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Are appraisers keeping up with rapid price growth?

March 10, 2021 By Ryan Lundquist 29 Comments

Rapid price growth. That’s what we’ve been seeing lately in many markets across the country. I’d like to share some stats below for my local market and then talk about whether appraisers are keeping up or not.

RAPID PRICE GROWTH:

The orange line at the top left is the median price these past two months in the Sacramento region. The gap between 2021 and previous years is quite wide, which shows prices have gone up quickly.

SOME CHARTS INSTEAD:

If you’d rather see some numbers instead of line graphs, here’s a quick market recap. Check out that 17% price growth lately. Holy Batman!! I typically share one big market post each month with lots of visuals, but this time I’m only going to talk about prices. I’ll have much more next week and I’ll put some stuff out on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

RAPID PRICE GROWTH IN NEIGHBORHOODS:

Here are a few local neighborhoods to show how much the market has turned up lately. One of the things I do as an appraiser is calculate price change by following the trendline over time and comparing it to actual sales and pendings in the neighborhood to be sure the trendline is legit. Here’s a video tutorial for how to make a scatter graph like this. See my graphs tab too for other tutorials for gettin’ visual. 

Here’s an example where I appraised a unit in a small gated community with VERY few sales, so it wasn’t easy to understand what the market was doing. This is why I looked at the entire zip code in blue and gave strong weight to a couple neighborhood sales that also sold a few years ago too (I connected a line between these sales (green and orange).

ARE APPRAISERS KEEPING UP?

So the question becomes, are appraisers keeping up with the market? I’d say YES and NO. Here are a few things on my mind.

SMOKING PRICING CRACK: Some offers are disconnected from reality, so we SHOULD NOT be seeing appraisals anywhere near the contract price. We have a market where buyers are sometimes making irrational offers.

WORD ON THE STREET: I’m hearing stories of appraisals coming in at or above the contract price and ones that are lower than the contract price. It’s not all one thing, though I think the negative stories get the most attention. 

THE JOB: An appraiser’s job is not to “hit the number” or make the deal work. The appraiser’s role is to reflect the market and assess risk for the lender. It’s not about whether the buyer wants the house. It’s about whether the lender should make the loan. Thus an appraisal should be a reflection of what buyers would reasonably pay as opposed to an outlier buyer willing to pay more than anyone.

BRAKES OR GAS: Appraisers are not a brake pedal or a gas pedal for the market. They are more like a mirror to reflect the market. I mention this because at times when rapid appreciation happens, it is what it is. Even if an appraiser is baffled by how much current comps and pendings are up from last year, it’s not the appraiser’s job to hit the brakes by coming in lower. There is no such thing as a market only being able to increase by 1% each month either. Look, if the market is going up quickly, the appraiser needs to adjust up and call it a day while of course supporting all adjustments and conclusions in the report. And to my colleagues, we are NOT number hitters and should NOT be letting the contract price influence us (just in case you think I’m saying that).

SALES vs PENDINGS: It’s essential for appraisers to measure the difference between sales and the current market. Sales are like historical artifacts that tell us what the market used to be like 30-90 days ago when they got into contract whereas pendings are going to be a clue into what buyers are willing to pay in the current market. How has the market changed since the price was established for the comps (more or less the contract date)? That’s exactly what appraisers need to measure and precisely why appraisers need to look at both sales and pendings / listings.

BIG ADJUSTMENTS: At times lately I’ve given some hefty market adjustments. For instance, when appraising a home in Rancho Cordova I used a really similar sale from July that sold at $365,000 and the market was willing to easily pay about $40,000 more today. That’s over 10% growth in a very short time period, but that’s what the trendline showed on my graph (see above). This rapid growth was also very clear when comparing recent sales to older sales and looking at higher pendings.

LONE RANGER PENDINGS: It’s important to not base our perception of value on one “lone ranger” pending sale. So if all the comps are at $500,000 and there is one pending at $575,000, I’m not automatically making a $75,000 adjustment up. What I want to look for is a group of pendings to tell me where the market looks to be going. Thus if I see pendings are $510,000, $512,000, $520,000, and $575,000, I can see the market is increasing and I’m going to have to figure out what my market conditions adjustment needs to be by making graphs and understanding from agents the terms of the pendings. What is the contract price? Is the seller offering any concessions back to the buyer? How many offers were there? And these days, is there an appraisal waiver or removal of the appraisal contingency? In short, there is a story to understand about each pending and sometimes the pending might reflect the market well and other times it might be something to throw out because it’s too high OR too low.

YIKES, NO ADJUSTMENTS: A friend showed me an appraisal on her house from one week ago and the appraiser correctly stated the market was increasing in value. But three out four sales did NOT have any adjustments up to account for the market increasing. I’m not saying appraisers need to always adjust every comp, but I was scratching my head wondering why an upward adjustment was not given since the market absolutely went up in value since these properties got into contract 30-60 days ago. Basically, in this case it looks like the so-called appraised value in early March was more like a reasonable value from mid-January and early February because that’s when the comps got into contract and there were no adjustments up to account for the difference. In short, when stuff like this happens, appraisers are definitively behind the market.

THOUGHTS ON COMPLAINING: On real estate forums lately I often hear agents say stuff like, “Appraisers are a joke. Show me two appraisers and I’ll show you two different values.” I get it. But let’s be real. If I asked two agents to give me a value on a house, how many different values do you think I’d get? The answer is the same. We’d see two values and sometimes the difference would be really wide. I say this respectfully and humbly because value is difficult AND there is no such thing as only one value either. There is always a reasonable range, so it makes sense to see two appraisals not come in at the same level. BUT if they’re too far apart, then clearly someone botched value…. On a side note, it’s easy to fall into the trap of speaking down to other real estate professionals, but let’s raise the bar. There is certainly a place for complaining, but don’t make it a lifestyle or shtick. This goes for the way agents talk about appraisers and the way appraisers talk about agents. Sorry for the sermon, but this is something I believe strongly. You won’t hear me disparage another group because I am a professional. I’d rather listen, educate, elevate, and of course admit when I’m wrong.

OTHER: This post is starting to be a dissertation, so I’ll stop here. What am I missing? What would you like to add? Any helpful nuggets to share?

Questions: What are you seeing happen with appraisals right now? What stands out to you most about the stats above? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: 2021 home values, Del Paso Manor, February 2021 price stats, high appraisals, home appraisals, house appraisals, Low Appraisals, Placer County, price appreciation, Rancho Cordova, rapid price growth, Sacramento Appraisal Blog, Sacramento County, Sacramento Region, skyrocketing values, trend graphs

Rapid price growth & the Gilmore Girls next door

February 10, 2021 By Ryan Lundquist 28 Comments

It’s unbelievable to see how much prices have risen lately. Today I want to share one quick visual to show you exactly what I mean. Then I have a couple photos to share based on a conversation my wife and I had about the Gilmore Girls.

BIG POINT: The median price is about $40,000 higher than it should be.

RAPID APPRECIATION: This visual helps show the median price rhythm throughout the year. Normally we see prices go up for about half the year and then they soften during the second half of the year. Well, 2020 was abnormal because there was an uncharacteristic price dip in April (beginning of the pandemic) and then prices basically went up in the fall instead of softening like they should have. In short, if we had a normal year in 2020 it looks like the median price should have been closer to $445,000 for January 2021, but it’s now $485,000 (orange line).

Crazy growth, right?

IT’S THE GILMORE GIRLS NEXT DOOR

The other day I was walking with my wife and we were admiring a brand new contemporary listing in the middle of an older neighborhood (Fair Oaks Village). Then when seeing a Craftsman home on the adjacent lot, my wife said, “Look, it’s the Gilmore Girls next door.” This made me laugh because she doesn’t work in real estate, but she clearly recognized the contrast in design.

Here is a brand new contemporary listing in an older neighborhood.

The contemporary home is located next to much older homes.

SOME QUICK TAKEAWAYS:

1) Gilmore Girls: First off, sorry if you don’t get the Gilmore Girls reference. My wife has been streaming this show over the past few years, so I know quite a bit about it (don’t judge me). Anyway, this show is about twenty years old and it took place in a fictitious town called Stars Hollow. This town is older and has many Victorian homes, which is why my wife made the comment she did. By the way, Sebastian Bach, the lead singer of Skid Row (80s hairband), was actually an actor on the Gilmore Girls.

2) Eclectic neighborhoods: Some areas are eclectic, which means it’s completely normal to have a variety of housing designs. Thus it’s acceptable to see brand new contemporary units mixed in with stuff one hundred years old. It’s like vintage and new coexist and people are good with it.

3) Contemporary vs modern: The words “modern” and “contemporary” are often used interchangeably, but there is actually a difference. Here is a Houzz article if you want to read more (and maybe still feel confused). This blog post is also worth reading and maybe a little easier to understand. In truth I was torn whether to call this home contemporary or not, but I went with contemporary because it seems to blend some styles. Let me know what you’d call it.

4) The principle of conformity: There is an idea in real estate that homes ought to generally conform to the design of surrounding units in order to maximize value. In other words, when a home is so different it could lead to a lower value because it will stand out like a sore thumb. In many cases we accept this as a market fact, but it’s really not true all the time. For instance, in Fair Oaks Village there are many different types of units and the market embraces the diversity. Also, in Midtown we see a variety of newer modern units mixed in with Victorians and buyers are okay with that. Obviously in a cookie cutter stucco box tract it could be awkward to see something else, so it’s possible in some situations to see a negative reaction to different architectural types that just don’t fit. All I’m saying is it’s easy to assume a property takes a hit to value because it’s different, but that might not always the case.

I hope that was interesting or helpful.

Questions: Does someone in your household watch Gilmore Girls? What’s happening in your area with price growth?

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, contemporary, Fair Oaks Village, Gilmore Girls, housing blog, housing trends, median price 2021, modern, rapid appreciation, rapid price growth, Real Estate Market, sacramento housing market, sacramento regional appraisal blog, trend graphs

Real estate drama (and a market update)

December 15, 2020 By Ryan Lundquist 50 Comments

I’m not into The Bachelorette or The Real Housewives. It’s just not my thing. But I love me some real estate drama. I’m not talking about HGTV, but the housing market. I know that elevates my nerd status, but I’m hyper focused on fresh stats, ups and downs, and things that make the market move.

(scroll down for a big market update instead)

AN EXCEL FILE FOR CHRISTMAS? Today I want to share some new neighborhood visuals and I’d like to give you an Excel template so you can quickly make these images for neighborhoods in your area. Does that interest you? If I have consensus I’ll post a template with instructions next week.

DRAMA IN THE NEIGHBORHOOD: What can you tell me about this neighborhood (East Sac)? What stands out to you about the relationship between price and square footage, lot size, and bedroom count? I made these images in a couple of minutes with the template I mentioned.

What do you think? Do you like any of these images? Any ideas for something else to show in a quick template like this? Let me know.

UNCLE RYAN’S LAME GIFT: I know it’s odd to wrap an Excel file for Christmas, but let me know if this would be relevant. You can use it for studying neighborhoods, explaining the market to clients, or for newsletters / social media. If there’s enough interest I’ll make a video tutorial. You don’t need to be an Excel guru either. This is something anyone can do with a little effort.

FOX 40 INTERVIEW: By the way, I did a 15-minute live segment last week on Fox 40. We talked about Sacramento being poised to have the strongest market in the country next year according to Realtor.com. Watch here if you wish.

Thanks so much for being here.

Any thoughts?

———————- (skim or digest slowly) ———————–

BIG MARKET UPDATE

For those interested, here’s a big Sacramento market update:

MARKET SUMMARY: In short, we’ve been seeing the drama of a spring real estate season during the fall months. The housing market has been on steroids and the slower fall season we normally have just didn’t happen. Well, technically we are seeing some stats start to slow down as prices have gone sideways lately and we’re seeing fewer sales like we normally do in November and December. But here’s the thing. The “slower” stats are still so elevated from where they should be that it just doesn’t feel slow at all.

HIGHLIGHT REEL:

  • Half of all sales sold in seven days or fewer last month
  • For six months in a row sales volume has outpaced last year
  • We only have three weeks of supply (that’s crazy low)
  • We have the lowest monthly inventory in 15-20 years (at least)
  • Buyers made twice as many offers last month compared to last year
  • The number of listings has been chopped in half
  • Price metrics are up about 12-14% from last year
  • November 2020 regional volume is up 25% from November 2019
  • 63% of all sales had multiple offers last month
  • There were 53.6% more multiple offers compared to last year
  • Each sale last month had an average of 3.22 offers
  • Sales volume is up about 2% over the past 12 months
  • There were 106% more million dollar sales from July to November

WAY TOO MANY VISUALS:

You are welcome to use these in newsletters and social media with proper attribution. Scroll quickly or digest slowly.

SACRAMENTO REGION:

  

 

 

SACRAMENTO COUNTY:

PLACER COUNTY:

EL DORADO COUNTY:

Other visuals: I have lots of other graphs. Check out my social media in coming days and weeks. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

Thanks for being here.

Questions: What are you seeing in the market right now? Any stories to share? Are you interested in my Excel template? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: aggressive real estate market, Appraisal, Appraiser, California, East Sac, East Sacramento, El Dorado County, Excel, Greater Sacramento Regional Appraisal Blog, House Appraisal, housing shortage, how to graph, low inventory, Placer County, Real Estate Market, rising prices, sacramento housing trends, trend graphs

How much are buyers paying above the list price?

December 1, 2020 By Ryan Lundquist 14 Comments

It’s exhausting being a buyer because it’s so easy to get outbid. It seems like finding a house is a bit like trying to buy the new PlayStation 5. Let’s talk about that today. How much are buyers actually paying above the list price? And if you’re not local, what are you seeing in your area?

A spring market in the fall: First, here is a big market update I did for SAFE Credit Union (40 minutes). Enjoy below (or here).

QUICK SUMMARY:

  • There isn’t just one amount buyers pay above the list price
  • The market isn’t the same in every price range.
  • We’ve seen huge growth this year between $10-20K
  • About 80% of sales are somewhere between below list and $20K
  • Not everything is getting bid up
  • About 40% of sales sold at list price or below last month
  • 2/3 of the million dollar market sells at list or below
  • Higher prices tend to pay more above list (when above list happens)
  • Only 3.5% of sales went $50K+ above the list price last month
  • Look to the comps. Don’t just blindly offer above the list price.

SKIM OR READ IN DEPTH:

How much are buyers paying above the list price? Here are some brand new visuals to show how much buyers are paying above the list price. These might take a minute to digest. This image basically shows the total percentage of sales in the market. For instance, in the visual below 31.4% of homes last month sold below the list price, 9.9% of sales sold at the list price, etc…

Under $400K:

Between $500-750K:

Million dollar market:

This visual compares last year with this year.

Here’s the same information but with numbers. Do you like this better?

HOW MUCH ARE BUYERS PAYING ABOVE LIST PRICE?

1) Mixed results: There isn’t just one answer that applies to every price range and escrow. 

2) The biggest change: In many cases buyers are tending to pay ten to twenty thousand over the original list price to secure a contract. About one in five buyers paid $10-20K over the list price last month. In some cases prices get bid up even more, but close to eight out of ten sales are somewhere between below the list price and twenty thousand above the list price. Keep in mind many buyers are getting a loan for the full contract price, so paying above the list price doesn’t always mean buyers are bringing that much cash to the table.

3) Not everything gets bid up: It might be surprising, but this month we saw about one in three sales sell below the list price. It just goes to show sellers have to price it right – even in this wonky market. We also have to be careful about saying “EVERYTHING IS GETTING BID UP” when that’s not true.

4) Million dollar market: The highest prices basically show if buyers are paying above the list price it tends to be more significant. But two thirds of all million dollar sales last month sold at either the list price or below the list price, so the bulk of homes in this range aren’t getting bid up like the rest of the market. Like I’ve said before, this is the most overpriced segment of the market.

5) Not sensational: Only 3.5% of all sales went fifty thousand over the list price last month, so let’s be careful about shining a spotlight on this tiny sliver and saying, “Everything is getting bid up $50-100K.” Nope.

6) Don’t offer above without looking at comps: Buyers, be prepared to offer above the list price, but don’t blindly offer $10-20K above without really considering the comps and advice from your agent. Remember, the market isn’t the same at every price range either.

7) Appraisers: These days appraisers are getting huge flack for “coming in low.” Look, sometimes appraisers are legitimately missing the mark, but other times properties are getting into contract way beyond what is reasonable, so the appraisal should come in “low”. Sellers, sometimes the highest offer isn’t always the best one if there is going to be an appraisal involved. And to my appraiser colleagues, our role is never to “hit the number”, but let’s be sure to account for the true temperature of the market in our reports.

Anyway, I hope that was helpful.

Questions: What stands out to you most above? What is it like right now in the trenches for buyers? Anything stories to share? Did I miss something?

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Filed Under: Market Trends Tagged With: advice for buyers, advice for sellers, Appraisal, high demand, market stats, Market Trends, multiple offers, offering above the list price, sacramento real estate blog, sacramento regional appraisal blog, sensational stats, trend graphs

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