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Price per sq ft

Photoshopping & price per sq ft in real estate

June 4, 2019 By Ryan Lundquist 21 Comments

I have a new way to explain how price per sq ft works in real estate. It’s helpful but maybe a little creepy too. No matter what, we need word pictures in real estate to explain concepts, so let’s chat.

The big idea: Using a price per sq ft figure from a different house is sort of like photoshopping someone else’s body on your own. It just might not fit.

Instagram model vs dad bod: Think about it this way. When we use a price per sq ft figure to price a home it can be like taking an Instagram model’s body and putting it on a dad bod. It just doesn’t belong or fit. The problem is we’ve imposed something entirely different on another thing, and it looks awkward. The same holds true in residential real estate when we hijack a price per sq ft figure from a dissimilar house down the street and use it to price a property. Thus if we’re not careful we can end up pricing a “dad bod” home like it was an Instagram model simply because we priced according to model metrics instead of other dad bod sales… Okay, let’s not take this analogy any further. Do you catch my drift though?

Pick your poison: This example isn’t intended to tackle all aspects of price per sq ft, but only help stir conversation. I actually use Starbucks cups and Lamborghinis too, but that’s just me. My advice? Use what works for you.

One more thing. I’m writing as a guy who is currently on a diet, so I’m definitely not poking fun at the reality of dad bods.  🙂

I hope this was helpful (and not too creepy).

Is Blackstone selling? I see Invitation Homes (Blackstone) has a handful of properties listed on the market right now. These could be non-performing assets of course, but we have to ask if they are starting to sell off some inventory too. Stay tuned.

Sign giveaway: Last week I wrote about people who are leaving the market, and I’m giving away the shabby chic signs I made on this Facebook post.

Video: Here’s a video I made to talk through the danger of abusing price per sq ft. Enjoy if you wish. It’s about six minutes.

Question: Does this example work? How do you explain how price per sq ft works in real estate? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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Filed Under: Appraisal Stuff Tagged With: appraisal advice, appraiser in Sacramento, choosing comps, comp selection, overpricing, Price per sq ft, price per sq ft explanation, pricing mistakes, pricing too high, Sacramento Appraiser

Being neutral, price per square foot, and the Governor’s new digs

January 21, 2019 By Ryan Lundquist 35 Comments

I have a few things on my mind. Let’s talk about me being asked to recruit for a brokerage (really), price per sq ft, and the Governor’s new digs.

1) WHY I SAID “NO”:

A brokerage recently asked me if I would help them recruit agents. The idea was I could use my influence to attract agents to a certain brand and then get a commission for each person I recruited.

I said NO, and my answer will always be NO. I probably don’t even need to mention this, but I want to communicate clearly. As an appraiser I won’t take sides. I’m neutral in my work, but my independence also extends in the way I interact with the real estate community. This is why you’ll see me speaking in many different places and real estate offices. I’m here to educate, not advocate. The truth is if I said yes I would’ve instantly destroyed my credibility.

2) PRICE PER SQ FT:

Here’s a look at price per sq ft trends in a few local areas. I plan to share more graphs like this throughout the year if people like them. Does anyone want to see a video tutorial for how to make these? Let me know. What do you see?

Two Takeaways:

1) RANGE: There’s always a price per sq ft range, which means there’s never just one price per sq ft figure that applies to every property in a neighborhood. Sellers often want to hijack a price per sq ft figure from a sale down the street, but that’s one of the quickest ways to overprice. My advice? Pay attention to price per sq ft, but most of all ask yourself what the comps are selling for. That’s exactly what appraisers are going to do.

2) OUTLIERS: There are clear outliers. As an FYI, usually the highest price per sq ft figures end up representing the smallest-sized homes or over-the-top unique properties.

3) THE GOVERNOR’S NEW DIGS: 

Gavin Newsom is the new governor of California and he just bought a $3.7M house in Fair Oaks. This price point isn’t much in many areas of the country, but it’s actually the fifth highest residential sale ever in Sacramento County. This home is said to have over 12,000 sq ft and it’s located on 8 acres. It’s near the American River, but not on the river. Now two of the top five sales in the county have a connection to a governor (the other was the mansion Ronald Reagan started to build in Carmichael in the 1970s).

Here’s a picture I took of the front gate this week, and here’s a video from a previous listing if you wish to see the home. Not too shabby, right?

Value thought: In the future we’ll have to consider whether there will be a price premium or not for this home because a governor owned the property.

CLASS I’M TEACHING: I’m teaching my favorite class at SAR called How to Think Like an Appraiser on January 31st from 9-12pm. We’ll dig deep into comps and adjustments (and have some fun). I’d love to have you come out.

I hope this was helpful or interesting.

Questions: Would you pay more if a governor previously owned the home? What do you think of my recruiting story? I’d love to hear your take.

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Filed Under: Random Stuff Tagged With: abusing price per sq ft, Appraiser, being neutral, El Dorado Hills, Folsom, Gavin Newsom residence, Governor Gavin Newsom, Governor's home in Fair Oaks, Home Appraiser, House Appraiser, Midtown price per sq ft, objectivity, Price per sq ft, real estate recruiting, role of appraiser, Roseville, southcliff neighborhood, Tahoe Park, using price per sq ft in real estate

Three dangerous ways to choose comps

January 17, 2017 By Ryan Lundquist 21 Comments

It’s easy to get into value trouble when choosing comps, and today I want to highlight three ways to do that. I’ve observed each of these methods very recently, which is why I hoped to kick around some ideas together. I could have just as well entitled this post, “Three ways appraisers DON’T choose comps.” Any thoughts?

choosing comps for appraisal - sacramento appraisal blog

Three dangerous ways to choose comps:

1) Price: When putting a value on something, searching by price is a quick way to NOT see the full picture. For instance, if we pull comps for a $750,000 sale by looking at all sales between $725,000 and $775,000, what we end up getting is a limited view of one price range. Have we truly found any similar properties or just the ones that have sold in that range and happen to support the contract price? The danger of searching by price is we can end up letting a few high sales impose a value on a property instead of letting similar homes paint a picture of value. This is why sometimes appraisers disregard the “comps” they are given from the real estate community because they are only similar in price rather than square footage, age, condition, location, upgrades, etc… If you are in the habit of searching by price in MLS when pulling comps, I might recommend searching by square footage instead (or by a parameter you think will help you make quality comparisons).

2) Capitalization Rates: The 2-4 unit market has been heating up in the Sacramento area. In fact, the new Yardi Matrix 2017 Winter Report says multi-family rents in Sacramento will grow by 9.6% this year. If that’s how things shake out, we’ll basically have seen a 30% increase in rent over the past few years. Wow!! Anyway, I’m finding news of the hot rental market is causing some 2-4 unit properties to be priced according to unrealistic cap rates instead of realistic comps and rental income (or even realistic cap rates). What I mean is sometimes comments in MLS say “check out the 8% cap rate” when the neighborhood really isn’t getting rates that low. Maybe surrounding properties are showing rates closer to 9-10%. This might not seem like a big deal, but when we plug an 8% rate into the cap rate formula instead of a realistic 9-10% rate, the value can be substantially different. My advice is to be cautious about imposing a cap rate on a property.

3) Price Per Sq Ft: In real estate it’s easy to see a sale down the street and then apply the price per sq ft from the sale to the subject property. But what if the price per sq ft doesn’t make any sense for the subject? The truth is smaller homes tend to have a much higher price per sq ft than larger ones, and dissimilar homes might actually have a far different price per sq ft too. Thus my advice is to be cautious about imposing a certain price per sq ft on a property when searching for comps. Let’s pay attention to price per sq ft figures, but at some point we have to ask the question, what are similar properties actually selling for? By the way, if you haven’t seen my Starbucks cups analogy, it’s a fun way to think about price per sq ft. 

The Big Idea of Imposing: All of these methodologies essentially help impose a value on a property because we end up applying a metric or price range to comp selection instead of looking for what is truly similar. Thankfully there isn’t only one way to search for comps, but no matter what we do it’s important to try to be objective and discover value rather than doing something that might impose value on a property. Know what I’m saying? By the way, here is how I tend to choose comps as an appraiser just in case you’re peeved I only told you what not to do.

Blogging Class on Thursday: In a couple of days I’m teaching a two-hour class at SAR called Successful Real Estate Blogging. This will be incredibly practical and my goal is for you to leave with insight on how to be effective. Click HERE for details.

I hope that was helpful or interesting.

Questions: Did I miss anything? Anything you’d add? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal methodology, appraisals in Sacramento, appraiser methodology, cap rates, capitalization rates, choosing comps, comp selection, Price per sq ft, sacramento appraisers, sacramento home values, searching by price

Paying attention to the mood of the market

February 16, 2016 By Ryan Lundquist 10 Comments

The other day a home owner was upset because he thought his appraisal came in too low. Yes, he was hung up on price per sq ft, which was a big issue, but most of all he believed the home should have been worth way more since there were almost no other homes listed for sale on the market. His thought was, “There’s no inventory, so I’m going to command top dollar.” After all, isn’t real estate about supply and demand? Well, yes. But there’s so much more.

the mood of the market sacramento appraisal blog - image purchased and used with permission by 123rf

The Market’s Mood: The truth is there are many factors that make value move in a market, and supply and demand is only one cog in the system (or “layer of the cake” as I like to say). Granted, it’s one of the more important metrics, but at the end of the day we can’t forget to ask how buyers and sellers are feeling about the market. Or in other words, what is the mood? For example, in early 2013 housing inventory in Sacramento was incredibly low, and buyers were pretty much willing to offer at list price or above on anything that hit MLS. In fact, if something didn’t have multiple offers, I wondered what was wrong with the property. At the time there was a real desperate mood, yet despite inventory still being low today, buyers are exhibiting more discretion by not pulling the trigger unless the price is right. Like the owner above thinks, this seems irrational because there aren’t many homes for sale. But the mood has changed. Likewise, if a house backs a busy street or has some adverse issue, buyers are tending to wait rather than offer. Again, this seems illogical because on paper it looks like buyers should be making offers all day long because of how low inventory is. Lastly, it’s worth mentioning the owner above did not realize his home valued toward the higher end of the neighborhood range was simply not experiencing the same demand as the lower end of the price spectrum in the neighborhood. Thus the mood at the top was different than the bottom.

Action Step: At the end of the day, let’s not forget to talk with clients about the mood of the market. We can do this by sharing the latest numbers, thinking about what is driving some of the numbers (the mood), reading articles from several local and national publications, and having conversations as often as possible with others in the real estate trenches (not just with people in your office or field). Also, since market moods are constantly changing, we have the opportunity to continually say something different about the local market.

Any thoughts? I’d love to hear your take below.

—————– For those interested, here is my big market update  —————–

Big monthly market update post - sacramento appraisal blog - image purchased from 123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

DOWNLOAD 73 graphs HERE:
Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Sacramento Market Summary: The market in January was fairly normal. It took 3 days longer to sell a house than the previous month. That’s normal. The median price and other price metrics generally declined from December. Yep, that’s normal too for the time of year. Sales volume declined by 39% from December to January, but that’s common since sales volume ALWAYS declines from December to January (yes, I said always). Actually, the real trend is January 2016 had a 2.5% higher sales volume than January 2015. Housing inventory increased, which is also normal. Okay, I apologize because I’m repeating one word too often here. But do you catch my drift? However, I will say the bottom of the market and “entry-level” neighborhoods have felt a little more aggressive in terms of values, number of offers, and demand. In short, some neighborhoods have seemed to have more of a feel of a budding spring real estate market, while others have been cruising along waiting for the spring season to further ripen. As I said last month, if I had to sum up the market in 2015 I would say: Modest value appreciation, but aggressive demand. Yes, demand is very aggressive out there, but sellers really need to price realistically unless they want to sit on the market. One last thing, there is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

  1. It took 3 more days to sell a house last month than December.
  2. It took 14 less days to sell this January compared to last January.
  3. Sales volume was 2.5% higher in January 2016 compared to last January.
  4. FHA sales were 26.8% of all sales last month.
  5. FHA sales under $200,000 were 29% of all sales last month.
  6. Housing inventory is 30% lower than it was last year at the same time.
  7. The median price declined by 5.3% last month.
  8. The median price is 9.4% higher than the same time last year.
  9. The avg price per sq ft declined by about 1% last month.
  10. The avg price per sq ft is almost 11% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - January 2016 - by home appraiser blog

median price and inventory since jan 2013 - by sacramento appraisal blog

January market in Sacramento real estate - by sac appraisal blog - since 2008

sales volume in January

inventory in sacramento county Since 2011 - by sacramento appraisal blog

price metrics since 2014 in sacramento county

SACRAMENTO REGIONAL MARKET:

  1. It took 2 more days to sell a house last month than December.
  2. It took 15 less days to sell this January compared to last January.
  3. Sales volume was 7.9% higher in January 2016 compared to last January.
  4. FHA sales were 23.6% of all sales last month.
  5. Short sales were 3% and REOs were 3.5% of sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. The median price declined by 1.3% last month.
  8. The median price is 10.8% higher than the same time last year.
  9. The avg price per sq ft increased 2% last month.
  10. The avg price per sq ft is 11.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2016 in sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

months of housing inventory in region by sacramento appraisal blog

days on market in placer sac el dorado yolo county by sacramento appraisal blog

median price and inventory in sacramento regional market 2013

number of listings in sacramento regional market

PLACER COUNTY:

  1. It took 4 less days to sell a house last month than December.
  2. It took 16 less days to sell this January compared to last January.
  3. Sales volume was 13.8% higher in January 2016 compared to last January.
  4. FHA sales were 16.7% of all sales last month.
  5. Cash sales were 19% of all sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. Sales volume is over 13% higher these past 12 months compared to the previous one year.
  8. The median price, average price per sq ft, and average sales price increased last month, but Placer County data seems to fluctuate quite a bit since there are fewer sales, so I don’t recommend putting too much emphasis on these increases unless they become prolonged over time.

Some of my Favorite Placer County Graphs:

Placer County price and inventory - by sacramento appraisal blog

number of listings in PLACER county - January 2016

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog - January volume

interest rates inventory median price in placer county by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 73 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: How would you recommend for someone to find the mood of the market? Are there certain metrics you think best show the mood? Also, what stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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Filed Under: Market Trends Tagged With: appraisal group in sacramento, appraisers in Sacramento, average sales price, interest rates, January vs. December, mood of the market, Placer County, Price per sq ft, Real Estate Appraiser in Sacramento, regional market, Sacramento County trends, Sacramento real estate market trends, sales volume, Yolo County

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