The cookie cutter tract homes are the easy ones, but sometimes value can change dramatically from one street to another – especially in older eclectic areas. Maybe you’ve seen this before after pulling comps and finding a huge disparity in prices. Today let’s look at an example of this happening to me recently. Any thoughts? I’d love to hear your take.
Values are sometimes all over the place, and that’s exactly what I saw when appraising a house in Carmichael. Take a look below at the graph. How do you think the subject street fits into the market?
Value Conclusion: When we look at the graph with over 17 years of neighborhood sales, it’s clear properties on the subject street tend to compete toward the mid-to-higher end of the market range (even when they aren’t all that updated). Keep in mind every sale on the graph is between 1600-2100 sq ft, so we are looking at a tight range over a long period of time. You can also see there is a range where most properties have been selling between $350,000 to $500,000 lately.
Some tips for seeing the market in eclectic neighborhoods:
1) Pay close attention to subject street sales: There were 7 available sales for me to look at on the subject street over the past two decades. This might seem limiting, but it’s much better than zero, and ultimately it means I have seven data points that might help me see the context for how the subject street fits into the market. Of course we always have to use good professional judgment and not get caught up in giving too much weight to very little data.
2) Look through years of data: In an eclectic area where values seem to be all over the place it’s a good idea to study the market by looking at years of sales. The goal is to know how value works and be able to see which streets or types of properties are fetching price premiums. When looking at areas like Fair Oaks, Carmichael, and East Sacramento, this is very key. In this case I appraised the subject property around $450,000, but there were sales within blocks that were coming in between $350,000 to $375,000 with seemingly superior upgrades too (probably why Zillow had this one at $378,000). After studying the market and carefully comparing previous sales on the subject street it was clear the subject street sales were competing at a higher price tier compared to other streets. It would have been a shame if I hastily pulled up three “comps” and brought this one in at $350,000 when the market was clearly willing to pay more.
3) The feel of the street: On paper it might look like we are pulling good “comps”, but then after driving by other streets we might see a lower quality of construction, or unkempt homes, or maybe a negative influence from commercial property.
4) Real estate community: It’s helpful to talk with other real estate professionals who know the neighborhood. I find most real estate agents and appraisers are actually pretty helpful when you call to say, “Hey, I have a question. May I bend your ear for a minute?” I realize not everyone is receptive to talking (lame), but that doesn’t take away the importance of building good relationships in the real estate community so we can exchange information. My advice? When people call you, be the type of person you wish everyone else was. Bottom line. All things considered, it is worth noting we still have to be careful not to impose someone’s perception of the market on our value. So let’s seek insight from others, but let’s also not forget to look at actual data and support the value we say exists.
5) Learn to graph so you can see the market: The graph above was part of my research and it helped me visualize the market. I know, here I am mentioning graphing again, but I only do that because it’s revolutionized the way I see the market. Anyway, here is a tutorial I made for learning to make a basic scatter graph in Excel. If you didn’t know, there are a couple of programs you can use to quickly export neighborhood data from MLS to make graphs. I might suggest looking at Don’s 1004MC program (for locals and some other states (right now his site is down)) and Trendsheet (covers many states). These programs are built for appraisers, but I tell Realtor friends all the time to consider using them and just skip the appraiser stuff.
UPDATE: I was asked by several people in the comments and by email how to make a graph like the one above, so I made a video tutorial. Check it out here or below.
I hope that was useful or interesting.
Questions: What is #6? Did I miss anything? How do you figure out if there is a value premium for a certain street? How do you avoid choosing the wrong comps? I’d love to hear your take.
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Thank you for sharing the graphing of similar sales over time to show a pattern. You also did the same thing with busy roads in the past. With only one recent sale in a sales grid for the subject’s street, it might only like like there is one outlying sale that you’re using to pump the value of the subject. By showing these similar sales over time, you make a convincing argument that the recent sale fits a pattern of properties on the subject’s street. Very well done. This is the kind of stuff that separates the good appraisers from everyone else.
Thank you so much Gary. One recent sale was not enough for me. I wondered if it sold too high (I think it did slightly actually). The interesting part is the homes on the subject street really are not all that upgraded, yet they compete toward the upper end of the range.
Great stuff Ryan. One of your best.
Thank you Joe. That’s a high compliment.
Great post Ryan. I tell people all the time, “Street by street. Not neighborhood by neighborhood.”
All too often people pigeonhole a property’s value due to the zip code or recent “comps” when there is actually a lot more to the valuation.
You had the same experience recently for the pre-listing appraisal I hired you for, as the types of properties and years built were all over the place for the neighborhood, all within walking distance of one another.
I remember one time back when I was getting started in real estate I thought I had determined an accurate value for a property, and my mentor showed me that my “comps” on the next street over were set much further back in their lots, not up close to the sidewalk with no front yard like mine was.
That definitely changes the curb appeal of a property and therefore makes it less desirable. And those properties were also a lot different inside, and were built by a different developer. So they weren’t the best choices for an estimation of value.
One secret tip for #6 that works well for investors is to talk to the neighbors about the area. Sometimes you’ll meet someone who has lived in the area for decades and they can tell you a lot about the neighborhood because of it.
For example, recently I was looking at a duplex for an investor client of mine, and I happened to meet a neighbor out on the street working on his truck. I asked him what the neighborhood was like, and his response was quite enlightening:
“Oh man, this street is great! Super quiet, never had any issues here. But that street, and the next street over, are @#$%*!# crazy!!!”
The street the duplex was on was on a small court of 10-15 properties, all developed in 2007. It was smack dab in the middle of a neighborhood of homes built in the 50’s and 60’s that were selling for $50-60k less.
Just 2/10 of a mile away it was an absolute disaster, many low-quality duplexes on the same street. When I drove by, I happened to come across a house party going on with 30+ people in the street drinking beer at 1:00pm on a Tuesday afternoon! Much different from the little quiet court I was on just a moment ago.
The court is Dobbins Way in the 95815 zip code if anyone is interested in a case study of how much things can change just one street over.
Thank you Wes. I always appreciate the value you bring in comments. And thank you for hiring me for that one. 🙂
Great point on #6. I think that’s spot on. I think we can get some real insider information when we ask about the neighborhood. I sometimes like to ask tenants and owners open ended questions like, “Anything else I should know about the neighborhood?” It’s amazing what I’m told at times (just like your example).
Excellent example with your mentor too. Thank you.
I’m also a Realtor and have lived in Oak Park (South and Central) going on a decade now. Wes Blackwell, I know exactly what you mean by “street by street”! It is really up to those neighbors who live there, and investors who own there, to take an active role in protecting the reputation of their street and the subjective values given.
Thanks Lisa. I really appreciate you pitching in thoughts. Please do so as much as you’d like. I always welcome insight.
Neighbors and landlords really do have a responsibility to the community. In our society today it’s easy to think we live on parcel islands so to speak, and can therefore ignore what is happening around us. But every parcel in a neighborhood is connected to others, so there is a real impact when someone doesn’t pull their weight in the community.
Ryan,
Excellent analysis. I am curious how did you highlight (make black) the data from your specific street? That is a very nice feature to draw attention to the critical data.
MIchael Mathis
Thank you Michael. I tell you what. Why don’t I do a video tutorial. I’ll aim to do that in the next week to show how I did this. It’s very easy. It’s basically just making a scatter graph, but with two sets of data instead of one. Piece of cake really.
Look forward to it! I love learning how to make all of the graphs.
Thanks Shannon. Now I’m starting to really look forward to making this tutorial. 🙂
Ryan,
Thank you for being willing to do that. I would ask that you include the way you can show trendlines for each data set, as I would assume that the difference between the two lines would suggest an adjustment percentage.
Thanks,
Michael
Hi Michael. I just posted the tutorial below in the comments. Unfortunately I did not show how to make a trendline. That would have been a good idea, but I will maybe have to do that in a different tutorial. Honestly I don’t usually make two trend lines because there may not be enough data in one of the categories to really have something meaningful-looking. That’s just me though. Theoretically though it would be great if we could gauge a percentage difference by having two different trends lines. However, we would still have to look at things like condition and location because the percentage difference could be greater depending on what we are looking at rather than a middle-of-the-road trendline. Whether we do two trend lines or not, I am always asking how a certain subset compares to the top of the market, the bottom of the market, or a different size of property. Thus I can get a good understanding of the way the market lines up properties (and probably a good understanding of percentage differences too).
Great post, Ryan. I have learned (sometimes the hard way) that you MUST look at a subject’s street very closely. I make it a habit to look at activity near the subject before widening my search. Good stuff.
Thank you Abdur. I hear you on learning. I think we’ve all been there and will continue to be there. Nobody knows everything about the market or real estate, which keeps us humble. 🙂
Thanks Ryan. Your posts are always informative and thought provoking. I’ve never been as good with Excel as I would want. How are you able to indicate the subject’s street sales with a different color on the scatter graph?
Hi Dave. Thank you sincerely. I’ll do a video tutorial and share it on next week’s blog at the bottom (and I’ll put it in this post too). I won’t get to that for a number of days, but I”ll make sure to show it. It is VERY powerful to show multiple trends at once. I sometimes like to do an entire neighborhood of sales and then only a segment of the market (such as 1300-1500 sq ft or 2-beds only). I love seeing the context.
Looking forward to that tutorial!
Thanks in advance for the tutorial, Ryan. I look forward to your posts as you seem to address the same issues I face regularly (ref; last week’s post ” How much value does a huge backyard shop have?”).
Thanks so much Dave. I appreciate it. I’m often writing posts based on questions I get asked or things I’m struggling with on my desk. We are in the trenches… 🙂
I just wish that some of those trenches weren’t so darn deep .. 😉
Interesting post Ryan since I ran into this situation this past week. I had two sales in the subject neighborhood and 2 from a nearby area. The sales from the other neighborhood were selling for more and after I did a graph like you talk about I could see that most of the homes in the other neighborhood did historically sell for more. Graphs can be used to visualize things a lot better than a table of sales info.
Thanks Tom. Nice job. That’s really great. Value comes down to understanding the context and any way we can see that better is so valuable.
Okay friends, for those who asked, here is a tutorial for how to make a graph like the one I did in this post. I show you how to make it in both Excel and Gnumeric (a freeware version of Excel). I personally love using Gnumeric for graphs like this because it seems far less clunky than Excel. On the other hand, I use Excel for 99% of the graphs I share on my big market update post once a month, so I certainly use Excel too. Anyway, check it out and let me know if you have any questions, insight, or even a more efficient way to do it if that’s your thing. https://youtu.be/mWVTwuDNSIM
The tutorial is great. Thanks for your help.
Awesome. Thanks Dave. You are very welcome. I hope to do more of these.
Thanks for posting the video. I will be using this technique in the future.
You’re so welcome. I hope this helps and hopefully it’s fairly clear (let me know if not). I know for me it’s been a game-changer to graph like this. I like to compare the entire market vs a sub-market. Or sometimes I will compare two models in a tract neighborhood to answer the question whether they really are competitive or not. Or in the case above it was one street vs the rest of the competitive market.