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Is it okay to share a previous appraisal with the appraiser?

April 5, 2017 By Ryan Lundquist 18 Comments

I was asked a great question recently. Is it okay to share a previous appraisal with the appraiser? I would say YES and NO. Here are a few thoughts. Anything to add?

Sacramento Appraisal Blog- sharing a previous appraisal

1) Data: It can be valuable at times for an appraiser to see what a previous appraiser did, especially if the property is complex. After looking at a colleague’s work, an appraiser might pick up on some insight or glean ideas for how to approach valuing the property. This happened to me a few years ago as I found out about an important easement and an illegal structure after an attorney gave me a copy of a previous appraisal. I still had to make sure the appraiser was correct, but it was nice to get a heads-up by someone who did a great job a couple of years prior.

2) The only appraisal that matters: We have to realize the only appraisal that really matters is the one the current client is going to rely on. A previous appraisal might not cut the mustard so to speak, so sharing something that isn’t any good doesn’t mean much for the current appraiser. For example, I was asked to appraise something for a private loan and the owner shared a previous appraisal with me at $1.2M. Yet this appraisal done during a conventional refinance was definitely inflated by a good 20% unfortunately. Keep in mind a previous appraiser might have included a detached structure’s square footage within the square footage of the main house, but just because it played out that way before does not mean it should happen now (I have a blog post on that here). Also, just because it appraised at a certain level before does not mean a new appraiser is going to think that is anywhere near acceptable. 

3) Sharing a specific number: I was recently hired to appraise a property for a cash buyer and there was an appraisal done already from a prior buyer’s loan. The Listing Agent told me, “We had an appraisal done at $425,000 two weeks ago”, though I was not provided the appraisal. This to me seemed like more than anything the agent was trying to influence my value. I’m not saying the agent was slimy or unethical at all. I’m just saying had the agent said, “We had a previous appraisal done. You are welcome to see it if you want,” it would have felt much more like the agent was making data available rather than subtly suggesting the contract price was a reachable target for value. This might sound like I’m playing semantics or being anal about words, but the words we choose matter, and how we say things can be interpreted as influencing an appraiser or not.

4) Difference among appraisers: Some appraisers will not accept a previous appraisal because they feel like it might impact their objectivity, but others will. I don’t think there is a right or wrong answer here as everyone needs to walk out their own sense of morality. Personally I tend to accept previous appraisals in most cases because I like to see how a colleague handled a valuation and I like to double-check my sketch measurements. Moreover, sometimes it helps me prepare my report because the client might be expecting a wildly different value than what is able to be supported. Yet if an appraisal was presented to me in such a way as to influence my value or pressure me to “hit the number”, I would definitely decline and simply say “No thanks. I don’t want to see it.”

Recommendation: In short, in my opinion it’s okay to share a previous appraisal with an appraiser, but it really matters how it is done. If you have a previous appraisal, I might suggest you use my Appraiser Info Sheet to share information appraisers tend to ask about, and then say nothing more than, “I have a previous appraisal if you want to see it.” If the appraiser doesn’t want it, that’s fine. If the appraiser does, that’s fine too.

Questions: What is #5? Which point stands out to you most? Did I miss anything? I’d love to hear your take.

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Filed Under: Appraisal Stuff, Resources Tagged With: appraiser blog in sacramento, data for appraisers, Dodd Frank, ethics and real estate, giving an appraiser a previous appraisal, how to talk to appraisers, influencing appraised value, prior appraisal, Ryan Lundquist, Sacramento Appraisal Blog, sacramento appraisal group, tips for talking to appraisers

5 things to keep in mind about rising rates and values

March 29, 2017 By Ryan Lundquist 16 Comments

Rising interest rates is one of the big topics right now in real estate. I don’t know about you, but I find myself having rate conversations all the time, so I thought we could maybe kick around some thoughts. Anything to add?

rates and value - sacramento appraisal group

5 things to consider about rising rates and values:

1) Duh, values will soften: Rising interest rates can affect the ability of buyers to afford higher prices because mortgages become more expensive (thanks Captain Obvious). Unless there is another factor to help prop values up, rising rates can naturally lead to softer values. To be fair though, let’s remember rates are not the only driving factor to make value go up or down in real estate.

2) Demand is strong enough: Rising rates can certainly impact affordability, but the interesting part to consider is we have a shortage of housing inventory. This means there is actually room for some buyers to completely leave the market (or be priced out) because there would still be enough buyers left to afford higher prices. On one hand I am very skeptical of articles that say rising rates will not impact buyers at all because that sounds like spin. Yet we do have to entertain the reality of demand being strong enough to a certain extent to deal with some rate increases without much value change (assuming modest increases of course).

3) The squeeze on lower-end buyers: In a market with rising rates, it’s buyers with less money that will be impacted the most because some buyers are on the brink of struggling to afford the market already. Thus an increase in interest rates that makes a $100 or $200 difference in a mortgage payment can be a very big deal for someone on a tight budget. Moreover, buyers with larger down payments simply have more power when making offers, negotiating, paying beyond appraised value, etc…. But before we start saying buyers putting less money down cannot play the real estate game, let’s look at actual stats. If you didn’t know, 25% of all sales last month in Sacramento County were FHA (very low down payment required) and nearly 29% of all sales under $400,000 went FHA. It’s easy to say things like, “Buyers without real money down are not winning in this market,” but the stats say otherwise.

4) Lenders getting creative: When rates rise it can put pressure on lenders to get more “creative” in their financing so more buyers can keep playing the market. In other words, lenders can help buyers artificially afford higher prices with newer and looser loan programs that compensate for higher rates. Part of me hopes lenders put movies like The Big Short and Inside Job in their Netflix queue just to remember how much power they truly have when it comes to making markets move. On a realistic level though, the lending market probably could loosen up a bit in a healthy sense since the regulation pendulum swung very far after the “bubble” burst. For anyone who has tried to get a loan recently, you know how rigorous and stressful it is. Simply put, getting a loan is not as easy as pushing a “rocket” button on a smart phone app.

5) Pressure to buy “before it’s too late”: Many buyers feel pressure to get into the market before rates get too much higher, and that’s a dynamic likely to persist throughout this year as discussions about rate increases ensue. It’s as if buyers feel like they have a small window of time to act before they are forever doomed and shut out of the housing market. What do you think of that? What advice or wisdom would you share with buyers feeling this way?

Questions: What is #6? How do you think rising rates will impact the market? Did I miss anything? I’d love to hear your take.

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Filed Under: Market Trends, Resources Tagged With: appraisals, appraisers in Sacramento, apprasiers, home appraisals, House Appraisal, housing demand, low housing inventory, real estate bubble, rising interest rates, sacramento appraisal group, sactown, softening values, strong demand

5 things to remember about the value of landscaping

March 22, 2017 By Ryan Lundquist 14 Comments

How much value does landscaping really add? Nothing. A minor amount. A huge total. I’ve heard it all when it comes to what people think landscaping is worth. Today let’s kick around some ideas from an appraisal standpoint. Anything to add?

landscaping in appraisals - sacramento appraisal blog

5 things to remember about the value of landscaping

1) The myth of no value: I’ve heard the sentiment from some real estate professionals that landscaping does not count toward the value. My take? Landscaping is often very important to buyers – especially when it is extensive or highly expected in certain neighborhoods.

2) Front vs back: My sense is front yard landscaping does not sway buyers like the backyard does. I’m not saying it’s not important or curb appeal doesn’t matter (it does). I’m only saying the rear yard tends to make a much more significant impact on value since people spend more time there.

3) One size doesn’t fit all: The value of landscaping will vary significantly depending on the price range and neighborhood. For instance, a few years back during the height of home flipping activity, it was common to see flippers at the lower end of the market do very basic cosmetic landscaping in the front yard while doing almost nothing with the backyard (seriously, rear yards were at times just dirt or bordering on unkempt). In contrast, higher priced homes were getting full-service attention in both the front and backyard. Why? Because the market had different expectations by price range and the investors’ sense was spending the money was worth it in some neighborhoods and not others.

4) On par after huge money spent: Sometimes owners will spend good money to redo an unkempt yard only to expect a huge price premium. The problem is post-landscaping the owner is now basically on par with other homes in the neighborhood rather than in a position to command a premium. This is not easy to swallow, but it’s important to recognize in order to avoid overpricing. 

5) Dollar for dollar: While we like to get a “dollar for dollar” return on our improvement projects (at the least), that’s not always possible in real estate. So when an owner says, “I spent $125,000 in my backyard” and otherwise similar homes are selling for $700,000, can we really expect this property to be worth $825,000? That’s probably not realistic, right? Most of all though, let’s find comps with incredible landscaping and let those properties tell the story of value. That way we are letting actual market data speak to us to set the tone for what buyers have been willing to pay for similar landscaping. Isn’t that better than shooting from the hip about what landscaping may or may not be worth?

Case-in-point for an incredible backyard: While appraising in the Natomas area of Sacramento I came across a house with an incredible backyard. I ended up NOT using it as a “comp” because this property sold about 10% higher than others because of the built-in pool, custom covered patio, built-in BBQ, outdoor fireplace, and everything else in the yard. I’m not calling all of these things landscaping of course, but at the same time let’s be realistic to think buyers may lump some of these items in the same category. Anyway, at times it’s tempting to give a token $10,000 upward value adjustment when we see a nice rear yard because that’s what a mentor taught us to do, but sometimes the market is willing to pay more like 10%. In this case otherwise similar homes seemed to come in around $450,000 and the subject sold for $495,000 (there were 7 offers). There was one other sale at $485,000 and it also had a sweet backyard. As you can see on the graph, the incredible backyard seemed to really matter.

incredible landscaping - sacramento appraisal blog

Here is what the rear yard looked like. I could live with that. You?

house with amazing rear yard - sacramento appraiser

Remember, let’s find a few examples of extensive rear landscaping (or an amazing backyard) if possible so we don’t base our perception of value on only one sale. After all, what is that one sale sold too high or too low?

The Washington Post: Two weeks ago I wrote a post about the ugly side of appraisal fees, and as a result Ken Harney of The Washington Post interviewed a handful of appraisers (including me) for a piece that went live today. Ken is a nationally syndicated columnist, so the conversation that took place here is going to be moving to a much bigger level. Thank you everyone. Here is Ken’s article.

Questions: What stands out to you most about what I mentioned above? What is #6? Did I miss something?

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Filed Under: Appraisal Stuff, Resources Tagged With: amazing landscaping, appraisal home sacramento, appraisals in Sacramento, appraisers in Sacramento, extensive lansdcaping, how appraisers make adjustments, Ryan Lundquist, Sacramento Appraisal Blog, sacramento appraisal group, Sacramento Appraiser, sacramento appraisers, sweet backyard, value adjustments, value of landscaping, what is landscaping worth

8 things you can buy if you win Powerball (and the market in Sacramento)

January 12, 2016 By Ryan Lundquist 14 Comments

Have you bought a Powerball ticket? It’s wild to think someone is probably going to win 1.5 billion dollars this week. Of course there’s an extremely slim chance you’d actually win, but if you do, here are some things you can buy when it comes to real estate. After that, let’s take an in-depth look at Sacramento’s housing market.

powerball winner - real estate - sacramento appraisal blog

8 real estate things you can buy if you win Powerball

  1. All current listings in Sacramento: You could literally buy every single active residential listing in Sacramento, Placer, and Yolo County (and still have about $150M left).
  2. NBA Team: You could buy the Sacramento Kings NBA team and have about one billion to spare.
  3. 63 million Shares of Zillow: You could buy 63,911,376 shares of Zillow ($23.47 per share).
  4. Buy an Island: This is an obvious choice for a billionaire. You could easily buy your own island. Heck, you could buy a group of islands. See some islands that are for sale right now.
  5. Own 7 Years of East Sacramento Sales: If you bought every single house that sold on MLS in East Sacramento since October 2008, you would still have 600 million left.
  6. Build a Sports Stadium: Most recent professional sports stadiums have ranged in cost from around $500M to $1.5B. For instance, the 49ers new stadium cost around $1.3B and the Sacramento Kings stadium is coming in around $500M. If you buy, what are you going to name it?
  7. Build a Bigger House than that One Guy in India: You may remember hearing about a 27-story residential home that was built in India in 2014. This home can withstand an 8.0 earthquake and it’s the second most expensive home in the world behind Buckingham Palace. Keep in mind it requires a staff of 600 to care for it. The property was said to have cost $1B total, so you have the coin to pull it off (Wikipedia).
  8. Do Some Good: Imagine the good you could do if you won the lottery. But we know that’s not going to happen. The great thing is we don’t have to wait to win Powerball to be generous since generosity is only relative to how much money we have – whether two dollars or $1.5B.

By the way, the winner won’t actually get 1.5 billion. I realize a huge sum is coming off the top right away for taxes and such.

Now let’s look at the latest Sacramento real estate trends.

the market in 2015 in sacramento

Two ways to read THE BIG MONTHLY 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 78 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.

Quick Market Summary: If I had to sum up the market last year I would say: Modest value appreciation, but aggressive demand. If I added a few more details I would say the story of the market is summed up as follows: More sales, lower inventory, higher demand, a fairly normal fall (though far less dull than 2014), and modest value increases over the year. Right now housing inventory is only 1.28 months in the region, which is 32% lower than last year at the same time. Overall sales volume in 2015 was 10.8% higher in the regional market, and it’s important to note FHA volume increased by 30% this year. In December it took 4 days longer to sell a home than it did in November, and that reminds us the market experienced a seasonal softening dynamic even in the midst of more competition. Remember though it was taking 90 days to sell a house four years ago, and selling in less than half the time right now helps us see the market can be different each year depending on inventory, interest rates, the economy, etc…  Overall most of the value increases came in the first two quarters of the year, and the market was fairly flat for the past six months in terms of value. Buyers really haven’t had very many options because of how low inventory has been, but at the same time buyers are exhibiting price sensitivity by not pulling the trigger on overpriced listings. One last aspect worth mentioning is rents have been increasing in many areas in Sacramento, and it’s worth watching this trend.

SACRAMENTO COUNTY:

  1. It took 4 more days to sell a house last month than November (but 7 days less than last year at the same time).
  2. Sales volume was 20% higher this December compared to last December.
  3. Sales volume was 10.9% higher in 2015 compared to 2014.
  4. FHA sales represented 27.5% of all sales during the past quarter.
  5. Housing inventory is 41% lower than it was last year at the same time.
  6. The median price increased by 2% last month (see #6).
  7. The average price per sq ft and average sales price stayed about the same from the previous month (so don’t put too much weight on #5).
  8. The average price per sq ft is 10% higher than last year at the same time.
  9. The median price is 11% higher than it was last year at the same time.
  10. REO sales were less than 4% of all sales last quarter (Short Sales were less than 5%).

Some of my Favorite Graphs this Month:

sales in 2015 2

Median price and inventory since 2011 by sacramento appraisal blog

bottom of market

fha and cash in sacramento county by sacramento appraisal blog - part 2

CDOM in Sacramento County - by Sacramento Appraisal Blog

inventory - December 2015 - by home appraiser blog

REOs and Short Sales in Sacramento County since the bottom

price metrics since 2014 in sacramento county - look at all

SACRAMENTO REGIONAL MARKET:

  1. It took 3 more days to sell a house last month than November, but it was taking one week longer to sell at the same time last year.
  2. Sales volume was 14.5% higher this December compared to last December.
  3. Sales volume was 10.8% higher in 2015 compared to 2014.
  4. Housing inventory is 32% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 7.5% higher than last year at the same time.
  8. The median price is 5.6% higher than it was last year at the same time.
  9. REO sales were 3.5% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

Some of my Favorite Regional Graphs:

sales volume 2015 vs 2014 in sacramento placer yolo el dorado county

prices in sacramento region - 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

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

PLACER COUNTY:

  1. It took 6 more days to sell a house last month than November, but it was taking 5 days longer to sell at the same time last year.
  2. Sales volume was 1% higher this December compared to last December.
  3. Sales volume was 13% higher in 2015 compared to 2014.
  4. Housing inventory is 16% lower than the same time last year.
  5. Cash sales were only 15% of all sales in 2015.
  6. The average price per sq ft, median price, and average sales price showed a slight seasonal dip over the past few months.
  7. The avg price per sq ft is 3.6% higher than last year at the same time.
  8. The median price is 2% higher than it was last year at the same time.
  9. REO sales were 1.8% of all sales last month.
  10. Short sales were only 3% of all sales last month in the region.

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog number of listings in PLACER county - December 2015 Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 78 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 spend the money if you won at Powerball? What stands out to you about the latest stats in Sacramento? How would you describe the market? 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: Market Trends, Random Stuff Tagged With: appraisal blog in sacramento, appraisers in Sacramento, cash investors, El Dorado County, FHA, housing inventory, low inventory, market graphs, market trends in Sacramento, Placer County, Powerball, sacramento appraisal group, sacramento housing market, Sacramento Real Estate Market, stats, Yolo County

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