Archive for the ‘Appraisal 101’ Category
August 28, 2009
As many of you know, I used to be a real estate appraiser (and in a way, always will be). Appraisers are paid for their professional opinions, honesty, and expertise. If they are lacking in any of those three areas, well, they’re just not cut out for the job. I’ve heard a few stories about appraisers lately that made me cringe.
The Good: [Honest and expert] Appraisers not only protect banks from lending more than a home’s value, they also protect the buyer. Let’s say that a buyer is in contract on a home for $500K and the appraisal comes back at $400K. As a result, the buyer does not get their loan and they get angry with the appraiser. In actuality, they should be extremely thankful that the appraiser saved their butts from overpaying by 25%, but appraisers are rarely thanked. Instead, the appraiser gets bashed from the real estate agent (thanks for killing my deal), the buyer (hey, thanks, I lost my home), the seller (you imbecile, I was just about to cash in), and the loan officer (thanks pal, I’m not going to get my fee). If the appraiser is truly an expert, there should be nothing stopping them from doing honest work, including pressure from any of the aforementioned parties. Unfortunately, appraisers can be coerced and threatened (we’re not going to use your services anymore if you don’t hit our number!). This is the reason new regulations are in effect that limit who can talk to an appraiser.
The old days: "If you don't hit my number we're never using your services again!"
Let’s face it, if you have three different appraisals on a property, you’ll get three different values. Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged appraisal standards, appraisals, appraisers, home buying tips, san francisco real estate | 3 Comments »
June 29, 2009
From a recent article at the San Francisco Business Times:
Some 3,019 new units of housing came online in 2008, the final burst of a condo construction bubble that peaked in 2006 and started to deflate in late 2007. Since then prices have dropped 20 to 30 percent. A recent Polaris Group report found there are 1,340 condominium units available for resale — 58 percent more than available in May 2008 and a 10.3-month supply. The one major condo project currently under construction, Jackson Pacific’s 180-unit One Hawthorne St., will come online in 2010.
Every major condo project expected to break ground in 2008 was shelved, including:
Urban West Associates’ 292-unit phase two of One Rincon Hill.
Bosa Development’s 318-unit phase two of the Radiance.
Crescent Heights’s 720-unit project at 1401 Market St.
Turnberry’s 227-unit tower at 45 Lansing St.
Some huge SF developments have been delayed or canceled altogether
As grim as the news sounds, we actually think this is a good thing for San Francisco’s real estate market, particularly the neighborhoods of Read the rest of this entry ?
Posted in Appraisal 101, News, Tips | Tagged condo development, condo inventory, condo projects, condo saturation, san francisco, san francisco real estate | Leave a Comment »
May 9, 2009
There’s no better way to learn about real estate liquidity than by observing a down market. Frustrated sellers all across the nation have had to exercise extreme patience in converting their homes back into dollars. Because real estate is less liquid than other investment types, it pays to understand how you can best protect yourself. The last thing you want to do is rely on a raging hot market to make your home liquid. Ideally, you want it to be liquid no matter the market condition.
What we’ve seen take place during the downturn is stratification of San Francisco homes into three different layers. The first are homes that continue to sell at or near their asking prices no matter what the market is doing. The second layer is comprised of homes that tend to fare well during good times but take hits during bad times. These homes are highly affected by market conditions both in the prices they command and the time it takes to sell them. Most homes fall into this category. The last layer are the homes that do not sell at all during a down market, unless the owner is willing to take a massive loss.
Here are some things to keep in mind to ensure your real estate investment leans toward the liquid side of the spectrum, and some bullets on what NOT to do:
- The best way to have an illiquid real estate investment is to buy something there are hundreds of (or will be hundreds of). There is little to no differentiation in these types of properties and they are an extremely tough sell during down times. The only time these properties sell and do well is when the market is roaring… and counting on that to take place is quite the gamble, particularly if developers are building similar homes nearby (which they will in a roaring market). The smarter approach is to invest in a property that is unique, even one of a kind, but is not too eccentric. There is a big difference between uniqueness (think charm & character) versus eccentric. We’re not referring to decor here, we’re referring to the actual structure. Decor is easily changed if you need to sell. What can’t be changed, however, is the fact that you bought a home that looks like a pirate ship and will appeal to a tiny market segment of equally eccentric people.
Ok, so maybe we're huge fans... but still!
For more tips, keep reading –>
Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged Appraisal 101, buyer tips, illiquid real estate, incurable features, real estate investment, san francisco, san francisco real estate, smart real estate investing, Tips | Leave a Comment »
April 23, 2009
This story comes to us from Atlanta, GA. It illustrates a little tip to those of you looking to get into a real estate investment or purchase a home. Here’s the advice: Your builder does not care about you.
How do we know? Let’s take an example from this Atlanta story. Why Atlanta? Well, we don’t want to smear anyone in SF on a public message board, but 2,500 miles away in the A-T-L… we’re blowing the whistle. Off the public board, however, we advise our clients how things shake out here locally.
Anyhoo, there is a company that built a high rise condo building in Midtown Atlanta in 2004. Units sold like hotcakes at the time. The sales center opened and it was like an old west land grab over the ~380 units. The building, named “Spire”, caters to a young, professional, and hip crowd addicted to city living, incredible views, and night life that never ends. Owners happily moved and settled in. The builder had acquired a nice batch of customers.
Spire was a hot commodity in '04.
Fast forward to 2007. The same builder went directly across the street and built Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Home Selling, Tips | Tagged atlanta, builder discounts, condos, inventory, over development, price gouging, san francisco, san francisco real estate, spire midtown, viewpoint midtown | 1 Comment »
April 15, 2009
An article on CNN Money the other day got us thinking about the overall health of the San Francisco real estate market. Sure, prices are down. No market has been immune to the country’s economic downturn. But some have been hit with a cold while others are bedridden with pneumonia.
Time for a check up
The article mentioned above talks about the Miami real estate market. Some tidbits:
- There are 13,200 homes for sale in Miami right now.
- There are 21,600 condos for sale in Miami right now.
We’re not alarmed by these numbers… after all, Miami is a very different market than San Francisco and comparing the two is not exactly “apples to apples”. However, there is a way we can normalize data between the two markets to control for the differences. We can accomplish this by looking at MSI, or months supply of inventory. We’ve written about this metric before. Basically, months supply of inventory is a measure of how many months it would take to sell off all of today’s inventory (active listings) if new listings ceased coming on the market immediately. It is calculated by taking the total active listings in a market and dividing it by the number of homes under contract. For example, lets say there are 10 condos for sale in a market and 5 have gone into contract during the current month. This market has just 2 months supply of inventory, which is pretty hot.
Markets that have 0-3 months supply of inventory are considered hot. 3-6 months is in balance, 6-9 months is cool, and 9 or more months is cold.
When we compare Miami to San Francisco, here’s what we currently see:
- Miami currently has a 52-month glut, I, I mean, supply of condos. That means it would take over 4 years for all of today’s active condo listings to sell if new units stopped coming on the market immediately. Add to that shadow inventory, foreclosures (which are a huge problem there) and pocket listings and… Holy toledo!! Ok, now we’re alarmed.
- San Francisco, according to the highly respected real estate analysis company Terradatum, has Read the rest of this entry ?
Posted in Appraisal 101, Macro-Level Info, Nerdy RE Analysis, Tips | Tagged condos, demand, inventory, miami florida, months inventory, months supply, national trends, real estate trends, san francisco, san francisco real estate, single family homes, supply | Leave a Comment »
March 15, 2009
Welcome to another installment of Appraisal 101. In this edition we’ll be discussing the term “over-improvement” and highlight some tips you can practice to make sure you don’t make this mistake. This article will be especially relevant to anyone looking to invest money in improving their home. Over-improvement in appraiser speak is known as “super adequacy”.
There are a handful of people that could care less about super adequacy
So what is over-improvement? By definition, an over-improvement is an alteration or improvement that is made to a property where the cost is greater than the market value added to said property. If the improvement you are considering is substantially better than what is typical for the market area, you probably will not add value. In order to understand what constitutes an over-improvement, it’s crucial to understand the market dynamics of the area you are in and in particular, the ceiling. A common mistake people make is over-improving a home and then expecting to be rewarded greatly for their efforts. It is a rare instance where one can go “comp-busting” and set a new peak for the neighborhood… so don’t expect or rely on it.
Understanding market dynamics: Picture a suburban subdivision, 250 cookie cutter homes. The homes were all built by the same developer, are all 2 stories and range from 2,000 to 2,500 square feet. You purchased a home and are considering making some improvements. Here are some tips:
Read the rest of this entry ?
Posted in Appraisal 101, Tips | Tagged Appraisal 101, conformity, over-improvement, real estate appraisal, san francisco, san francisco real estate, super adequacy | Leave a Comment »
March 4, 2009
I’m about to share something with you that I learned many years ago in real estate appraisal school. When I first heard it, I thought my instructor was joking. But as she proceeded to explain, I realized it was very real.
The story has to do with how real estate values are affected by paranormal activity, ghosts, or stigmas of being haunted. I learned that if a seller knows of any of these activities going on in their home, they must disclose it! Sound too kooky to be true? That’s what I thought… but consider this scenario:
Mike and Ann are moving from New York to New Orleans. They found a charming old home in the Garden District, one with incredible architecture, rich history, and plenty of character. The home has been on the market for nearly a year. Mike and Ann submit a low offer, and much to their surprise, it’s accepted! They are very excited about their move.
After settling in, they quickly learn from neighbors and locals that the home has long been rumored to be haunted. Mike and Ann are now the rightful owners and become frightened by the news. There was nothing in the disclosures that stated anything out of the ordinary. They decide to list their home and after 2 years on the market, realize that they’re sitting on an illiquid asset. What happens here?
First and foremost, if something is material fact it must be disclosed. The fact that the home had “paranormal activity” of course cannot be proven. The stigma in the market area, however, is very real, and is a material fact. Court rulings have set precedent in these instances that would give Mike and Ann a case.
The lesson? If you’re in doubt about whether or not to disclose something, it’s always best to disclose it. Or, like my old appraisal instructor used to say… “Disclose, disclose, disclose!!”
We got a sweeeet deal!
Interesting articles that discuss haunted houses, superstitions, and paranormal activity as it relates to real estate:
Article One | Article Two | Article Three
To share this article, continue reading –> Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Home Selling, Tips | Tagged disclosure, ghosts, haunted houses, law suits, paranormal activity, san francisco, san francisco real estate, superstition | Leave a Comment »
February 24, 2009
We were perusing through some stats the other day (imagine that!) and happened upon a list of the top 5 states with the newest housing inventory. Here is the list, courtesy of Arun Barman, Research Economist at Realtor.org.
- Nevada – 7.7%
- Arizona – 6.7%
- Florida – 5.4%
- Idaho – 5.4%
- Texas – 5.0%
We’ve long held the hypothesis that run-away development can ruin a real estate market, but we’d yet to really see a macro-level list that corroborated that thought. What of course jumped off the page to us is the top 3. Nevada, Arizona, and Florida all have had major real estate busts.
Where is California, you might ask. California experienced growth in new inventory over the past real estate boom. However the growth in new inventory did not cast a shadow over existing inventory (as it did in the other states) which is why California did not make the list. With development costs in California so high, investors and/or developers are more apt to rehab and flip property than they are to build new. The places where property values have taken the biggest hits in California (and the Bay Area) are the newer suburban and exurban developments. In general, the more established communities have been hit, but not as hard.
Getting back to the hypothesis, it really all comes down to value. The four tenants of values are demand, utility, scarcity, and transferability (remember it as “DUST”). An item (any item) must have all four of these characteristics to have value. When developers go crazy, building anything and everything in a booming real estate market, they put downward pressure on the existing homes in the area. This is because all the new inventory greatly affects the scarcity portion of the value equation.
It is for this reason (we believe) that San Francisco’s market has not imploded the way other markets around the nation have. The lion’s share of San Francisco inventory is old, scarce, and one-of-a-kind. Furthermore, our local government makes it very difficult for developers to build massive structures that send un-welcomed, downward property value pressure throughout our neighborhoods.
Age of San Francisco's Housing Stock - Courtesy of Propertyshark.com (click to enlarge)
This is a big reason why we’re especially cautious when taking clients around the newer parts of the City. We’ve seen what an onslaught of new inventory can do to real estate markets and we’re wary of what it will do here (albeit localized to just a few select pockets within SF).
Do we hate developers? Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Home Selling, Macro-Level Info, Nerdy RE Analysis, New Developments, Tips | Tagged arizona, developer, florida, housing development, housing stock, markets, nevada, san francisco, san francisco real estate, value, year built | 5 Comments »
January 22, 2009
We’ve written about it before, and this little story is a good example. The wisdom? Listing prices mean nothing. The reason they mean nothing is because sellers have a million and one reasons why they list their properties at certain prices. Maybe their asking price is indicative of how much they owe on their home, their credit cards, cars, how much they need to pay their agent, closing costs, plus a little cushion. Maybe its based upon how much profit they want to turn since they made some improvements. Maybe they’ve got medical bills to pay off. Who knows? Like I said, there’s a million and one reasons.
Yeah, I'm selling. Let me go ahead and add these up so I can calculate my asking price.
Rarely do you find a home that is priced right on the money. And oftentimes you’ll see homes intentionally underpriced by $100K or more, just to create a buzz and have the market bid it up.
In any case, here’s a story about a cute home close to the Palace of Fine Arts. 3271 Baker was purchased in November 2006 for $1,700,000, just a smidge above the asking price of $1,695,000. It had only been on the market for 37 days. The buyer clearly made some nice improvements during their ownership. New kitchen, new bath, and really cleaned up the property.
Less than two years later, 3271 Baker came back on the market. It was listed on July 3, 2008 with one of San Francisco’s best and most respected agents. The list price was
Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Home Selling, Marina, Neighborhood Info, Public Listings, Tips | Tagged 3271 baker, list prices, Marina, market, palace of fine arts, san francisco, san francisco real estate, single family home | Leave a Comment »
November 24, 2008
“Comp” is industry shorthand for the word “comparable”. What is a comparable, and what makes a good one? That’s what this article is all about.
“Comps… huh?!?”
Real estate agents and appraisers use comparables to determine the value of a home. Actually, there are three different methods used in determining the value of a home, but the approach that utilizes comparables is the one that holds the most weight. The whole idea behind figuring out the value of a home (we’ll call it the “subject property”) is to compare it to other homes that have sold nearby.
A “comparable” is a sale that is A) competitive with the subject property, B) took place on the open market, and C) Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged advice, Appraisal 101, case shiller, comparable, comps, dataquick, puppeteer, sales, san francisco, san francisco real estate, Tips | Leave a Comment »
November 16, 2008
Some of you may have thought I was crazy when I wrote about listing prices and how they mean nothing. I know… it’s an extreme stance to take. But I’m all about seeing what the market is doing (ie: looking at SOLD prices), and not so concerned with what the market is hoping it can do (ie: looking at LISTING prices). That’s why I stand where I do on the issue.
- I’ve been known to take an extreme stance on certain topics
My background in real estate appraisal is probably to blame. In appraisal, we look back at the market, viewing what happened — not forward, looking at what could happen. Appraisers are taught that the only way to reliably see what is going on is to study market action, and market action is determined by closed sales. Not listing prices, contingents, or pendings. Closed sales.
Let’s illustrate the danger of depending on the validity of a listing price by looking at a real life example in Haight Ashbury. 513 Clayton came on the market on May 25th for $1,195,000. This charming 3/1 condo has an excellent Read the rest of this entry ?
Posted in Appraisal 101, Haight Ashbury, Home Buying, Micro-Level Info, Neighborhood Info, Nerdy RE Analysis, Tips | Tagged Appraisal 101, buyer tips, condos, extreme stance, Haight Ashbury, home buying advice, listing prices, sales prices, san francisco, san francisco real estate | Leave a Comment »
November 7, 2008
When you’re out looking at properties, be on the lookout for curable versus incurable characteristics. What are these?
Jaw-dropping views from the back yard!
Both refer to types of depreciation homes can go through. However, there is a big difference. Curable refers to conditions that are financially feasible to fix. This means that if you were to spend $1 on curing this type of depreciation, you would get back $1 or more of your investment. Some examples include repainting, putting in a new kitchen, or updating an old bathroom.
By contrast, incurable depreciation is where one would invest that same $1 and get back less than the full $1 in return. Examples range from Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged 747, advice, Appraisal 101, curable, depreciation, home values, incurable, obsolescence, san francisco, san francisco real estate, Tips | 1 Comment »
November 4, 2008
I’ve been hearing a lot lately about price reductions, price drops, prices bottoming out, yada yada. Well here’s some news for ya. Listing prices mean absolutely nothing. Here’s why:
1) Listing prices are determined by the seller and the seller’s agent, putting their heads together and arriving at a figure which is amenable to both… but more often than not, a figure that is amenable to just the seller. Realtors will oftentimes take an overpriced listing just for the opportunity to sell the home, knowing that future price drops are part of the deal. Don’t get mad at ‘em. It’s their job to get top dollar for their seller.
2) By law, the seller’s agent owes a fiduciary responsibility to the seller. So, I ask you, could the listing price be a more biased number?
3) There are many strategies to pricing. Price low and let the market bid it up. Price right and hope for the best. Price high and see if there’s a sucker out there. Pricing strategies further cloud the “validity” of a listing price.
4) Most importantly, listing prices do not show us anything about what the market is doing. Sold prices are the only thing that show us that. Solds speak of action, and action defines the market. Everything else is just noise. Listing prices, price reductions, you name it.
- Here is a graph of the meaningfulness of listing prices. Yup, it’s displaying correctly.
Because list prices are biased, fail to speak of action, and mean nothing, so does all the hype surrounding price drops. Every time Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged advice, Appraisal 101, comps, listing prices, sales prices, salt, san francisco, san francisco real estate, Tips | 2 Comments »
November 2, 2008
Gone are the days where you could buy any old piece of property and do okay. The feeding frenzy is long over. Nowadays, buyers must be smarter in deciding what to buy. The old wisdom was “location, location, location.” While we agree that location is still the single most important factor in real estate, a new reality is here and we want to share some tips with you on how to make a smart investment in real estate.
- A new reality in real estate requires buyers to be smarter than ever.
So what’s our new mantra? Read the rest of this entry ?
Posted in Appraisal 101, Home Buying, Tips | Tagged advice, appraisal, desirability, Home Buying, location, miami, monkey, san francisco, san francisco real estate, scarcity, smart buyer, Tips | Leave a Comment »
October 23, 2008
Ahhh, good ‘ol appraisal. It’s how I got started in the real estate business years ago and it’s one of the most useful things to know. I’m going to be sharing tips, little-known facts, and stories from my experience as an appraiser (as well as endless spreadsheets and analysis).
Today’s Appraisal 101 post will be a TIP. This is one of the fundamental things you should know if you are planning to invest any additional money into your home.
What’s the number one way you can add value to your home? Well, I suppose you could invite Bob Vila over for dinner and see if he’ll help you cross off some of your honey-do’s (as long as he promises to trim that fro, that is). If you can’t land dinner with Bobby V, your next best bet is to follow this tip:
- Bobby V
Read the rest of this entry ?
Posted in Appraisal 101, Tips | Tagged 1970's, add value, advice, appraisal, Appraisal 101, bob vila, brady bunch, shag carpet, Tips | Leave a Comment »
