There’s no way it will sell for that much…. But then it did. Today I have an interview with a local real estate agent about a property that recently commanded easily about $100,000 more than it looked like it could have on paper. I hope you enjoy this Q&A with Ted DeFazio and my takeaways below. I’d love to hear your take in the comments. Any thoughts?
Ryan: On paper it looked like this property on Clear Circle was going to sell for way less, right? What do you think happened to get the price so much higher?
Ted: I thought the listing price was optimistic from the start. I even fielded emails from other agents asking how I came up with the price and a couple “good luck, you’ll need it” text messages. I think it was the perfect storm of a turn-key property in a low-inventory market. Added to that, it was a mid century modern (which some thought was bastardized by the previous remodel), had a pool (Bay Area and LA people think they will melt without one), and a somewhat walkable location on the southern end of Carmichael. I know a few buyers who mapped out the distance to Whole Foods and the American River Parkway.
Ryan: I get how agents were texting you “good luck” because based on two previous sales it looks like this one easily closed $100-125K+ above where it theoretically would have been able to.
NOTE: The black dots are the subject property sales through the years compared to yellow dots which are properties of similar size. As you can see the most recent sale at $815,000 looks to have gone well above the historic trend. By the way, the subject was remodeled during each of these sales.
Ryan: Are you seeing buyers pay more for unique properties throughout the market? Or is this just in certain price ranges?
Ted: There is another one that comes to mind in Fair Oaks that recently sold in Curragh Downs. Same situation. Mid century vibes and a cul-de-sac lot backing to a greenbelt. I once again thought the listing price was optimistic but every offer was above asking. The seller purchased the home less than a year ago for over $200K less and didn’t really do much as far as remodeling goes. These were both in the $700-800K range. Another I can think of was recently sold on Garfield in Carmichael. I fielded emails and texts from agents asking where the price came from. I have two others in the $500-600K range which are both in contract at nearly 10% above asking.
Ryan: How do you know if something is an outlier able to break away from the price trend?
Ted: The Clear Circle house, Canonero Ct and Garfield Ave properties all shared the unique architectural design theme. I think that is what truly sets these homes apart giving them the potential to be outliers. Check out Bonny Knoll in Roseville. The seller knew it was an outlier and priced it accordingly. I think that’s the constant. As agents and appraisers, we often think we know better. I responded to an email questioning value by saying: I’m going to let it ride and see what happens.
Ryan: What are you seeing happen with modern and mid-century modern home appeal during the pandemic?
Ted: I think these types of properties command a higher price point than that of the traditional Mediterranean or typical ranch home down the street. The Bay Area and LA types tend to appreciate these design styles more than the average Sacramento resident. With the influx of these buyers, we are seeing premiums added to the more modern properties. So I think it has further added to the delta between typical and unique homes.
Ryan: What sort of advice would you give to buyers right now?
Ted: It’s hard out there. The offers stack up and the sellers get overwhelmed. The common theme I am seeing with the winning offer is the high offer price and a removal of the appraisal contingency. This puts buyers who aren’t flush with cash in a tough spot. I am hearing buyers are thinking that the market is overpriced. I often tell them that I stopped commenting on the market. I thought it was overpriced back in 2016. What do I know? Buying in this market is tough but being able to sell helps neutralize the offset.
Ryan: Any advice for sellers?
Ted: You are in the driver’s seat. If you have considered selling or making a move, there is no time like now. What an opportunity.
Ryan: Anything else to add?
Ted: I am seeing a divergent trend of agents either sharing what the other offers are or not. I find this market as difficult as I have ever seen to be in the buyer’s shoes. Add to it the listing agent not sharing what other offers are on the table makes it even harder to do our jobs. I ask my sellers if they are okay with me sharing the current offer terms with the other agents (as long as there isn’t a NDA) and they are usually okay because they understand that it will most likely get them more money in the end. The shot in the dark offer mentality / situation is aggravating and makes me not even want to submit an offer in certain cases. I have seen some seller instructions added to listings of some brokerages and wonder if they are truly acting in the best interest of the seller.
Ryan: Thanks Ted. I appreciate your time and insight. Everyone, please visit Ted’s website and let us know what you are seeing out there.
NOTE: Once in a while I do a Q&A with a local professional. This is never a paid spot and it’s not done to highlight one person either. It’s only when something has piqued my curiosity and contributes to discussion.
——————— some quick thoughts ———————
QUICK TAKEAWAYS from an appraiser’s perspective:
1) Your opinion vs the market: It doesn’t matter what any of us think about a property. As Ted said above, quite a few people looked at Clear Circle and thought the remodel destroyed the character of the home, but the resale market blatantly favored this property despite what purists thought. There were four offers when priced at $749,000. This is a good reminder in the valuation space to divorce ourselves from personal opinions and focus on one question. What does the market think?
2) The previous sale: Sometimes a previous sale can be really useful because it helps us understand how a property has fit into the market. But in other cases we need to completely throw out a previous sale because the market is simply different today (or maybe the prior sale sold too high or low). This is exactly why we have to be careful to give the current market and current comps the most weight while not getting too hung up on a previous sale (even though at times a previous sale can provide really helpful context). This is especially true today where the higher-end market has come alive throughout the country, so what buyers are willing to pay right now could simply be a detour from buyer behavior a few years ago.
3) The pandemic x-factor: Buyers hunting for homes these days are willing to pay extra for something architectural distinct. Additionally, buyers are paying premiums for homes with stellar views and backyard amenities. The idea is people know what it’s like to spend more time at home now, so they seem more sensitive to location as well as what’s actually in the backyard (including the view).
4) Paying way too much: There are situations today where buyers are obviously paying way above normal. Let me be clear. I’m not saying this sale above represented market value at $815,000. I’m also not saying it didn’t. I’ll let you be the judge. I’m just saying buyers in general throughout the market are paying premiums for special properties right now. But backing up there is no mistaking there are quite a few situations where buyers are obviously paying well beyond a reasonable value and the appraisal rightly should be coming in lower.
5) Sellers, don’t price to an outlier: Sellers, this market feels totally lopsided, but buyers can still sniff out an overpriced home. My advice? Be realistic about your house and DO NOT price according to an outlier example like the one in this post. Remember, not everything is getting 20 offers and bid up $100,000. In fact, only 2.8% of all sales last month had twenty offers or more. This is actually a higher than typical number, but it’s important to realize this figure is nowhere near half the market like some real estate narratives might suggest.
Thanks for being here.
Questions: What are you seeing out there relating to modern homes or other “special” properties? Any stories to share? I’d love to hear your take.
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As an owner of a Streng home, I hope the buyers have money for maintenance. I’ll never buy a flat roof home again. Start a savings account for your dry rot fund.
But I do like modern designs!
Nice interview Ryan. I’m seeing sales in Yolo County that has me scratching my head, too. Check out 2432 Albany Ave, Davis. Listed low but received 20+ offers and sold 90K over list. 50+ showings in one weekend. Turnkey, no similar inventory.
Many owners of Streng (and similar) “flatties” added a converntal roof structure and coverings later.
Thanks Truett.
I appreciate the inside scoop Joe. It’s amazing how different types of homes have particular issues. Thanks for the example in Davis too. Scratching the head is about what this market feels like. We truly are in a market of outliers. The high-end has truly come alive also. I have some stats to push out soon, but basically over the past 11 months since June 2020 we’ve seen a 99.4% increase in sales volume above $750K. Part of this is due to increasing values of course, but there is no mistaking the high end has awakened.
It seems that no matter how “special” the home is (or isnt), buyers are willing to do whatever is necessary to get their offers accepted. I think it is illegal by CAR rules to offer your firstborn in a purchase offer? Appraisers are struggling to keep up with the rapid appreciation and support contract prices for even the most vanilla properties. My condolences to the appraiser that got the assignment in Berkeley hills that sold $1million over list price. Yes-1 Million over!!!! Apparently Covid brought about demand for large yards, pools and home work spaces, but another side effect seems to be an irrational desire to obtain a home at any price-literally.
Thanks Mark. It is wonky out there and the market has been moving incredibly fast. In the Sacramento region our median price has increased over 11% over the past 90 days. This doesn’t mean every property has increased in value by that much of course, but there is no mistaking this is an example of stats on steroids.
Two or three months later, you could come back and do this same graph again and see the trend line go up steep and make the subject’s current price fit in relation to the old sales and their relative proportion above the trend line.
Maybe so. Though this one still looks like quite the outlier for now. In terms of trendlines it’s not always easy to tame them right now since the increase is so steep.
Great interview, Ryan. The big question is “did it appraise”?
That’s always the question. Haha. I wish I knew more about what happened here.
List for Clear Circle was 749K. Sale was 815K. Where’s the 100K over list?
Sorry if that’s not clear. The list price was WAY above what anyone thought was realistic, which is why the agent was getting “good luck” text messages. When you look at my graph within the post you can see the most recent black dot (subject sale) is WAY above the historic trend. So in this regard this property really did easily sell 100-125K+ over what it looks like it could have fetched on the open market. To me this is fascinating because we hear lots of stories about homes that list and sell $100K over. But what we have here are two fairly recent sales of this same property and then this one that went way above what looked possible. Does that make sense?
Great interview and discussion, Ryan.
From my multi-state perspective, these dynamics play out in some form between various markets. Seller and buyer actions will follow the underlying market dynamics of respective markets. Market forces, as crazy as they seem, always reflect the difference between market precedent (value) and market expectations (price), and continue to reinforce our understanding the role of price has in the valuation process. I routinely review published value definition(s) to be sure market-defined actions and expectations (price) are adequately supported by market precedent as of the appraisal date (value), especially for intended collateral risk valuations.
Thanks Brent. I appreciate you pitching in some thoughts. This example is fascinating to me – especially when plotting the property on a scatter graph. We are in such an interesting market right now.
I admire all of your work, Ryan. In particular, I respected your comment “do not price to the outlier”. Very sound advice. It’s a “seller’s market” but let’s not be unrealistic. Remember the parable about the “three wishes”.
Thank you so much Pamela. Yeah, my fear in writing this is it would help fuel some sellers in pricing too high, so I definitely wanted to fit that in there. On a different note I spoke with a seller today who has three offers and yet is struggling to accept the offers. Sometimes sellers just need to stop and listen to the market. If that’s what buyers are offering, it probably means something and it may not be prudent to stall for higher offers… 🙂
Thanks for the article. Another home at 301 James drive Roseville. Listed at $800K then listed at $900K a week later. Closed at $925K with 10 offers. Crazy market!!!
Thanks John. I’ll check it out. I find value on paper today is one thing and what a property might sell for is another. It’s like the difference between market value and auction value.
Ryan
This was very timely for me. I was one of those who thought good luck when it first came on the market and doubly shocked when I saw the sales price when it closed. Good discussion and food for thought.
Nancy
Thanks Nancy. Exactly. I have yet to hear anyone say above $815K would have been remotely possible. I know it’s easy to look at this one and say, “Meh, it only sold X amount above the list price,” but this is a conversation piece once we really dig into the details. I think there is some telling discussion to be had. Thanks as always.
Its national. I call it the panic. just like a**o or any other goods that are in short supply, people are paying an unpreparedness tax and in the case of houses-paying a panic premium.
If you dont HAVE to buy-dont. People ask me every single day when the market is going to crash.
My crystal ball broke a few years ago and the repairman is too busy for house calls.
Buy where you need to be when you need to and do NOT over-buy and do not buy “because if i dont buy now-i never can” and dont buy cause “in 5 years it will be worth double”.
Buy because you need a roof close to your work or school or grandma.
I am seeing a lot of inventory selling above the HIGHEST sale price in the last 5+ years for ANY property in the segment.
Mult offers over ask in a market that historically has zero price increase. We have seen 1/2% per month over the last 18 months now…
Thanks cash buyers from out of state.
Stop raising our taxes cause your million dollar tract home sold in that blue state and you dont care if you pay 30k over cause thats how much your taxes were for 1 year “back home”
Thanks ETX. There is some wisdom here. The hard part is playing the game and securing an offer almost requires overpaying right now. That isn’t true in every case, but in so many cases it is because of how profoundly lopsided the market is right now (off-the-charts demand and anemic supply). When I pull stats each month I am baffled at the numbers and how aggressive they are.
I don’t know where you are from, but I’m assuming Texas in case that’s what the “TX” stands for in “ETX”. Sorry if I’m wrong. I realize out-of-state buyers are making the market move and I’m not minimizing that, but I would like to mention the market across the country is on steroids, so how much of the market in your area is simply crazy due to dynamics beyond out-of-state buyers? I’m not trying to minimize the migration of buyers as that’s a real thing, but how much of the insanity is actually due to excessive demand and limited supply like we’re seeing elsewhere. By the way, Texas gives California usually somewhere around 35,000 residents each year (could it be Californians moving back?).
My observation is each market blames someone else and I’m actually fascinated by the dynamic. In fact, I hope someone does some research one of these days to trace where blame begins in the United States and how it spreads… 🙂 In Sacramento we blame the Bay Area, for instance. I find there is truth to the trend of the Bay Area without doubt, but I think at times it’s easy to get lost in the narrative while undermining the reality of a huge appetite among local buyers. I wonder what the stats actually say too, which is why I pay heavy attention to migration data.
In other words, how much of your market (and mine) is simply due to lopsided market dynamics right now and how much of it is out-of-towners? I’m not trying to offend or start a war of words. I just wanted to share this as I’m regularly trying to find the answer in my area. I’d love to hear your take and particularly any data you have on migration from CA to TX.
If it does not make sense, then it doesn’t; regardless of the juicy rationalization of the day. It seems as though sales like this are the bubble.
Thanks Mark. Though sometimes the market doesn’t always make sense. The motivations of buyers and sellers are complex and that’s not so easy to package neatly or understand perfectly. I get what you are saying, but your phrasing of “juicy rationalization” seems off – in the context of this post anyway that’s trying to talk about something important in an objective manner.
Mark, I’m not trying to sound rude. I think maybe my comment came across that way, so I apologize if that’s the case. I was taking your verbiage to maybe be judging the presentation here, but you may not even by talking about that.
Sorry, did not intend to demean anything, just feels like deja vu somehow.
I hear you. Thanks Mark. And sorry again for the way I came off. This type of appreciation is not healthy.
Excellent interview! And I am glad that Seattle is not the only area with a crazy market! How do we measure the “frustrated buyer” syndrome? In this area it seems that many of the multiple offer situations have prospective buyers that have already lost out on 2, 3 or more attempts to buy and they will do whatever necessary to buy. Gift letters from mom, dad, or whoever; escalation clauses; etc. And contract prices well over the listed asking price.
I recently reviewed an appraisal on a property listed at $1 million, sold for $1.4 million, DOM 1 day. The appraiser did a good job supporting a value of $1.24 million, but the sale recorded at the contract price. County records show a $740,000 loan – 52% of the purchase price! But that shows as a $1.4 mil sale in a neighborhood of $1.0 to $1.2 million homes.
I have not been checking to see the amount of the loan, and many high-end sales are cash transactions. Was that a market transaction or a frustrated buyer with cash reserves?
Be careful out there! It’s a great life if you don’t weaken.
That’s wild Barry. I really appreciate the commentary. Thank you for sharing that.
Where is value in the midst of the craziness? That’s the question at hand and while it’s not easy to see the market, we have to recognize the contract price certainly doesn’t always reflect market value. In fact, I know for sure some buyers simply offer at list price expecting the appraisal to come in lower. I literally talked to a buyer about this today. Thus appraisers have to be really careful about letting the contract price influence the value.
I’ve seen some lopsided examples out there too lately. One comp last week looks like it sold nearly 10% too high compared to others. Guess what the culprit was? The buyer paid $50K above the appraised value. So whoever appraised that got the value right because the lofty closed price really was higher than anything else (without reason too). I simply gave that comp less weight as it was an outlier. I am appraising something right now for private purposes and the owner told me he paid about 15% above list price about six months ago and he now thinks his property is likely worth what he paid then. I share this because at times buyers clearly know what they are doing and they also know they are intentionally overpaying too. I think appraisers become the easy target, but clearly that’s not the only factor at play here.
It’s wonky out there and at times I’m baffled by the stats and definitely by the stories from escrows. Please pitch in your two cents any time. I really value what others are seeing throughout the country.
Since there is so much refinance work, I am avoiding appraising any purchase transactions that sell WAY above list price. I did the same in the last bubble market. And am still standing and have more work than I can possibly do (knock wood). I look at list price vs sale price on comps I’m using to make sure the sales where the buyer paid above appraised value are used only if they are the only sales available, which then IS the market. I figure if the agent is listing the property thinking the list price is the high end and using historical sales or listing to support their list price, then buyers’ agents need to represent their client’s best interest, and be careful not to be actually be more interested in getting a higher commission. Or getting caught up in the Emotional Buyer Syndrome. The buyers agents are the professionals, and are contractually required to represent the buyer, not the seller’s best interest. I believe when the “shadow inventory” of homes that are under the foreclosure and eviction moratorium start to get released to the market, it’s going to get ugly, because buyers that over paid will realize they have little or no equity and their properties may have lost value, and may start suing their agents. This is what happened the last time the s**t hit the fan. And if appraisers don’t do their due diligence, and just appraise to the sale price, they will be the first to get thrown under the bus.
Thank you. Though the issue here is non-aggressive offers are not getting accepted in so many cases, so it’s like buyers agents have to advise clients on what it realistically takes to get something accepted. I find many buyers agents actually are wanting to meet with appraisers right now to talk about the deal. In the past this would maybe seen like a conflict of interest because the buyer’s agent theoretically should not be arguing for a higher price or the contract price. Yet in this market buyers are removing appraisal contingencies and they have serious money at stake. So I really get this as a practice for today. I still don’t want agents to pressure appraisers to “hit the number”, but I understand wanting to share context, perspective, and/or relevant data where possible.
We’ll see if there is much of an uptick in foreclosures. As far as forbearance at least we only have 4.2% of the market in that category. It has been shrinking and is down from closer to 9%. To be determined on eviction and foreclosure moratoriums….
I agree regarding due diligence, though it’s worth noting at times appraisers are taking a conservative stance too and that’s not okay either on the opposite extreme. In my mind appraisers need to reflect the market and refrain from being liberal or conservative. This doesn’t mean we rubber stamp the contract price though (not saying that).
Thanks for pitching in your thoughts. Really appreciate it.
I just appraise based on historical data and the condition of the property, not what the buyer thinks it is worth. That is neither conservative or liberal, it’s using standard appraisal practices. And if the lender requires us to “bracket” the sale price then the sale cannot come in way higher than the highest sale in the area. If the buyers want to come up with extra cash above the appraised value to make the deal work, that’s up to them, but if I have knowledge of that and use that sale as a comp, I will note it in the appraisal. In the last recession, I worked with the US District Court as an investigator for mortgage fraud, and you’d be surprised how broad the definition of fraud is concerning a real estate transaction. Misrepresenting the features or the value of a home by a licensed agent is considered “misleading the public” and is fraud. Many agents and LO’s lost their licenses in the last recession, and some did jailtime, so this is a cautionary tale.
I cannot imagine the stories you have to tell. Seems like appraisers didn’t get prosecuted much. And yeah, buyers can pay whatever they want and appraisers are rightly coming in lower in so many cases today.
Regarding bracketing I find some colleagues fixated on needing to find one higher comp to justify value, but that is not a USPAP requirement. The value really needs to be within the adjusted value – not the unadjusted value. Granted, lenders might require that one extra higher comp, but that might not exist or be prudent for appraisal practice (which could differ from lender guidelines). In my market the median price rose 11% over the past 90 days and there might not always be closed sales. But there is data found in pendings and other metrics that might help form the market conditions adjustments we’re giving. Of course we need to weigh the pendings and not arbitrarily adjust without knowing details or focusing on one data point alone to form our perception of the entire market. I know Denis DeSaix just wrote about this in Ann O’Rourke’s newsletter.
And I’m not arguing with you on your points either. I’m just sharing what your comment evoked in me. I love these conversations and this wonky market is such a springboard for conversation.
I agree with your assessment of the market AND I don’t like when lenders tell us to “bracket” sales when it is not a USPAP requirement. Many of the appraisers that were indicted disappeared or just abandoned their license in one state and moved to another. Although I did hear one appraiser bold-faced lie in front of the appraisal board to get out of a violation, information that was in the report, but there was no cross-examination. I about leaped out of my chair, but you are not allowed to interfere with the process. I plan on retiring in a couple of years, I just want to get out before the “witchhunt” begins. Thanks for the conversation!
Tempe Appraiser, the reason lenders want to see a range of sales and listings that bracket the concluded value opinion, is to assist them in assessing the collateral value risk to their lending decision. A bracketed range of sales also strengthens our value opinion – when the intended user can see the lower range and higher range – and where the subject value sits within that range. Remember, the only reason they need our value opinion is to assess their risk in making a lending decision. When it’s not possible to fully bracket a value opinion, or when excessive adjustments are necessary, they then understand that there may likely be more risk associated with the collateral and the concluded value opinion. Another reason not everyone can do what we do… 🙂
Good point. This has been a very timely conversation since I am working on an appraisal for the first time in months where the offer price is $20K LOWER than the List Price due to multiple repair issues and a seller that is a hoarder and hasn’t moved herself or her “treasures” out of the house! The buyer is the son of the dual agent. So now the price comes in lower, when most of the offers in this area are way higher. Go figure!!
Wow, lots of issues going on there. Oh man.
Thanks for this convo. It’s been good.
Unfortunately, the “buyer brokers” have an inherent conflict of interest. They claim they are representing the buyer, but they are paid a commission by the seller based on the sales price. How many go into a negotiation saying “my buyer is willing to pay $100,000 less than that other person so that I can earn $3,000 less.”
Back in the 80’s, when all agents represented the seller; there was a case in California where the selling agent, while presenting an offer, referred to the buyer as “my client.” The seller accepted the offer, then refused to pay half of the agreed commission. His argument was that the selling agent was not representing his best interests and was not entitled to a commission. The judge agreed.
I get that. But what does advocacy for the client look like in this type of market though when serious money is on the line for the buyer in light of the removal of the appraisal contingency or promise to pay above the appraisal? Don’t get me wrong. This is unconventional for sure. I get the aspect of the commission, but whether something closes $30,000 higher or closes lower probably isn’t much of a difference for a commission. I think what I find agents intent to talk about with appraisers in these situations is the market and why the price makes reasonable sense. Granted, there is a real line not to cross and I’m the first to say agents need to steer clear of pressuring appraisers to hit the number so to speak. But on a real level I get this because the “appraisal gap” is real money for buyers. Said as a non-lawyer / non-broker / non-Realtor. I may change my mind on this eventually, but after multiple conversations I get where these agents are coming from in wanting to protect their clients. It’s just a way different type of protection than I’m used to hearing about. Could it be that market conditions changing could change things?
How about this? A local lender told me one of her realtor clients has been advising her buyer clients to bid way over list price in order to make sure they secure the winning bid and then let the appraiser come in low, so that they could get the sale price down when the property did not appraise. The realtor and the buyers were livid when a few of her clients were forced to close, since the appraiser(s) unknowingly were supporting the value that the realtor thought was too high.
I have heard of that happening in AZ, too. Many agents do their due diligence at the time they list the property, and are shocked when they see the offers!
No bueno. Thanks for sharing. I actually have a Realtor friend who is buying a house right now and she thinks the appraiser rubber-stamped the appraisal. Her thought was it came in about 50K too high. The profession needs to be really cautious not to enable deals. That’s not the role.
Yes, not our profession’s role to enable or disable deals; though the deal price should be adequately considered to determine if it may be supported as value by the market precedent of closed deal prices and market expectations of listed deal prices. When the price cannot be supported by the precedent of closed deal prices, the price may not be supported as value. However, if the market precedent of prices does support the deal price as market-defined value, I don’t believe it’s our role to make the market, but report the value. For residential mortgage collateral valuation purposes, the role of price is well defined in the value definition.
Thanks Brent. I like that you said enable or disable. Spot on. And I appreciate your focus on closed sales and market expectations of listed deals. We don’t create the market or make it. Agreed there. I did a podcast this week where I said something to that effect as a reminder that appraisers have not created the lopsided market conditions that exist today. There are many reasons why the market is the way it is. Ultimately valuation sure is complex and seeing the market in the midst of lopsided conditions isn’t for the faint of heart…
Agreed Ryan and simpatico, as usual. Appreciate your time and contributions to bring us all together, to challenge us and keep us mindful, sharp, and focused during these crazy market times! If it was easy, anyone could do it….
Thanks Brent.