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Sacramento Appraiser

Smoking pricing crack, era charm, & blaming appraisers

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If you’re like me, you have many things racing through your mind. When it comes to real estate there is always so much to talk about, so today I wanted to mention a few topics I’ve been thinking of over the past week. Any thoughts? I’d love to hear your take. 

Smoking Pricing Crack: Did you see that listing in Waco Texas of the property that was rehabbed by Chip & JoAnna Gaines of the reality show Fixer Upper? It was purchased for $28,000 and now it’s listed for sale at $950,000. 

I’m not located in Waco obviously, but I have a feeling someone might be smoking pricing crack on this one so to speak. A quick glance at Realtor.com for listings priced at $1M in Waco shows us there are zero other 1000 sq ft 1-bedroom homes anywhere near this level. Thus let’s remember a lofty list price doesn’t necessarily have anything to do with real value. Often times prices like this are more about publicity than anything. This is true not just in Waco, but in every market in the country. However, we still have to ask, would the market pay more for a home that was rehabbed by reality stars? Or is it just the upgrades people are paying more for rather than who installed them? (Photo credit above: Realtor.com).

Era Charm: I recently appraised a house in an older neighborhood of Sacramento and ended up bringing the value in on the lower side of the competitive range. Why? Because the house lacked era charm that buyers tend to pay more for in the neighborhood.

Instead of the home having wood siding, wood flooring, and a “charming” vibe from yesteryear, it had stucco siding, cheap laminate flooring, and it stood out in a bad way because it didn’t look the same as other homes from the curb. This might sound like I’m being subjective, but the proof of a lower value was in the comps. I found a couple “vibe-less” sales and they definitely closed at a lower price tier. I also talked with the previous Listing Agent who had the home on the market before it was withdrawn. She confirmed one of the bigger issues with why the house did not sell was the lack of era charm. This is a good reminder that value doesn’t always increase just because there are newer “upgrades.” By the way, the photo above is not the house I appraised, but it’s one in Tahoe Park that sold recently from Realtor Lola Mouras (photo credit: MLS).

Blaming Appraisers: I saw an economist on Twitter recently suggest appraisers are holding back the housing market. I’m not mentioning this to call this person out or start an argument, but I wanted to pitch in some thoughts because it’s really easy to blame appraisers.   

The truth is appraisers don’t make markets move up or down. Appraisers are more like a ruler to measure the market rather than a gas pedal or brake pedal for real estate values. In other words, we’ve seen massive value increases over the past 5 years, but that’s not because appraisers have driven the market up. Some of the big value drivers have been historically low interest rates, an influx of cash investors, and a shrinking housing inventory. Or right now in Sacramento we are seeing more price reductions, so is a slowing market being caused by appraisers? Nope. The market usually begins to slow at this time of year. This is exactly why I love the multi-layered real estate cake analogy because there is a recognition the market is influenced by many different factors or “layers” so to speak. I’m not discounting the reality that massive appraisal fraud can play in a market, but only saying we have to remember there are huge forces at play that are so much bigger than what appraisers are doing.

Well, that’s what’s on my mind today. I hope everyone had an incredible 4th of July. Let’s make it a great rest of the summer now.

Questions: Would you pay more for a Chip & Jo house? How much do you think era charm really matters in real estate? Do you think appraisers are holding back the housing market? I’d love to hear your take.

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Affordability in an increasing market (or lack thereof)

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Affordability is a huge topic right now. It seems like most real estate articles are talking about how insanely “hot” the market is and how much values have increased. But as much as the public eats up sensational headlines, we all know affordability is becoming an issue too for both buyers and renters. Today I hoped we could kick around some trends in the market when it comes to affordability. Anything to add?

Wage growth and values: One of the red flags over the past five years is having so much growth in home prices and rents without much wage growth. This is why we see some buyers technically affording the market, but at times they have several different jobs to help make ends meet. We also see multiple renters shacking up together to help afford higher rents.

Looking beyond single family detached homes: As values have increased, some buyers are starting to look beyond the single family detached market to something they might be able to afford. Other options include condos, halfplexes (attached unit), or even mobile homes. These properties represent affordability to many because they are often listed toward the bottom of the price spectrum. For reference, right now there are 27 mobile homes listed for less than $50,000 in Sacramento County (located in a mobile home park). I wouldn’t say the mobile market is “on fire” by any stretch, but I have heard more chatter about them lately, which is surely a sign of the times. I know, if you buy in a trailer park you’ll have to deal with “trailer trash” comments, though for some a mobile home is a viable financial option to help pay down debt and hopefully avoid some of the crazy rent increases lately. Ultimately let’s continue to keep an eye on what’s happening at the bottom of the market.

Unrealistic buyer expectations: My sense is some prospective buyers have unrealistic expectations about the type of house they can purchase in today’s market. For instance, I heard someone recently talk about wanting something under $300,000 that was modern, newer, eco-friendly, and located in Midtown. The truth is a property like that doesn’t exist right now in that price range in Midtown. But does it exist somewhere else? That’s the real question buyers need to ask. Coming to terms with locations you can and cannot afford is not always easy, but it is necessary for those who choose to buy.

Why tiny homes mostly don’t work: We see tiny homes on HGTV and like to think they are a viable option for many buyers or even a solution to the housing shortage, but they aren’t usually attached to the land, which means they don’t qualify for traditional financing. Of course you can obtain financing for a tiny home with an RV loan or personal loan, but that’s going to be more expensive. Even if you have the cash or financing to buy a tiny home, one of the bigger problems is the cost of land. We have to remember when a market increases in value, it’s mostly the land that is becoming more valuable. And when a market declines, it’s the land more than anything that loses value. The glimmer of hope though for tiny homes is that Fresno passed an ordinance last year that allows residents to put tiny homes on their property and consider them permanent residences instead of just temporary. This means for those who cannot afford higher prices in the single family detached market, this might be an option so long as they have access to land (maybe in a family member’s backyard). By the way, there is a 360 sq ft home listed for sale right now in the Elmhurst neighborhood of Sacramento.

Storage container homes: The market seems hungry for alternative housing as long as it’s affordable, though the unfortunate thing about this type of housing is it’s not necessarily inexpensive because of the cost to build and the problem of finding affordable land. It may still be possible though to build a storage container development on tiny lots at a reduced cost compared to stick-built new construction. We have seen some storage container commercial developments come to town, but it seems pretty quiet as of yet for residential units. Anyway, this reminds us there is space in the single family market for someone to “crack the code” or think outside the box to figure out a way to bring alternative housing at a lower cost than stick-built new construction. The image below comes from a local storage container company called TAYNR.

The squeeze on supply: Some buyers really are getting priced out of the market, though the truth is we might not feel the effect of missing buyers dropping out of the game because of the reality of having a housing shortage.

Creativity: It seems like every week I’m hearing about a new 0% down or 1% down loan. Thus as affordability vanishes for some, lenders are slowly helping buyers artificially afford higher prices by making their loan products less expensive. Lenders have so much power right now to shape the future of the market by what they do in coming time. Let’s remember another “creative” aspect of the market is seeing appraisal waivers become more common. I get there is a place for that, though let’s be cautious. 

Questions: Would you ever buy a tiny home or a mobile home? What else are you seeing out there? Did I miss anything? I’d love to hear your take.

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5 things to remember about the value of landscaping

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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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The ugly truth about appraisal fees

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I had a bad experience with an AMC recently and I want to share it. This is not because I’m wanting to rant or be negative, but only to highlight some of the ugliness that happens behind closed doors when it comes to appraisal fees during loans. This is especially worth knowing about for any home owners and real estate agents for the sake of their clients. Any thoughts? I’d love to hear your take. 

35462423 - closeup of thief taking money out of back pocket over white background

The Issue: I was asked to appraise something challenging, so I quoted a fee that was higher than a standard fee in Sacramento but still reasonable for the job because the house was funky. Anyway, I was comfortable with the fee and it was accepted by the AMC (Appraisal Management Company) that the lender hired to manage the appraisal ordering process. But then things got interesting because through the course of the transaction someone showed me an email from the loan officer where I learned the AMC was actually charging the buyer $345 higher than the fee I quoted. What the? That seemed excessive, but the real clincher for me was the email showed a chain of conversation with the AMC where they said I was the one who quoted the much higher fee. Not only was the AMC gouging the buyer in my opinion, but there was a blatant lie that I was the one dictating this fee that was 43% higher than the one I quoted.

Look, I’m not a complainer and I am a total optimist, but this is not okay on so many levels.

Why this matters:

1) Anger & The Real Fee: Let’s remember the appraisal fee charged to the buyer might be far different from what the appraiser actually gets. Thus before becoming angry at the appraiser for charging so much, try to find out what the appraiser is being paid (and what a market rate is for your area too). Is the appraiser actually getting that rush fee your buyer paid too? Keep in mind many AMCs tell appraisers not to discuss fees, so unfortunately it’s not likely you’re going to get an answer from the appraiser (maybe ask the loan officer to dig around). To complicate matters, it’s common for AMCs to tell appraisers NOT to attach an invoice to the appraisal report, so it’s not easy for anyone to find out how much the appraiser made from the fee the buyer paid unless there are disclosure rules from the state.

2) Appraisal Quality: In many cases AMCs are scraping so much off the top that the appraiser really isn’t making a reasonable market fee. It’s easy to gloss over this as insignificant, but it matters because over time if appraisers do not earn market rate fees it is going to weed out more experienced appraisers from doing loan work. Could this impact quality? I think so. By the way, if you didn’t know, an Appraisal Management Company is NOT used during a private valuation such as a divorce, pre-listing appraisal, estate planning, litigation, hard money loan, bankruptcy, etc… By the way, let me make it clear that not all AMCs are bad either.

3) Longer Turn-Times: At times it’s difficult for an AMC to find an appraiser because a property is so unique or it’s in a rural area. This can be frustrating for everyone else in the real estate transaction because it hands-down makes an escrow longer. Yet sometimes the problem isn’t the lack of an available appraiser, but rather the AMC broadcasting an absurdly low fee to countless appraisers for weeks. If the AMC would have simply started the process with a market rate fee and a realistic turn-time, maybe the order would actually be finished by now.

4) Lack of Transparency: California does not require disclosure on the HUD-1 of the fee paid to the appraiser vs the fee paid to the AMC. Since these fees are not separated, there isn’t any transparency as to what the appraiser and AMC are getting. I would think some buyers would be shocked to learn the appraiser didn’t get the full fee in the first place – not to mention a $345 AMC fee. Why would we not disclose these fees? Can’t we do better at being transparent?

I hope this was helpful or interesting. Any thoughts?

New Video: I made a video called “The market isn’t doing the same thing in every neighborhood.” It’s a quick look at three neighborhoods. Watch below (or here).

Questions: What stands out to you most about what I mentioned above? Anything else to add? Did I miss something? What is the best way to avoid working with bad AMCs?

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