distressed sales

Appraisal waivers & the foreclosure wave

February 27, 2019 By Ryan Lundquist 12 Comments

I have two things on my mind today. Yesterday I had a conversation about appraisal waivers and “hybrid” appraisals, so I wanted to share my take. Then I have some new graphs to help tell the story of the foreclosure crisis.

APPRAISAL WAIVERS & “HYBRID” APPRAISALS:

Here’s a Q&A with with Scott Short on appraisal waivers and “hybrid” appraisals. I get things changing for appraisers in light of big data, but diminishing the role appraisers play seems like a bad idea for the housing market. Watch here. If you want to just hear the “hybrid” part, it’s at 7:12.

By the way, a local appraiser named Barry Cleverdon had an accident a few weeks ago and is currently in a coma. Here is Barry’s GoFundMe.

THE FORECLOSURE CRISIS:

1) Healing: The foreclosure rate in the United States is way down. I would guess most markets have essentially healed. In Sacramento County ten years ago 84% of sales were distressed and now that number is less than 2% when considering both short sales and bank-owned sales (REOs).

2) Not the same in every neighborhood: When it comes to distressed sales, some areas and price ranges did better than others as you can see below. This reminds us the market doesn’t experience the same exact trend everywhere.

3) The power of equity: Areas with more equity and higher prices tended to fare better with the number of distressed sales. I know that’s what we’d expect to see, but it’s interesting to actually see it. It’s amazing how equity (and probably better jobs) can create opportunity and even help people weather a storm.

4) The promise of a new wave: Many have promised a new wave of foreclosures, but we just haven’t seen it. I hear things like, “Dude, there are so many Notice of Defaults right now.” That may be true, but not all of these NODs end up hitting the market. Or if they do go into foreclosure they may likely be sold on the court steps before MLS.

Two weeks ago I asked friends on LinkedIn which areas they wanted to see, and that’s how this post was born. I didn’t get to everywhere, but I got to most areas.

MAKE GRAPHS LIKE THIS: If you want to know how to make a graph like this, here’s a tutorial for how to put a few different layers of data on one graph.

BLOG BASH: Just a reminder my wife and I are hosting a party at Yolo Brewing on Saturday March 2nd. It’s an excuse to get together and you’re invited. It’s okay if we’ve never met too. I’ll be buying the first 100 beers. Details here.

Questions: What do you think of appraisal waivers and “hybrid” appraisals? What stands out to you most in the images above?

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How much does a previous purchase matter to appraisers?

August 28, 2018 By Ryan Lundquist 19 Comments

How much does a previous purchase matter? Do appraisers give strong weight to the purchase price? Or do they completely ignore it? This is an important conversation, especially in the midst of so much talk about the market changing.

1) Meaningless: Sometimes a previous purchase is meaningless. That’s not always happy news, but if a property sold for too little or too much, it just might not mean much to us today. As an example, it doesn’t make sense to give any real value weight to a short sale that closed way too low or an inflated purchase that was clearly disconnected from the market and not supported by data.

2) Strong weight: If a property sold recently and it was a reasonable price, appraisers might actually give strong weight to the sale. If you didn’t know, appraisers are actually allowed to use a previous sale of the subject property as a “comp” in an appraisal report too (usually Comp #4). That might seem strange to do, but then again what is more comparable than the subject property itself? Of course let’s be careful about understanding exactly how the market and property have changed since the sale though.

3) Someone overpaid: One thing we have to consider before giving too much weight to a previous sale is whether it was a reasonable representation of value or not at the time. It can be dangerous to blindly accept a sale without understanding the full story of why it sold at the level it did. On that note, my observation is at times cash buyers fall prey to overpaying on the higher end of the market where comps are a little more sparse and it’s not always easy to see value. Here’s an example I just tweeted about this morning:

4) Seeing the context: Sometimes a previous purchase is an incredible way to understand how a property fits into the market. In the graph below I have three previous sales in the Stollwood area of Carmichael, and each time the subject property competed at about the same price position. That’s powerful, right? So in this case I would likely give strong weight to the previous sales because they help me understand value.

FYI: Here is a tutorial if you want to learn how to make a graph like this.

Quick closing thoughts:

1) The temptation: It’s easy to get stuck on a previous purchase price and not see the current market because we think, “It has to be worth at least X amount because it sold for Y amount in the past.” Be careful of that. We have to be objective by giving the most weight to the current market.

BIG POINT: As some wonder if the market will make a big turn at some point, this conversation could be very relevant if that did happen.

2) Ch-ch-ch-change: The market could have changed since the subject sold previously. Values could have increased or softened. The subject could have been in better or worse condition too.

3) Different trends: Sometimes I hear things like, “It sold in 2016 and the market has increased 15% since then, so it must be worth 15% more now.” The problem is market trends aren’t the same at every price level. Maybe the lowest prices in town have seen increases like that, but price changes could be more subtle at higher levels. So let’s be cautious not to project a more aggressive trend from a lower range on a higher one.

4) Distressed: I find looking to older sales from the foreclosure days isn’t all that helpful because the market was not normal then and properties were selling all over the place. I usually recommend researching previous sales, but when they’re from the distressed days we often have to take them with a grain of salt. The same thing is true for stuff that sold in 2005 at inflated prices.

5) Boldness: Appraisers and agents sometimes have to tell clients why value is actually lower than a prior purchase. That’s not always easy to hear, but we have to be bold and let the numbers speak rather than putting weight on a previous sale that might not reflect the market today.

I hope this was interesting or helpful.

Questions: Which point stands out to you the most? Any stories to share or other points? I’d love to hear your take

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12 market trends and tips for real estate professionals to watch in 2015

January 5, 2015 By Ryan Lundquist 15 Comments

It’s a new year, which means it’s crucial to take a look at the housing market. If you work in real estate, ask yourself these two questions: What is the market doing? And who are your clients going to be this year? The truth is if we do the same thing each year without really considering how the market is evolving, it’s easy to miss out on being relevant to clients.

The 2015 housing market

Here are some trends and tips on my radar as 2015 begins, and I wanted to share them because I thought some of them might be good conversation fodder for business plans or with clients. These trends are relevant for Sacramento, but I have a feeling they might be showing up in many markets across the country. Enjoy.

12 trends and tips for real estate professionals in 2015

Buyers’ Market: The market is definitely morphing into a full-fledged buyers’ market. In light of more houses for sale, buyers simply have more options. This means properties will generally take longer to sell, and buyers will have more room to negotiate.
Pricing Correctly: As the market changes and inventory increases, it will be paramount this year to price properties correctly. When a market grows soft, buyers tend to become more picky about pricing and making offers, which means overpriced listings will sit on the market instead of sell.
The Small Distressed Sales Pond: Foreclosures and short sales used to drive the market, but that’s not the case any longer these days. Being a distressed property specialist is still a relevant avenue of business, but it’s also a crowded pond to fish in. Remember that owners who went through a foreclosure or short sale several years ago may actually now be able to re-enter the market (these buyers are called “Boomerang Buyers”).
Equity Sellers: Some home owners do not realize how much the market surged in recent years. They may actually be surprised to know they have equity again after the recent increases from 2012 to 2014. This can open up options for moving up or downsizing.
Dispelling the Want to Buy at the Perfect Time: With the advent of vast online real estate data, many buyers are watching the market carefully and wanting to time the market perfectly to be sure they are buying at a time when values are increasing. The reality is it’s not easy to pull this off. In fact, many home owners who purchased at the bottom of the market in early 2012 didn’t actually realize they were doing so. They were simply lucky and bought at a time they could afford. When I ask, “Do you realize you purchased at the bottom?”, their response is often, “Really? I had no idea at the time.” In short, in a market that is no longer rapidly appreciating in value, buyers need to focus on being sure they are comfortable with the price and monthly mortgage payments rather than looking for that perfect market moment to get rich in real estate.
Divorce: As the economy improves, divorce has been more common (the LA Times says so too). I easily did three times as many divorce appraisals last year compared with previous years. Divorce is a very difficult time in a client’s life, so it’s important to be able to serve clients in their time of need, and to be aware that divorce stats may be increasing as the economy heals.
FHA Buyers Increasing: Despite some in the real estate community saying FHA would not increase due to permanent mortgage insurance being required, it has definitely increased over the past 18 months in the Sacramento region. FHA has been a relevant product for many buyers since there is little money down required. Of course we can expect to see some more creative financing options emerge as the market softens, but in the mean time, if you are not in tune with FHA appraisal standards, it’s time to brush up so your buyers and sellers know what to expect. I have seen several properties recently trying to use traditional FHA financing that were blatantly not acceptable for FHA (maybe a 203K loan though). This is where knowing the standards becomes important.
Rentals Hitting the Market: Some investors who purchased in 2012 and 2013 are beginning to sell their properties. I have yet to see Blackstone do this, but I have seen some smaller funds with 30-40 properties begin to unload. I talked with an investor recently who has a few dozen properties, and he wondered how strong the market is to sell. What would you say?
Not as Easy to Flip: Everyone and their Mom wants to be a house flipper, but buying distressed inventory on MLS these days isn’t as easy as it used to be because there just aren’t as many low-priced foreclosures. Since there is less room to buy at a discount on MLS, it’s important for would-be flippers to explore alternative ways of picking up properties, and to be extra sure they are purchasing with enough room to rehab and sell. Being realistic about the ARV (After Repair Value) is key – especially in a price-sensitive market.
Exit Before It’s Too Late: Some property owners are concerned about the future direction of the market, so they will be interested in selling this year “before it’s too late” (in case the market begins to decline in value).
The Granite Wave: Having granite counters used to be such a custom feature a decade ago, but it’s become a bit stale in the current market. Don’t get me wrong, buyers still like granite, but at the same time there is a growing sense of the market becoming saturated with granite. What advice would you give clients about making a kitchen shine in today’s market?
Standing Out: As housing inventory presumably increases this year, it will be important for properties to stand out from others to compete for a limited pool of buyers. When inventory increases, buyers tend to become more finicky about location, condition, and upgrades (which underscores the need to price properties correctly).

NOTE: These trends may not be present in every neighborhood or price range in Sacramento, or in every area of the United States.

I hope this was helpful in some way, and I hope you have a profoundly successful year in real estate. I look forward to watching the market carefully this year, and to all the discussions we’ll have together. May you have a very prosperous 2015.

Questions: Anything else you’d add? If you are not in Sacramento, are there some parallels here that also resemble your market? I’d love to hear your take.

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10 quick things to know about Sacramento’s housing market

June 10, 2014 By Ryan Lundquist Leave a Comment

Competitive. Normal-ish. Price sensitive. These are all words that describe Sacramento’s housing market right now. Let’s take a look at some of the latest trends so we can better understand and explain how the market is unfolding.

Two ways to read this post:

Scan the highlighted text and graphs quickly.
Grab a cup of coffee and spend a few minutes digesting what is here.

If you want an email with all graphs in this post for free, fill out the form below:

free graphs by sacramento appraisal blog

1) Prices have seen a normal-ish seasonal uptick:

price metrics in sacramento county

The market is showing a fairly normal and steady seasonal uptick in price. Whether you look at median price, average sales price, or average price per sq ft, there has been an increase in recent months. The market has seen about a 4% increase in prices over the past four months, yet at the same time many are describing the market as fairly flat since some neighborhoods are not seeing much of an uptick at all. Remember that just because county-wide stats show a 4% recent increase does not necessarily translate into 4% value increase for each property.

2) Houses are taking about one week longer to sell:

CDOM in Sacramento County - by Sacramento Appraisal Blog From April to May, sales took about one week longer to sell in Sacramento County. In contrast, Placer County and the Region showed very little change in cumulative days on market. Generally speaking, the more expensive the property, the longer it is taking to sell. Overall, the market is price sensitive, which means if properties are not priced correctly, they are sitting. Expect this trend to continue so long as inventory increases in coming months.

3) Inventory increased only slightly from April to May:

median price and inventory since 2008 - by sacramento appraisal blog

Housing inventory increased from 1.80 months to 2.0 months in Sacramento County from April to May 2014. Inventory is still very low, which is making competition aggressive in certain price ranges.

4) Not every price range is showing the same trend:

months of housing inventory by sacramento appraisal blog

number of listings in sacramento - by home appraiser blog

Different price ranges experience different trends. This is clearly seen since inventory isn’t the same at every price level.The market is very competitive under $300,000 right now, but anything above $750,000 is far less competitive. There was little change from last month for properties under $500,000, though above $750K saw some increases. Take the 24 months of inventory above $1,000,000 with a grain of salt since there were only 3 sales in this price range last month, but there are 20 or so pendings right now. Ultimately this million-dollar stat is skewed, but it’s still safe to accurately say there is one year or more worth of houses for sale above $1,000,000 in Sacramento County.

5) Volume is down by 15% from last year, but similar to last month:

sales volume in Sacramento County

Sales volume is down compared to last year, but sales in May were about the same compared to April. In the next few days as more sales are entered into MLS, I suspect sales volume for May will increase beyond volume in April. After a very sluggish start to the year in terms of sales, it’s nice to have two consecutive months of more than 1400 sales. Of course volume is still significantly lower than previous years, and that is something to continue to watch over time.

6) Cash sales have been declining for one year now:

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash sales used to represent closer to 35% of all sales in the county just one year ago, but now they’re only 19.5% of all sales (for April & May 2014). Cash investors were a very significant driver for the market, but now the market is no longer being driven by cash.

7) FHA & conventional sales are both showing increases:

FHA and cash sales in Sacramento County by sacramento appraisal blog When cash investors took their foot off the gas pedal one year ago, it got much easier for FHA and conventional buyers to get into contract. The market is still very competitive since inventory is low, but owner occupant buyers have much more of a fighting chance these days.

8) Distressed sales continue to be sparse:

REOs and Short Sales in Sacramento County

Both short sales and REOs have decreased dramatically in recent years and are definitely not driving the market. Banks are tending to spend more time and money fixing up their REOs, while short sales are often still priced aggressively low. REOs have shown a slight uptick recently (especially considering the most recent “quarter” is only comprised of two months of sales. This isn’t anything to write home over per se, but something to watch over time to see how it evolves.

9) Interest rates decreased slightly last month:

interest rates by sacramento appraisal blog

Interest rates showed a slight decrease over the past month, and that is something that will help prices be slightly more affordable. In light of massive price increases over the past couple of years, affordability is becoming a challenge for many buyers.

10) “Layers” to watch over the next two quarters:

layers of the market since 2008 sacramento county - by sacramento appraisal blog

layers of the market since 2001 sacramento county - by sacramento appraisal blog

The real estate market has many “layers” that impact value. Last year the market was heavily influenced by interest rates, cash investors and incredibly low inventory, but things have shifted in 2014. Right now some of the main drivers to watch over these next two quarters are the job market, interest rates, inventory and affordability. Local real estate can no longer be so heavily driven by outside cash investors, which means it will be more sensitive to the health and strength of the local economy. Prices increased over the past two years, but not because people are making more money. How does that strike you?

Summary: Our market has slowed down quite a bit from last year. The market is still competitive, but it is very price sensitive. Real estate is still “hot”, but it is definitely cooler than last year in that days on market has increased, inventory doubled, interest rates are higher than they were, and cash investors are much less of a factor. By the way, I’ll share more Placer County and regional trends in a few days.

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.

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distressed sales

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