Sacramento

Should accessory dwellings be valued at the same price per square foot?

February 4, 2025 By Ryan Lundquist 50 Comments

Should accessory dwelling units be valued at the same price per square foot as the main house? This question came up recently, and many people believe the price per sq ft of the house should simply extend to the ADU. This post isn’t targeted at any one person, but I have a different perspective that I’d like to share. Let’s talk through this.

UPCOMING SPEAKING GIGS:

2/6/25 She Invests event (register here)
2/11/25 MLS Meeting TBA
2/12/25 Coldwell Banker EDH (private I think)
2/18/25 Travis Credit Union TBA
2/19/25 NARPM (private)
3/6/25 Yolo Association YPN Event
3/12/25 Windemere Sierra Oaks
3/20/25 HomeSmart iCare Realty (private I think)
4/10/25 Yuba-Sutter Association (details TBA)
4/15/25 Culbertson and Gray (private I think)
5/8/25 Private event (details TBA)
5/13/25 PCAR
6/5/25 Auburn Marketing Meeting
9/26/25 PCAR
11/4/25 SAR Main Meeting

SIMPLE ADU MATH WOULD MAKE VALUATIONS EASY:

It would be easy if all we had to do was some simple math. Just multiply the square footage of the ADU by the price per square foot of the value of the main house. And voila!!! We have ADU value. But does this actually work? Sometimes it might, but in other cases the results are wildly off.

EXAMPLE 1 (400 sq ft ADU):
$800,000 house value
3,000 sq ft house
PPSF: $266.6 ($800,000 divided by 3,000)
400 sq ft ADU
$266.6 x 400 = $106,650 value of ADU

EXAMPLE 2 (750 sq ft ADU)
$800,000 house value
3,000 sq ft house
PPSF: $266.6
750 sq ft ADU
$266.6 x 750 = $199,950 value of ADU

EXAMPLE 3 (1,000 sq ft ADU)
$800,000 house value
3,000 sq ft house
PPSF: $266.6
1,000 sq ft ADU
$266.6 x 1,000 = $266,600

Honest question. Does the math seem legit in all of these situations? Do you think real buyers would pay these amounts?

HOUSTON, WE HAVE A BIG PROBLEM:

One awkward thing here is the value changes at the same rate no matter how much square footage we add for the ADU. That’s wild since we typically see some diminishing returns as we build larger. In other words, we typically see price per sq ft get smaller as size increases. Yet, this ADU math yields the same rate of value no matter how size changes. Does that seem a little off? Should we question this type of math? I think so.

THE MATH GETS MESSY ON SMALLER HOMES:

$450,000 house value
1,100 sq ft house
PPSF: $409.1
400 sq ft ADU
$409.1 x 400 = $163,640 value of ADU
$450,000 + $163,640 = $613,640 total value

Would buyers really pay $613,640 for this house with an ADU? Or is it possible buyers would start to ask what they can get elsewhere for this amount?

THE EQUATION STARTS TO GET EMBARRASSING:

$450,000 house value
1,100 sq ft house
PPSF: $409.1
1,000 sq ft ADU
$409.1 x 1,000 =$409,100 value of ADU
$450,000 + $409,100 = $859,100

Do you see what I mean? This is a wild example.

NEIGHBORS WOULD BE ANGRY AT THE MATH:

Do you see how the math gives different results depending on the size of the main house? Are you telling me you’re going to value a four hundred sq ft ADU at $106,650 in one instance, but the same exact ADU is $409,100 next door because the house is smaller in size? Look, I’m not saying the square footage of the main house doesn’t matter because it does. I’m just saying something seems off here with our math equation, so I think we need to give serious consideration about credibility. If the equation doesn’t work in all situations, let’s not use it.

THERE IS NO “SHOULD” IN REAL ESTATE VALUE:

Solar panels should add at least the cost of the system to the value of the house. A kitchen remodel at $50,000 should increase the value by $50,000 at least. A $25,000 concrete driveway should add at least $25,000, right? We’ve all heard stuff like this, but the problem is there is no “should” in real estate because contributory value is going to depend on so many factors – especially location. So, when we say, “An ADU should add at least the value of the total price per sq ft of the main house,” we’re making up a rule that might not actually be legitimately found in the marketplace. Would this rule be true at luxury prices as well as entry-level prices? And is it true in Antarctica as well as Beverly Hills? Backing up, one thing we haven’t done is ask what actual buyers would pay.

WHAT DO THE COMPS SAY?

When we look at comps with an ADU, do we see a value that resembles anywhere close to what the ADU equation above suggests? In other words, if the house was worth $800,000 and we added a 750 sq ft ADU, would that really add $200,000 in value? Or would a 400 sq ft ADU on a $450,000 house really add $163,640 in value? What do the comps say? That’s the question we ask about solar panels, a kitchen remodel, a new driveway, or a house with an ADU. I find looking to the comps can sound like a very frustrating solution, but the focus is really simple. What are buyers willing to pay? That’s always the question.

TIPS FOR FINDING ACCESSORY UNITS IN MLS:

Here’s a post I wrote to talk about how to find ADUs.

CLOSING THOUGHTS:

I realize there are situations where the appraised value of an ADU legitimately comes in too low, and there is no excusing that. So, just as I recommend caution in using an arbitrary math formula, appraisers need to be careful to not just pick a number that doesn’t make any sense when we think about data and the income being produced by the ADU. All I’m saying is the ideal is to scour comps, do our best to discover value, and support the value in whatever credible way we can. And my concern is if listings are priced without consideration of comps or data, it could result in properties not selling and/or appraisal issues in the future. Know what I’m saying?

Thanks for being here.

Questions: What stands out to you above? Anything else to add? What did I miss?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Some red flags for the housing market

May 2, 2024 By Ryan Lundquist 19 Comments

Consumers are feeling economic pain, and we need to talk about some of the things that are brewing. Today, I want to look at growing debt, distressed sales, and unemployment. I have both national and local stats. Sounds like a happy post, right? Look, some people really hype this topic and use it to magnify doom, but let’s talk about the market that actually exists.

UPCOMING SPEAKING GIGS:
5/9/24 Empire Home Loans (register here)
5/15/24 KW Roseville Event
6/5/24 Marketing Mastermind (register here)
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 here)
6/21/24 Exporting data from MLS (details TBA)
9/17/24 Downtown Regional MLS Meeting Q&A 9am
9/20/24 How to Think Like an Appraiser class (details TBA)
10/18/24 Prime Real Estate (private)
10/29/24 Orangevale MLS Meeting

MORTGAGE DELINQUENCIES ARE REALLY LOW

First off, we don’t have a big problem with mortgage delinquencies, but there is a little bit of an uptick. Basically, depending on the data source, delinquencies have inched up very slightly. This is something to watch, but it’s important to not amplify the small change to promote a narrative. Visuals from Calculated Risk, NY Fed, and ICE Mortgage Technology.

GETTING INTO CREDIT TROUBLE NATIONALLY

Consumers are getting into debt and missing payments for credit cards and auto loans in particular. We may not be in mortgage trouble right now, but some people may need to solve their financial problems by selling a home. However, people will fight to keep homes with low payments. In other words, letting go of a home to solve debt seems like a last-case scenario.

CREDIT & AUTO TROUBLE IN SACRAMENTO

These visuals come from the California Policy Lab credit dashboard. What I like is this is Sacramento only instead of a national stat that may or may not apply to the local area. Credit card delinquencies are above pre-pandemic levels. You can click on the link to play around with different areas of California as well as seeing which age groups are in the most trouble.

Auto delinquencies are also ticking up in Sacramento.

SHORT SALES AND FORECLOSURES HARDLY EXIST

In the local market, distressed sales barely exist. Technically, 1% of all sales during the first quarter of 2024 were distressed, but that’s 1% of a really low number (low volume is the reality in the market right now). Basically, both bank-owned sales and short sales are inching a little closer to pre-pandemic levels, but not quite back there yet. In short, we should see more distressed sales ahead since there is no longer a foreclosure moratorium, and there is no place to go but up. We have truly bottomed out.

HELLO THERE CREDIT REPAIR

Some people ahead are going to need to repair their credit, so I think it’s important for the real estate community to have solid credit repair contacts and help consumers understand the process. Honestly, I’d love to see more reels and posts about this, especially since we’re seeing credit and auto delinquencies rising.

WHAT SHORT SALES ARE HAPPENING THOUGH?

Here are current short sale active listings and pendings in the region. Keep in mind these listings represent 0.3% of all properties, so this is a tiny sliver of the market. What can we learn though? Well, it looks like there are some older loans with carnage, and a handful of reverse mortgages where the owner likely died and the lender is taking the property back (normal to see). The thing that is more striking is that about half the loans originated when the market was priced higher in 2022. Again, this is a tiny sliver of the market, but if you work in real estate, take clues here that some people might need your help. For whatever reason, these people needed to sell instead of hold on.

WHAT PROPERTIES ARE BANK-OWNED?

There are few bank-owned (REO) sales right now, but when they happen, they’ve been a combination of older loans and some newer ones (but not really people who bought in 2022 at peak prices). Remember, people can go into foreclosure for so many reasons, and it’s not just about prices in the market. In many cases, it’s about a personal financial situation. On a side note, I’m definitely noticing some familiar agents listing bank-owned homes right now (mostly people who were big REO agents back in the day).

LET’S WATCH UNEMPLOYMENT

We’ve seen an uptick in unemployment. This is nothing to hype since it’s very low right now, but it is something we want to watch and NOT ignore. As can be seen, Sacramento and California have a similar vibe through the years.

Here are six local counties. All ships rise and fall with the tide, right?

And this one is a sincere hot mess when adding in three more local counties. Honestly, this graph is too much since these areas are too different, but sometimes I like to share examples of chaos on my desk.

CLOSING THOUGHTS

It’s important to watch any red flags in the housing market, but it’s also key to stay objective. I find the tendency online is to highlight a trickle of doom and make it sound like an avalanche. There is no integrity in that. Likewise, some real estate professionals only want to talk about the glowing stuff rather than some of the issues we’re seeing right now. Overall, we don’t have a distressed market, but let’s keep our antennas up about all of this while actively cultivating objectivity. And if you work in real estate, be prepared to serve clients in all stations of life. The good times and the hard times.

Questions: What stands out to you most above? Anything to add? What did I miss?

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This one company owns 10,000+ homes in California (interactive map)

December 4, 2023 By Ryan Lundquist 70 Comments

Wall Street has invaded Main Street. It’s truly stunning to see that a company like Invitation Homes owns over 10,000 units in California. Today, I want to debut an interactive map I made to show where these homes are located.

UPCOMING (PUBLIC) SPEAKING GIGS:
12/08/23 Free Q&A event for appraisers only (on private work)
11am PST one hour – click link here (see pass code)
Meeting ID: 832 2414 3890 Passcode: 007
01/31/24 Joel Wright & Mike Gobbi Event 9am (on Zoom here)
2/09/24 PCAR WCR Event (details TBA)
3/11/24 Yolo Association of Realtors (details TBA)
4/25/24 HomeSmart iCare Realty (details TBA)

UPDATED MAP on 12/18/2023

I updated my post title to say 10,000+ instead of 9,000+ in light of new information. This map now includes nearly 1,600 extra units. Invitation Homes merged with Starwood Waypoint years ago, and I found an extra 1,586 units owned by Starwood Waypoint. These units are now being included in what Invitation Homes owns. Frankly, this number is likely still conservative, but I’ll keep adding as I get better data (difficult to track).

INTERVIEW ON KQED on 12/19/2023:

KQED did a one hour special on Invitation Homes, and I was honored to be a guest along with a legislator and writer for Time Magazine. Listen here.

CHECK OUT THIS INTERACTIVE MAP

I created this map to help show exactly where Invitation Homes owns properties throughout California. Scroll through Sacramento, Los Angeles, San Bernardino, and Riverside County in particular. Or see map here.

Invitation Homes owns 10,761 units throughout many counties, but it’s mostly Greater Sacramento and Southern California. Nothing in the middle.

Counties with Largest Number of Invitation Homes Units:

– Los Angeles (3,017)
– Riverside (2,353)
– Sacramento (1,881)
– San Bernardino (1,383)
– Solano (774)
– Ventura (289)
– Placer (212)
– San Diego (216)
– Other (636)

The wider Sacramento region has 30.21% (or 3,255) of Invitation Homes units owned in California. This wider area includes Solano and San Joaquin. If it’s just Sacramento, Placer, Yolo, and El Dorado, that would be 20.2% of all units in California (2,180 units).

What’s mind-blowing to me is to click the map and zoom in to see how many units they own in various neighborhoods. Yikes.

SOME THOUGHTS

1) MAIN STREET INVADING WALL STREET: It’s sobering to see this company’s holdings on the neighborhood level because then it starts to feel really personal. This is a very local trend – not just a national stat where we can say Invitation Homes owns about 80,000 units across the country. Anyway, there needs to be discussion here. Is this what America should look like? Should big companies become giant landlords? How does this evolve in the future? How does this affect affordability and neighborhoods?

2) NOT BLACKSTONE: Often we see Invitation Homes confused as Blackstone, but Invitation Homes is not Blackstone. There used to be an affiliation with Blackstone, but that’s no longer the case.

3) NOT BUYING RIGHT NOW: The bulk of these units were purchased five to eleven years ago. I’m not aware of any location in the state where Invitation Homes is currently acquiring a large number of units. In Sacramento, Invitation Homes went on a rampage in 2012 and 2013, and purchased more steadily in subsequent years. The last unit they bought was in mid-2022 as far as I can tell.

4) NOT SELLING MUCH: They haven’t sold a massive amount through the years other than some non-performing assets. Many have said things like, “Bro, just wait until they sell,” but they really might not do that.

5) HOW I GOT THIS DATA: First, Invitation Homes is difficult to track because they have so many DBAs (over 50 in Sacramento alone). This means it’s extremely challenging to account for their properties. I honestly have wanted to share a map like this for years, but I finally cracked the code to figure out how to account for their properties by using the tax billing address instead of the owner name. 9,175 properties have the corporate headquarters in Dallas, TX as the listed tax address, and I found additional units with the Starwood Waypoint address in Arizona as the tax billing address (1,586 units).

Are there more? It’s possible there are other units not on my list, but this is the best way I’ve found so far to account for the properties. If anyone knows a better way to search, or if there are other properties with a different owner address, speak up.

NOTE: I scrubbed a few properties on the list due to address issues, so my map has 10,696 out of 10,761 units.

6) SHARING: You can share by linking to this post, linking to the map, embedding the map on your website (see code below), or take screenshots of images to share anywhere you want. I’d appreciate being cited since this took a good deal of effort. Let me know if you have any questions.

Code for embedding:

BLAMING BIG FUNDS ONLY (AN UPDATE):

I’ve had so many conversations these past days, and I wanted to bring something up. If we blame institutional investors for all the problems we are having in the housing market, that takes attention off other things that need to be talked about. In short, let’s have this conversation for sure, but let’s also not blame Invitation Homes for a lack of affordability. That’s going too far, and it doesn’t leave any room to engage with other serious issues and ideas about housing policy needing to change (zoning, permit fees, etc…). I recommend using this research as a springboard for conversation for what needs to change in housing. Let’s absolutely talk about investment funds, but let’s also not get stuck there only.

Thanks for being here.

Questions: What stands out to you most about the map or information I shared today? I’d love to hear.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

A hot & cold housing market

August 9, 2023 By Ryan Lundquist 5 Comments

New construction has been on fire, but the resale market has been cold. It’s been stunning to see the difference in volume between both markets. Let’s talk about the trend and look deeply into what’s going on with concessions.

Scroll quickly by topic or digest slowly.

Brown wooden background with black font on top of a white rectangle. The font says, "A hot & cold housing market."

UPCOMING (PUBLIC) SPEAKING GIGS:
8/18/23 Market & Mimosas (register here)
8/29/23 Elk Grove Regional MLS Meeting
10/4/23 KW Sac Metro Big Market Update (register here)
10/23 SAR Think Like an Appraiser (TBD)
10/26/23 Orangevale MLS Meeting

THE MARKET DID PEAK IN JUNE, BUT PRICES…

I’ll have my July recap stats out next week. I want to wait a couple more days before pushing out the numbers. I would have maybe published tomorrow, but I’m going to a Foo Fighters concert… Anyway, the problem is we’re having low volume, so the stats can be off if we pull them too early. Ultimately, despite metrics showing we hit a seasonal peak in June, it looks like July squeezed out a little more price growth. Normally prices peak in June, but if the stats hold, our price peak will likely be July. I’ll talk about that next week. My advice? Don’t get so stuck on prices that you’re not seeing other stats that show a June peak.

NEW CONSTRUCTION HAS BEEN ON FIRE

The first seven months of the year have been really strong for new construction in the Sacramento region. In fact, the only other higher year over the past decade was 2021. Words like “strong” and “growing” haven’t been used to describe the resale market, but new construction has been experiencing a different trend.

BUT CONCESSIONS FROM BUILDERS ARE A HUGE FACTOR

Volume has been glowing from builders, but one of the reasons we’re seeing more sales is builders are offering concessions to buyers. It’s true buyers are looking more to new construction since sellers have been sitting out, but builders are also enticing consumers with rate buydowns and credits for closing costs. In short, these glowing volume numbers wouldn’t be happening without concessions.

IT’S NORMAL TO SEE VOLUME DIP IN JULY

Volume ticked down between June and July, and that’s normal for new construction. Here’s a crazy way to see what 2023 volume looks like in the midst of two decades of sales. Do you see how volume typically slides down for the rest of the year? That’s what normal seasonality looks like.

TOP TEN CITIES FOR NEW CONSTRUCTION

Roseville is yet again top dog. Here are the top ten cities for new home sales in July per North State BIA data.

NEW HOMES ARE A BIGGER CHUNK OF THE MARKET

New construction has been a bigger chunk of the total market lately. For instance, nearly 29% of all sales in the region this year have been brand new homes. The blue portion represents existing sales and the black portion is new construction. The percentage is brand new homes compared to the entire market.

NOTE: Even though new construction has been a larger chunk, it’s still much smaller compared to the existing market for older homes.

THE EXISTING MARKET HAS COLD VOLUME

New construction volume has been hot and growing, but the existing market for older homes has been cold all year. It’s sobering to be missing almost 6,000 sales from the pre-2020 normal in the Sacramento region. Of course, the good news is over 10,000 sales have happened, so we don’t want to neglect seeing the market that is here by fixating too much on the missing portion.

BUT THE MARKET DOESN’T FEEL COLD

Save your hate mail people. I’m not saying competition is cold. It’s not. What I’m saying is volume is cold since the number of sales has been so depressed lately. In terms of what the market feels like, competition can be fierce today. The wild part about today’s housing market is volume feels like low 2007 numbers, but competition feels more like 2020. We have a situation where low supply and low demand have met. Yet, like I talked about two weeks ago, it’s either bidding wars or crickets.

YES, VOLUME PEAKED FOR THE SEASON

The orange line below shows volume dipped between June and July, and that’s normal for the time of year. Like I said, stats are showing we hit our seasonal peak in June (even though prices ticked up in July). In a normal year we should see volume slide down through December, and that’s what I expect to see unless mortgage rates drop substantially.

EVERYTHING YOU DIDN’T WANT TO KNOW ABOUT CONCESSIONS

Let’s look at what’s been happening with concessions lately. This information is for the resale market (not brand-new homes).

CONCESSIONS BY PRICE RANGE

This is a brand new visual. Do you like it? I dig it. The only problem is some categories don’t have many sales, so the numbers can be a bit wonky. But generally speaking, there are more concessions at lower prices – especially between $400-$500K. Keep in mind there is typically more cash under $400K, so it’s not a shocker to see lower concessions in that price category. Concessions still exist at the highest prices, but not as much. I did double-check data above $1M in Sacramento County, and it’s accurate. However, there were only about forty sales, so take that figure with a grain of salt.

TEAM BAR CHART OR TEAM LINE GRAPH?

Here’s a way to look at the same data from the chart as a line graph. Are you team bar chart or team line graph?

CONCESSIONS INCREASE DURING THE SECOND HALF

During the second half of the year, we typically see more concessions. Part of this is demand softening for the rest of the year, which means sellers have to be ready to meet buyers where they are at. But it’s also about smaller homes selling between July and December. The size factor is important because smaller homes tend to have lower prices, and there are more concessions at lower prices. Do you see how concessions have ticked up over the past month on the right side of the chart? That’s normal for the time of year. Of course, what happens with mortgage rates for the rest of the year will play an enormous role with what we see with concessions.

HOW MUCH ARE BUYERS GETTING FROM SELLERS?

Here are some scatter graphs to show concessions in four local counties. The goal is to see what is happening by price range. Generally speaking, there are more concessions at lower prices, which reminds us the market isn’t the same in every price tier. Basically, buyers at lower price points are getting more assistance from sellers (not a shocker). But keep in mind it’s not just one amount buyers are getting. As the graphs show, it’s rare to get more than 3%, and there are many situations where a dollar amount of $5,000 or $10,000 seems to be a threshold. Personally, I like seeing both the dollar amount and percentage number. Some people want to cage fight me over percentage graphs being better, but I like both.

SACRAMENTO COUNTY

PLACER COUNTY

EL DORADO COUNTY

YOLO COUNTY

Thanks for being here.

Questions: What are you seeing happen with new construction or concessions? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Sacramento

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