Sacramento Appraisal Blog

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A flattening market, jobs and bathroom reading for Sacramento real estate

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If you’re looking to stay on top of the Sacramento real estate market, here are a few tidbits to check out. I hope this helps give you a sense of what is happening. If you have any questions or insight, feel free to comment below.

1) The Market is Flattening Out: Realtor Doug Reynolds posted a video two days ago about how the market in Sacramento has been flattening out. This is right in line with the way I’ve been describing things. It’s important to watch trends closely so we are empowered to employ the best strategies for business and be on top of our game for clients. This is worth a watch or listen below (or here).

It’s normal in real estate to see the market slow down in Fall and then heat up again in Spring. The only issue is that some locals are shocked to hear this since they have only heard the market is “on fire” or that values have increased by 30%. But when we take a closer look, the trend has shifted. We’re now in a new market, so let’s keep an eye on the past, but focus on the present and future.

Sacramento County price per sq ft - Sacramento Appraisal Blog

2) The Word on Unemployment: If you didn’t catch the recent news, the unemployment rate in Sacramento County is now 8.9% as of August 2013. It’s been hovering around 9.0% for a few months now, while the unemployment rate in California is currently 8.8% and it’s 7.3% in the United States.

Unemployment in Sacramento California United States - August 2013 - blog size - by Sacramento Appraisal Blog

Here’s my take on the interaction of jobs with real estate. The recent upward trend in values was very strongly influenced by forces external to the Sacramento market as opposed to our local economy. Now that interest rates are increasing and some investors have begun to exit the market (down nearly 8% over the past few months), the job market will stand out a bit more now that we are missing some of the outside power that gave the market a boost. Remember, there are many factors that impact real estate values, and jobs is just one of the “layers of the cake” so to speak.

The Wright Report3) Forty Pages to Explain the Market: This is the most exhaustive report I know of in Sacramento. It’s worth printing and reading in the bathroom (or wherever you do your reading) to help gain some context for what is influencing the local market. If you want to go green, just download and read it on your tablet or computer. It is 40 pages in length, so it’s not a quick blog style read (many of the pages are graphs). I contributed a page or two to this report as well as some charts, which is always an honor. Visit Joel Wright’s website or DOWNLOAD HERE (PDF).

Question: What are you seeing happening in the market?

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Big lots don’t always bring big value

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Just because a lot is large doesn’t mean it’s worth big bucks. I came across a vacant parcel that is nearly one-acre in size in Sacramento County, but it’s priced at only $2,000. No, that is not a typo. I thought this would be a perfect example to help us consider a few thoughts on the value of land.

what is this lot worth

When reading about a lot that is 0.88 acres and only $2,000, it seems like a no-brainer to purchase. Yet when looking at the plat map, it’s obvious the lot might have some issues because of its location (it is sandwiched between 20 houses to the west and east), shape (it is really thin) and potential use (it is listed as a drainage channel in Tax Records and might not be suitable for any building).

Bigger Isn’t Always Better: The example above is of course extreme, but generally speaking most buyers do want more space and will pay higher amounts for a larger lot. For example, I appraised a house in Land Park recently that had a “double lot” (which actually means 1.5x lot), and there was a hefty premium for the additional size and location. However, there are also many reasons why a larger parcel may not necessarily evoke a premium in the market. Why? If a lot cannot be built on or used for something constructive, it’s not good for much, right? If a lot is located next to a busy street, railroad tracks or some other adverse location, it may sell for less than a smaller-sized parcel with a better location. Additionally, if a lot has a steep slope or some sort of easement that makes much of it not useable, this can definitely impact value.

Image purchased at 123rf dot com and used with permission - 14688774_s - smallerDefinition of Highest and Best Use: The lot above is the perfect scenario for talking about the concept of highest and best use (HABU), which is something appraisers have to think through for each appraisal – whether it is a vacant lot or improved site (house, commercial property…). Real estate text books describe HABU as follows: Highest and best use is that use which is legally permissible, physically and reasonably possible, economically and financially feasible, and which results in the most profitable of the alternatives. Highest and best use considers current zoning, location and size of the site, surrounding land uses and development characteristics of the market area. Highest and best use is that reasonable and probable use that will support the highest present value as defined as of the effective date of this appraisal.

What is this lot good for? This lot definitely has some issues and I’m not sure what the highest and best use is for the parcel because I would have to do quite a bit of research to figure that out. However, I can imagine the site is probably not going to be suitable for construction due to its shape and location alone. With such a low cost, my guess is the right person will buy it who sees a personal use for it. I know if I was a neighbor, after considering liability issues and ownership responsibilities, I might consider making a purchase to instantly increase the size of my backyard.  🙂

10 Potential (Fake) Uses for This Lot

  1. Neighborhood paintball field.
  2. Community garden.
  3. Purchase and then sell smaller chunks to neighbors.
  4. Build a very thin park.
  5. Low-cost tent camping for vagrants (imagine what neighbors would do).
  6. Open field for hunting.
  7. Llama petting zoo.
  8. Wetland mitigation (get paid by the government to own this parcel).
  9. Community pumpkin farm.
  10. L-shaped walking trail.

Question: What else could this lot be used for? What is #11?

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Zombies, Vampires & FHA (real estate event)

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I never thought I’d write about zombies and vampires on my blog, but here goes. Next month I’m sitting on a panel for an event called “Zombies, Vampires & FHA” at the Sacramento Association of Realtors. I know this sounds like an odd title for a real estate event, but the tag line for the event says it all: You should only be afraid of two of these.

Fear & Market Trends: As investors gutted the market over the past year, FHA buyers really struggled as they lost about 10% of their market share. The truth is as cash came knocking on the door in mass, many sellers became leery of working with FHA buyers since cash was simply easier and generally came with fewer headaches. But now the tide is beginning to shift as inventory is on the rise, values have begun to cool off and investor cash has been on the decline. The stats alone tell us all we need to know since FHA has seen a 3% increase in Sacramento County over the past 90 days (and 6% under $200,000).

Check out a one-minute promo video above (or here). I hope you like it (I made it). If this “zombie” event sounds relevant for you too, come on by. It would be great to hang for a bit and eat some lunch together. There is a cost for the event, but speaking at this event is volunteer work for me (just in case you thought I was sharing so I can get rich).  🙂

Event at Sacramento Association of Realtors for FHA

Question: Enough about FHA. Do you like scary movies? Why or why not?

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Should agents meet the appraiser at the inspection? An appraiser’s opinion.

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I get this question all the time from real estate agents: Should I meet the appraiser at the inspection? Here’s my take as an appraiser.

meet the appraiser at an inspection - Sacramento Appraisal Blog

What I Would Do: If I were an agent, I would definitely want to meet the appraiser at the inspection for the following reasons. If my client’s happiness (and my commission) was based on escrow closing, I would surely want to be available in person for any questions. I would optimistically hope to have a conversation with the appraiser to talk about the property, condition, upgrades and how it was marketed too. My goal would be to share some data and communicate how buyers seemed to perceive the property in the neighborhood market. Of course I would be careful with my words so I was only providing information and not using 10 subtle statements to pressure for a certain value. The truth is value is found in the details though, so sharing an insider perspective (not pressure) from agents can really help appraisers get in the mind of buyers (which is the goal). Lastly, I would also like the opportunity to briefly point out features of the property that might impact value or were at least attractive to buyers. It would be fine of course to do this on the phone too if that’s possible, but meeting in person ensures an interaction of some sort.

Fluff or Value: I don’t have a problem meeting real estate agents at a property, but I would definitely rather use my MLS lock box key to inspect a property if the meeting is going to be fluffy – meaning I am handed a stack of very questionable “comps” or the purpose of the meeting is basically to say “hit the number”. This begs the question, if you are meeting an appraiser, are you providing something of value during the meeting? Or is there something more you can do to make the interaction more worthwhile?

information-to-give-the-appraiser-22My Suggestions for Meeting: I get that part of the effectiveness of meeting with an appraiser is how communicative the appraiser is. During loan transactions you never know whether the appraiser is going to be local, experienced or even conversational, so it’s no wonder why some agents have made it standard procedure to meet the appraiser (by the way, appraisers never know what type of agent they’re going to get either).  🙂 This is why I recommend bringing a packet to every single appraiser meeting so you can provide a detailed list of all upgrades, information about the neighborhood and/or specific information about recent sales and listings. If you don’t have a system already, feel free to use my information sheet for appraisers. Save it to your desktop and even let your seller fill out some of the information. Also, check out 6 ways to have a more valuable exchange with the appraiser.

Bottom Line: In short, meet the appraiser. This is what I always tell real estate agents when they ask. But put in a few extra minutes to provide stellar information beyond a few sales from MLS. This makes the meeting more valuable.

Question: Do you meet the appraiser? Why or why not? Any further questions or reaction?

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