I have two types of ceilings on my mind. How do you know when a market begins to reach its price ceiling for the season? And how low can a ceiling be in a home and still be considered legitimate square footage by an appraiser?
I recently inspected a house where the ceiling was 6 feet 8 inches high. Is that tall enough to count? Is there such a thing as too low? Let’s talk about it.
How low can a ceiling be? Lots of people think 8 feet is the minimum ceiling height because that’s a common height in most homes, but it’s actually 7 feet according to the American National Standards Institute (ANSI Z765). Technically ANSI says it’s okay to have a ceiling height at 6’4″ under beams though. Keep in mind sometimes a ceiling might have a downward slope like we see with a Tudor or the photo above. When ceilings slope really low, there is something called the “5 foot rule” where the appraiser can count any space above 5 feet as living area as long as over 50% of the ceiling area is at least 7 feet.
When appraisers observe houses with ceilings below 7 feet, they’ll typically email the lender and say, “Hey there, this property has a ceiling less than 7 feet, and that doesn’t cut it according to ANSI standards. How do you want me to proceed?” After hearing that there’s a good chance the lender might not want to do the loan. Of course a property with low ceilings can still have value and even be appraised, but it may need to be marketed to an investor paying cash instead of a buyer using conventional or FHA financing.
Market price ceilings: Switching ceiling gears, how would you know if the market was beginning to reach its price ceiling for the season? That’s a great question to ask since many markets in the United States are going to be doing just that over the next couple of months. As I said in June, the Sacramento market is beginning to slow down even though we don’t see it in the sales stats yet. This doesn’t mean the market is cold or values are declining. It only means we are seeing subtle clues to a slowing market as high altitude values from the spring are at the beginning of a downward seasonal descent.
Umm, please don’t say the market is slowing!!!
At times it’s not very popular in the real estate community to publicly talk about the market slowing, but it’s something that happens nearly every single year. I realize we have big headlines about the market being “hot”, and it really is in many way, but catching the symptoms of a slowing market is key for valuing properties (and it’s good for clients). I suggest starting to watch price reductions more closely because they’ve been increasing lately in Sacramento and this is one of the first signs of a slowing market. Also pay attention to days on market increasing in coming time along with some of the other factors above (including the sales to list price ratio). I highly recommend asking other real estate professionals the question, “What are you seeing out there?” It’s amazing the type of insight you can glean from title reps, loan officers, appraisers, agents, escrow officers, etc…
I hope that was helpful or interesting. Any thoughts?
–——-——- Big monthly market update (it’s long on purpose) ———–——-
Values showed an increase again last month and sales volume was very steady compared to the past few Junes. Overall most price metrics were up 1-2% from last month, though the month prior they increased 2-4%. Inventory is still down about 20% from last year, and properties have been selling like hotcakes in only 9 days (that’s the median). In case you wanted to know, most price metrics are up about 7% from last year. One interesting thing to watch is FHA sales are starting to sag more noticeably as they ticked down a few percentage points to 21% of the market in Sacramento County. Granted, 1 in 5 sales is still quite a bit of FHA volume, but last year we were seeing 1 in 4 sales go FHA. It’s easy to think this means first-time buyers are getting squeezed out by Bay Area buyers, but that’s not really the case. My sense is the downtrend is due to more would-be FHA buyers using competitive conventional products instead of FHA. Lastly, it’s worth noting Curbed has a glowing article about Sacramento (cool that they quoted me too). This article is starting to go viral and it’s bound to get many locals pumped on how “hot” the Sacramento market is. Yet despite being “hot” in many ways, let’s remember to look for the signs of a slowing market because we have to realize the market usually hits its seasonal price ceiling right about now (but we won’t see it in the sales stats for a while). I could go on and on with words, but let me share some graphs to show the market visually.
DOWNLOAD 74 graphs (and a stat sheet) HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).
Sacramento County graphs this month (more graphs & stats here):
Sacramento Regional graphs this month (more graphs & stats here):
Placer County graphs this month (more graphs & stats here):
DOWNLOAD 74 graphs (and a stat sheet) HERE: Please download all graphs in this post (and more) here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).
Questions: Any low ceiling stories to share? Is the price ceiling for the season just about here? Did I miss anything? I’d love to hear your take.
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Homes in my area have been selling in about 1 day. People I’ve talked to don’t know what to list their properties at because 1 days sales would indicate your price was too low, I don’t like the feeling of desperation I get from buyers, doesn’t seem like a healthy market.
Thanks Nathan. I appreciate your take. I think we’re all hoping for more inventory and less creativity from lenders to reduce the ‘roids feel the market can have.
In my opinion, a little bit of a slow-down would be good for the market right now. Realtors hear all the buzz about properties going for way above asking price, and then they start overpricing their properties. Every now and then some sucker with all cash can close despite an appraisal, but it’s a major issue for everyone getting a loan.
Also, I think the overpricing is part of what creates the slowdown. The market gets hot and properties sell quickly, so seller start overpricing their properties, but people aren’t dummies and so the properties just sit.
Here’s a perfect example:
http://www.realtor.com/realestateandhomes-detail/3716-4th-Ave_Sacramento_CA_95817_M10451-85160
Duplex in Oak Park, 1/1 each side, been on the market 17 days. I knew it was overpriced the day it came on because I made several offers on this Duplex on 2nd with 3/2 each side a couple months ago:
http://www.realtor.com/realestateandhomes-detail/3736-2nd-Ave_Sacramento_CA_95817_M17797-24431
The one on 2nd goes for $26k above ask, this seller gets excited and suddenly thinks his duplex with 2 less bedrooms per side (less rent for investors) is worth $25k more. He’s dreaming.
And so, while the property on 2nd Ave sold in 3 days, this property has been on the market for 17, all because of pricing. They could sell it in a heartbeat at $300k, but I think they got influenced by the hot market and overpriced it, contributing to the slowdown.
Wes, I always appreciate your take on things. Let’s keep watching the market closely. Please keep sharing details too. I appreciate you pitching in thoughts on these market posts in particular.
I actually just had lunch today at Chandos (the one on Arden Way because that’s the best one) with a Realtor, loan officer, and a couple investors. It was interesting to hear the Realtor talk about being in a situation asking the two offers to bring their best offer because of a multiple-offer situation, though both buyers just sort of said, “Nah, we’re not as interested.” Then the investor talked about one of his listings in Tahoe Park being priced lower and expecting to get bid up only to have that not happen. He was thankful he sold at list price, but he was expecting more. These are perfect examples of the market slowing up. This doesn’t mean values are tanking or the market is cold, but when buyers are a little more finicky and bidding wars get less aggressive, we have to recognize that. I know, there are still situations that feel like the height of Spring, but I am hearing more and more situations like what I just mentioned, and that’s indicative of the market.
I actually appraised a duplex pretty close to the two-story one you mentioned. I’ll be curious to see what the first one does. It’s a good looking one (I dig the bricks).
Thanks again Wes.
Thank you for the info Ryan.
Sure thing Gary. It’s my pleasure.
Wow Ryan, great article!
I never considered ceiling height as a factor, but of course they are!
My brother is 6’11” and I suppose would not fit in some rooms without bending over! ;))
But now I’m going to pay more attention to ceiling height when looking at properties!
Thanks again for the great insight!!
Thanks Bev. Wow, your brother is so tall. That’s almost a foot taller than me. 🙂
Like @Bev said before, ceiling height is very important for price. In biggest problem are those flats on top floor.
Thanks Alex. What do you mean by flats on the top floor? Like a converted attic?
Yup 🙂
Sorry to come so late to this thread, but I was on a trip to DC at the time of publishing – The way many agents repoer square footage of second floors is to double the footage of the first floor, disregarding the fact that not all the second floor is useable because of a sloping ceiling. My practice is to stand with my head against the ceiling in the sloping area and measure over to the wall at the bottom of the slope, deleting the area of that measured space and reporting that as the actual useable square footage of floor two. BTW, I’m only Five Eight and I dont wear lifts.
Thanks Truett. I hope you had a great trip in DC. I never knew you were 5’8″. I guess I couldn’t tell either way based on your comments. 🙂 I appreciate hearing your methodology. It’s so easy to make the error you mentioned above. I actually measured a house for a home owner recently and the owner still did not agree with the sketch afterward because the owner was simply doubling the footprint of downstairs instead of accounting for the open foyer, cutouts, and other issues.