Short sales in Sacramento -- will they amount to a significant part of the market in 2023 and beyond? Your short sale questions answered...

In the last month or so, I have noticed some buzz online about the potential for the return of short sales to our Sacramento real estate market -- ironically I have found myself explaining mostly to other agents more than anyone else exactly what short sales are. Realistically I suppose if someone has been an agent for under a decade they likley will not have much, if any, experience with them. Short sales have not been a significant portion of the Sacramento real estate market in probably 8 or so years -- and candidly doing a quick search in MLS today, short sales barely register a blip on the radar. Though I would expect that as values stagnate or possibly decline further we will see some sellers faced with some difficult choices. 

By my count today, there are 13 active and pending short sale listings in all of Sacramento County (out of 2,450 active and pending listings). That is approximately one half of one percent. So in other words today, 99.5% of listings are not short sales, and 0.5% of listings are short sales. That is a drop in the bucket. Back in the Great Recession, the vast majority of my listings were short sales. And short sales and other types of distressed property listings absolutely DOMINATED the market. Between my own client listings, and the listings of other agents where they contracted with me solely to negotiate the short sale side of the equation -- I closed well over 100 of these highly complex transactions. 

Keep in mind that listing or purchasing a short sale is A LOT different than a traditional resale real estate transaction with a traditional seller who has home equity. I tell my clients to take everything they think they know about buying real estate and throw it out the window. 

So putting my Short Sale Agent hat on, here are the answers to some commonly asked questions:

What is a short sale? A homeowner who needs to sell ultimately owes more on the property than it is currently worth, so they list the house with a real estate agent who then attempts to negotiate a lower payoff with the owner's mortgage company so the owner can sell the house. For example, if the property is worth $500,000, however the owner has a mortgage for $550,000 the owner would not be able to sell the home and pay off the mortgage with the proceeds of the sale. The property would be listed for $500,000, an offer received from a buyer and accepted by the seller SUBJECT TO LENDER APPROVAL, and the agent would negotiate with the mortgage company to accept the net proceeds of that sale at its current market value. An important note -- usually there needs to be a compelling reason to sell or a financial hardship on the seller's end for the mortgage company to entertain allowing a payoff for less than the mortgage amount owed.

Is a short sale quick? How long will I wait for approval? The term "short sale" is often confused with a quick time period and close of escrow. Short sales are not usually quick. While some mortage companies will provide for a pre-approved short sale process, the average waiting period for the seller's mortgage company to approve the short sale is probably 30-60 days once an buyer offer is submitted. Some take less time...some take A LOT more time. The fastest approval I have received on one of my short sale listings was 11 days. The longest was almost 2 years. Once a short sale is approved, then the bank typically allows the buyer somewhere from 21-30 days to close the transaction. There are SO many variables that will dictate the length of time it takes to get approval...like which lender services the mortgage, which entity owns the mortgage, how many loans there are on the house, how knowledgeable the listing agent is, how cooperative the seller is with the process, if the seller is trying to use a government short sale program, etc. There is also no guarantee a mortgage company will approve a short sale at all. So.......fasten your seatbelt.

Does the seller have to be delinquent with mortgage payments to get a short sale approved? No. I have successfully closed several short sales where the seller stayed current with payments.

Who decides what the listing price is? The price listed in MLS may not be the price the seller's mortgage company is willing to accept. Usually the listing agent will set the price based on market value, and in consultation with the seller. Some mortgage companies offer a pre-approval process for short sales but I would guess that very few listing agents and sellers do this in advance of listing the property for sale. The seller's mortgage company will do its own valuation or appraisal (often referred to as a BPO - or Broker Price Opinion) to validate the offered price. The bank may counter your offer. Heck, they may counter a perfectly reasonable market value offer too... in addition to the possibility of countering the price you offer, the lender may counter the terms of your offer. 

Who pays the real estate agent commissions? In a short sale scenario, the lender(s) who agree to forgive debt and allow a short payoff of the loan(s) pay for the real estate agent commissions - generally by absorbing the costs of the commissions out of the proceeds of the sale. As a side note, oftentimes these commissions are re-negotiated by the lender(s) during the process. Note: Real estate commissions are always negotiable and NOT set by law or local custom. 

Who pays title insurance, escrow fees, and transfer tax fees? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). For example, perhaps the buyer and seller agree initially that the seller will pay for 100% of title insurance and escrow fees, 100% of county transfer tax, 50% the city transfer tax. The lender(s) may negotiate that the buyer pay a different split of these fees...however the portion that is paid by "the seller" is absorbed into the overall debt forgiveness and short payoff. Occasionally you will see a lender agree to pay one of these fees, up to and not to exceed a certain amount (for example, they may agree to cover up to $750 of the escrow fee that costs $1200). Generally then, the buyer would cover the unpaid portion of that fee. So basically, again, the lender(s) will absorb many of those types of fees. 

Who pays for a home warranty? This is negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Generally though, I would prepare any buyer of a Sacramento short sale property to expect to pay for this cost, even if you ask the seller or short sale lender to cover it. In my experience, this is paid by the short sale lender in less than 20% of my approved short sales. 

Who pays for home inspections, certifications, or repairs? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Most short sale lenders will not agree to cover things like pest or termite inspections, roof inspections, sewer line inspections, or any corresponding repairs or certifications. A lot will depend on the circumstances with the condition of the property, how many loans are involved, the buyers' loan program, if the property is in default, the length of time of negotiation, etc. As a safety net - buyers, do not expect that lenders will grant these requests. Generally short sale properties are sold "as-is" and sellers can not afford to make repairs anyway. 

Will the short sale lender(s) give the buyer credits for closing costs or interest rate buydowns? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). I have seen this vary widely from the short sale lender(s) agreeing to pay up to 3% closing costs for the buyer, to the short sale lender(s) rejecting those requests. Again, much will depend on the circumstances surrounding the sale of the property. 

Who pays delinquent property taxes or unpaid utility liens? It depends. Sellers, if you have not been paying your property taxes or county utilities, you really need to let your agent know this ASAP! I work closely with the title company on this to make sure that we know of any lien issues in advance, but because it can take several weeks or months to get approval, new liens may pop up during the lender negotiation process. When I negotiate short sales, one of my worst fears is that after the short sale is approved an unexpected lien will pop up. This has happened to me before, and for lack of a better way of describing it - this sucks! If you can let your agent know in advance that these items are unpaid, it will save lots of headaches all the way around. IF WE KNOW in advance that these liens exist, there is a great chance that the short sale lender will absorb these costs into their overall debt forgiveness and short payoff. IF WE DO NOT KNOW in advance that liens exist, once the short sale is approved - this will halt the transaction until we can find a way to pay these liens. The seller is often financially unable to pay them, the buyer usually does not want to pay, the agents commission has already been reduced, and the short sale lender has already taken a loss on the loan. Sellers - please save everyone a headache and communicate with your agent.

I have IRS and FTB Tax liens, can I do a short sale? Yes. There is a parallel process to get what's known as a "valueless discharge" of liens when doing a short sale. This does not release you from owing IRS or FTB tax debt but it does release the debt from the property so it can be sold. Again, be up-front with your agent if these exist so your agent can initiate the paperwork and process asap.

Can I buy a short sale property from my sibling/parent/cousin/spouse/relative? No. Short sales must be "Arm's Length" transactions and all parties will have to sign an affidavit stating no parties are related.

Are there tax or legal ramifications for sellers who do a short sale? The best answer I can provide here is that you need to speak to a CPA or an attorney. Every seller's circumstance is different. Some may face income tax on forgiven debt while others may not.

Clear as mud, right? My advice to you is to find a competent Sacramento short sale agent to help you navigate the process. I have done A LOT of these transactions and would be happy to answer your questions.

February 2021 - Sacramento pandemic housing market statistics, inventory, home prices, etc...

Spoiler alert: if you are thinking about selling your Sacramento area home, the market is very much in the seller's favor at this moment. 

We are now nearly one year into the COVID-19 pandemic. Wow, where did the time go?? It seems like yesterday and way too long ago that things were "normal"...but what is our new normal looking like a year in?

Just how is the Sacramento real estate market doing a year into the pandemic? I answer this question for my clients every day. In short: the Sacramento market has been heated, prices have climbed significantly, and inventory of homes for sale is so low that many homes are getting 10+ offers because buyers descend on listings like locusts. 

The really low 3%-ish interest rates, people highly valuing different uses of space, and newly discovered mobility and ability to work from home from any location has lead to high home buyer demand in Sacramento. Couple that high demand with the fact that many would-be sellers have hunkered down during the pandemic and not listed their homes, this combination has lead to increased prices. 

You can see in the graph that there's literally HALF the number of listings on the market today as there were a year ago, right before the pandemic started. The graph is a stunning illustration of the supply and demand of the current Sacramento housing market. You will see that in June, July, August, September, October, November, December, January and February there were MORE homes that went into contract (dark green bar) or sales that closed (red lines) than the number of homes available. The fact this dynamic has persisted for so long is shocking.

The effect on price has been significant. From February 2020 to February 2021, according to Trendgraphix, the median home price in Sacramento County has increased 16.1%, from $398,000 in February 2020 to $462,000 as of the end of February 2021. 

Multiple offers abound, homes selling for more than listing price, prices increasing. But if you dig into the dynamics and data it makes a lot of sense. I wrote about Sacramento real estate market dynamics in July 2020 and November 2020 and the housing market trajectory in Sacramento has remained the same.

As we approach the spring, usually we see a lot of new listings hit the market. I do think we will see more listings come onto the market, but there is a persistent buyer demand that I believe will gobble up the new supply of resale homes that hit the market. I personally have several would-be seller clients who were ready to list their homes before COVID-19 hit who are watching closely to see if Sacramento County moves to a more favorable tier, if vaccines are more widely deployed before they re-evaluate if they feel safe to have showings and people in their homes. And I also have a growing list of clients who would love to sell, however they have not been able to find another home to purchase, and hence these clients have not listed their homes for sale.

I am still listing plenty of properties -- folks still need to move, whether relocating out of state, or moving to different school districts, or moving closer to work, finally getting that home with a pool they always wanted, or upsizing to have a home office, or downsizing after the kids move out, or selling an empty home in a living trust or probate estate, etc. 

What I can say is -- if you are thinking about selling your Sacramento area home, the market is very much in the seller's favor at this moment. It may be an opportune time to take advantage of the seller's market right now. If I can help, I welcome your call or email to see if we are a fit to work together.

November 2020 - Sacramento pandemic housing market statistics, inventory, home prices, etc...

We are now nearly 9 months into our COVID-19 pandemic. And just how is the Sacramento real estate market during the pandemic? I answer this question for my clients every day. In short: the market has been crazy. And strong. 

While in December 2020, we are FINALLY seeing something that looks like a normal seasonal slowing typical of the holidays, the combination of really low numbers of homes on the market, really low sub-3% interest rates, and people highly valuing different uses of space has lead to HIGH buyer demand and LOW SUPPLY, and increased prices. In fact, from November 2019 to November 2020, according to Trendgraphix, the median home price in Sacramento county has increased 15.3%, from $385,000 in November 2019 to $444,000 today.

Multiple offers abound, homes selling for more than listing price, prices increasing. I know: this is contrary to what you were probably thinking. But if you dig into the dynamics and data it makes a lot of sense. I wrote about Sacramento real estate market dynamics in July 2020 and the housing market trajectory in Sacramento has remained the same.

If you look at the number of homes for sale, there are approximately half the number of homes available on the market in Sacramento as there were this time last year. And you will also notice that far more homes in contract or that have sold compared to the same months last year. Referring to the graph, it is a stunning illustration of the supply and demand of the current Sacramento housing market. You will see that in June, July, August, September, October, and just in November there were MORE homes that went into contract (dark green bar) or sales that closed (red lines) than the number of homes available. That is absolutely breathtaking.

Aside from a slight slowing that is normal for this time of year with the holidays, I do not see any signs of slowing buyer enthusiasm. In fact, in the last couple of weeks since Thanksgiving, I have received numerous calls from new home buyers who are proclaiming that 2021 is the year they will buy a home.

I think as the pandemic has unfolded there are many people who had planned to sell their homes who have hunkered down, deciding not to sell yet. I personally have several would-be seller clients who were ready to list their homes before COVID-19 hit who are staying put for now. I am still listing plenty of properties -- folks still need to move, whether relocating out of state, or moving to different school districts, or moving closer to work, finally getting that home with a pool they always wanted, or upsizing to have a home office, or downsizing after the kids move out, or selling an empty home in a living trust or probate estate, etc. But many sellers are holding off to see what happens.

2021 should be an interesting year. 2020 sure has been! 

 

Interviewed for CapRadio Insight regarding Sacramento real estate amid the COVID19 pandemic...

I was interviewed live on air by Randol White today on CapRadio Insight about the dynamics of the Sacramento real estate market amid the COVID19 pandemic. Here is the link to the entire episode and I come on just after 10 minutes or so.

Topics covered safety-related requirements for showing property, lacking inventory of homes for sale, how conducting traditional open houses is a misdemeanor, market dynamics, and bay area residents relocating to Sacramento as they have been informed by their employers they are permanently working from home.

How's the Sacramento real estate market during the pandemic?

How's the Sacramento real estate market during the pandemic? I answer this question every day. In short: the market is crazy. Multiple offers abound, homes selling for more than listing price, prices increasing. I know: this is contrary to what you were probably thinking. But if you dig into the dynamics and data it makes a lot of sense.

Inventory is scarce. The graph above is a brilliant visual illustration of what is happening currently in the market. We have far fewer homes actively for sale than are currently pending sale (in contract with buyers) and that have closed escrow (sold). This is a HUGE change from last year, and candidly, all of my last 15 years as a realtor. I think as the pandemic has unfolded there are many people who had planned to sell their homes who have hunkered down, deciding not to sell yet. I personally have several would-be seller clients who were ready to list their homes before COVID19 hit who are staying put for now. I am still listing plenty of properties -- folks still need to move, whether relocating out of state, or moving to different school districts, or  moving closer to work, or upsizing to have a home office, or downsizing after the kids move out, or selling an empty home in an estate, etc. But many are holding off to see what happens.

With that though, literally none of my buyer clients have suspended their home searches. And thus we have an imbalance of supply and demand. And prices are increasing.

From the conversations I am having with my buyer clients, for those unaffected by job loss or furlough, MANY people are motivated to purchase homes right now. Some have told me that because we now must spend so much time at home, it has caused them to re-evaluate what is important in their home. Renters are very much wanting to buy. And I am working with several bay area buyers -- which itself is not new -- but several who have been told by their employers that they will now be permanently working from home so they are choosing to buy in Sacramento where they can afford a nicer home. The median home price in Sacramento County, which in June 2020 was $415,000, is SUBSTANTIALLY LESS than bay area counties where the median home price can be well over $1,000,000. Let's not forget that interest rates are also insanely low: One of my clients just locked a 30-year fixed conventional loan under 3%.

So as my good friend Ryan Lundquist always says: the market is always moving.

SCAM ALERT! Beware of fee-based services claiming to be able to lower your property taxes...

Be on the lookout for scams.  As a part of the leadership of the Sacramento Association of Realtors (I am the current Secretary/Treasurer of the Board of Directors), often other association members will come to me with questions or to alert me to things that don't look quite right.

BIG shout out to loan officer Scott Short with Mason McDuffie Mortgage who forwarded me a solicitation he received from a service claiming to be able to reduce homeowner's property tax.

The solicitation claims that, with the market potentially softening, it is time to submit an application to the County Tax Assessor for a reduction of your home's property tax assessment.

Please be aware that this is extremely misleading, and probably a predatory solicitation for a fee-based service that will be a fruitless attempt at property tax reduction.

For one, property tax assessment for the current tax year, which is the state’s fiscal year that runs from July 1, 2019 June 30, 2020 is based on the value of the property as of January 1, 2019. There will be no justifiable reason to expect that an appeal can be filed based on any current market activity for the value as of January 1, 2019.

Additionally, the values for the upcoming fiscal year that begins on July 1, 2020 and runs until June 30, 2021 will be based on the property value as of January 1, 2020. Any current market value volatility that we may – or may not – experience as a result of our current public health situation will again provide little, if even any, basis to justify an application for a Proposition 8 decline in property tax assessment.

It should also be noted that even if a homeowner files a legitimate property tax appeal, the timeframe in which to file an application does not even start for more than three months from today. The period opens on July 2 and runs to November 30.

A homeowner can request that the county assessor complete an informal review of the tax assessment FOR FREE. There is a non-refundable $30 fee to the Sacramento County Assessor to formally file an assessment appeal. And you do not need to hire a third party to do this.

I need to point out that if there is a decline in property value in Sacramento, it will take at least a few months of data to be able to determine what the impact will be to real estate values this COVID19 public health situation. As of right now, while we are seeing homes withdrawn from the market and certainly a likelihood of shrinking inventory, MANY agents are getting creative while limiting face-to-face contact and MANY homes are still going into contract with multiple offers. It is really too premature to say what the market will look like when the public health directives are lifted.

Please be on the lookout for these types of opportunists looking to take advantage of homeowners. We are definitely in a time of economic uncertainty, and like we witnessed during the last recession, scammers will prey on the most vulnerable people who are desperately seeking financial relief.

Here is a Q&A on the Sacramento County Assessor's website about Proposition 8 Decline in Value adjustment and assessment appeals. The assessor's office also has a an overview on how to reduce property taxes in other circumstances as well, and that link is here.

Quoted in a Sacramento Bee article about the 2020 Sacramento Real Estate Market Forecast...

It's always an honor to be thought of as "an expert" and quoted in articles about our local Sacramento real estate market. This weekend my quotes were featured in an article about next year's 2020 market forecast. It's always interesting to see what others who were asked the same questions say in response and based on quotes from fellow interviewees in the article, it sounds like we are all mostly observing the same things and are on the same page.

While I do not profess to have a crystal ball, as a top producing Realtor and policy geek, I have my finger on the pulse of what is going on and offered a few key points when interviewed.

(1) When asked if the Sacramento real estate market will crash in 2020: NO. I do not believe the Sacramento real estate market will crash in 2020. The end of 2019 has been super busy and spring buying frenzy seems to have arrived early. Sellers - take note. You may want to list your homes a little ahead of schedule. There is not much on the market right now and A LOT of buyers out there home shopping. I think there were many factors that coincided with the market slow down at the end of 2018 that were not present during 2019 - interest rates increased in 2018, ambient smoke and the poor air quality kept many would-be buyers inside, and there was a rhetoric-filled election. In 2019, interest rates significantly declined making mortgages a little more affordable, there was less chaos during fire season, and it has been a non-election cycle. Home price increases in 2019 slightly outpaced inflation and were up a bit, but not drastically so, and overall there seemed to be a more workable balance between buyers and sellers in the market.

(2) When asked if buyers will "show up" in 2020: YES. The buyers are out there and they are motivated. Interest rates remain low, and many predict continued downward pressure on interest rates in 2020 as the global economy sorts out trade wars and reconciles other geopolitical tensions. With rates likely to remain low, I think home buyers will continue to be extremely motivated to buy. I do think home prices will rise in 2020 slightly, probably on a similar trajectory as what we have experienced in 2019. In Sacramento I do see a good amount of new housing inventory coming to market, though unfortunately not enough of it will be at price points targeted at entry-level buyers. There are not enough new homes at the more affordable end of the price spectrum to satisfy that demand. Every little bit of construction helps though. Move-up buyers of new construction homes should still free-up inventory when selling their a smaller homes that entry-level buyers can purchase.

(3) When asked if there will be a recession in 2020: DOUBTFUL. At least not one of much magnitude, if at all. It seems like for probably the last 4-5 years people have expressed concern about a looming recession, as if the decade long economic expansion is destined for a catastrophic end. Our national, state and local economies seem to be humming along right now. And if we were to experience an economic slow-down, I doubt it would be caused by fraudulent lending practices and collapse of our financial system as in 2007. Previous recessions did not have a devastating impact on home values and I doubt values would suffer a collapse of a similar magnitude as we saw in the Great Recession.

(5) When asked about my most "out there" forecast or trend: ADU's! I am optimistic that 2020 becomes the year of the Accessory Dwelling Unit (ADU). Recent legislation has mandated city/county application streamlining and the "by-right" ability of residential property owners to add ADUs to their properties. I hope that MANY homeowners look to construct them. We absolutely need more affordable places for people to live. There are many parcels in greater Sacramento that could easily accommodate ADUs, whether that means converting existing space like a garage or basement to an ADU, or constructing a freestanding ADU Casita in the backyard. We could have thousands of mini-infill projects all over our region adding more housing with affordable rents.

(6) When asked how can more people afford to buy Sacramento homes: IT'S COMPLICATED. In part because a lot of people who want to buy homes can afford to buy homes, but they do not know they can afford it. They do not know enough about the purchase process to know they can qualify for a mortgage. I speak to people all the time who think they must have a 20% downpayment to purchase a home, when in reality there are many downpayment assistance programs available to people with stable employment and decent credit. There are also many low-downpayment programs that require only 3-5% down. In October, the Sacramento Association of REALTORS sponsored an extremely well-attended educational workshop in Oak Park for this purpose. There are other local organizations that promote similar workshops as well.

(7) When asked if Millennials are buying homes: YES. About a third of my transactions this year in 2019 involved a Millennial purchaser, and in my transactions that age bracket seems to represent an increasing number of home buyers. I expect that will continue to trend upward in 2020.

(8) And lastly, when asked about if I see Baby Boomers downsizing: KINDA. I have seen in my own transactions that the Boomers who are selling are relocating out of the area to be closer to family. The boomers who I am working with seem to be making more lateral moves -- with playrooms and bedrooms for the grandkids when they come over. I talk to many other Boomers who would love to downsize and move closer to family, but since they have owned their homes for decades, they face a steep increase in property taxes if they sell their homes and move into another county. Generally those Boomers decide not to sell. If there are reforms in 2020 that allow more Boomers to transfer their property tax base I would expect a significant increase in the number of Boomers who sell and downsize. The California Association of Realtors is currently signature gathering for another ballot initiative that, among other things, would allow for property tax basis transfers for seniors anywhere in the state.

So with all that...I look forward to a great 2020. 2018 lead to an extremely productive and busy 2019, and I believe all that will continue into the new year. Cheers!

Featured in a CBS13 story about if the Sacramento real estate market is in a bubble...

I hate the word "bubble" as it relates to the real estate market. Bubble, to me, is a loaded term that implies that things may burst. Prices can increase without impending doom. I think memories and the wounds of the recession and home price collapse in Sacramento from 2005 - 2011 are still fresh in a lot of people's minds. They are in mine! But the past Great Recession and price freefall is not a persistent framework for what may happen in the future.

The Sacramento County median home price rose to $390,000 for June 2019, which is nearing the previous peak price from August 2005 of $392,750. And CBS13 reporter Rachel Wulff asked "is the bubble going to burst?" No. Will the market cycle at some point lead to stagnation? Sure. At some point. Watch the full interview here.

14 years ago, lending standards were so loosey-goosey you could fog a mirror and get a loan. Borrowers could lie about their incomes, or even about having a job! Borrowers could finance more than 100% of the purchase price and get cash back at closing. Borrowers could get negatively amortized loans and make a "minimum payment" like credit card, only for the principal loan balance to increase every month. Some industry professionals were ethically fast and loose. There was rampant fraud and speculation. It drove prices in an unsustainable way with several consecutive years of 20%+ increase in price. Yes, prices tanked, but should they have gotten that high to begin with? NO.

That was 14 years ago. As such, the regulatory pendulum swung the entirely opposite direction. Borrowers must have verifiable income, assets, credit scores and employment. Laws have changed in favor of consumer information and transparency. The bad industry professionals have been eradicated.

And now prices over the last 8 years from the bottom of the market have climbed back to near parity from their peak 14 years ago. Or have they? No, they have not. Think about how the value of money changes over time. EVERYTHING is more expensive than it was 14 years ago. A gallon of milk. A loaf of bread. The guy who mows your lawn. Electricity. Minimum wage. And house prices. As I note in the CBS13 story, inflation has also affected home prices. If you adjust the peak price of $392,750 for CPI inflation to today's value, home prices would have to climb overnight to $512,220 to be equivalent. We are far from that number. We are not even close to that number. (Side note: when I got my masters degree in public policy, adjusting for inflation was literally beaten into us as a way to compare like-for-like when doing analysis)

Another interesting metric worth pointing out -- more than double the number of Sacramento residents can afford to purchase a home now than they could back at the previous peak in 2005. According to the California Association of Realtors Housing Affordability Index, in August 2005, only 19% of Sacramento residents could afford a median priced home, while as of Q1 2019, that is 44%. Sacramento remains much more affordable relative to the state as a whole, which is at 32%. And WAY more affordable relative to the nearby bay area counties.

Comstock's Magazine did an article about past housing cycles in Sacramento earlier this year, linked here. Housing markets are cyclical. Ups and downs. Our past recessions have been more like slumps and stagnation rather than catastrophic avalanches of decline as we saw in 2005 - 2011.

So while I will not try to predict the future, what I can say is that markets do cycle. Every year for the last 5 or so years around the late-summer time the media freaks out that "this is it!" the sky is falling and prices are declining OMG panic in the streets crazy!!! Calm down. The market seasonally cycles every year. The spring is nuts, summer slows a little, picks back up over the fall, and slows again during the holidays. Then spring is nuts again. Every. Single. Year.

Ask me next spring if anything has changed. But is a bubble going to burst? NO. There I said it.

A Case Study: Zillow estimates of home value are NOT accurate -- but they pretend to be...

Over the last decade I have written several posts about the inaccuracy of automated website estimates of home value, and recently I noticed a situation with one of my listings I feel I must put out there for all to see. This is the perfect illustration of the current state of automated website estimates of value.

There are several websites out there that purport to be able to estimate home values, and the one most commonly referenced seems to be Zillow. Many of my clients love Zillow and often I hear "well Zillow says the value is $x". Admittedly, it's a cool website. It has robust search features and great mapping tools. But very rarely do I find that the value estimated by Zillow to be accurate, and often I have conversations with my clients about the disparity between reality and the Zestimate price. 

But what happens when a Zestimate is way off? It seems Zillow is now radically changing Zestimates based on property listing prices. Basically the way I interpret this, they are relying on an agent's assessment of value to adjust their own faulty estimate of value.

A few weeks ago, I listed a property for sale that I would call a major fixer. I had some pre-listing inspections completed, and it needed a new roof, had about $20,000 in dryrot and termite damage, and was cosmetically in rough shape and very dated. After analyzing comparable sales I suggested a listing price of $225,000. The house went on the market July 10th, 2019. 

 

I happened to look at Zillow that afternoon, and noticed the Zestimate was WAY higher than the listing price at $291,413. That is a substantial difference of $66,413 --over 20% more. Now, if this property were to have been in stellar condition, it would be closer to the value of the home...but this home needs major renovation.

I tweeted about this price difference, noting the significant difference and that Zillow posted a little disclaimer. I got several offers on the property and the seller accepted one later in the week. My seller was really pleased as the listing price of $225,000 I suggested was more than she figured the value would be given the condition of the property.

Then on July 21st, I happened to look at Zillow again. I was shocked to see that practically overnight Zillow had lowered it's estimate of value to $225,001.

WOW. There are so many things I that irritate me about this. 

(1) So now does Zillow get to claim accuracy for its Zestimate for this property? It closed on Tuesday of this week, July 23rd for $226,000. For what it's worth, I did have some higher offers, however the seller selected an all cash and completely non-contingent offer (meaning no loan, no formal appraisal, no inspections) with a very quick close. 

(2) I believe the new owner plans to do a major remodel and then resell the home. I'm sure he will be thrilled to have what will then be a ridiculously low Zestimate for the property when it eventually goes back on the market. Or will Zillow substantially change the value again at that time?

(3) Is Zillow going to freak out nearby homeowners and potential buyers when they see the "Last 30 Day Change" on this property is -$62,682? Do people trust Zillow so much they will falsely think the market is crashing in this neighborhood? (Coincidentally, can Zillow even do simple math? I noticed $225,001 + $62,682 is $287,683, which is $3,730 less than the Zestimate from 11 days prior.) 

Anyway, people, PLEASE realize that this website has nothing on licensed agents and appraisers who know the market, can see the property, and accurately estimate value. If you would like an accurate estimate of your home's value, call me and I can help you. Or I can connect you with a licensed appraiser who can also help you if your situation calls for that.

Quoted in a Sacramento Bee article this weekend about the spring Sacramento real estate market...

I was quoted in a Sacramento Bee article by Tony Bizjak over the weekend about the local market conditions. True to the norm for this time of year, the Sacramento area real estate market is going nuts. It's spring. And this is what predictably happens here every year. And in the hot (temperature) part of the summer, things will likely slow down a little, and that too will be normal and part of the predictable Sacramento real estate cycle.

In any market, the key is to be strategic.

If selling, how does the home present online and in person? If the property does not look amazing, buyers may not be as interested or willing to pay market value. Is it priced correctly and in line with comparable sales? If it is not priced correctly, you will miss your target buyer audience. Have you properly disclosed inspection reports, known material facts, and issues up front? Not disclosing potential issues up front before and during contract negotiation will be an engraved invitation for a renegotiation later. Are you realistic in your expectations? Most homes do not sell to the unicorn bay area buyer over-paying with all cash.

If buying, what are your short and long term goals? Are you rushing into things? Contemplate your options. The best decisions are usually not made impulsively. Are you comfortable with this monthly payment in the event of an economic issue? Don't get in over your head. Are you doing enough due diligence and property investigation? Inspect, inspect, INSPECT. Please know what you are buying before you close the transaction. What are the comparable sales? Is the listing over or under priced? Look at comparable sales with your agent and make an appropriate offer whether that is below the listing price or above. Sorry, looking at Zillow doesn't count. What does the seller need out of the transaction? Especially in competitive situations, tailor your offer to the seller's needs - often, the right terms may be a win for the seller over highest price. Are you realistic in your expectations? I know your parents, favorite uncle, and BFF said to make a lowball offer because that is what they did 30 years ago or that's what worked in Texas or what they saw on HGTV, but seriously that may be a total waste of your time.

Quoted in a Sacbee article about the 2019 Sacramento real estate market forecast...

I was quoted in a Sacramento Bee article this weekend - Tony Bizjak interviewed a panel of Sacramento real estate experts including myself, appraiser Ryan Lundquist, and a few others to get our thoughts on the 2018 market and what we foresee for 2019.

I was not surprised to see that our answers were all fairly similar. And none of us predict that our market is in a "bubble" right now. That seems to be a popular question right now after increasing home prices for the last several years, since the bottom of the market in 2011.

I hate being asked the "are we in a bubble" question because I think most people associate the word bubble with what happened in the real estate market back in 2005-2007 when the real estate market literally exploded and the bottom dropped out of home prices. I do not believe we will experience a situation similar to that era anytime soon. The longer answer is a little more complicated. 

I think psychologically, a lot of people see that home values are approaching where they were in 2005 and fear a bubble. While it seems like yesterday, that was over 13 years ago! According to Trendgraphix, Sacramento County's median home price at the peak of the market in August 2005 reached $395,000. December 2018's Sacramento County median home price is $365,000. The reality is that the value of money changes over time, and when adjusted for CPI inflation, Sacramento's median home price would have to be approximately $507,000 today to be equivalent to the 2005 peak. When I earned my masters degree in public policy, the concept of adjusting for inflation and making values equal in today's dollars to be able to compare apples to apples was really beaten into us. I think this idea is absent a lot of analyses that I see.

Part of the run-up in prices from the previous peak was fueled by bad lending products like stated-income (non-qualifying) zero-down, interest only, or negative amortization loans. Those previous buyers hyper-extended themselves and could not actually afford those homes, and when the market declined many had to short sell or were foreclosed. We actually do not have those artificial lending products anymore, and buyers have to qualify for loans. Your average buyer today can not get a loan without verification of income, assets (for a 3-5% downpayment at a minimum), good credit, income and/or employment. Generally with unemployment rates low, interest rates still relatively low (and having dipped a little in the last month), and home prices still relatively affordable for California, I just do not foresee a bubble. And when the market does eventually decline -- because prices can not go up forever, and someday it will -- we will not have the same hyper-extension and level of buyer default that added gas to the fire before.

What I think we do need to be aware of is that incomes have not risen commensurately with sales prices, and we are likely approaching a saturation point where affordability becomes an issue. I believe that this is what will lead to stagnation of home values in Sacramento. But not a bursting bubble. There was an article this week in Comstock's Magazine that is a pretty good read that reviews the history of past real estate cycles. It is interesting to note that in past market cycles, the bottom did not drop out of prices the way it did during the Great Recession. Anyway, I am off to a super busy 2019 and I look forward to a solid year of helping both home buyers and sellers.

2018 - review of my real estate transaction statistics and how I compare to Sacramento market averages...

I ended last year with a bang, and had a busy start to 2018. I can't believe the year is over already! And what a year it was...it was one of my busiest years ever in my 13+ years in Sacramento real estate and did so while finishing my master's degree.

I like to track the statistics of my transactions, and toward the year end I always reflect on what I have done, how I compare to the rest of the agents in the market, and how I can improve. So as a follow up to my similar post last year, I thought I would publish some statistics and my thoughts on the coming year. Keep in mind, I am not a part of a "team" and this is all my own production. This year, all of my transactions are in Metrolist MLS, so this information is easily verifiable (although one sale was erroneously attributed to me that is not included in here)...in 2018:

-I closed 36 transactions and closed $14,473,000 in volume. My lowest transaction was $190,000, and my highest transaction was $749,900. The average was $402,028 and the median was $376,050.
-41.67% of my transactions were past/repeat clients (which is amazing to me!) 58.33% were new clients.
-94.4% of my transactions were residential properties (condos, single family homes), 5.6% were multi-family properties (duplexes, triplexes, fourplexes), and 0 were other (commercial, land).
-58.3% of my transactions I represented the seller, while 41.61% of my transactions I represented the buyer.
-My typical residential listing sold for an average of 100.56% of its original listing price (meaning, 0.56% over the original listing price) in just 17 cumulative days on the market. The distinction of original and cumulative is important...original means even after a price reduction from the initial listing price, and cumulative means even if a property is re-listed or comes back on the market.
-My typical multi-family listing sold for an average of 108.7% of its original listing price (8.7% over the listing price) in just 2 cumulative days on the market.
-My typical listing had an average of 4.14 buyer offers on it! (For further disclosure though, one listing really skewed this statistic and had 23 offers on it alone...removing that one, then it becomes an average of 3.2 buyer offers)

Comparing my production statistics to the overall Sacramento real estate market averages, my clients and I had another stellar year.

For one, to qualify for the Sacramento Association of Realtors Masters Club, a realtor must close $5M in transaction volume and a minimum of 8 closed transactions. Clearly I blew those numbers out of the water. I would guess that with 36 closed transactions and nearly $14.5M in volume I am likely in the top 1-2% of all agents in greater Sacramento.

My clients are all over the spectrum from first-time buyers, move-up buyers (those who sell their home and then purchase another home), investors, sellers of property they inherited via a trust or probate, sellers retiring and moving out of the area, sellers divorcing, etc. My average and median transactions at $402,028 and $376,050 are basically in line with the average and median home prices in the Sacramento region according to Trendgraphix data. My high and low range indicates I work with a broad economic client spectrum as well, from those working with downpayment assistance to those among top-income earners in the region. I closed just one short sale listing in 2018, and I also did list one foreclosure/bank repo. Distressed properties are a very small part of the marketplace right now though 5 or so years ago they were the bulk of my transactions.

My listing statistics are also excellent...according to Trendgraphix for Sacramento County, the lowest average days on market for a single family listing in the last 14 months was 23 days on market (with a high of 41 days on market), versus my listings at 17 cumulative days on market. My original listing price versus final selling price ratio is also outstanding as my listings sell for 100.56% above original listing price on average, versus the highest month of the last 14 months at 100% (lowest at 96%). I think these numbers are indicative of my strategic approach to listing property -- complete with pre-listing inspections, staging, repairs, professional photography, 3D virtual tours, TV ads, and multi-faceted marketing.

Comparing 2017 to 2018, the market went from crazy nuts to a little more balanced between buyer and seller. This, as far as I am concerned, is a welcome change and brings a slightly more equitable transaction between buyer and seller. Sellers need to price according to the market, and buyers won't have to offer their first born to actually have their offers accepted.

 It is a good thing for buyers not to be faced with such intense competition from other buyers -- though don't get me wrong: properly marketed, appropriately priced, good homes still sell with plenty of competition and offers.

Of course I hope to improve these numbers this year in 2019...so we shall see how that shapes up! If you think we would be a good fit to work together toward your next property sale or purchase, I welcome your contact via phone or email.