Sacramento appraisals

Strong opinions about the housing market

April 16, 2024 By Ryan Lundquist 14 Comments

Everyone is entitled to an opinion, but I find some people sounding off about housing seem disconnected from the actual market. I want to talk about that below and share some trends. Skim by topic or digest slowly.

UPCOMING SPEAKING GIGS:
4/25/24 HomeSmart iCare Realty (details TBA)
4/26/24 Prime Real Estate (private)
5/9/24 Empire Home Loans (details TBA)
5/15/24 Investor Meetup (details TBA)
6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)

CONSUMERS ARE JUGGLING

This is a meme I made a few days back, and unfortunately it perfectly describes the moment. And this is why mortgage rate increases lately aren’t easy to digest since buyers are already juggling so much.

STRONG OPINIONS ABOUT THE HOUSING MARKET

Look, you don’t have to be a practicing real estate professional to have a housing take or know the market. I’ll be honest. It bugs me when people are told to stay in their lane because they don’t work in a field. As if I can’t have an opinion about Taylor Swift since I’m not a musician. Or I can’t talk about basketball because I don’t play for the Kings (put me in coach). Or an athlete can’t talk about politics because she isn’t a politician (oh, that one got real). Of course, there is such a thing as expertise, so I’m not planning to lecture today about paleontology or the history of communism. Haha.

When it comes to housing, there are some people spewing opinions that are pretty disconnected from the actual market since the narrative just doesn’t line up with what it’s like in the trenches. I find this to be especially prominent with a housing crash narrative that paints everything with darkness, but doesn’t tend to concede it’s been competitive.This can happen on the rosy side too when people aren’t willing to look at red flags in the marketplace because they’re distracted by multiple offers. Ultimately, some people only want to promote a narrative, and I find that to be very limiting because the market isn’t just one thing. We ARE really struggling with affordability, AND the market has been intense considering the lack of affordability.

In short, everyone gets to have an opinion, but not every opinion has credibility. On that note, how do you gauge credibility for a housing analyst? And does credibility even matter to people today?

Long story short. 54% of pendings over the past week had multiple offers in the Sacramento region in the midst of rate hikes, so it’s not totally frozen like some people are saying. Of course, could the housing temperature change very quickly ahead if rates continue to rise? You betcha. Do you know what would be surprising? If the temperature didn’t change with rates around 7.5%.

GETTING CLARIFICATION ON CONCESSIONS

In light of the NAR lawsuit, Fannie Mae and Freddie Mac clarified yesterday that if a seller pays for the buyer’s agent commission, it will NOT count within the allowable amount for concessions (as long as it remains customary for sellers to cover the buyer’s side of the commission in the marketplace). This isn’t new policy, but it’s nice to have some clarity since we’ve been wondering. I wrote about concessions a few weeks ago, and I updated the post with links to the press releases. I also posted on my socials yesterday, and the posts have quite a bit of attention.

SELLER GREED ISN’T SEXY

I talked to a real estate agent this week who has an upset seller that the property didn’t go even higher above the asking price. Bro, it’s not 2021 out there, so don’t expect that dynamic. Technically, if you’re a seller wanting a bidding war, just price lower. Don’t expect buyers to go substantially above value though in a market where affordability is a struggle.

LOOKING FOR HOUSING TEMPERATURE CHANGE

One of the things I’m watching closely right is what sellers are giving buyers in terms of concessions. What are you noticing? About 38% of sales last month had concessions in Sacramento County, and it’s normal to see this number decline during a traditional spring. Do we start to see sellers have to offer more to buyers ahead if rates persist higher? My advice to sellers is to listen closely to what buyers need, and be open to lowering the price and/or offering concessions if the market requires. Please don’t take rate increases lightly. Go to a mortgage calculator to see how much it costs to buy your house right now.

MORE ADVICE FOR BUYERS PLEASE

Agent friends, I’d love to see more content that focuses on the buyer side. How do you get an offer accepted? How can a buyer get concessions in a market like today? What types of situations do you recommend offering below the list price? When do you need to go above? Often real estate professionals focus heavily on sellers, but buyers need attention and help right now.

EXPECT LOWER DEMAND

In coming weeks, we’re going to understand more about how higher rates are affecting buyers and sellers. I’d be shocked if the number of pendings didn’t dip if rates keep this high, but only time will tell. No matter what, we’ll see the trend first in the listings and pendings. If we only look to sales, it’ll be a month or two to see the trend since it takes time for properties to get into contract and close. Remember, the stories of today turn into the stats of tomorrow.

So far, pendings and new listings for April as a whole have been pretty normal seasonally (still way lower than usual though). But let’s watch very closely ahead from this week onward.

SOME ENCOURAGEMENT

A few thoughts I shared on my social channels yesterday. Just some things on my mind. I wanted to offer some encouragement in the midst of what feels like uncertainty salad in the economy and real estate market.

WATCH GROWTH IN LISTINGS

I had the hardest time explaining this until I used blocks. In the fall of 2023, I made a reel with blocks to explain how listings can grow. At the time, we were seeing more active listings, but it wasn’t really due to sellers rushing the market. Well, today we’re legit having more new listings, but it’s still buyer behavior that can make the biggest difference.

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Questions: What are you seeing in the market right now? What are buyers and sellers saying? What do you think of Fannie Mae’s clarification on commissions? I’d love to hear your take.

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How do you get an appraiser to value vintage features?

September 6, 2017 By Ryan Lundquist 12 Comments

It can be nerve-wracking to have an appraiser come out. So I wasn’t surprised to receive an email from someone worried about his vintage home. Will the appraiser give value to the vintage features? How can an owner ensure the appraiser will give proper value? Let’s talk about that.

Question: How do I get an appraiser to value these vintage features?

Answer: That’s a great question. I’m not trying to be frustrating by not answering directly in the way you might wish, but the most important thing to remember here is that value is found in the market. What do buyers prefer? Are buyers paying more for homes with vintage features or are they paying more for homes that have a vintage vibe but with modern upgrades? I find sometimes in the vintage world an owner will restore a property to its original state. I get that, but just because so much time and money was spent on a restoration does not mean the market is going to pay the same amount as a house that has been remodeled with current upgrades. In some cases buyers definitely pay for older era elements, but at the same time they tend to pay more when the kitchen is modern (and not original). I don’t say this to be offensive, but only to highlight the reality that the proof of value is found in the comps. In other words, if there is more value for being totally vintage, then an appraiser ought to be able to find similar homes that show higher prices. At the same time I get your concern because it’s easy to see blue and pink tile from the 1950s and immediately ding value because it’s outdated. This is why it’s going to be important for the appraiser to be in tune with the local market and be objective by letting the market speak rather than being shaped by his/her personal preferences. To be honest I remember in my early days coming across a Mid-Century Modern home and making the mistake of assuming the original condition was worth less when in fact it was something desirable for the market. Doh!!

Restoring a house can be very expensive, so I recommend making a detailed list for the appraiser about what has been done. This can help the appraiser understand the quality and cost of the improvements. Keep in mind if restoration is a trend in the neighborhood, it might help to mention that or even share specific examples you have seen. I’m not saying to pressure the appraiser to “hit” a certain price point (please don’t), but only highlight what is happening in the neighborhood. Personally I love hearing about what’s happening in a neighborhood from someone who lives there because it’s data for me to consider. Just remember not all the money spent on a restoration or remodel will show up in the value (it always shows up on HGTV remodels though). On a practical note you can use my appraiser information sheet if you wish.

BIG POINT: Just because something is done to a house does not mean the market is willing to pay for it. When it comes to a full vintage restoration, we have to ask if that’s something the market is willing to pay for or if it’s just one owner’s passion for yesteryear. I think of restored cars as a good example of one owner dumping a ton of money into a vehicle only to have the market pay less. I’m not saying that’s the way it always works in real estate in every case, but restoring something to its original state can be very costly and the market might not absorb that cost. The proof is in the comps though.

I hope this was interesting or helpful. Thanks Luis Sumpter for the first photo.

Questions: Have you seen the market pay more for homes that are restored to their original condition? What examples can you think of where the market did NOT pay for certain upgrades? I’d love to hear your take.

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What’s your housing shtick?

April 12, 2017 By Ryan Lundquist 25 Comments

It’s easy to fall into the trap of saying one thing about the housing market. Just as a comedian has a shtick, or regular performance, we can get into the routine of talking about real estate based on one big idea about what the market is doing or will do. Let’s consider some examples. Which one(s) are you? Any thoughts?

37841087 - overhead of office table with notebook, computer keyboard and mouse, tablet pc and smartphone. copy space

Doom & Gloom: The market is going to crash like it did 10 years ago.

Corrector: Values will correct but not implode.

One-Metric Wonder: The market will turn as soon as this one thing happens.

Normal: The market is normal and not in a “bubble”.

Mr. Buzzword: The market is headed toward a “shift” in the future.

Polly Pollyanna: It’s always a good time to buy and sell. Everything is always good.

Specific Year Guy: This year is going to be the one where values turn.

Mrs. Cyclepants: The market has a 7 year cycle and it’s about up.

Foreclosure Prophet: Another foreclosure wave is coming. Just wait.

Headline Regurgitator: This person says whatever the latest headlines say.

Spinster: Any negative aspect of housing is spun into something positive.

The Feeler: I feel like the market is strong and will be in the future.

Crystal Ball: This is exactly what the market is going to do.

Broken Crystal Ball: Nobody knows the future including me.

If we’re honest we might identify with several shticks above. That’s okay. I’m not saying there’s something wrong with that, but let’s be challenged to consider what we say and not get locked into conveying only one thing about the complex housing market. Moreover, let’s be cautious about imposing clichés and ideas on the market because it’s easy to miss trends that way. At the same time let’s not be naive by refusing to consider the future. My advice? Pay attention to the numbers and know them well enough to quote, know what is normal and not for the time of year, remember that values might be moving differently in various price ranges and neighborhoods, and find ways to talk about current values in specific terms while keeping an eye on the future (instead of focusing entirely on the future).

My knee & market update post: Some of you may know I hurt my knee in a snow tubing accident 10 days ago. I have an MRI next week, but for now the doctor thinks I may have torn my meniscus. Anyway, I normally do my big market update between the 10th and 15th of the month, but I can’t swing it this week since I took last week off and I’m basically playing catch-up with all my reports this week. I’m just grateful to be at my desk again. Anyway, I will be 100% up and running (not literally) next week, and I’ll get to my big update then. Thanks for your understanding.

Questions: Which shtick stands out to you most? Any others to add? Did I miss something? I’d love to hear your take.

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The problem with non-permitted additions in real estate

October 25, 2016 By Ryan Lundquist 12 Comments

Non-permitted additions can cause huge problems. Last week I wrote about how I valued a garage conversion without permits, and I wanted to follow up with some expanded thoughts. As I mentioned, in this situation I gave value to a conversion because I was able to show the market was willing to pay for it. Yet it’s not always that easy, so let’s dig deeper. By the way, props to Cynthia, Gary, and Bryan for stellar blog comments that prodded me to follow-up. Any thoughts?

54025005 - demolishing the old kitchen - exposing the studs, existing plumbing and electrical work

Issues when dealing with a lack of permits:

1) Lenders & Appraisers: Here’s the bottom line. Some lenders don’t want to lend on properties with non-permitted additions. In short, a non-permitted area might have legitimate value in the market, but some lenders will tell appraisers NOT to give the space any value. At the same time other lenders are okay with value being given, but they want appraisers to show a few comps with similar non-permitted areas to prove the market is willing to pay for the space (that’s tricky to find).

2) Illegal: Does the addition conform with what zoning allows? This is a key question. For instance, if zoning only allows one unit and the seller has a non-permitted second unit that hands-down would never be allowed, it’s an enormous liability for an appraiser to be giving value to something like that. Likewise, imagine if an addition was built within the setbacks on a site, which would make it illegal and maybe even a safety issue.

3) Building Department Reaction: Is it likely the non-permitted area can become permitted? What is it going to cost? This is where it’s worth giving the building department a call. I don’t recommend mentioning a specific address at first so you don’t raise red flags, but call and maybe ask about a hypothetical situation to see what the cost and feasibility might be for getting permits. Remember, not all markets are the same either. For instance, since 1976 the City of Davis has had a program where building inspectors visit all properties before they close escrow to ensure there are no code violations. In short, you can’t get away with non-permitted additions in Davis if you plan to sell (but you can elsewhere).

4) The Struggle of Different Opinions: A friend gave me a call to talk through a situation with a garage that was converted into a second unit without permits. The appraiser gave little weight to the addition because of zoning issues, but the seller thought it should have carried more weight. There was a solid back-up offer on the table, but regardless of whether this addition was worth more or not, the thing I told my friend was there was no guarantee a future appraiser or lender was going to see the situation any differently. Owners in scenarios like this tend to say, “The lack of permits wasn’t a problem when we first bought the house”, but guidelines and what appraisers report might have changed over time. Moreover, not every appraiser or lender is going to see things the same way.

Advice about non-permitted areas:

1) Minimal value: Expect there is generally going to be less value for something not permitted than something fully permitted (thanks Captain Obvious).

2) Bigger is Bigger: Buyers seem to ignore smaller-ticket items that weren’t permitted, but the bigger something is, the more likely it is going to be a bigger deal that it wasn’t permitted. For example, there is a huge difference between a non-permitted covered patio and a 400 sq ft addition that was not permitted.

3) Glorified Storage: Keep in mind an appraiser might be instructed by a lender to count a non-permitted area as storage instead of living space. So that second story attic conversion might be really sweet, but an appraiser might end up treating it like storage instead of extra square footage.

4) The Easy Answer: Getting permits can help avoid future loan problems. Be sure to keep a copy of the permit too so any appraiser or buyer can see everything has been signed off.

NOTE ON GIVING VALUE TO SOLAR: This is off-topic, but there was a recent class on solar and it was apparently mentioned I do not give value to solar systems. That’s not accurate. However, I have said a LEASED solar system does not get value because it’s personal property. Just wanted to clarify. You can read this post and another for some thoughts on solar.

sacramento-appraisal-blog

Questions: How have you seen a lack of permits impact a transaction or appraisal? Would you buy a home if it had an addition that was not permitted? Did I miss something? I’d love to hear your take.

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Sacramento appraisals

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