My house is worth more now, right? Or maybe it’s worth less because of that one thing? I get questions like this all the time, so here’s some thoughts swirling through my mind. Skim the headings or dig in. Anything to add?
Questions I’ve heard recently:
- Will prices rise because a nearby restaurant got a Michelin Star?
- Did my value go up because of the new arena in Downtown Sacramento?
- My house is worth more because Lady Bird was filmed here, right?
- Is my house worth more because of that $5M record sale?
- Would values decline if a new hotel is constructed 1.5 miles away?
- A new Starbucks down the street makes value go up, right?
- Will it damage neighborhood values if there’s a cannabis facility nearby?
- Will a new gas station impact neighborhood prices?
- Will the Golden State Killer’s house affect my value?
- Are values going to decline if the school district is taken over by the state?
- How will adding a casino nearby affect value?
- Will prices go down if that new teaching hospital happens?
Not a dissertation: Many of these questions are truly complex and they could be research papers. At the same time we read some of these and think, “C’mon man, there’s no way that impacts value.”
Quick truth: We can get so trigger-happy about thinking everything makes a difference for value, but that’s just not the case. It’s like when a home owner says, “Yo, I got a new faucet in the bathroom. How much does this add to value?” Probably nothing. The market just isn’t that sensitive.
My Michelin Star poll: I ran a poll on Twitter after getting a fantastic question about whether Sacramento’s first Michelin Star would be a positive for the surrounding residential neighborhood.
This wasn’t a scientific survey, but it’s interesting to hear what people think. I tend to agree with the majority too. My sense is the Michelin Star will give bragging rights to neighbors, but I’m not sure buyers would truly pay more in an entry-level area to be closer to a top-tier restaurant. Keep in mind if this restaurant did begin to help the commercial market thrive, then maybe that could spill over into the residential market. Otherwise let’s not overthink this.
Generally speaking: If something has little impact on an area, it’s probably not going to affect value much. Let’s remember that when making value claims and thinking through issues. But if something persuades or dissuades buyers, then it could be a big deal for the market. In other words, will people buy or rent for more or less because of the thing? This is the type of market-based thinking we need to consider.
The arena: As an example, the new arena in Downtown Sacramento has been a game-changer because it’s drawn people and other businesses into the city. It’s been a catalyst for development in the immediate market. But that doesn’t mean a buyer ten miles away would pay more for a house because of the new arena. I say fat chance.
Lady Bird: Would someone pay more for a house because the movie Lady Bird was filmed in the neighborhood? I’m not saying the answer is NO, but I just haven’t met a buyer yet who said, “I totally paid more because of Greta Gerwig’s cinematic masterpiece.” Objectively speaking, I can only find four listings that mention the movie too, and that may be telling.
Two takeaways:
1) One thing: Let’s be cautious about looking for value under every rock. What I mean is it would be wise to remember not everything we encounter is going to sway buyers to pay more or less.
2) Support: Let’s think critically and be sure to look to data to support our value conclusions. At the end of the day we can make claims about how a certain something impacts the market, but what do stats and data actually show? That’s what matters most.
“Beyond the Bubble” article: I wrote a piece for Comstock’s Magazine this month called Beyond the Bubble. These are things on my mind lately with so much talk about whether we’re in a bubble or not.
Questions: What questions have you been asked lately? Have you seen one type of business or something else impact an entire area? What do you think of any of the questions above? Let’s chat.
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Do you think my property value went down when the Blazers got swept by Golden State?
If so, then we’re in real trouble in Sacramento. So many locals were just elated that the Kings’ record was almost .500 this year. Next year…. Sigh. 🙂
Nice blog Ryan! I’m feeling like a Starbucks in a neighborhood might raise value! Just kidding. Probably not. Usually, it takes more than just one restaurant or desired amenity to begin to have a positive impact on values, at least from what I have seen. Of course, there are always exceptions to that. Great thoughts as always!
Hey, I’d love to be within walking distance of a Starbucks. I would say at the least it’s likely a plus for marketability. I know for certain real estate agents would say, “close proximity to Starbucks” in MLS. There is actually talk of one going in down the street from my house and my wife and I are so hoping it happens.
At the same time I agree that it usually takes more than just one thing. I’m a bit skeptical at times when studies come out that pin an entire area’s price increases to one business or one factor. The pragmatic part of me tends to think it’s likely a few things….
On a related note, when it comes to homes, this is how buyers tend to think. They often look at the total package of a house instead of just one feature when assigning value. Though to be fair at times buyers will sometimes look past or ignore other issues if there is one ultra positive feature. Thus if the kitchen is remodeled or there is some other high-dollar issue, it can sometimes sway value and interest for sure. Yet a remodeled kitchen in a crack house might not do much….
So true! This is why appraising is never boring! There is so much to consider. Human nature is fascinating to observe in real estate. ?
Great info as always Ryan! I am going to bookmark this to send to Realtor partners who can sometimes get confused or misled by PPSF comparisons. They see a sale of a 1250sqft house and say, “well, that one sold for $300/ft I don’t see why I can’t sell this 2000sqft house for $600,000.” Consumers also think this is how it works. Keep putting out good info
Thanks Matt. That’s such a common mistake we see. It’s so easy to make, but it’s also so easy to avoid. Keep up the great work Matt.
This is one of my favorite appraisal-related topics! Here in Portland, we did seem to have a couple years where “the New Seasons effect” did seem to influence values. New Seasons is a high-end grocery store in the Portland metro area, and if they announced a new store, it was evidence that the neighborhood in question was on the upswing…and pushed values up, up, up. That effect seems to have passed, but definitely had some sellers make bank based on that variable in the market.
Thanks so much Corey. That’s fascinating to hear. I can see that being legit too. Having amenities nearby is so important and the right commercial properties can be a sign of great demand and stability in a neighborhood. In contrast, sometimes the lowest-priced areas have less options, which is why we don’t hear of cool stuff moving into areas with higher poverty and crime rates.
I can think of two areas of town that have lots of lower-priced homes, but shopping for groceries is a struggle in both areas. It’s like a food desert. So show me a neighborhood with higher prices and I’ll likely show you a more vibrant commercial sector as well as better schools. It’s wild how this works and it just shows the huge disparities that exist in society today.
Anyway, I’m maybe getting off topic, but that’s where my mind went. Thanks again for your comment. It really reminds us that sometimes the types of businesses we see moving into an area are a reflection of what is happening already (or will happen) in a residential market.
In the bay area the google shuttle bus stop is supposed to move the house price needle. It’s a single amenity that can potentially make an area significantly more attractive to an affluent pool of home buyers.
https://www.sfgate.com/entertainment/article/The-Google-Effect-How-the-company-s-shuttle-line-2539995.php
Thanks Jack. I appreciate the example. It’s interesting because the transit system in Sacramento is far less developed and used than the Bay Area. So here there’s not a huge positive if you’re right in walking distance because many people actually just drive to work. t could be a totally different dynamic in the Bay Area though. I’d be curious if you or others have insight into this.