Appraisal

I’ve been asked quite a bit to talk about what’s happening with PG&E. It’s mind-blowing to think close to one million households have had spurts without electricity lately in California. I don’t think anyone saw this curveball coming, so let’s talk about it. Please pitch in your thoughts below too.

Here are a few things on my mind.

Prolonged vs isolated incident: Whenever something changes in a market we tend to immediately ask about the impact, but the truth is we don’t always have answers – especially at first. It’s important to remember a few power outages aren’t likely to alter the perception of sellers and buyers in a market. But if we begin to see a prolonged issue, then that’s a different story.

The market will adapt: Generators haven’t been easy to find in the Sacramento area despite all the radio ads, but at some point if power outages become prolonged the market will simply adapt and generators will become commonplace. Thus properties with some sort of system to retain power are going to be more marketable. Remember though, if a generator isn’t a permanent part of the house, it’s really personal property, so it’s not going to be included in the appraised value.

Uncertainty: People like stability and so does the housing market. A friend in a rural area recently said she doesn’t know if she can take PG&E outages for the next ten years. I feel for her and I think her sentiment captures the struggle many residents have right now of living in the tension of not knowing the future.

The market hasn’t stopped: It’s important to note the housing market hasn’t stopped. There are still properties trading hands. In fact, here’s current pendings in Placer, El Dorado, and Nevada County. I realize this isn’t the perfect image because only portions of these counties are having outages. Nonetheless, this is a quick glance to highlight the market is still moving. With that said, we’re at the beginning stage of this new issue and my sense is we’re in a stand-by period where owners and buyers are watching and waiting to see what the future holds.

Migration: Unplanned power outages could drive some residents to leave rural areas (or even suburban areas having issues). I think this is especially true for anyone who has already been flirting with the idea of leaving California. This could be the final straw. But for many rural owners they’re going to stay because they love their lifestyle (of course as long as there are solutions for keeping the power on during outages).

Solar: There’s lots of buzz about solar becoming a bigger trend in outlying areas. My advice? Just be sure the solar system is actually going to work if the power is out. And don’t make a rash decision about installing an expensive solar system if there is a more cost-effective solution too.

Insurance costs: Fire insurance has skyrocketed in outlying areas in recent time and it’s been a huge struggle. Just yesterday I had a real estate agent tell me a client was paying about $800 for an annual insurance plan and now the bill is $3,000 for the year. What a burden – especially for those with a fixed or lower income. Thus throwing in a new layer of power outages really doesn’t help boost appeal for outlying areas. Insurance is certainly a hardship, but at least it is a known factor. What is especially challenging with power outages is their frequency in the future is not known. This is where an element of uncertainty can be more stressful than insurance costs for some households.

Stories vs stats: When something new happens in a market there is a season where we have stories from the trenches of escrows and eventually these stories become stats. In my opinion right now we have limited data and we need more time to understand what the market is doing. With that said, when it comes to areas with rising insurance rates I’m noticing housing supply has ticked up at a higher rate in El Dorado County compared with the rest of the region, and sales volume has seemed to slump more in El Dorado County also. This includes the entire county of course and at some point I may parse only fire insurance areas (this is not as easy to do as it sounds). Anyway, let’s keep watching.

I hope this was helpful. I’m so sorry to friends who have been struggling with power outages. By the way, if any appraiser friends need space to plug into wifi if your power goes out, please hit me up.

Million Dollar Market: On a different note, here’s a quick rundown of the million dollar market in the Sacramento region if you’re interested.

Questions: If you live in PG&E territory, what have you been experiencing? What are you hearing from residents? What did I miss?

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