to slow:

  1. First Date: A first date is all about putting your best foot forward, and that’s exactly why we usually need more than just one good date to make up our mind about someone (gotta be sure the person is not psycho). The same thing happens with real estate. Shining sales stats are like a first date because they lure us in and make us feel good. But we can’t really judge an entire market just by the sales. We need to consider listings and other metrics too.
  2. Taking the Temperature in the Shade: If you take the temperature in the shade in the summer, you’re going to get a much different reading. The same thing happens in real estate where we can get the wrong temperature of the market if we only focus on sales instead of listings and other factors.
  3. Judging by one Tweet: These days it’s easy to judge a person by one tweet instead of looking at their wider body of work (their life). The same thing happens in real estate when we only look at sales instead of listings and other stats. If our vision is too narrow, we might not see what the market is actually doing.
  4. Pregnancy Test: I asked my author wife for an analogy and she said the market is like a pregnancy test (I wouldn’t ever have thought of that). You can technically be pregnant but an over-the-counter test won’t tell you that for a couple of weeks. Similarly, the market may have changed, but we may not see a price difference in sales for a month or two. But the change is definitely there when we look at listings and other metrics.
  5. Pokemon: I’m just kidding. I won’t go there.

In a small way, I hope this was helpful. It’s very powerful to explain the market in different ways. Any other analogies to share?

—————– For those interested, here is my big 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 80+ 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.

Quick Market Summary: On paper the market has been hot. We’ve seen all the normal stuff like price increases, slightly higher sales volume in 2016, and sparse housing inventory. If you didn’t know, the median price in Sacramento County is 105% higher than it was in 2012 and 16% lower than the peak in 2005. Distressed sales actually reached their lowest level since 2009 last quarter too. Cash sales volume has been hovering at a normal level while FHA sales volume has been declining. Overall the market is still really competitive, but it’s starting to turn. Keep in mind it’s common for real estate to lose some steam around mid-Summer. While the sales stats don’t show it yet, we see a slower market with the sales-to-list price ratio declining last month from the previous month, it took the same amount of average days to sell for the past two months in the region, and there has been a slightly more optimistic tone among real estate professionals about buyers getting into contract. While it felt utterly hopeless to get an offer accepted a few months ago in certain price ranges, it is starting to feel slightly more hopeful based on feedback from agents. Moreover, it seems like there has been growing price resistance lately (particularly at the higher end of the market). The market has been price sensitive all year as buyers are not fooled by absurdly high prices, but the sensitivity seems more heightened right now.

Sacramento County:

  1. FHA volume has been about 24% of the market (it was nearly 27% of the market last year at the same time).
  2. Cash volume is roughly the same as it was last year at the same time (around 16% of the market).
  3. It took an average of 25 days to sell a home last month, which is 2 days less than the previous month (and 5 less days compared to last year).
  4. REOs were only 2.9% of all sales last quarter (lowest level in years).
  5. Sales volume is up very slightly Q2 2016 compared to Q2 2015.
  6. There is only 1.38 months of housing supply in Sacramento County, which is 14% lower than it was last year at the same time.
  7. The median price increased by 3.5% last month.
  8. The median price is 13% higher than the same time last year.
  9. The avg price per sq ft increased by 1.4% last month.
  10. The avg price per sq ft is 9.7% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - June 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog REOs and Short Sales in Sacramento - 1 inventory in sacramento county Since 2013 - part 2 - by sacramento appraisal blog

Cash & FHA sales in sacramento county

median price context in sacramento county price metrics since 2015 in sacramento county - look at all

june market in sacramento - by sacramento regional appraisal blog 2

layers of the market in sacramento county - by sacramento appraisal blog

Bottom of the Market in Sacramento

SACRAMENTO REGIONAL MARKET:

  1. It took the same amount of time to sell last month as it did the previous month (though 3 less days to sell this June compared to last June).
  2. Sales volume is up slightly in 2016 compared to 2015.
  3. Cash volume is about the same this year (16% of the market for Q2).
  4. FHA volume is down 7.5% so far this year in the region.
  5. The sales to list price ratio was 98% in the region last month.
  6. There is 1.6 months of housing supply in the region right now, which is 13.5% lower than it was last year at the same time.
  7. The median price increased 3.6% last month from the previous month.
  8. The median price is 11% higher than the same time last year.
  9. The avg price per sq ft increased by nearly 1% last month.
  10. The avg price per sq ft is 8.9% higher than the same time last year.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

days on market in placer sac el dorado yolo county by sacramento appraisal blog interest rates inventory median price in sacramento regional market by sacramento appraisal blog - market median price and inventory in sacramento regional market 2013 median price sacramento placer yolo el dorado county Regional Inventory - by Sacramento regional appraisal blog Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 4 less days to sell a house last month than the previous month (and 3 less days than last year at the same time).
  2. Sales volume was up about 1% in June 2016 compared to last June and is down slightly for the year (about 2%).
  3. FHA sales were 17% of all sales last month and cash sales were 13% of all sales last month.
  4. There is 1.7 months of housing supply in Placer County right now.
  5. Housing inventory is 8.5% lower than it was last year at the same time.
  6. The median price increased 0.5% from the previous month and is up 7% from last year at the same time.
  7. The average price per sq ft was $212 last month (was $200 last year at the same time).
  8. The average price per sq ft is up 1.4% from the previous month and 6% from last year at the same time.
  9. Bank owned sales were only 1% of all sales last month.
  10. Short sales were 1.9% of sales last month.

Some of my Favorite Placer County Graphs:

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog number of listings in PLACER county - 2016 Placer County housing inventory - by home appraiser blog Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

DOWNLOAD 80+ 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.

Question: Any other market insight you’d like to add? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

What does the market expect? (a critical question to ask in real estate)

What does the market expect? That’s one of the best questions we can ask ourselves in real estate. Why? Because it helps us keep the focus on what buyers actually demand in certain neighborhoods and price ranges. In other words, what are buyers really willing to pay more or less for in a neighborhood? Being in tune with that is definitely one of the key aspects of coming up with a credible value.

Market expectations - Sacramento Appraisal Blog

Pool Example: Take a look at the table below to see how some areas and price ranges in Sacramento have far more built-in pools than others.

Market expectations pool example by Sacramento Appraisal Blog

Key Point: When built-in pools are more common in some neighborhoods and price ranges we can probably say the market expects a pool, right? This is especially true at the higher end of the price spectrum where over 70% of homes have a pool. In contrast, some areas of town have less than 1% of homes with a built-in pool, and it’s safe to say the market doesn’t expect a built-in pool in those areas. This doesn’t mean the pool is worth nothing in those places, but if anything it’s a reminder to really consider that a pool might be worth far less or more in some areas than others. While it’s tempting to always give a token $10,000 adjustment for a pool, based on the data above alone, that adjustment probably doesn’t make sense for every neighborhood because of differing expectations.

Not Just About Pools: This conversation isn’t just about built-in pools because we have to ask what the market expects for things like upgrades, square footage, condition, lot size, architectural design, bedroom count, garage spaces, landscaping, etc… As much as we’d like instant answers, there really isn’t a quick guide to understand what the market expects without immersing ourselves in comparing sales, talking with buyers and other real estate professionals, and crunching numbers.

Two Mentions: I’m honored to share a couple of recent media mentions. I was quoted in Inman SF Bay Area in “Sacramento housing boosted by Bay Area refugees” and in RealtyTrac’s June Housing News Report (PDF – pg 17-21).

Blackstone: One more thing. A recent article talked about the private equity fund Blackstone (Invitation Homes) selling off some of its homes directly to tenants. As you probably know, Blackstone purchased thousands of homes in the Sacramento market several years ago. They continue to buy today, but their purchase volume is minimal and nowhere near what it used to be. Anyway, the article states they would likely sell about 5% of their inventory this year directly to tenants. Whether that’s true for the Sacramento market or not is to be seen, but it’s worth watching closely. Keep in mind many landlords are selling straight to their tenants right now instead of listing on MLS. In short, this isn’t just a Blackstone thing.

Questions: How do you get a sense of what the market expects in a neighborhood? Any advice you’d give on how to better understand market expectations? Did I miss anything? I’d love to hear your take.

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Seeing the real estate market without numbers (and a big Sacramento update)

It’s not just about the numbers. Like many, I’m a huge fan of getting deep into real estate stats, but the truth is there are so many other ways to sniff out what the market is doing. Thus I’ve created a list of some of the things on my radar lately that help say something about the temperature of the market. Then for those interested, let’s crunch some numbers with my big monthly Sacramento market update. I’d love to hear your take. Any thoughts?

How to see the market moving - image purchased and used with permission from 123rf - Sacramento Appraisal Blog

Ways to see the real estate market without numbers:

  1. Facebook Posts: I can’t tell you how many posts I’ve seen lately saying, “Hey, my friend needs to rent a house. Anyone have something?” Seeing an increasing number of posts like this on Facebook or Nextdoor.com is definitely a symptom of rising rents and scarce inventory.
  2. Celebrity Flipping Seminars: Last week an HGTV flipping couple hosted a 4-day “how to flip” seminar in Sacramento, and this week a different “guru” is coming to town. If anything, this tells us the market for flipping has passed.
  3. Riskier Loans: As more lower-down payment loan products hit the market, it reminds us buyers need more options to afford higher prices.
  4. Sacramento Kings vs. Market - jokeSacramento Kings Wins: Here is an image to show the relationship between an NBA team winning and the housing market. Okay, there really isn’t a connection, but it almost looks like there is (you can make numbers say whatever you want).
  5. Less Property Tax Appeals: As the market has improved, assessment appeals have declined every year since 2008 in Sacramento County. Right now home owners are enjoying equity again and they’re hardly paying attention to their property tax bills. Here is an image to back that up.
  6. More Divorces: As the housing market has rebounded, it seems there are more divorces. I’ll admit stats are tricky in that some sources say divorces are increasing and others say they are not. It may be my personal experience, but I’ve done more divorce appraisals these past 2-3 years than I have in the previous ten years.
  7. Builders Being Less Cooperative: I’ve heard from several agents lately about local builders being less cooperative with agents representing buyers. That’s fairly normal for builders of course, though being less cooperative is certainly a luxury afforded by a market with tight inventory too. In other words, if the market had three times the housing supply, conversations might go differently at the sales office.
  8. The word “shift”: There is so much emphasis right now on the market shifting or maybe doing so in coming time. When the real estate community uses terms like shift, change, correction, or bubble, it can sometimes highlight what the market is doing (or at least what is on the mind of the real estate community).

Question: What is #9? I’d love to hear in the comments below. By the way, scroll to the bottom if you want to see some of my recent woodworking projects.

—————– For those interested, here is my big 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 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Quick Market Summary: Yep, the stats show the market has been increasing. This doesn’t mean every single price range or neighborhood is going up in value, but county and regional data are definitely showing that trend overall. One of the bigger narratives is that housing inventory is still down by 15% in the region compared to last year. Sales volume has been up slightly for the year and it took 6 less days to sell last month compared to the previous month. For context, last year at the same time it was taking an average of 8 days longer to sell. This reminds us the market has been more competitive this year compared to last year, though don’t take that to mean value increases have been extremely aggressive. Last month the median price increased by nearly 2% in the region, and the average price per sq ft increased by 2.5%. Overall most value stats are up a good 8-10% since last year, though remember it’s not the same market as it was in 2005 when we’d say, “My house went up by $10,000 last month.” It’s still important to price correctly unless you want to sit instead of sell.

Sacramento County:

  1. It took an average of 27 days to sell a home last month, which is 4 days less than the previous month.
  2. The sales to list price ratio was 100% last month.
  3. It took 8 less days to sell this May compared to last May.
  4. Sales volume was up nearly 4% in May 2016 from May 2015.
  5. There is only 1.35 months of housing supply in Sacramento County.
  6. Housing inventory is 22% lower than it was last year at the same time.
  7. The median price increased by 3% last month.
  8. The median price is 9.6% higher than the same time last year.
  9. The avg price per sq ft increased by 1.8% last month.
  10. The avg price per sq ft is 9.9% higher than the same time last year.

Some of my Favorite Graphs this Month:

Median price since 2013 in sacramento county

monthly inventory is sacramento county since 2001 - by sacramento appraisal blog

inventory - May 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

price metrics since 2015 in sacramento county - look at all

market in sacramento - sacramento appraisal group

SACRAMENTO REGIONAL MARKET:

  1. It took 6 less days to sell last month compared to the previous month.
  2. It took 8 less days to sell this May compared to last May.
  3. The sales to list price ratio was 99% in the region last month.
  4. Short sales and REOs were both 3% of sales last month.
  5. There is 1.6 months of housing supply in the region right now.
  6. Housing inventory is 15.6% lower than it was last year at the same time.
  7. The median price increased 1.7% last month from the previous month.
  8. The median price is 6.8% higher than the same time last year.
  9. The avg price per sq ft increased 2.5% last month.
  10. The avg price per sq ft is 8.4% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

Regional Inventory - by Sacramento regional appraisal blog

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

median price and inventory in sacramento regional market

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 2 less days to sell a house last month than April.
  2. It took 1 less day to sell this May compared to last May.
  3. Sales volume was up 3% in May 2016 compared to last May.
  4. FHA sales were 16% of all sales last month.
  5. Cash sales were 17% of all sales last month.
  6. There is 1.84 months of housing supply in Placer County right now.
  7. Housing inventory is 12.4% lower than it was last year at the same time.
  8. The median price is about the same as it was the previous month.
  9. The median price is up 7% from May 2015.
  10. Short sales were 2.1% and REOs were 1.7% of sales last month.

Some of my Favorite Placer County Graphs:

number of listings in PLACER county - 2016

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog

Placer County price and inventory - by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

I hope this was helpful and interesting.

My Latest Woodworking: By the way, I know this post has been ridiculously long already (on purpose since it’s my big monthly market update), but here are some of my recent woodworking projects. If you didn’t know, I like to tinker and create.

Ryan woodworking 2

Ryan woodworking 1

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Question: Any other market insight you’d like to add? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.