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Toxic Water & Real Estate: An interview with a Realtor from Flint

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What happens to a real estate market when the water is unsafe to drink? In light of the tragic situation unfolding right now in Flint, Michigan, I thought this would be a timely conversation. So I reached out to Realtor Ryan McFarlane who has sold nearly 1000 homes in Flint. This brief interview isn’t an exhaustive case study, but only one conversation centered on real estate (which has so much to do with people). I’d love to hear your take in the comments below.

Flint real estate agent interview - by sacramento appraisal blog - image purchased from 123rf and used with permission

Tell me about yourself. How long have you been in real estate? How much business have you done in Flint?

Realtor Ryan MacFarlane - MichiganMy name is Ryan McFarlane. I originally got into real estate around 2004. Overall I’ve sold over 3000 homes, and about 1000 of them have been in Flint; the company I work for now was actually started in Flint.

What is the population of Flint?

According to the census, the population is 99,763. However, it used to be 141,553 in 1990. When GM closed down their plants, it was devastating for the housing market and job market in Flint as a blue collar town.

What is the City of Flint like for those who have only read it about it recently?

I would say there are still some nice areas of housing. People are investing in Flint and trying to bring up the Downtown area. Though when you get off the beaten path, there are some rough patches. There are still good areas, but there are many bad areas. Some people say it’s all bad, but it’s not that way. There are also some good things going on, but the attention is often on the bad things.

flint listing - by sacramento appraisal blog

How much do properties tend to sell for in the city?

As of right now there are 352 active properties on the market in the City of Flint. The low end is about $500 and the highest listing is $229,000. In the last year the highest sale was $350,000, but it was over 6000 sq ft and a custom home in a historical area. Otherwise most properties in the city are going to sell under $30,000. The majority of sales are bank-owned properties. Sometimes properties literally sell for nothing since people call me and want to transfer the quitclaim deed to someone else. Sometimes a bank-owned property is in such bad condition that it is worth absolutely nothing. Other times a home will be bulldozed and the land will be sold (often a neighbor will buy the land). Some owners will not pay their taxes too because they might end up paying say $1000 for taxes when the property is only worth $500.

What is the median income of Flint residents?

The median income is $24,834 according to the U.S. Census Bureau.

flint vs sacramento

How much does a typical house rent for in Flint?

I would say on average about $500 per month.

How much are water bills right now in Flint? How does this compare to surrounding areas?

A family of 4 told me recently their bill was $250 per month, and the bill has to be paid even though they cannot use the water. Even vacant houses are being charged $50-60 per month for water. Some surrounding areas bill on a quarterly basis, and the quarterly water bill ends up being about the same as someone’s monthly bill in Flint.

NOTE from SacBlog: Most articles online state Flint residents are easily paying $140 to $150 per month for water they cannot use. This is obviously only an average since Ryan mentioned above that some residents are paying $250. Keep in mind $150 per month is 7% of a household’s monthly income (based on the median income in Flint). Also, if a home rents for say $600, the water bill is 25% of rent. Imagine a $1500 rental in Sacramento and having a $375 water bill (that’s 25%).

flint listing 2 - by sacramento appraisal blog

Some say it’s illegal to sell a house with toxic water. Is that true?

Legally there is nothing that says you cannot sell. There was a recent article from the Michigan Association of Realtors that said you can sell them, but you need to disclose the water issue on the seller’s disclosure form to make people aware of the water issue. Though buyers would have to be living in a cave to not know about the water issue already, so the disclosure is only a formality.

Some appraiser colleagues working in the Flint area say FHA and USDA have asked appraisers to verify where a home is getting water from since FHA/USDA don’t want to guarantee loans on properties using Flint water. Have you found this to be the case too?

Most of my deals have been cash buyers, though there have been people getting loans though too.

NOTE from SacBlog: Who is lending in Flint? Please comment below. I want to hear if any FHA and conventional lenders are making deals happen. Unsafe water is a clear health and safety issue, which would seemingly prohibit FHA deals from happening.

flint listing 3 - by sacramento appraisal blog

What impact are you seeing the toxic water issue to have on the local market in terms of values?

In some senses we may see a slight decline in sales and out-of-state investors are probably not going to be buying properties. But at the same time, sales are going to happen. From a practical standpoint the water issue has to be fixed. Nobody knows when that will happen, but we all know it will presumably happen. Flint is still one of the most affordable places to buy for locals. At the end of the day, values are already so low that they cannot go down much more than they have already. However, anything that is considered “higher-end” will probably be impacted since buyers will definitely look at what they can buy somewhere else for the same price (and not have water issues). But I don’t think there will be much effect under $30,000. You just can’t pick up homes in other nearby places for those low prices.

NOTE on rents from SacBlog: It’s interesting to consider what may happen with rents in outlying areas near Flint. If residents leave the city, will rents elsewhere increase? This reminds me of some reports of price gouging with rents in Porter Ranch in Southern California, which is the community where residents had to be evacuated due to an ongoing methane gas leak.

Have you heard or seen any impact on the commercial sector?

Yes. Businesses serve bottled water and they seem to be careful about water filtration. A few years ago GM had a nearby used motor facility just on the border of Flint. After doing some water testing, apparently the water was not good enough to spray on their motors.

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I hope you enjoyed this brief interview. Thank you again to Ryan McFarlane for his time and insight.

Questions: What if anything stood out to you about what Ryan said? What would you expect to see happen in a real estate market when the water is toxic? What would happen in your market?

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What do appraisers look for during an FHA inspection? (free download)

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What do appraisers look for when doing an FHA appraisal? These days it’s important to be in tune with FHA appraisal standards so your home can be FHA-ready or so you can know what to expect if accepting an FHA offer. Let’s talk through some of the most common FHA issues below. You can also download an FHA checklist to study or share with clients. This checklist has all the information from this post as well as one additional page.

NOTE: This blog post was written in 2015, and there may be some slight variations today (2023). For instance, appliances are basically only required if they contribute to value.

what appraisers look for during an FHA inspection

DOWNLOAD an FHA checklist HERE (pdf)

The Main Idea with FHA: FHA is primarily concerned that everything in the house functions properly and that there are no health and safety issues. The basic concept of meeting FHA minimum requirements is that everything must work as it was designed to work. For example, a window that is supposed to open must open, and a built-in appliance should do what that appliance is supposed to do. If you have a sliding glass door with a lock on the handle, the lock should work.

FHA requirements - from sacramento appraisal blog

What do FHA appraisers look for?

  • Utilities should be turned on so the appraiser can test systems and appliances.
  • Appliances must function properly.
  • fha-logoThere should be proper drainage around the perimeter of the house.
  • The heating unit must be in working order (and AC if applicable).
  • Water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
  • The water heater must be in working order and strapped according to local code.
  • Attics and crawlspaces are to be viewed at minimum from the shoulder up by the appraiser. When viewing the attic, appraisers make sure there are vents, no damage, no exposed or frayed wires, and that sunlight is not beaming through. When inspecting the crawl space, appraisers make sure there are no signs of standing water or any other foundation support issues. Excessive debris in the attic or crawl space should be removed.
  • Paint must not be chipping, peeling, or flaking on homes built before 1978 because of the danger of lead-based paint (lead was used in paint prior to 1978). However, there must be no defective paint or bare wood for properties built after 1978 because defective paint impacts the economic longevity of the property. Defective paint should be scraped and re-painted (with no wood chips on the soil).
  • Electrical outlets must work (outlets should have a cover plate also).
  • Toilets must flush and be mounted.
  • Any active termite infestation needs to be cured.
  • Minor cosmetic issues such as stained carpet or a need for interior paint are okay. The house does not have to be perfect, but if there are issues that impact health and safety or the long-term economic viability of the property, then those issues must be cured.
  • Windows must open and close and they cannot be broken. Minor cracks can be okay so long as there is not an issue with safety, soundness and security.
  • No dangling wires from missing fixtures or anywhere else.
  • FHA doesn’t require air conditioning, but if present the system should work as intended.
  • Smoke detectors & carbon monoxide detectors are required insofar as required by local code
  • The firewall from the garage to the house should be intact. Missing sheetrock, a pet door installed in the door, a lack of self-closing hinges, or a hollow door could pose a safety issue.
  • A roof should not be leaking and needs to have at least two years of economic life left.
  • A house will be rejected if the site is subject to hazards, environmental contaminants, noxious odors, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property (this isn’t an issue for the vast majority of properties).
  • A trip hazard is a subjective call to make by the appraiser and not necessarily an automatic repair, but if there is a legitimate safety issue it should be called out by the appraiser.
  • There are things any appraiser will call out in an FHA appraisal, but there are times when appraisers have to consider how the spirit of FHA might apply in a situation. FHA is black and white on many issues, but other times appraisers simply need to use good judgment.

Reminder About Difference in Locations: Appraisers in different parts of the country may require some items in their appraisals that might not be required elsewhere. For instance, carbon monoxide detectors are required in most residential homes in California, but this is not the case in many other states. An FHA appraiser in a different state might not even mention a CO detector, but in Sacramento it is commonplace.

DOWNLOAD an FHA checklist HERE (pdf)

I hope this was helpful. If you’re looking for more information on FHA appraisal standards, you can check out other FHA appraisal articles I’ve written.

Questions: Anything else you’d add to the list? Any FHA questions? Appraisers, if you have any stories to share about properties that were rejected, speak on.

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Real estate is about location, location, and __________.

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It’s been said many times that real estate is about location, location, and location. This is basic stuff, and we all know where a home sits can be about as defining a feature for a property’s value than anything. This is why a home on “the other side of the tracks” can have a far different value than an identical home in a nearby subdivision. But sometimes it’s not even about crossing something obvious like train tracks, but simply crossing the street within the same neighborhood. Maybe the other side of the street is located in a different school district, has a different type of architecture, larger lot sizes, or there are more commercial properties. Whatever the case, let’s look at one particular street in the Curtis Park neighborhood of Sacramento to help show how real estate values are definitely about location.

Question: What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.

Curtis Park Neighborhood

A Neighborhood Example: This graph shows all Curtis Park neighborhood sales over the past 6+ years (not newer homes in Curtis Park Village).

Curtis Park Neighborhood Sales Since 2008 - by Sacramento Appraisal Blog

Franklin Blvd: Now let’s separate values by Franklin Blvd. This street is a north/south “line of demarcation” so to speak for neighborhood values. Of course Sacramento locals know there is a different feel between the east and west side of Franklin Blvd, but it’s still interesting to see this difference on a graph. For non-locals, both the west and east side are within the neighborhood boundaries, but as you can see, there is a huge change in value once Franklin Blvd is crossed.

Curtis Park Franklin Blvd - by Sacramento Appraisal Blog

2-Bedrooms on the East & West: Even when we look at 2-bedroom units on the east and west side of Franklin Blvd, we see a big difference in value.

Curtis Park 2-Bedroom Sales

Key Takeaways:

  1. Be a Student: Study neighborhoods so you know the boundaries where values change. This can only happen by talking with real estate professionals, reading articles, asking questions, studying trends, and working in a neighborhood over time. It takes time to become an expert.
  2. The Right Comps: Avoid “cherry picking” sales from across the street to boost value. Or if you do use higher-priced sales, be sure to make a value adjustment downward as needed. Remember that it’s okay for appraisers to use much older comps in the immediate neighborhood rather than finding newer ones in superior areas.
  3. Sales vs. Comps Distinction: If you are listing a home, price according to the market instead of borrower higher prices from the market across the street. Help the seller understand that nearby sales might not necessarily be “comps” either. In other words, just because it sold does not mean it’s a comp.
  4. No Little Black Book of Value: Remember there is no such thing as a book of value adjustments that can be applied to every neighborhood or property type. After all, buyers in one location may be willing to pay substantially higher premiums for certain features, but these same features might not command much of a premium at all in a different location.
  5. Let History Paint a Context: If you’re not sure if values are softer or higher in the immediate part of your neighborhood, look back at sales over the past few years to get a better idea about how the market has moved over time. The previous sales will help paint a picture of the market. What have buyers been willing to pay over time compared with other surrounding areas? This may be a clue into how value works in the neighborhood.

I hope this was interesting to you. I sure enjoyed putting it together.

Questions: What advice would you give others about the role location plays in real estate? What is the first street or boundary you can think in your market that makes a huge difference in value if you cross the street? I’d love to hear about it.

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An open letter to sellers about pricing during a slower real estate market

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Dear Sellers,

How are things? I hope all is well. I wanted to reach out and and pitch some thoughts your way about listing your property in a real estate market that is cooling off. I’m not trying to tell you what to do, but I figured this might give you some helpful context or conversation fodder with your agent. Here goes.

  1. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerBe aware of change: Real estate markets are constantly changing. There are times when values increase and other times when they are flat or decline. This means it’s important to price according to how the market is behaving. Yes, values increased rapidly in recent years, but we’re not in that sort of market any longer. Moreover, the real estate market is cyclical where buyers tend to pay more in the Spring and less in the Fall/Winter.
  2. Know your competition: Price according to the most recent similar listings that are actually getting into contract instead of the highest sales from several months back. Remember that well-priced listings tell us about the current market whereas sales are more like pieces of history because they represent what the market used to be like in the past when these properties got into contract. The bottom line is if you want to sell, you need to be priced in the sweet spot where buyers are currently willing to pay. You can find that sweet spot by looking at sales, but don’t forget to give strong weight to similar actives and pendings.
  3. Be prepared for credits: It’s becoming normal for buyers to ask sellers for credits for repairs or even credits to assist with closing costs. This doesn’t happen in every price range, but it does tend to become more common when a real estate market softens.
  4. Listen to your agent: If your real estate agent keeps telling you the property is overpriced, is there a good reason why you are not listening? Your property might be incredible, but if it’s not generating interest or offers, something is wrong. What is it?
  5. Overpayment expectation: Don’t count on pricing your property really high in hopes of attracting that one magical cash buyer willing to pay extraordinarily more than anyone else. We are no longer in a market where buyers have to overpay since housing inventory is approaching normal levels.

I hope this was helpful. I’m around in case you have further questions or a story to share in the comments below.

Sincerely,

Ryan Lundquist
CA Certified Appraiser
Sacramento Appraisal Blog

p.s. Remember to pick up the dog mess before the appraiser comes  🙂

an open letter to sellers from sacramento appraisal blog - image purchased and used with permission

NOTE: This information was written in response to many overpriced listings in the Sacramento area. Your market may or may not be similar. Be sure to study the trends in your market so you can price accordingly.

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