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Speed bumps, neighbors, & real estate logic

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Are speed bumps a big deal for value? That’s what a friend asked me, and since she gave me permission to share her situation with a neighbor, I hoped we could chat. If someone asked you, how would you respond?

The situation: My friend said, “We live on a busy-ish street with lots of kids walking to and from school, and neighbors are talking about requesting speed bumps to slow cars down. One neighbor who is against this says, “adding speed bumps will decrease the value of a home by 20%.” What do you think of that?”

My response: I’ve got a few things on my mind.

1) Making value claims: Whenever someone makes a value claim, my market antennas go up. What is 20% based on? Is it just an arbitrary number? Or is it based on market research? A study? Does it even seem realistic? These are questions we have to ask to have an informed conversation.

2) It’s busy already: Speed bumps are usually installed because the street is busy and has traffic issues, so there might actually already be a negative impact on value because of the busy street. To be clear I’m not saying speed bumps cannot potentially negatively impact value, but let’s not forget the busy street in the first place, which could be the bigger issue for value.

3) Crunching numbers with logic: Thinking logically is actually one of the best things we can do when having value discussions with neighbors. Sometimes we just need to step back from our ideas and start talking numbers. For instance, if homes are selling for $400,000, and your neighbor is correct about a 20% reduction in value, would these homes really sell for $320,000 if speed bumps were installed? Does that sound reasonable? Does it seem logical for buyers to make a reduction that large based on what you know about the neighborhood market? Moreover, if your neighbor listed his house for sale, would the list price be anywhere close to 20% less if there were speed bumps?

4) The noise factor: To be fair your neighbor is smart to think critically about this issue because we have to consider what speed bumps will do for traffic, the feel of the street, and noise. I recall talking with a city planner once who said neighbors would complain about a busy street and request speed bumps, but after they were installed the same neighbors would complain about the noise of the bumps when cars were speeding over them. Could noise be an issue?

Anyway, that’s how I answered my friend. If you notice, I didn’t make a specific value claim on purpose because as an appraiser I can’t just make stuff up without really supporting the value I say exists. Sorry if that’s frustrating, but for me the big takeaway here is actually how important it is to sometimes step back from our ideas and think critically about value issues. At the same time I’m hoping to open up some conversation, so I would absolutely love to hear your take.

Questions: How do you think speed bumps might impact value? Big deal or no biggie? Do you think it’s possible to measure the impact of speed bumps? Why or why not? What is #5? Did I miss something?

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A slowing market & value by Starbucks cups

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Imagine not being able to see home prices. How would we measure value? In other words, could we determine higher values in one area compared to another based on things like school ratings, owner occupancy rates, or the income of residents? Let’s consider that, talk about the market in terms of Starbucks cups, and then dig deep into Sacramento trends for those interested. Any thoughts?

If we couldn’t see prices, what would be the best indicator of value?

1) Income of residents.
2) School ratings.
3) Percentage of owner occupied units.
4) Crime rates.
5) Length of grass.
6) Walking score.
7) Proximity to Downtown.
8) Proximity to coffee shops.
9) Number of cats in the neighborhood (thanks Gary).
10) What else?

The Takeaway: If we didn’t have access to prices in an area we could probably analyze some of the list above to get a sense of higher or lower values in certain areas. Ultimately we have to remember value is about the stuff behind the price, so it’s key to be in tune with what’s making value move in various places.

Here is a Twitter poll I ran:

Starbucks cups instead of price: Keeping with the theme, let’s talk about the market in terms of the cost of Starbucks cups (tall size) instead of price.

Real stats in the Sacramento region (but with coffee):

1) The median price softened by 2,512 cups of Starbucks coffee last month.
2) Since summer the median price has softened by 5,128 cups of coffee.
3) The median price will likely decline by 10,000 cups of coffee this fall.
4) The median price is up 15,384 coffee cups compared to last year.

Okay, don’t take me too seriously on this. But isn’t it interesting to think about value beyond just price? Next week: Avocado toast price metrics… (kidding).

I hope that was interesting. Anything to add?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

We’re at that time of year. Sales volume has likely peaked for the season. The median price probably climaxed in the summer. Housing inventory is increasing, and each month it’s taking longer to sell in Sacramento. Overall the market has a slower feel compared to a few months ago, values have begun to soften in many areas, and even rents have been flat for a few months according to Yardi Matrix. We’re seeing a seasonal softening in county-wide stats (especially regional stats), but we’re also observing slowness in many neighborhoods as homes are tending to have less offers, less traffic, and even sell for slightly less than the highest prices from a few months back. News like this sometimes freaks people out because they think the market is tanking, but like clockwork the market almost always softens during the fall.

A huge stat to know: Every year the median price and average sales price in Sacramento County tend to soften by about 5%. This doesn’t necessarily mean values decline by 5% in every neighborhood or price range, but it does mean we can expect price softening in most areas during the fall season.

A word to sellers: Don’t be that stereotypical person who doesn’t listen to the market when it comes to price. Right now the market is slowing and the number of price reductions is higher than it’s been all year. As long as you’re priced reasonably you’re going to get offers, but be cautious not to price unrealistically high because you’re hearing the market is blazing “hot”.

I could go on, but let’s get visual.

DOWNLOAD 73 graphs 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 (more graphs & stats here):

SACRAMENTO COUNTY STATS:

  1. The median price is currently $347,500 and dipped 0.1% last month.
  2. The median price is 9.6% higher than the same time last year.
  3. Sales volume in September was 6.8% lower this year than 2016. There were 1499 single family detached sales last month.
  4. It took an average of 26 days to sell a home last month (one year ago it was taking 4 days longer).
  5. The median days on market last month was 14 days.
  6. It took 2 more days to sell in September compared to August (median days).
  7. FHA sales were 19.4% of all sales last month in the county.
  8. Only 1% of sales last month were bank-owned & 1.1% were short sales.
  9. The avg price per sq ft was about $223, which is slightly higher than last month (11% higher than last year).
  10. The avg sales price increased about 1.3% last month and is currently $384,000. This is 10.9% higher than last year.
  11. Cash sales were 13% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

  1. The median price is $385,000 and declined about 1% last month.
  2. The median price is 8.4% higher than the same time last year.
  3. Sales volume in September was 3.6% lower this year than 2016. There were 2422 single family detached sales last month.
  4. It took an average of 31 days to sell a home last month (one year ago it was taking 4 days longer).
  5. The median days on market last month was 15 days, which means properties are selling really quickly.
  6. The median days on market increased by 2 days last month, which helps shows a slowing in the market.  
  7. FHA sales were 16.1% of all sales last month.
  8. Only 1.1% of sales last month were bank-owned & 0.8% were short sales.
  9. The avg price per sq ft was about $228, which increased about 1% last month (10% higher than last year).
  10. The avg sales price declined about 1% last month and is currently $425,516. This is 8.3% higher than last year.
  11. Cash sales were 14.9% of all sales last month.

PLACER COUNTY (more graphs & stats here):

PLACER COUNTY STATS:

  1. The median price is currently $450,000 and declined about 3% last month.
  2. The median price is 4% higher than the same time last year.
  3. Sales volume in September was 1.3% less this year than 2016. There were 524 single family detached sales.
  4. It took an average of 34 days to sell a home last month (one year ago it was taking 7 days longer).
  5. The median days on market last month was 18 days, which means properties are selling really quickly.
  6. The median days on market increased by 3 days last month, which helps shows a slowing in the market. 
  7. FHA sales were 12.9% of all sales.
  8. There were only 3 bank-owned sales last month and only 2 short sales.
  9. The avg price per sq ft was $231, which is slightly higher than last month (9.1% higher than last year).
  10. The avg sales price decreased about 3.5% last month and is currently $490,615. This is 1.6% higher than last year.
  11. Cash sales were 17.1% of all sales last month.

DOWNLOAD 73 graphs 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).

Questions: Besides price, what do you think the strongest indicator of value is for a neighborhood? Anything else you’re seeing in the market? Should we start a Starbucks Cups Price Index maybe? I’d love to hear your take.

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Is it okay to use comps from a different city?

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Can you use comps from a different city? Most of the time that’s a bad idea, but sometimes it’s the best option. Let talk about this a bit as I share an example of why I did this recently in an appraisal. The discussion below really has to do with school district boundaries too. Anything to add? I’d love to hear your take.

The situation: I appraised a duplex (two attached units) in the city of Citrus Heights in an area that was just a few streets away from Fair Oaks. As locals know, Fair Oaks tends to sell at higher levels compared to Citrus Heights, so pulling “comps” from Fair Oaks could quickly inflate value if I’m not careful. But this portion of Citrus Heights is located in Bella Vista High School territory, which is a top-rated school. The school boundaries include the eastern portion of Fair Oaks, Orangevale, and a small portion of Citrus Heights where the subject property is located. Does this matter for value? Is it going to be okay to use comps from a different zip code or city? Let’s take a look.

Here are all duplex sales in Citrus Heights over the past 10 years:

Now let’s compare duplex sales in Citrus Heights with duplex sales in Bella Vista High School territory to see if there might be a price difference. As you can see, Bella Vista has a much higher school rating on GreatSchools.org compared to surrounding schools. 

How to find school boundaries: I found the boundaries for Bella Vista on GreatSchools.org. When you pull up a school profile on this website all you have to do is click “nearby schools” located on the right side of the page to bring up exact boundaries and a comparison of ratings. Otherwise the school district might have a map.

After finding school boundaries I drew them in MLS to look at specific data. Being that there are portions of three zip codes in this area, a zip code search would not have worked. A one-mile radius definitely wouldn’t have worked either.

It’s pretty clear duplex sales in Bella Vista territory are selling toward the higher end of the market. They don’t always sell for more compared to everything in Citrus Heights, but obviously they’re selling toward the top.

The big question: Do Citrus Heights duplexes within Bella Vista boundaries sell for more?

In short, it looks like Bella Vista High School boundaries matter for value for Citrus Heights duplexes. These sales tend to compete toward the top of the Citrus Heights duplex market. Not only that, they also compete toward the top of the Bella Vista market which includes portions of Fair Oaks and Orangevale.

Three Takeaways:

1) Using comps from different cities: It’s fine to use comps from different cities and zip codes, but we have to be sure we are really looking at the same market. If we’re just “cherry-picking” higher sales from around the corner in a different city, that’s no good. Appraisers get handed so-called “comps” all the time that are from areas that clearly command higher prices. I’m definitely not advocating for that here. What I am saying is if we study the market and it’s reasonable to use sales from a different city or zip code because they’re competitive, that’s fine. Remember, it’s never about how far an appraiser can go, but where an appraiser should go for comps. Sometimes we are bound tightly in our comp search by just one or two streets, but other times (like above) we might end up using sales from other zip codes and cities. In this case after my research I ended up using comps from Fair Oaks for a Citrus Heights duplex because they were similar in price and they fed into the same highly-rated high school.

2) School boundaries: Sometimes school boundaries can be a big deal for value, though other times not so much. In most areas there is really just one school that serves a neighborhood, but when different cities and zip codes collide it might be a good idea to consider if there is any value impact with the boundaries. Sometimes we might even have to step back and maybe search for comps by school district, which will mean we might end up with comps from different cities.

3) Different trends: Just because I used Fair Oaks sales for a Citrus Heights duplex does not mean I would do the same for single family homes or vacant land. The market might not be the same for every property type. 

I hope this was helpful or interesting.

Questions: When have you used comps from a different city? When would you NOT use comps from a different city or zip code? Anything to add?

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Things that don’t add much value to your home

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We’re always talking about what adds the most value to homes, but what about things that DON’T add much value? In other words, what can you do to your home that will help you get you very little return? I asked colleagues in the 100% Appraisers Group on Facebook to pitch in some thoughts about items that don’t tend to add value, and here’s what they said. Anything to add to the list? I’d love to hear your take in the comments.

First, some general principles:

1) Just because it was expensive doesn’t mean it’s valuable.

2) Buyers don’t often pay the cost of what the owner spent (except on HGTV).

3) Some features are more valuable depending on the price range and location. There isn’t one list of upgrades that can apply everywhere equally.

4) Appraisers don’t actually give value. Instead they recognize it in the market.

5) Buyers tend to focus on the total package of a house, which means they aren’t looking to pay for each specific upgrade.

PLEASE READ: Just because something is on the list below doesn’t mean it adds nothing. The issue is the contributory value is often much less than the cost of the item. So from a cost perspective we can generally say owners are probably not getting the most bang for the buck with many of these features. The problem though with any value list is that in some situations and markets any of these items could be a big deal for value (like parking spaces in a big city or a pool in the luxury market). So just read this generally as it is intended, check out the comments, and pitch in your thoughts. Please also see principles 1-5 above. This paragraph was added later on 09/27/17 to help clarify.

Improvements that don’t get much value from appraisers:

  1. Water softener.
  2. Walk-in bath tubs (like this one).
  3. Whole house vacuum system.
  4. Built-in pool (buyers rarely pay the same as the cost).
  5. Over-the-top expensive landscaping.
  6. Expensive repairs for something that is working fine in other homes.
  7. Highly-upgraded granite vs standard granite.
  8. Really thick granite compared to standard granite.
  9. Fruit trees.
  10. Expensive blinds or window coverings.
  11. Chicken coops.
  12. Extra outlets.
  13. Radiant barrier.
  14. Reverse osmosis system.
  15. Whole house humidifier. 
  16. Ceramic vs porcelain tile.
  17. Solar panels (nobody pays the full cost of a system in one instance).
  18. Leased solar panels (they’re considered personal property).
  19. Upgrades that were in style in 2002 (might not be in style now).
  20. A previously remodeled kitchen a couple of decades ago.
  21. Specialized heat and air systems.
  22. Foundation repairs (buyers expect a solid foundation already).
  23. Having too many garages for the market.
  24. Above ground hot tubs (considered personal property).
  25. Above ground pools (considered personal property).
  26. Anything that is too personalized.
  27. 4-Car vs 3-Car garage.
  28. Tandem garage.
  29. Cabinets in the garage.
  30. Epoxy flooring in the garage.
  31. Phone jacks in every room.
  32. Guesthouse (adds value, but probably costs way more).
  33. Christmas lighting package from the builder.
  34. Lot elevation premium from the builder.
  35. 6 ceiling fans vs 5 ceiling fans (so minor).
  36. 4-inch vs 5-inch baseboards (so minor).
  37. Over-the-top outdoor kitchens.
  38. Blue bathroom paint (ask Zillow about that one).
  39. Oversized parking pad.
  40. Really expensive outbuildings or custom shops.
  41. Brand new fencing (buyers won’t likely pay the full cost).
  42. Retaining wall.
  43. Designer paint.
  44. What else?

Key questions for home owners when upgrading a home:

1) Do other homes have this feature?

2) Are other homes commanding higher prices because of the feature? If so, how much higher?

3) What are investors doing in their flips to get the most bang for their buck?

Thank you again to the group of appraisers who pitched in some thoughts. Appraisers, if I used something you said, please comment below, introduce yourself, share some thoughts, and let us know what you said.

I hope this was helpful or interesting.

Questions: What else would you add to the list? Does anything on the list surprise you?

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