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market trends in Sacramento

The value of pricing your property correctly in today’s real estate market

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Overpriced properties are part of life, but in today’s market with inventory beginning to increase, it is very important to have a reasonable list price. Yes, it is still a Seller’s market in the Sacramento area, but the trend has begun to shift over the past few months. It’s definitely no longer a “price it however high you want and you’ll get 25 offers at that price” type of market. Let’s consider two recent examples of overpriced properties and then look at some bits of advice for proper pricing.

Is it worth 170K - by Sacramento Appraisal Blog

The very highest sale in this condo subdivision in the Sacramento area is $150,000. But the subject property was marketed 13% above the highest sale. This condo has nice updates of course, but the lone sale at $150,000 was also fully renovated. Has the market appreciated by 13% over the past few months or might the price on this property be too aggressive for the current market? This graph alone helps tell a compelling value story for the neighborhood. Market data, comps and current listings simply do not support a value at $170,000.

Is this property worth 150K - by Sacramento Appraisal Blog

Does it look like this property is worth anywhere close to $150,000? In the past four years there have been zero sales at $150,000 in the neighborhood. Of course there are always properties that can sell higher than anything else because they are unique, but the subject property is very plain. In fact, after I was hired to do an appraisal for the buyer during this private sale, value was a whole lot closer to $100,000 instead of the contract price at $150,000.

Advice for Sellers When Listing a Property:

  1. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerBe realistic about your price.
  2. Be in touch with the market by looking at recent sales AND listings.
  3. Look at hyper-local neighborhood trends instead of only zip code real estate data that might not reflect your neighborhood.
  4. Remember that price per square foot can change dramatically depending on the size of the property. Smaller houses usually have a larger price per sq ft than larger homes. This means if your house is large, be careful about using price per square foot figures from a smaller model in the neighborhood to determine your list price.
  5. Forget about what Zillow says (read 10 appraisals vs. Zestimates).
  6. Remember that unless the buyer is paying cash, the buyer’s lender will want to see your property appraise for at least the contract price. If the buyer ended up making an offer at full price (and you know that price is totally unrealistic), expect to see a “low” appraisal.
  7. Ultimately if your property is overpriced, it might not sell. Moreover, if it sits on the market for too long, you can end up losing some of your bargaining power since buyers may likely offer at lower levels since they figure nobody has bitten at full price anyway.

Question: Any thoughts, stories or other bits of advice to share? Comment below.

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Buyers gain power in Sacramento’s housing market

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The market has been shifting a bit and the stats are showing it. Cash sales in Sacramento County have been declining over the past several months, which has increased room for others to have a fighting chance to get into contract.

Cash sales in Sacramento County through July 2013 - by Sacramento Appraisal Blog

Inventory has increased over the past several months and there has been less investors playing the market. Despite an uptick in sales in Q2 of 2013, for example, investors played a lesser percentage role in overall sales. For reference, there were 3831 sales in Sacramento County in Q1 2013 and 4748 sales in Q2 of 2013.

fha conventional cash stats sacramento county through july 2013 - by sacramento appraisal blog

Good News for Buyers: Monthly data should be taken with a grain of salt because as time unfolds stats can get stronger and end up swaying in a different direction. However, I believe the stats for July 2013 do tell a story that real estate agents mentioned in last week’s post, “Sacramento’s real estate market in one sentence“. Overall as cash has decreased, FHA has seen a slight increase and conventional sales have been up slightly too (conventional sales rose about 4% from Q1 to Q2 for all of Sacramento County). This is good news for buyers and especially first-time buyers who are looking to purchase. Yes, the market is still heavily saturated with investors and inventory is still tight…. BUT buyers have definitely gained more power lately. To use a line for buyers inspired from the book The Hunger Games, “May the odds be ever in your favor”.  🙂

Question: As an agent, buyer or seller, what are you experiencing out there? Comment below.

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How will you know when the market starts to decline?

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Property values are definitely increasing right now in the Sacramento area, but at some point in the future they’ll cool off or decline. Whenever that happens, what should we be looking for to capture the decline when it first starts? What will be the indicators of a slow down or declining trend? I asked a handful of experienced Realtors and investors in the Sacramento area, and here is what they said. Any thoughts?

Sarah Bixby - RealtorSarah Bixby – Realtor: There are 3 fairly clear indicators to show the market is in decline. Firstly, the buyer competition becomes less fierce. Instead of competing against 8-10 offers, you may only have 1 or 2 to compete with. Another sign of decline is longer DOM. If houses start sitting on the market longer this is another indicator that buyers are not purchasing or there is too much inventory available. The 3rd and most obvious indicator of a downward market is decreasing home values.

Jeff Grenz - Real Estate BrokerJeff Grenz – Broker: For my business, I look to “hits” and “phone traffic” as leading indicators. For building homes, the phone stopped ringing around 2007 for quite a while. You don’t recognize the Wile E. Coyote moment – that the business model has changed – until a few months have passed, then trends might show up in employment growth, which drives our long-term real estate market. Signs of an impending multi-year decline in the Sacramento region where government is our main industry would be some combination of two or more of these: • Major CA budget fiascos, creating layoffs, program cuts into the schools and local programs, etc. • Declines and/or slow downs in the Bay Area market, whose excess equity feeds ours. • Military action, prolonged on multiple fronts. • Hard cut offs or reversals of programs that send $$ to our market (FED quantitative easing, HARP, FHA..etc.). In most cases, these indicators will predict or precede employment, housing sales and the stats we’ll get 12-18 months later.

Eric-Peterson-Praxis-CapitalEric Peterson – Praxis Capital: I think when you’re trying to take the temperature of the market it’s as much art as it is science. We track a lot of data on a weekly basis at Praxis, and to me the best indication of a declining market is inventory. When you start to see that number grow you know you’ve got a market with more people selling than buying and that is inevitably going to affect pricing in an adverse way. That’s the science side. As far as the art of understanding market trends, I pay very close attention to what our resale agents are saying about the homes we have on market. Are they getting a lot of phone calls? Is traffic good? How are our days on market? These clues are often the leading indicators to where the market is going and will often signal a declining market well before the data lets you know something is wrong.

Zoritha May-ThompsonZoritha Thompson – Broker: My key Indicator of a slow in the market would be inventory of homes for sale. Currently with a lack of inventory, buyers are scrambling just trying to purchase a home and are making offers over the list price, which in turn makes prices increase. When there is more inventory it becomes more competitive and keeps prices level or may move prices lower. Prime example would be if the hedge funds put their inventory of homes on the market at the same time, this could cause prices to move downward. Another key indicator would be “Days on market” (DOM) climbing higher which means the market has reached a peak and may be coming down. I have been seeing a slight trend of homes coming on the market that are way over priced, they are just sitting there with no offers.

Warren Adams - RealtorWarren Adams – Realtor: I believe today’s market is strongly dictated by low inventory and interest rates. An increase in interest rates will also increase inventory and most likely put us back to a more “normal market”. Today’s MLS notes that there were 122 new listings with the last 24 hours and 158 pending sales in the same time period which shows homes continue to sell quicker than they are coming in.

What does the data say? These are fantastic responses above, and the two graphs below help illustrate how inventory and DOM (days on market) can help show what a market is doing (declines in both have been indicative of increasing values).

days on market in Sacramento County - Graph by Trendgaphix Description by Sacramento Appraisal Blog

months of inventory in sacramento county May 2011 to May 2013

Questions: Do you think the decline will be well publicized when the market does take a turn? With the massive use of social media, will the media and real estate community catch it (and report it) when it begins to happen?

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Appraisers killing deals, comps and high prices

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There is lots of talk about appraisers being “deal killers” because appraisals are coming in too low. I’m not saying that’s fiction, and I’m not about to defend bad appraisals either, but sometimes it’s about the deal being unrealistic rather than appraisers killing it.

Image by Sacramento Appraisal Blog

Choosing the Right Comps: I appraised a property in Citrus Heights recently just south of the Placer County line and the City of Roseville. The subject neighborhood is outlined in yellow below. During the course of the appraisal I extended the opportunity for the Listing Agent to share any competitive sales or data that was used to develop the list price. The agent then provided me with “comps” across the county line in Roseville (in the “blue” territory below). These sales of course supported the contract price for the subject property, but were they really adequate comparable sales? Would buyers consider properties in Citrus Heights and Roseville at the same time? Is there any price difference between these two neighborhoods? What does the data say? (see graph below)

Citrus Heights vs Roseville Map - Sacramento Appraisal Blog

citrus heights vs roseville - graph by Sacramento Appraisal Blog

There are surely times when sales in a different city or county might be competitive and therefore worth considering in an appraisal, but not in this case in my opinion. Why? Because the Roseville neighborhood plain and simply has higher property values – not to mention it has a different school district. If I used the “blue” comps above, the subject property would have an inflated value. Bottom line.

What are the market takeaways from this scenario?

  1. Bad Comps: It’s best to use comps (comparable sales) from the immediate neighborhood, but that’s not always possible – especially if the subject property is unique. Ultimately, regardless of where comps come from, the appraiser needs to have a good reason for using them. If comps are from a superior area, they should be discounted to be more consistent with the subject neighborhood. The same holds true for an inferior neighborhood in that the appraiser should add value to those sales to bring them up to the same level of the subject neighborhood. Ultimately the wrong comps can lead to a value that is either too high or too low.
  2. Realtors: If you supply comps to an appraiser, it helps if they are truly competitive sales. Would a buyer for the subject property consider purchasing the comps as a replacement if the subject property was not available? As an FYI, when the agent for the property above told me these two neighborhoods had the same school district (they don’t) and there was no value difference either (there is), I had a hard time believing any other information the agent shared with me about the number of offers or the price level of offers too. It was unfortunate to have the feeling that I couldn’t trust the agent, whether the agent was simply mistaken or a more purposeful communicator.
  3. Appraisers: It’s important to pay close attention to nearby neighborhoods to ensure there is no price difference.
  4. Proper Pricing: The market has been “on fire” in Sacramento as prices have shown an increase lately in many areas. However, it’s still important to price properties according to the market. After all, there are many reasons why buyers will overpay right now. If you are a seller, look at the most recent sales (and listings), and be competitive with realistic expectations. I’ve noticed many sellers are actually not choosing the highest offers because they know it just won’t appraise that high. However, sometimes offers at extremely high levels are chosen, and then frustration ensues when the appraisal comes in “low”. Yet the real issue in these cases is that the buyer offered too much and the seller expected too much. It’s really not an appraisal problem (assuming the value was solid of course).

The Bottom Line: I am not wearing market blinders that ignore there is a real issue with the quality of appraisals. That’s why I’ve written so much about challenging low appraisals. Yet at the same time there are properties being priced very aggressively right now, which is also important to sift through. In cases like this, when the appraiser recognizes value at a level lower than the contract price, the appraiser is simply doing what should be done, right?

Any thoughts or stories to share? If you are an agent, how have the appraisals been for your deals lately? What do you wish appraisers would do differently? (please comment below)

NOTE: This is in no way intended to bash Realtors. That’s not how I operate. In fact, this next year will be my fourth year sitting on a committee with the Sacramento Association of Realtors. If you are looking for a trustworthy real estate agent, my digital Rolodex is full of referrals for you.

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook