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declining values

Appraisers, The Force, and Up & Down Real Estate Values

June 5, 2014 By Ryan Lundquist 5 Comments

What makes real estate values move? I often ask this question when speaking at real estate functions, and it’s interesting to hear the responses. I usually start by showing a photo of Luke Skywalker with the caption, “Luke, use The Force to make value move.” Then I ask, “Is that sort of like what appraisers do? Can they make a market move depending on how they appraise properties?” We all know changes with interest rates, housing inventory, the economy, or cash investors can definitely influence property values. That’s obvious. Yet when asking the question, “Do appraisers make values go up or down?”, there is often a bit of hesitation. What do you think? How would you answer this question if a client asked you?

star wars real estate photo - by sacramento appraisal blog - 530 use

Do appraisers make the market move or not? There are so many “forces” that impact real estate values. In fact, if you’ve been around this blog long enough, you’ve heard my schtick about how real estate is like a multi-layered cake since there are many “layers” in a market that impact or create value. Check out the cake below to get more fully what I mean (this is an updated image). Yet it’s still easy to think appraisers are the ones making a market move since they are the ones appraising properties at higher levels. Unless there is fraud going on though, the higher appraisals are really a result of the layers of the market having changed. It’s not appraisers pushing the market up, but rather the market moving and appraisers simply interpreting that change. Think about 2012 when the market hit bottom and values began to increase quite rapidly – especially in early 2013. If anything, during this most recent boom, appraisers were accused of appraising properties too low rather than inflating values.

multi-layered cake analogy - cake by Joy Yip - text by Sacramento Appraisal Blog - yellow text

An Example of 1% interest rates: Imagine if interest rates hit 1% tomorrow. What would that do to home prices? First off, the market would be instantly flooded with buyers because of how much more affordable it just became to borrow money. This would create intense competition resulting in a dramatic lowering of inventory, which would inevitably increase prices because of the scarcity of property. In the midst of shifting “layers” of real estate, appraisers would rightly be appraising properties at higher levels since the market is now hands-down willing to pay those prices. But appraisers didn’t actually move values higher, did they? They simply interpreted the market that changed.

Key Takeaways: 

  1. There are many forces that impact value in a real estate market.
  2. Memorize the cake analogy so you can use it with your clients and speak definitively about what is making value move in your market.
  3. Appraisers interpret the market rather than move it. Appraisers are more like a measuring tape than a gas or brake pedal.
  4. A market does not need appraisal fraud to see values increase. This idea tends to float around the real estate community, but it’s a misunderstanding of what really drives real estate.

By the way, I’ll post more specifically on Sacramento market trends next week. Be on the lookout for some stellar graphs to use for your newsletters and emails to clients.

NOTE: Appraisal fraud and low appraisals could certainly be a layer in the cake above, but fundamentally appraisers are not drivers, but interpreters. That’s my main point. We could easily talk about fraud or even whether appraisers are doing a good job interpreting the market or not, but that’s another post.

Questions: What else makes real estate values move? Any appraisal stories or insight to share?

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal fraud, changing real estate market, declining values, increasing market, multi-layered real estate cake, property values, real estate cake analogy, Real Estate Values, Sacramento Appraiser, Star Wars real estate photo, what makes values increase

How do you know when a real estate market is getting soft?

May 20, 2014 By Ryan Lundquist 8 Comments

Property values have not been declining lately, but how would you know if they were possibly going to decline? What metrics should you watch to be able to know if a real estate market is softening? Have a look below and let me know what you think. Anything else you would add?

signs of a soft real estate market - by sacramento appraisal blog - 530

Since the temperature of a real estate market often evolves over a period of time rather than an instant, it’s important to be able to look to the right metrics to help us interpret what the market is doing. Once we compare the metrics above along with sales and listings, we can get an idea of how the market is moving. Of course other metrics such as interest rates, cash investors and lending standards can definitely impact values too. As I always say, real estate is like a multi-layered cake because there are many layers to the market.

Image-purchased-at-123rf-dot-com-and-used-with-permission-14688774_s-smallerA Rumor About Appraisers & Listings: There is a rumor in the real estate community that appraisers cannot use listings to adjust for how the market has moved (whether up or down). This is definitely NOT true. Appraisers can make adjustments in reports based on listings. As we all know, today’s sales reflect the market from say 30-60 days ago when the sales got into contract, whereas reasonably-priced listings represent what the market is doing right now. Therefore if listings are priced higher, appraisers can make an upward Date of Sale adjustment to sales to reflect however listings are priced. Or if all listings are priced lower, appraisers can make a downward Date of Sale adjustment to sales to compensate for the market cooling off or declining.

SacBiz Journal EventClass I’m teaching for the Sacramento Business Journal: On May 21 I am co-teaching a class on blogging and using video for business for the Sacramento Business Journal. I know this is late notice, but I’d love to see you out at Drexel University tomorrow. The cost is $99, but that comes with a subscription to the SacBiz Journal, so the class pays for itself. Click the thumbnail for details or see this direct link.

Question: What other signs do you watch to know if the market is getting soft?

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Filed Under: Market Trends, Resources Tagged With: declining market, declining values, Home Appraiser, House Appraiser, how to know if market is declining, how to know if market is getting soft, Market Trends, real estate 101, real estate trends, Sacramento Business Journal, soft real estate market, temperature of real estate

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First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

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The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

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