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Will appraisers use Zillow purchases as comps?

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Let’s talk about Zillow. I’ve been getting a TON of questions every week about what Zillow is doing and whether appraisers can use their purchases as comps.

YouTube Live TONIGHT (10/19/21): Hey, I’m doing a YouTube Live at 6:30pm PST on Jason Walter’s channel. We’ll talk shop for probably 60-90 minutes.

Big news: First off, yesterday news broke that Zillow would be suspending buying anything else until 2022. Based on articles and a few conversations with locals in the know, it sounds like their rapid pace of buying has become backlogged, so they needed to hit the pause button to catch up. In the Sacramento region they own 372 properties right now and they’ve been on a buying spree over the past few months especially. Look, there could be more to this story, but all we have right now is what Zillow says.

Assumptions: I’ve heard some people think Zillow pulling back must mean the top of the market is here. Or maybe this shows the model isn’t working. Or it’s possible other iBuyers would soon follow in backing off. But here’s the thing. These are assumptions and it sounds like Zillow is going to be buying again in about two months. If this is true, it means these assumptions are misplaced. Of course Zillow is very likely losing money, but that may not be the reason they pulled back.

WILL APPRAISERS USE ZILLOW PURCHASES AS COMPS?

Yes and no. It depends. So many people are talking about what appraisers can and can’t do, but there’s so much misinformation. I hope this helps.

NO:

When Zillow buys properties directly from owners these are very likely NOT going to be used as comps. Frankly, appraisers might not even know about these sales since they don’t show up in the MLS where appraisers typically look for comps. But even if an appraiser knew about a few Zillow purchases, here’s the important part. If an appraiser cannot verify the nature of a sale that Zillow bought directly from an owner, then it’s not good appraisal practice to use the sale as a comp. If an appraiser has no clue about condition, quality of upgrades, or any sales concessions, for instance, using a private “comp” would essentially be a blind comparison. So if someone hands me a private Zillow purchase to consider as a comp, I’m going to say, “Thank you, but I don’t know anything about this transaction. But what I do have is 10-15 MLS sales to consider.”

Technically appraisers CAN use non-MLS sales as “comps” in an appraisal report, but only if the sales can be verified with someone principle to the transaction. In other words, the appraiser needs to be able to understand the nature of the transaction from someone like an agent, attorney, title company, buyer or seller. Yet being that Zillow is seemingly buying in suburban markets where the vast bulk of sales happen on MLS, there isn’t really much of a good reason for appraisers to use these private purchases as comps.

YES:

When Zillow buys on MLS, these sales are something an appraiser can consider just the same as any other comp because the details are transparent and it’s likely easy to talk with someone in the transaction. However, just because a property closes at a certain level doesn’t mean appraisers are going to automatically use the sale without consideration of whether it represents the market or not. In other words, if Zillow paid too much for a property they bought, it doesn’t all of a sudden represent the market or set a new price level for the neighborhood. As an example, a property sold for about $50,000 higher than any other similar sale. This sale was a clear outlier and it closed so high because the buyer likely bid too much out of desperation (Zillow wasn’t the buyer). I still used it as a comp, but I gave it far less weight because it simply sold for too much.

Keep in mind Zillow flips homes and appraisers can use the homes they re-list on MLS also. This is just the same as any other sale and appraisers simply have to weigh each potential comparable.

Is Zillow manipulating the market?

There have been quite a number of accusations about Zillow manipulating the market and I’m not here to defend Zillow, but so far I haven’t seen data to back up the accusations. I’m being careful about flippantly making such a serious accusation, but if anything comes to light I’ll be first to yell from the rooftops.

You may have seen the viral TikTok video below and this guy seems really cool. It’s just having one higher sale doesn’t all of the sudden make the market higher just like one lower sale doesn’t break the market. I get what this guy is saying, but I think we need data to substantiate such a claim.

For what it’s worth, this viral video helped put Zillow under the microscope and that’s a good thing. My observation is tech companies often get a pass from the public, but their activity and motives should absolutely be kept in check.

How many homes do iBuyers own in the region?

In the Sacramento region iBuyers own 747 homes (two weeks ago they owned 690). Zillow owns 372 units, Opendoor owns 350 homes, and Redfin owns 25 units. For reference, two weeks ago Invitation Homes had 77 units (since May) and now they have 91 units.

UPDATE: I should clarify too that my stats for all of these companies are for Sacramento, Placer, Yolo, and El Dorado.

Is Zillow temporarily exiting good news for buyers?

I’ve had a few people ask if Zillow backing off for a couple of months is good for buyers. Well, it’s good in the sense of having one less cash buyer to compete with (for the MLS acquisitions at least). But realistically Zillow’s activity is not a significant chunk of the market, so it’s not like pausing operations is going to change the trajectory of prices or the feel of things in the trenches.

Where does Zillow own homes?

Here is a look at a few neighborhoods. The pins are different colors depending on whether properties are active (green), pending (yellow), purchased and not active yet (red), black (no MLS activity yet), or expired (purple).

Anyway, I hope this was helpful or interesting.

Thanks for being here.

Questions: Anything to add regarding comp selection? What do you think of Zillow exciting the market? Is the iBuyer model a good thing for the public?

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Why is housing inventory so low?

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Housing supply is insanely low right now. It’s getting ridiculous. Why is it so low? Let’s make a list. Please add your take in the comments.

SOME REASONS WHY HOUSING SUPPLY IS LOW

1) Not listing during the pandemic: Sellers aren’t listing as often during the pandemic. This has been common in many markets across the country, and in Sacramento in particular where monthly inventory is down about 50% right now compared to last year.

2) More demand: Mortgage rates below 3% have caused buyers to jump off the fence and basically gut the market. Thus increased demand has depleted listing inventory (which was already low).

3) Lack of new construction: We’ve had population growth in the midst of anemic new construction since the housing bubble burst. In other words, we haven’t built enough units and we’re really beginning to feel the sting of it. Check out this visual from FRED to show housing starts today compared with 2005.

4) Shift in demographics: People are staying in their homes longer and therefore not selling as often. Last year Redfin published research stating owners are staying in their homes an average of thirteen years instead of eight years, which means there aren’t as many homes being listed for sale.

5) Increased migration: Some markets are seeing more buyers from outside the area flocking to the neighborhood. Lots of Californians of course are leaving the state and heading to Idaho, Nevada, Texas, and all the usual suspects, but who is coming to the market? There isn’t one definitive easy source to track migration unfortunately, but Bay Area buyers have seemed to have an increased focus on the region. In fact, LinkedIn recently published stats showing a 7.6% increase in net arrivals in Sacramento. 

6) Nowhere to go: Some owners would list but they feel there’s nowhere to go because homes are too expensive or inventory is too thin. 

7) Shift in home size: We’ve been building larger homes for decades now, which could eliminate the need for some folks to buy something else because they are satisfied and able to stay put. During the pandemic of course we’ve seen buyers target larger homes.

8) Other: Blackstone and investment funds purchase thousands of homes that have not resold on the open market. I wouldn’t say this is the reason inventory is thin, but it’s worth mentioning. We’ve also had wildfires in portions of California where homes have not been rebuilt.

9) Not a distressed market: We used to have more listings because of all the distressed sales, but we just don’t have that sort of market any longer. Bank-owned sales (REO) represent about 1% of all sales in Sacramento County as well as the region, and short sales are even rarer.

10) What else? Did I miss something? Please comment below.

I hope that was interesting or helpful. Thanks for being here.

Questions: What point stands out to you the most? Why is inventory so low right now? I’d love to hear your take.

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The Golden State Killer’s house, selling lower, & price changes

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I have three things on my mind today. Let’s look at the accused Golden State Killer’s house, a new visual I’m testing out, and some fresh stats.

Huge thanks: First off, thank you for reading my blog this year. This will be my last post of 2019, so I wanted to say I’m truly honored to have you here and I hope you’ll continue to journey with me into the new year. As always, I’m open to your ideas too, so hit me up if you have topics in mind.

GOLDEN STATE KILLER: There’s no holiday cheer with this topic, but we’ve been wondering what would happen if the accused Golden State Killer’s house came to the market. Well, now we know. Sort of. This property sold as a private sale to an FHA buyer a few weeks ago. The SacBee did a piece on it here.

What do you notice about the final price?

Unfortunately the home wasn’t sold on MLS, so we don’t really know the details of how the price was established, but it clearly sold at the lower end of the market. Was the low price due to stigma? Could it be due to condition or lack of upgrades? Or maybe it was the owner selling at a discount? We may never know the details, but it’s interesting nonetheless to see.

House History: It’s sobering to think Joseph James DeAngelo, the accused killer (aka East Area Rapist), was pursuing the “American dream” of home ownership while destroying people’s lives. Here’s a history of the house:

  • 1980: Bought the house for $77,000
  • 1993: Refinance
  • 2003: Refinance
  • 2012: Refinance
  • 2019: Private transfer to family member
  • 2019: Private sale for $320,000

SELLING LOWER (NEW GRAPH): I’m testing out a new graph and I wanted to see what you think. Here’s a look at Roseville and East Sacramento. Would you like to see other neighborhoods? The goal is to see how close a property sells to the original list price vs how long it’s on the market. Thanks Braden Gustafson, MAI for the graph inspiration on Twitter.

The takeaway? The longer a property sits on the market, the further it sells from its list price. I know this is what we’d expect to see, but it’s still cool to visualize. By the way, I used the original list price instead of the most recent list price because it’s a more complete picture of the market.

PRICE CHANGE IN NEIGHBORHOODS: Last week I pulled some stats to prepare for an interview with Channel 10 about price dynamics in Oak Park. So I crunched numbers in about a dozen neighborhoods to help get a wide view of both higher and lower-priced areas.

The Sacramento Bee actually did a piece on my stats too.

I looked at both the dollar change and percentage change on purpose as this helps give a well-rounded view of the market. I also looked at huge chunks of data too as this compared almost an entire year in 2012 vs the same time in 2019. The problem with neighborhood data is if we look at one month only, the numbers can end up being all over the place. 

NOTE: If you want this data in a PDF, just send me an email.

Again, thank you for being here. From my family to yours, Merry Christmas and Happy Holidays. In coming weeks I hope you get a little time off to connect and reflect. Blessings to you.

Questions: Would you feel comfortable buying this house? Would you expect a discount? Any thoughts on the new graphs or price stats? Anything to add?

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That place where shiplap & murder meet

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There’s going to be a new home renovation show that focuses on murder houses. How crazy is that? It’ll be called Murder House Flip and it’s going to air in 2020. I can already imagine adding shiplap to the walls to erase a heinous history… Anyway, here are some things on my mind.

1) Not the home’s fault: Often when talking about notorious homes we hear things like, “It’s not the home’s fault” or “It’s unfair to penalize the house.” I get that, but let’s remember buyers aren’t just purchasing the home. They’re inheriting all the stories and history too. Anyone who has ever owned a home knows this is true because neighbors will definitely tell you about the previous owners and especially anything big that happened at the property. While a home is technically innocent, it doesn’t mean buyers aren’t discerning or making judgement calls about value.

2) Stigma fades: A property with a crime in its past can certainly have a diminished value, but the loss in value may not last forever. What I mean is right after a gnarly situation buyers might react quite negatively, but over time the tendency is to care less, forget, move on, or not even know what happened decades ago. It would be like saying, “A man was murdered here yesterday” compared to “A man was murdered here in 1917.” Would there be a difference in your mind? Maybe so. But for something really notorious the question becomes how long stigma can last. This is why I’m watching the John Wayne Gacy property. The original home was actually demolished, but can stigma remain with the site despite the new home?

3) No one-size-fits-all adjustment: How much does a murder affect value? There’s no one answer to satisfy all situations. It likely depends on when the murder occurred, the nature of what happened, and whether it took place inside or outside. It could also depend on the price range or location as some sub-markets are more sensitive than others. My experience locally is buyers at lower price points tend to be more forgiving about certain issues compared to higher price points (generally speaking).

4) One buyer vs the market: It’s possible a particular buyer might not care about a property’s history, but market value isn’t just about one buyer. What would most buyers pay? Last year I ran a poll about the alleged Golden State Killer’s house and asked people to consider if there would be any price impact if this home came to the market. It was a fascinating conversation with many layers, but one thing that kept coming up was the idea that one buyer might not even care. That’s true. But again, market value isn’t just about what one buyer would do. It’s like this. Imagine lining up 100 qualified and interested buyers. What would be reasonable for them to pay? That’s sort of what market value looks like.

5) Crunching numbers: I appraised a murder house recently and interviewed about ten local real estate agents who sold a murder property in the past. Here’s a blurred view of my data collection. Some agents said there wasn’t any impact to price and others would say stuff like, “It probably sold $25,000 lower.” In short, the answer wasn’t always the same, which meant I had to consider which data points were relevant for my situation. This is huge because it’s easy to find one murder house and call it a day because now we have data. But what happened with one home under $200,000 may not mean anything at the $800,000 price point. Thus some data toward the lower end of the market ended up being less relevant during my appraisal.

An episode of Murder House Flip in Sacramento: There’s going to be an episode set in Sacramento to focus on the Dorothea Puente property. If you didn’t know, she was an older woman who ran a “boarding” house in the early 80s, but instead of giving clients respite she drugged them, buried them in the backyard, and collected their social security checks. This property has sold four times in the past twenty years as seen below.

By the way, there was a documentary made about this house and the owner has even given tours. This goes to show another aspect of a famous home is monetization. In this case though the owner donated tour proceeds toward organizations working with the homeless.

Keep in mind entire books are written about this stuff and I’m only scraping the surface here. I hope it was interesting or helpful though. 

Questions: Are you going to watch this new show? What stands out to you above? Any other thoughts?

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