appraisals

A focus on real estate training in 2015

December 4, 2014 By Ryan Lundquist 4 Comments

This year I had 35 speaking engagements. I visited many real estate offices, gave presentations to lenders, spoke at the Sacramento Association of Realtors several times, taught a CE course with REAA, gave a presentation on blogging for the Sacramento Business Journal, and even taught a class this week at Sacramento State. I figure between preparation, drive-time, and the presentations, I easily gave 120-150 hours (3-4 weeks of work). In short, teaching is something I love, it’s one of my core passions, and in 2015 I plan to take things to the next level.

Would you come along with me?

a recent class at SAR

I will still come to real estate offices and speak at many meetings for free, so please keep inviting me. But the change this next year will come in being intentional about doing more trainings for hire so I can really give myself more readily. Over the past couple of years I’ve noticed hour-long trainings are good, but they only scrape the surface. When we can get 2-3 hours together, it can much more meaningful.

Trainings in 2015:

How to Choose Comps & Make Adjustments: This training will give a framework for how to more effectively approach properties like an appraiser. The way appraisers and agents undertake valuing properties is dramatically different at times (even for experienced agents), so this class can be a game-changer. We’ll talk through choosing comps, how price per sq ft fits into valuations (and some of the big errors that can occur), and going through multiple practical scenarios together in MLS to value the largest lot in the neighborhood, the 1-bedroom house, the fixer, a location on a busy street, a house with a converted garage, etc….. We’ll look at how adjustments are made in appraisal reports too. The goal is to help agents begin to see properties like an appraiser does, as well as more effectively communicate about properties with appraisers. This class is meant for a group of at least 10, and is ideal for real estate offices or trainings hosted by loan officers or title companies.

Cost: $25 per person (or we can negotiate a flat fee)
Size: 10-50
Length: 3 hours

How to Communicate Effectively with Appraisers: What can you say and not say to appraisers? What is the best way to share “comps”? How can you build your case for the value of your listing without pressuring the appraiser to “hit the number”? How do you challenge a low appraisal? In this class we’ll walk through some very practical tips for how to talk to appraisers before, during, and after the inspection. Many times the real estate community puts very little emphasis on talking with appraisers. There is sometimes a hands-off approach when working with appraisers, but the most important thing you can do as a real estate agent is to have a focused and intentional system built into your business for communicating with appraisers. This is good for both new and experienced agents.

Cost: $20 per person (or we can negotiate a flat fee)
Size: 10-unlimited
Length: 2 hours (or shorter if need be)

How to Make Graphs with MLS Data: Real estate is changing, and it is becoming profoundly more visual. This means showing a neighborhood market visually on a graph can be a very powerful tool to use with clients. Yes, we have access to zip code graphs for free in MLS, but I’m talking about knowing how to make graphs for very specific neighborhoods so you can show what values are doing for specific properties. Not only can graphs like this help you show your market expertise, but they are great for listing presentations and blog posts. Honestly, learning how to graph has dramatically changed my business and the way I approach real estate. I hope the same for you, so I’d like to sit down to share my expertise with individuals for a two-hour period to work on making a few different types of graphs. I want to teach you how to do it using Excel so you can continue doing it after the class. We can even make graphs for neighborhoods you are currently working in so you have immediate marketing tools. The cost is a bit higher for this class since the training is incredibly valuable and hands-on. This is for agents and appraisers.

Cost: $100
Size: 1 person only
Length: 2 hours

a recent class at SAR II

Other Classes: I can also do classes on real estate blogging and other topics tailored to your office or group, but for now I wanted to highlight the three classes I’m most excited about. Please note prices can change too.

How you can help me:

Set up a training date in your real estate office.
Refer me to speak at a local or national real estate seminar.
I would like to find some title companies to partner with to promote trainings in the region.
Offer meeting space in your office.
Keep inviting me to your office to give market updates or do Q&As (for free).

Thanks so much for your support. I really appreciate it.

Question: What are you looking forward to about next year?

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What do appraisers do when there are no permits on an addition?

November 4, 2014 By Ryan Lundquist 73 Comments

Real estate isn’t always black and white. What I mean is it’s rare to have one short standard answer to fully satisfy a question. The truth is an answer can vary depending on the property, location, or who you ask. Enter a lack of permits. How do appraisers handle it when there are no permits for an addition? Is it possible for a non-permitted area to be included as living space in the appraisal?

no permits on addition - by sacramento appraisal blog - image purchased and used with permission

I get asked this question almost every single week, and I’ve broken down my answer into four major parts. I hope this helps.

Difference among Appraisers: First off, there is a spectrum for how appraisers respond to a lack of permits. Some appraisers take a hard-lined stance to say, “If there is no permit, there will be no value given to the area because it is illegal.” But other appraisers might take a different approach to discover how the market responds to the lack of permits. In the latter scenario, the appraiser is asking: Are buyers willing to pay more or less for the home because of the addition? In this case the best way to support an adjustment for the addition would be to find comps with a lack of permits. Of course there is a fat chance of actually finding comps, so an appraiser has to really exercise caution about counting the area as square footage. Ultimately a lack of permits does tend to carry a stigma for buyers, which causes many buyers to avoid the property. However, at the same time buyers are often still realistically willing to pay something extra for the addition. This is one reason why some appraisers might give a non-permitted area some value in the report (but the area may be considered as storage instead of living space).
Quality: The quality of the addition is going to be a huge factor in whether buyers pay more or less for an addition without permits. Does it feel like the rest of the house? Does it have a real use? Does it have a permanent heat source? Is it something buyers actually want in the neighborhood market? Is the workmanship decent or shoddy? Buyers may also consider how much it would cost to get the area permitted.
Depends on the Issue: If there is something minor that was added without permits (like a covered patio), it’s probably not cause for appraisers to start waving the red warning flag. But if there is something very significant that was done without permits, that’s a different story because it can deter buyers from wanting the house. For instance, I recently did some consulting for an agent for a property that had a non-permitted addition that increased the size of the house by 60%. After research it was my sense that the market would pay something more for the addition, but I still was not willing to say the area should be counted as square footage. In this case the addition was simply too much of a change, and it was bound to be a major marketability issue for a buyer obtaining a loan (see point #4).
Loan Problems: Some lenders will not loan on non-permitted areas, and they ask appraisers to not include any non-permitted area as square footage. Other lenders will loan when there is a non-permitted addition, but they ask appraisers to consider how a lack of permits impacts value. Usually in the latter case the lender wants the appraiser to say something to the effect that the addition was done in a professional workmanlike manner – despite a lack of permits. An appraiser really isn’t licensed to say something like that, but lenders still try to get a definitive statement out of the appraiser nonetheless.
Other: What else would you add? I’d love to hear any stories, points, and comments below.

Loan Officer James Clark with New Penn Financial says the following:

Unpermitted Additions are a big grey area when it comes to financing. There are so many different factors and people that come into play that make them difficult. Because of this many lenders will just say no. I have seen unpermitted additions obtain financing, but only if the appraiser is well qualified and writes a good report as to why. The appraiser will have to sell the reason to include it, and most of the time you will never get the full square footage value for the addition. Questions to ask when you have a property with an unpermitted addition: Does it make sense? Does it conform to the area? Does the addition actually add value to the property? Does it look like the rest of the house, or can you tell it was an addition? So be nice to the appraisers. I can say if you want the unpermitted addition to count for value or qualify for financing, it will come down to what they say in the report.

Five things to consider when there are no permits:

Get the area permitted before listing it on the market. Then be sure the appraiser sees a copy of the permit (that has been signed off). A permit ensures the work was done to minimum building standards, and everything was done correctly.
Just because there are permits doesn’t mean the market is going to pay big bucks for the area. For example, a garage conversion could technically add 400 extra square feet to the house, but taking away the garage is often a negative for value. A property with a conversion is not necessarily instantly more comparable to a house with 400 additional square feet. It’s probably better compared with other similar-sized homes that also have conversions.
Just because an addition was added with permits does not make it living space. For example, an enclosed patio might be fully permitted, but it’s probably not going to be counted in the square footage if it doesn’t feel like the rest of the house, have the same quality as the rest of the house, and doesn’t have a permanent heat source.
If you know an area is not permitted, try to provide the best possible information to the appraiser about when the area was added, who built the area, how potential buyers responded to the extra space when the property was listed, and even how much it would cost to permit the area (if you have that research).
If you’re considering doing work without permits, realize you are signing up for some appraisal and loan headaches. A lack of permits is a good way to potentially kill a deal and/or harm your property’s marketability.

As you can see, there is much to consider when a property has a non-permitted addition. Not every appraiser will view the issue the same either.

Question: What else would you add? I’d love to hear your take and any stories.

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But Zillow says my house is worth a gazillion dollars

October 28, 2014 By Ryan Lundquist 17 Comments

“But Zillow says my house is worth….”. That’s a fairly common statement, and it highlights how much the public trusts Zillow these days. I’ve written other posts comparing 10 actual appraisals with Zestimates, but today I want to show you a property in Sacramento that is over-valued on Zillow by more than 100%. While Zillow is a neat tool, let’s consider some of the important factors that go into making values accurate, and where things went wrong with this property.

zillow details

Case Study: Let’s look at 5309 Broadway in Sacramento located in the Greenfair townhouse complex. You might be thinking, “C’mon, let’s cut Zillow some slack since this is a complex of only 45 units, and sales have been sparse for two years”. But Zillow sits at the adult table, and should have access to data from previous years. Moreover, notice above that Zillow actually shows the subject property sold in 2008 for $138,000, which gives Zillow a context to measure value.

Broadway Sales vs Zillow

The Zestimate: The Zestimate for this property is $321,679. The graph above shows all sales since 1998 in the Greenfair subdivision. As you can see, there have never been any sales above $300,000 in this complex – even during the height of the housing bubble in 2005. In this case Zillow is frankly wildly off since market value looks a whole lot closer to the red trend line.

Where did Zillow go wrong?

Choosing the Wrong Comps: The image to the right shows “nearby similar sales”, but these sales are single family detached homes, and NOT attached townhouses. When there are no recent sales in a townhouse subdivision, it doesn’t mean you should borrow from the single family detached market. Either you can use VERY old townhouse sales in the same subdivision, or maybe find a competitive complex somewhere in the market area. Again, it’s easy to cut Zillow some slack here since they might not know the units are attached, but even in that case the TINY lot size and history of sales should be given much stronger weight then.
Data Fail: Zillow clearly didn’t consider even its own data in this situation. Despite an understanding that this property sold in 2008 for $138,000, something in Zillow’s algorithm is obviously not crunching the numbers correctly since the market has not increased from $138K to $322K. Moreover, not considering a listing in the complex that expired at $186,000 this month is also a failure. When there are few recent sales, sometimes much older sales and expired listings can tell us about the market.
Wrong Neighborhood Boundaries: Zillow is considering single family detached homes in Elmhurst and other parts of Tahoe Park as you can see by the addresses in the “similar sales” image. These areas have far higher prices compared to the Greenfair subdivision. If you use the wrong neighborhood boundaries, there’s a good chance the value might be off-base too.
Problems with Less Data: When there is little data to consider, it looks to be a struggle for Zillow. To be fair, it’s relly not easy for humans to crunch numbers either when there are not many numbers to crunch. Yet data is available. It’s just a matter of seeing the numbers in their proper context.

Zillow Values in Sacramento - by Sacramento Appraisal Blog

One Buyer’s Reasons for Using Zillow: I asked a current buyer how she is using Zillow as she hunts for a home. I thought her response was interesting and insightful. What do you think?

At first, it helps me get an idea of overall neighborhood values, so it helps me know where to look or not look. Then, when we do look at specific houses, it gives me a general value of the house. I like the low-high range tool better than the “Zestimate” because it helps me get a feel for the overall values of a neighborhood. So, if a house is priced near or less than the low end, I figure it probably needs a lot of work, and if not, it might be a good deal. If it’s priced near or over the high end, I expect it to be in very good condition or have some kind of bonus features. Likewise, if we really like a house and it appears to be a good value according to Zillow, we’ll consider making an offer.

We also use Zillow to see a price and sale history of the house (our realtor can do this too, but it’s easy for us to do with Zillow rather than constantly calling her!). We can see when it first came on the market and various price changes, whether it’s a flip or not, and sometimes even if it was a rental.

One thing I don’t like is that it doesn’t have very accurate listing information. There are many houses on Metrolist and Redfin that aren’t on listed as “for sale” on Zillow. So, I find myself going back and forth between the three resources and our Realtor’s updates! If Zillow and Redfin merged, I’d be happy!

I look at Zillow as a range or estimate. I know that it doesn’t replace a person on the ground, but we can’t bring an appraiser with us to each house! 🙂 Zillow can’t see a smelly smoker’s house or a house full of old wall paper that needs to be torn down, or a crazy neighbor with three boats on the front lawn, or a dog that barks at all hours. It also can’t see a potential great neighbor with kids our kids’ ages, or a shade tree that’s perfect for a tire swing or tree house. It also doesn’t understand that I’m OVER granite countertops! Enough with the granite!

Zillow isn’t usually off by 100%, but cases like this are worth noting because they highlight some of the issues a “machine” can have when valuing a property.

Quick Advice:

Take Zillow with a grain of salt.
Don’t excuse Zillow when it’s wrong. If it’s off-base, call it what it is. You can look at Zillow’s own accuracy rates and be the judge whether this is reliable data or not.
Home owners, realize Zillow doesn’t know neighborhood boundaries, the condition of your home, all the same listings that are in MLS, and it may not even be comparing your house to the right type of property.
Agents, be sure to look up the Zestimate before listing presentations so you can be prepared to answer when your potential client says, “But Zillow says….”. Consider some of the positive reasons why consumers like Zillow (there are some for sure), but then talk about the things you know as an expert – neighborhood boundaries, the mood of the market, sales and listings in the immediate neighborhood, expired listings, how long it it taking to sell in the neighborhood, the direction of values, the condition of the house, and what buyers are willing to pay more for in the neighborhood.

I hope this was helpful.

Question: Any stories to share, or any other points you’d add?

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5 trends to watch in Sacramento’s regional real estate market

August 14, 2014 By Ryan Lundquist 10 Comments

If you want to understand real estate, it’s important to see the big picture. It’s one thing to unpack trends for a neighborhood or county, but when we take a panoramic view of the region we can often get a fuller sense of how the market is really moving. Buckle up and let’s go for a quick tour of five trends to watch in Sacramento’s regional market. Remember, I do two big market posts around the second week each month, and there are two ways to read these posts. You can scan the highlighted text quickly or take a few minutes to digest what is here.

market trends in sacramento 2 - image purchased and used with permission

graphs from sacramento appraisal blog 3

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THE SACRAMENTO REGION:

1) Prices have been flat for three months in the Sacramento Region:

median price sacramento placer yolo el dorado county

The median price has been the same for three months in the Sacramento Region, which shows the market has definitely cooled off. There may be some sub-markets that are still hot and showing increases in value, but the overall trend for the region is very telling. When looking at the median price, average price per sq ft, and average sales price in multiple counties, the market as a whole has been clearly flat for the past 90 days.

sacbiz journal Quote in SacBiz: By the way, I was quoted in the Sacramento Business Journal yesterday in an article about the slow market. Check it out at Slower real estate market could just be normalizing. It’s always an honor to share my two cents. I’d love to hear your take on the market too.

2) Inventory is steadily increasing in the Sacramento Region:

inventory in sacramento placer yolo el dorado county

Housing inventory has been increasing in the Sacramento Region over the past several months, which is creating more opportunity for buyers to get into contract (and be more picky). This has also increased competition for sellers to compete for a smaller pool of buyers. Inventory is still relatively low, which means well-priced properties are generating quick and multiple offers, yet there are also ample price reductions since many properties are simply overpriced. Sellers, pay attention to this trend because you need to price your property correctly in this market or it is going to sit.

months of housing inventory in region by sacramento appraisal blog

The higher the price, the more inventory there is. This is a normal trend, but it’s always interesting to see, isn’t it? Moreover, when we know how much inventory there is at a certain price range, we can help coach buyers and sellers about what they might expect.

number of listings in Placer Yolo El Dorado Sacramento - by home appraiser blog

3) It’s taking 40 days on average to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blog Last month it took three days longer to sell a property compared with the previous month, which is one more sign the market is slowing down. Before calling in the troops and sounding the alarm, remember it’s normal for the market to cool off as summer fades away. Generally speaking, the higher the price, the longer it is taking to sell.

4) There are 6% more listings this month compared to last month:

number of listings in Placer Sacramento Yolo El Dorado county - July 2014 - by home appraiser blog

The number of listings jumped by about 6% from last month to this month, while the number of sales rose by just over 2% (pending sales did increase though). Overall since the number of listings outpaced sales and pendings, inventory saw an increase.

5) Sales volume is down by 11% from last year in the Sacramento Region:

cash sales and volume in sacramento region - by home appraiser blog

Sales volume is down about 11% from where it was last year for the Sacramento region. Why? In large part it’s a reaction to investors stepping away from the market one year ago. Less cash sales in the region created a gap in sales, and the market is simply trying to figure out how to normalize or adjust now that investors have taken their foot off the gas pedal. You can see in the graph above how there has been about the same number of non-cash sales in 2013 and 2014, but the number of cash sales is very noticeably down this year. Keep in mind investors didn’t gut the market in Placer County or El Dorado County like they did in Sacramento County, but what happens in surrounding areas still matters for market trends.

BONUS MATERIAL: PLACER COUNTY

Placer County median price and inventory - by home appraiser blog

median price in placer county and sacramento county by sacramento appraisal blog

Prices have been flat in Placer County: Just like Sacramento County, Placer County is best described as flat. The median price saw a dip to $379,000 from $380,000 this month, but overall has been hovering around $380,000 for three months in a row after a small seasonal uptick this spring. It seems the peak of summer has hit, so it is likely to see the market soften up over the Fall (which is completely normal to see). Last year the market felt really sluggish though at this time in light of the looming government shutdown. This year we don’t have the same phenomenon, so the market is a bit different.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Inventory saw a very minor decline last month: Monthly inventory saw a very slight decrease, but really it’s still hovering at about the same level. As you can see, inventory above $750,000 is far different from the rest of the market. Generally speaking, the higher the price, the more inventory there is.

days on market in placer county by sacramento appraisal blog

It’s taking one week longer to sell compared to last month: On average it is taking 45 days to sell a home in Placer County as opposed to 37 days in Sacramento County (and 40 days in the Sacramento Region). Generally speaking, the higher the price, the longer it is taking to sell (which is normal). There were only 14 sales between 100-200K, so take the days on market with a grain of salt. Overall it took about one week longer to sell a home last month compared to the previous month.

Placer County sales volume - by sacramento appraisal blog

Sales volume is approaching more normal levels: Sales volume saw an increase last month, but volume is still down by 7.5% from July 2013. Overall volume is starting to hit much more normal levels.

number of listings in PLACER county - july 2014 - by home appraiser blog

There are more listings this month than last month: Listings increased by 5% from last month to this month. At the beginning of July there were 1387 active listings on the market, and at the beginning of August there were 1457 listings. This isn’t news to write home over, but the number of listings is something important to watch because if sales don’t increase at the same rate, the market will inevitably soften. Inventory actually went down slightly though in July in light of sales slightly outpacing listings in Placer County (very slight decline).

interest rates inventory median price in placer county by sacramento appraisal blog

It’s a joy to put these graphs together every month. Yes, it takes quite a bit of time, but it’s worth it. As always, I’d love to hear your take on how the market is unfolding too. Moreover, if you have ideas for how to refine or present trends, I’m always game to get some constructive feedback.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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