If a client asked you how to know when a real estate market is increasing in value, what would you say? Prices going up is the first and obvious answer, but what else? There are a number of different metrics to watch, and the image below helps hit on some of the main issues. Anything else you’d add?
Markets tend to change over time rather than in an instant, so it’s important to know which metrics to watch. It’s also helpful to listen to what buyers are saying. After all, there is something about consumer confidence and the mood among buyers that cannot always be captured in one neat little metric. The other big question we must ask is: Why are values increasing? Remember that an increase in housing supply or interest rates can change the direction of the market in a heartbeat too (especially after the Spring seasonal market fades). This is why it’s also important to know the signs of a softening market.
How to Think Like an Appraiser: I’m excited to be teaching a class in a couple days at the Sacramento Association of Realtors. The class is called “How to think like an appraiser”, and we’ll hit on how to choose comps, how to make adjustments, and tips for working with appraisers. This will be very practical, and we’ll have many case studies to talk through in the class. See the image and register online here.
Question: What other signs do you watch to know if the market is increasing?
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Me: Kevin, what is your background with solar?
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.
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.