Sacramento Appraisal Blog

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Sun City Lincoln Hills

The housing market is a mixed bag

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The housing market is a mixed bag. It’s not always easy to understand what the market is doing right now. Today I have some thoughts about prices, Zestimates, and cash buyers. Scroll by topic or digest slowly.

ark brown rustic aged barn wood planks background. There is a white rectangle with black font stating, "the housing market is a mixed bag."

UPCOMING (PUBLIC) SPEAKING GIGS:
3/24/23 How to Think Like an Appraiser (at SAR)
3/28/23 Downtown Regional MLS meeting
4/1/23 NAA Conference in Sacramento
4/13/23 Realtist Meeting
5/4/23 Event with UWL TBA
5/10/23 Empire Home Loans event TBA
5/22/23 Yolo YPN event TBA

THIS MARKET IS A MIXED BAG

This isn’t scientific research, but I did a poll on my Instagram stories two days ago, and there were mixed results when asking what home prices are doing right now (the bulk of these votes are from the real estate community). Moreover, I speak somewhere usually once a week, and I’m finding this same sentiment when talking to groups. I’m hearing everything from, “Prices are dropping” to “Prices are going up.” In short, it’s no longer early 2022 when the trend was so clear. Keep in mind the market could be different all across the country too (not to mention different by price range locally).

Instagram poll about home prices that I did on my stories. This shows the results with 17% saying prices are going down, 27% saying they're flat, 14% going up, and 42% mixed results.

THE ZESTIMATE MATCHING THE LIST PRICE

Speaking of prices, this house is being sold through an auction website, but it’s listed on MLS. This list price is likely designed to create a bidding war since other neighborhood sales closed significantly higher. But backing up, check out how the Zestimate was $644,000 before listing, but then it changed to the EXACT list price at $349,000 right after the property went live. I think sometimes sellers and buyers put incredible weight on the Zestimate without realizing the games that are happening behind the scenes. My advice? Look to the comps. Don’t get hung up on the Zestimate.
Screenshot of Zestimate for a property in Roseville at 201 Pinecrest Ct. This shows the Zestimate was over $600K, but it dropped immediately when the property listed at $349K (Zestimate basically matched the list price exactly).

By the way, the top bid so far is $507,000. We’ll see where it ends.

WHAT DO THE STATS SHOW PRICES ARE DOING?

Here’s a look at the weekly median price for closed sales in the Sacramento region. It’s been a bit flat in recent weeks (black line). However, when looking at pendings since March in the entire region, Sacramento County, and Placer County, they’re getting into contract at higher levels in recent weeks (please note the trend could vary by neighborhood). The truth is we never know exactly where pendings will close, but today’s pendings are next month’s closed sales, so they’re important to watch. In short, based on pending prices, it looks possible April stats could show a modest uptick. Only time will tell.

An image to show the weekly median price by year in the Sacramento region. There are six years present, and the trend is seen from left to right (January to December).

FINDING OUT WHERE THE MARKET IS AT

In light of the housing market being a mixed bag, sometimes value looks one way on paper, but you have to list a property and experiment a bit with the price to find where the market will bite. I think this meme is the perfect fit for comp selection in 2023. If you’re not familiar with this visual, here’s a video if you want to “find out.” By the way, I’m teaching a class on Friday about comps and adjustments. Live streaming is available too (3 hours).
 
Swearing: This meme uses a swear word, and it’s based on this video. I could have blurred out the word, but this is a blog for adults, so I’m okay with it. Someone unsubscribed today and said this was inappropriate content, so clearly this doesn’t tickle everyone’s funny bone. I get it.
 
The "find out, fuck around" meme with a caption that says, "Pulling comps in 2023."

PENDINGS VS SALES

The goal with real estate value is to understand what’s happening with the current market (pendings and listings) compared to the past (sales). Here are two graphs from recent appraisals to help scrape the surface of what’s happening with pendings in terms of price and volume. Remember, the trendline is based on closed sales, so if we see upward movement ahead, that won’t be reflected until pendings actually close. I find in some neighborhoods right now the trendline is starting to flatten out instead of showing a hardcore decline like we saw in the summer and fall of 2022.

BIG POINT: Ultimately, it takes time for the market trend to show up on graphs, so if we wait for the graphs to tell us what is happening, we’re going to be behind the trend.

A scatter graph to show 95757 ZIP Code sales in blue compared to pendings in black. Pendings are basically at a similar level right now. Sales from 2021 onward.

A scatter graph to show 95758 ZIP Code sales in blue compared to pendings in black. Pendings are basically at a similar level right now. Sales from 2021 onward.

A HISTORY OF CASH IN THE SACRAMENTO MARKET

“Bro, 80% of the market is cash and Blackrock is buying everything” Not true. Here’s a look at the percentage of cash sales since 2010 in the Sacramento region. There’s been a slight uptick in 2023, but the year is just getting started. Keep in mind if total volume drops more than the volume of cash buyers too, that will naturally boost cash percentage levels.

UPDATE on Blackrock: A reader sent me a kind email to explain the difference between Blackstone and Blackrock. I was actually intentional here with my use of Blackrock because there has been a fake narrative about Blackrock buying everything on Twitter. I really appreciate the concern though. Truly. Here’s something I wrote in 2021 about this false narrative.

A bar graph to show the percentage of cash sales in the Sacramento region from 2010 onward. Cash basically peaked in 2012, and right now it's been 18% of the market (2023).

HOPE FOR BUYERS:

The vast bulk of the market is financed in the Sacramento region, which means conventional, FHA, and VA transactions are the overwhelming majority of the market. Buyers, this means it’s highly possible to get a financed offer accepted because it’s happening ALL. THE. TIME. It’s really competitive right now for units that check all the boxes though, so bring an offer that makes sense for the market. My advice? If you are willing to buy right now, get as much as the market will give you, and also be realistic about what it’s going to take today.

50% CASH IN THIS NEIGHBORHOOD

In the Sun City Lincoln Hills neighborhood, it’s normal to see about HALF THE NEIGHBORHOOD as cash transactions. This is REALLY uncommon in other neighborhoods, and I haven’t seen percentages like this elsewhere. Sun City Lincoln is a 55+ community though, and some of these buyers are Bay Area transplants, but it’s also retiring Boomers deploying equity and wealth. By the way, take 2023 with a grain of salt since the year is just getting started.

A bar graph to show the percentage of cash sales in the Sun City Lincoln Hills neighborhood in Placer County since 2010. This neighborhood regularly has 45-50% cash transactions.

I hope this was helpful.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Questions: What are you seeing happen with prices? Up, down, flat? I’d love to hear your take.

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It’s not all about square footage in real estate

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A bigger house is always worth more, right? It’s really easy to fall into the trap of believing that, but it’s not always true. Let’s talk about it.

Myth: Extra square footage is always worth more.

1) Single story vs two story: Sometimes a large single story will sell for more than a larger two-story. This isn’t always the case, but in some neighborhoods we see this dynamic. So just because a 2-story is larger doesn’t mean it’s more valuable (or a good comp).

2) 55+ Community: In a 55+ community we sometimes see more emphasis on floorplan instead of square footage. Larger models still likely command higher prices, but at the same time the market doesn’t seem as sensitive to square footage differences like we see in other neighborhoods. For example, here are two models in Sun City Lincoln Hills with a 107 sq ft difference. Normally that might not mean much in a typical neighborhood, but it looks like there’s a pretty decent value difference here. On paper it seems like these two models could be perfect comps since they are so close in size, but that might not be the case. 

3) Layout: At times a house with a better layout will sell on par with a larger house with a less desirable layout (even outside a 55+ community). What I mean is buyers might pay the same for a 1,400 sq ft house with an open layout compared to a 1,700 sq ft house with a less open floorplan. This dynamic isn’t always easy to spot in MLS photos, and that’s why it’s so important for agents and appraisers to communicate. I recommend agents to open up conversation with appraisers about the listing (without pressuring to “hit the number”). What feedback did you get from potential buyers? What were buyers attracted to? Is there anything special about the house or neighborhood? When it comes to layout, this is often an “insider detail” that’s frankly easy to miss, so I can’t emphasize how important it is to communicate about this if it’s a relevant factor.

4) Dangerous to always adjust: It’s easy to get trigger-happy about making value adjustments whenever we see a square footage difference. Can you relate? But sometimes a square footage adjustment might not be needed. My advice? Be careful about always giving an adjustment and be cautious to not routinely give the same exact adjustment too. Try to look to the market to see if there should be an adjustment or not, and then proceed.

I hope this was interesting or helpful.

Questions: What point stands out to you the most? Anything else to add? I’d love to hear your take.

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Grasping REO, Short & Regular Sales

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Is there a price difference between bank-owned sales, short sales and regular sales in the Sacramento area? Usually there is, but the level of difference really depends on the neighborhood. The following two graphs are taken from pages 10-11 of The Wright Report and they show average sales price by type of sale.

Based on these graphs for the Sacramento area, there is an obvious difference between conventional sales and REO & short sales, don’t you think? Of course we need to consider that there could be condition issues that warrant a price variance too since many bank-owned sales are not in pristine “move-in” shape. But overall the difference is fairly obvious.

Neighborhood Mini-Case Study: Let’s look at a particular neighborhood to get a closer view of distressed vs traditional sales. The data below represents the “Bridgegate” model in Sun City Lincoln Hills. Less than 30% of all sales in Sun City Lincoln Hills last year were distressed, which is a low percentage for the Sacramento area. However, even with a lower distressed percentage, if appraisers and agents do not consider all the data points, it can be easy to get the value or marketing price wrong.

  • REO sale on 02/28/2011 – $212,000 (cash)
  • Traditional sale on 05/13/2011 – $248,000 (conv/20% down)
  • Traditional sale on 06/17/2011 – $230,000 (FHA/ 2 days on market)
  • Active traditional sale: $239,000
  • Pending traditional sale: $359,900 (outlier: massive upgrades w/ a view)

It looks like the bank-owned sale sold at the lowest end of the market because it is not consistent with the rest of the sales or listings. At the same time, the latest traditional sale sold in only two days and that also might not represent the market, right? There was no short sale, but it would not be surprising to have seen a short sale sell anywhere from $220,000-$230,000. There are a whole host of value issues to consider for the properties above, and one of them looks to be the nature of the sale – whether distressed or typical (and even how long the property was marketed). A market may be driven by foreclosures, but if we assume that across the board, we could really get an off-base picture of the market.

It can be very challenging to see any differences between distressed and regular sales in a neighborhood where the market is far more saturated with REOs and short sales (say 95% of all sales were distressed), but ultimately appraisers and agents still need to do their homework and use the right data in a neighborhood to correctly interpret the market because there is usually a difference. Typically in the Sacramento area we see traditional sales on top, then bank-owned sales and then short sales. Agree? Disagree?

Implications for the Difference between REO and Traditional Sales:

  1. Avoid REOs in appraisal reports: REO sales should be avoided in appraisal reports where possible. However, many areas in Sacramento have a percentage of distressed sales (bank-owned + short sales) near 70%, so it’s not always possible to use only traditional sales. I just appraised a condo recently and 35 of 36 sales over the past year were distressed.
  2. Note the difference: If REO sales are used in an appraisal report and there is a difference noted in the market between distressed and traditional sales, an upward adjustment should be made (or at least less weight given to the distressed sale). The same principle applies to selling a property. A property is not worth less because it is a short sale. It is worth what it is worth, but it may need to be marketed more aggressively to offset any stigma in the market and avoid foreclosure. If the short sale was not a short sale, would it sell for more? That is the critical question to ask and leads us to a better picture of what market value is.
  3. Marketing Strategy: Sometimes a property does not generate interest as a short sale, but that does not mean it is not worth the listing price or more. Short sales tend to have a stigma among buyers, so they often need to be priced more aggressively to generate interest. Moreover, it is very common to see short sales generate very little interest at a certain price, but the same property will sell quickly as an REO at that same price. The listing agent and/or home owner need to understand the market in order to set the right price for the property, whether a short sale, REO or traditional sale.
  4. Quick Value vs. Market Value (tax appeals / FSBO): Avoid using only distressed sales when appealing your property taxes or listing your home as a FSBO. These sales may not represent the market. If they don’t represent the market, then you’re probably focusing on a “quick sale” value instead of “market value”

How have you seen foreclosure sales impact pricing in a neighborhood? What other implications do you see when we misinterpret the market?

If you have any real estate appraisal, consulting, or property tax appeal needs in the Greater Sacramento Region, contact me at 916.595.3735, by email, on our appraiser website or via Facebook. 

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