Price is a fact, value can be a puzzle
I was appraising a sale in Sacramento and found good listing comparables difficult to find. Lenders require at least one usually two listing comparables. Sales were no problem though a little scarce. I know there’s been an inventory shortage for some time now, and asked the agent why she thought volume is low. She said “banks.” Ok so it’s the Shadow Inventory of homes with non-performing loans? I took a look at some articles and find that it is a significant factor. According to an article with a national perspective:
“The "shadow inventory" consists of homes that were seriously delinquent or foreclosed on, which banks would keep off of the market for fear that the additional supply would cause prices to crumble further. Housing market skeptics argued that banks would return these homes to the market at a pace that would prevent prices from going anywhere.”
"As of December 2013, we estimate that there were about 2.3mn housing units in shadow inventory, down from 2.9mn units in December 2012," wrote Barclays Michael Gapen in his 2014-15 US Housing Market Outlook. As for the bad news, the shadow inventory is still around four times bigger than normal levels.”Source: http://www.businessinsider.com/housing-shadow-inventory-falling-2014-2#ixzz36yoUf0jM
Of course there’s never a simple one-size-fits-all answer, and what we really care about most is our local markets. This is an inventory chart for the past year in the Land Park/Curtis Park area:
Area 10818 (Land Park, Curtis Park)Some of this is homeowner’s sitting-on-fence, without the equity or confidence to make a move. But there’s another “shadow inventory” many call land banks; builders pulled back and halted building during the recession leaving recorded subdivisions un-built. Who could blame them? Here in West Sacramento the city planning department says:"There are four active subdivisions in the Southport area including Bridgeway Lakes, a community with 610 home sites around a 32-acre man-made lake; Newport Estates, with 807 home sites; Southport Gateway, with 357 home sites; and Parella I and II, with 252 home sites.” That’s 2,026 lots un-built. And think about the acres of lots in Natomas vacant due to the moratorium. According to the NAHB (national association of home builders) builder confidence is still not high but is rising now with a score of 49. “The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low… Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.” http://www.nahb.org/news_details.aspx?newsID=16899
I tried a little research in West Sacramento to compare active listings to Realist “Pre-foreclosure” status and are not listed. I was surprised to find 32 pre-foreclosure and only 66 listings using the city as the only criteria. That’s a ratio of 48% not listed and in various stages of distress. Granted some maybe getting a loan modification etc., but that’s a high number - and a shadow inventory.
I don’t have a crystal ball, but prepare a market analysis with every appraisal report working mainly in Yolo and Sacramento counties. Most neighborhoods show stable pricing and low inventory. The level of distress sales has been dropping but the range is huge with areas such as Davis in the low single digits and others double digit. On the plus side there are some large developments in progress such as Curtis Park Village and Discovery Homes in West Sacramento continues to build and sell. Davis has a new project of 551 homes called The Cannery that has broken ground. Usually new home development acts to elevate pricing of existing nearby homes.
So is the market stable or increasing? The best I can do is to prepare each appraisal with research and analysis of that particular neighborhood. Tell me what your crystal ball says.
If your listing or sale meets these criteria, then in most cases there won't have to be a re-inspection for repairs. Below is my addendum I place in FHA single family appraisals. Its also my checklist. If you have any doubts or concerns send me a message or call. Permits for additions: FHA does not require them, but I found the lenders do.My report addendum:
COMMENTS ON REQUIRED FHA FINDINGS:
1. No pooling water observed around the subject improvements.
2. A few windows were tested and found to slide easily. There are no security bars.
3. The cooling system was tested and is operational. Forced air heating system not was tested due to weather.
4. The garage electric door was tested and found operational.
5. The roof appears in good condition. The subject roof has at least 5 years of economic life remaining.
6. Eaves showed no signs of damage or peeling paint at the dwelling unit.
7. A reasonable sample of electrical outlets were tested and found operational.
8. Plumbing fixtures were tested with the toilets flushed simultaneously and found to be adequate.
9. The hot water heater was tested and found to be functioning adequately. It has double metal straps affixed to the wall.
10. The hall garage door has a self-closer.
11. There were no significant external deficiencies negatively impacting the habitability of the home or the subject site.
12. A head and shoulders inspection of the attic was completed. Sub Area was viewed (if present). No adverse conditions noted.
13. The utilities were on and functioning at the time of appraisal.
14. No obvious termite infestation, wood rot, insects or vermin were noted/visible at the time of inspection.
15. No obvious evidence of lead-based paints, peeling, or other paint defects at the interior was observed.
16. Smoke and CO detectors were adequate and present.
The intended use for all appraisals prepared for FHA is to support the underwriting requirements for an FHA-insured mortgage.
The property meets - does not meet minimum HUD/FHA guidelines as outlined in HUD handbook 4905.1 and 4150.2.
Comments on the above
#1. I have only had one in the past couple of years where pooling water was a problem. The backyard was not graded right and water was getting into the subarea.
#7. The main problem I see here is flippers or sometimes owners, will replace a non-grounded (two prong) outlets with the new grounded type (3 prong) outlet. The idea behind grounded outlets and GFI is to limit shock if the fixture or appliance shorts. People do this either because they don’t know the consequences or because the new standard wall outlets are cheaper. Hardware stores sell cheap little outlet test units if you ever want to check.
#10. The spring hinges on the door may wear out or break. Then the interior door to the garage won’t self-close. The remedy is new hinges, or they make units that attach to the wall and door. Also if your client is replacing such a door it should be fire rated. The idea here is to keep fumes and fire in the garage.
#12. I don’t crawl through attic of course, but just look for the obvious such as a faulty roof or bare wires exposed.
Any referrals would be gratefully accepted: Divorce, Trust and bankruptcy etc.
Did you know?
Here in West Sacramento there’s still a substantial amount of new home construction possible: According to the city's web site: "There are four active subdivisions in the Southport area including Bridgeway Lakes, a community with 610 home sites around a 32-acre manmade lake; Newport Estates, with 807 home sites; Southport Gateway, with 357 home sites; and Parella I and II, with 252 home sites. Six other major residential subdivisions are in the planning applications stages: Bridgeway Lakes 2, with 487 lots and a wildlife pond; Lindenwood, with 176 lots; River Ranch, with 170 lots; and The Rivers, with 900 residential units." Some of these I believe have been built-out and some partially. Still there's quite a bit left.Discovery Homes is building out its tract, now called Serenity Cove, with a price per sf of about $157.00 based on MLS# 14014124 and an 8,453 cul-de-sac lot. MLS# 14006021 on a 5,100 sf lot had a price per sf of $147.00. MLS# 12074119 sold for 138.5 on 03/13 with a 5,227 sf lot; a gain of about 6% for the last two sales. Still they are actively building which I am happy to see.
I haven’t researched when other developers are going to break ground on the new or remaining lots in these subdivisions. More later…
While appraising a sale in Woodland Realtor Lisa Steele mentioned she was looking for:…”looking for farmable acreage. Currently have a potential client looking for approximately 1000 +/- acres for an orchard and or vineyard. Also have a cash investor looking for ugly homes if you come across any.” You can reach her at, Steele Realty & Investment Co. 916-743-5611 (Direct)
You've probably heard in the media that unemployment is down below 8% nationally. Yolo county is still slightly above that. I tend to put more stock in the numbers for the Sacramento MSA (metropolitan statistical area) which includes Yolo, Sacramento, El Dorado and Placer counties. Each impacts the other and in statistics a larger sample (volume of numbers) does make for more reliable results. The latest number for the Sacramento MSA is 7.1% down from a high of 11% in July 2012.
Affordability is a key ingredient in our pricing trends. Mortgage rates are still fantastic by historical standard's and as unemployment declines demand should increase. Yet we are down from the high volume and rapid appreciation of last year. I think part of the reason is sticker shock, and certainly the volume of cash purchases is down as well. Both in my appraisal practice and in speaking to agents it looks like are stable to slow (if any) price increases. This is a macro or broad viewpoint and each neighborhood is its own little market. Affordability could decline when and if rates increase, and the Federal Reserve may in fact ease off their stimulus. My point is that if I were in the market to buy, I'd be thinking about the possibility or higher mortgage rates. I realize inventory in most markets is low, which makes it tough for buyers.
Another important factor is government employment which in our market is significant. State employees I've spoken to say there is high rate of retirement. The chart below from EDD shows an increase of 4,100 for 4/2013-4/2014. As state and local governments recover revenue along with economic recovery and property taxes, then it seems logical vacancies will be filled. The table below shows a 1.83% increase in government employment. Lets just say the "glass is half full."
I'm sure those of you that are new to the business have plenty to do generating business and building a client base.
Its been a long time since I took the real estate license exam, but I doubt there's that much emphasis on how an appraisal is actually done. This linkhttp://www.appraisalinstitute.org/assets/1/7/understand_appraisal_1109_(1).pdfhas some good information, but may not provide answers to specific questions or concerns you might have.
Maybe your wondering what I look for when inspecting a home for an FHA purchase? What about the add-on with no permits?
Can I give the appraiser a list of sales I think he/she should consider?
Maybe your not a new agent and have a question?
I look forward to hearing from you and having a conversation. Thanks.
Factoid: "California’s Legislature passed the nation’s first real estate licensing law in 1917." I think part of the reason was unethical representations and sales of subdivision lots with no streets or water.
Thank you, we'll be in touch!