It’s been said many times that real estate is about location, location, and location. This is basic stuff, and we all know where a home sits can be about as defining a feature for a property’s value than anything. This is why a home on “the other side of the tracks” can have a far different value than an identical home in a nearby subdivision. But sometimes it’s not even about crossing something obvious like train tracks, but simply crossing the street within the same neighborhood. Maybe the other side of the street is located in a different school district, has a different type of architecture, larger lot sizes, or there are more commercial properties. Whatever the case, let’s look at one particular street in the Curtis Park neighborhood of Sacramento to help show how real estate values are definitely about location.
Question: What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.
A Neighborhood Example: This graph shows all Curtis Park neighborhood sales over the past 6+ years (not newer homes in Curtis Park Village).
Franklin Blvd: Now let’s separate values by Franklin Blvd. This street is a north/south “line of demarcation” so to speak for neighborhood values. Of course Sacramento locals know there is a different feel between the east and west side of Franklin Blvd, but it’s still interesting to see this difference on a graph. For non-locals, both the west and east side are within the neighborhood boundaries, but as you can see, there is a huge change in value once Franklin Blvd is crossed.
2-Bedrooms on the East & West: Even when we look at 2-bedroom units on the east and west side of Franklin Blvd, we see a big difference in value.
Key Takeaways:
- Be a Student: Study neighborhoods so you know the boundaries where values change. This can only happen by talking with real estate professionals, reading articles, asking questions, studying trends, and working in a neighborhood over time. It takes time to become an expert.
- The Right Comps: Avoid “cherry picking” sales from across the street to boost value. Or if you do use higher-priced sales, be sure to make a value adjustment downward as needed. Remember that it’s okay for appraisers to use much older comps in the immediate neighborhood rather than finding newer ones in superior areas.
- Sales vs. Comps Distinction: If you are listing a home, price according to the market instead of borrower higher prices from the market across the street. Help the seller understand that nearby sales might not necessarily be “comps” either. In other words, just because it sold does not mean it’s a comp.
- No Little Black Book of Value: Remember there is no such thing as a book of value adjustments that can be applied to every neighborhood or property type. After all, buyers in one location may be willing to pay substantially higher premiums for certain features, but these same features might not command much of a premium at all in a different location.
- Let History Paint a Context: If you’re not sure if values are softer or higher in the immediate part of your neighborhood, look back at sales over the past few years to get a better idea about how the market has moved over time. The previous sales will help paint a picture of the market. What have buyers been willing to pay over time compared with other surrounding areas? This may be a clue into how value works in the neighborhood.
I hope this was interesting to you. I sure enjoyed putting it together.
Questions: What advice would you give others about the role location plays in real estate? What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.
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Great article Ryan. Very useful example.
Thank you Joe. I appreciate that. It was fun to run these graphs recently while appraising on the east side. 🙂
Great information and visual breakdown of these different sub-markets/prices.
What did you find were the main reasons for such differences in value besides being sandwiched between 2 a main arterial road and freeway?
Hi Gary. Thanks so much. I think your comment brings up the big issue impacting value. Being sandwiched is the most significant issue here because it creates more noise from the freeway and Franklin Blvd, and there is really a lesser sense of neighborhood connectedness, which is a big deal. Many houses west of Franklin tend to be much more stately too. It seems the more connected a neighborhood is, it just does good things for the ethos of the community and even property values at times. Any thoughts from your perspective?
I find this particular example very interesting. The homes east of Franklin Blvd were originally part of Oak Park and still bear the 95817 zip code. When Hwy 99 was built it split Oak Park and that portion next to Franklin became part of Curtis Park due to Hwy 99 being a natural boundary.
But as the history of the ‘East of Franklin’ strip of Curtis Park is so far removed from today, is there any rational reason for the price differential other than freeway proximity? Building quality could be one difference, but many of the homes east of Franklin have much larger lots than the rest of Curtis Park.
As an appraiser, how do you deal with situations like this where perceptions or reasons for value differential may be highly irrational?
I personally think Franklin blvd itself is the most negative quality of life element in that area and it makes no difference if you’re in a lot sitting on the west side or the east. I’d rather be tucked up against the Hwy 99 sound wall than have Franklin Blvd bordering my home, everything else being equal of course.
Hi Doug. Thanks for the comment. I too was very interested in the stats. I’m always intrigued to see the market visually. Thanks for the historical perspective too.
There does seem to be a quality difference between east and west to a certain extent. There are actually some properties on the east that also share the 95818 zip code, so not all of them are 95817. In fact, there is a listing on Franklin right now that does have 95818 for sure. Most of all, I think the differences are overall appearance, sometimes quality, and a sense of connectedness to a greater neighborhood. Yes, the east does have larger lot sizes for some properties, but that just goes to show how lot size can be trumped by location. The east just doesn’t have the same access to the park, and there are also some multi-units and commercial properties sprinkled throughout. It seems the west has a more connected feel and sometimes properties look a little different too.
It’s not always easy to understand the motivations of buyers and why they pay what they do in various locations, but that’s how real estate works. It’s about facts such as square footage, lot size, school district boundaries, etc…. But it’s also about the way a street feels, the perception of a home’s layout, or the way buyers view an entire block, etc… That’s not always easy to quantify, but the support for value comes with sales and listings and conversations with other real estate professionals. While it’s not always easy to illustrate value in an appraisal report, the market speaks. It’s just a matter of knowing the right questions to ask, listening, and then interpreting the information correctly.
One interesting aspect to throw out there is that a friend on the eastern side was not getting the Curtis Park newsletter passed out to his house. He felt offended, as if residents doing the passing out did not think of the east as Curtis Park. I say this because I know there is tension at times, and I certainly don’t want any of my words here to in any way come across as speaking down about the eastern portion. There are some beautiful homes in that area, and I have been impressed with the ones I’ve appraised. In fact, the one I just got finished appraising looks and feels like a bed and breakfast (very nice).
Great article Ryan. I love that you found such a good example to demonstrate your points.
Thank you Gary. I made these graphs recently during a pretty interesting appraisal assignment. It was neat to see the market this way. Hope you’ve had a good way back in action after your time in SoCal.
Great breakdown of the market Ryan. I noticed that the area east of Franklin Blvd. has less sales, is that because there are not as many houses on that side? Points 2 and 3 are very important, especially since the implementation of the Collateral Underwriter by Fannie Mae.
Thanks Tom. Good eye. Yes, there are fewer sales because the eastern sliver of the neighborhood is definitely smaller in size.