Category Archives: Real Estate Industry

The 5th Annual Northern California Residential Appraiser Conference Recap

Thanks to the Northern Solano County Association of Realtors for hosting us

Thanks to everyone who came to the 5th Northern California Residential Appraiser Conference jointly hosted by the Real Estate Appraisers Association (REAA) and the Northern California Chapter of the Appraisal Institute last week. While attendance was somewhat lighter than in past years, it was great to see so many in person. We had fantastic speakers, starting with Sandra Adomatis, SRA, 2024 National President of the Appraisal Institute.

AI National President Sandy Adomatis

Sandy gave us an update on current industry trends and the Appraisal Institute. I enjoyed hearing about PAREA, the training program alternative to the traditional appraiser apprenticeship, and am hopeful to see younger folks entering the profession. She shared a slide showing most states ready to accept PAREA now or very soon.

Of the 70,000 appraisers in the US at present, 4,000 are SRAs, 8,400 are MAIs, and another 1,400 hold reviewing designations. She also mentioned how the AI will be pushing back on the trend of using property inspectors in appraisals and the misperception of appraisers as mostly biased.

Heather Sullivan, NAA Appraiser of the Year

Next up was Heather Sullivan, head of learning and development for Aloft Appraisal, and the National Association of Appraisers Appraiser of the Year! Congrats Heather!

Heather’s talk was applying the business book classic Who Moved My Cheese? to the current state of the residential appraiser industry. Because of PTSD from my past life working for a rapidly growing music wholesaler, I can’t recommend the book, but I can recommend her talk. She discussed the changes coming and the overall process of accepting change, leaning heavily on WMMC. If you’ve been in the appraisal industry for any length of time, you’ve seen many changes (typewriters, 24-hour photo, MLS books for data, the 1004, UAD, online data availability, etc.). We’re about to see more change with property data collection, new automated tools for analysis, and new appraisal “forms.” Clients are pushing for faster production and if we’re going to serve those clients, we’ll need to adapt.

Heather shared a breakdown of the new appraisal report coming soon to a lender near you. There will be one report instead of the 15 or so different reports we deal with today with options to show sections as they apply. You start by selecting the type of property to be appraised, then the software will display required sections for every report (summary, assignment information, subject property, site, sketch, etc.), with optional sections able to be added by the appraiser as needed (energy efficiency and green features, manufactured home details, rental information, income approach, cost approach, etc.).

Side view of Jeff Bradford

Heather handed over to Jeff Bradford, CEO of Bradford Technologies. Jeff continued the discussion about the new forms coming soon and likened it to filling out your taxes with Turbo Tax. Not the most exciting description. He went into detail about the difficulties developing the new software and some challenges the industry might see. Both Heather and Jeff see the appraiser’s role in this new world to evolving even further into data analysis.

Jeff sees a problem with splitting the data collector role from the duties of the appraiser with a potentially lower income in the future the outcome. His solution-build software to help the appraiser preserve relevance in the residential lending valuation process. We then saw a demonstration of Bradford Technologies solution, NightHawk. Jeff showed us how this tool, in development, would allow for fast analysis with lots of ways to search and analyze competitive sales data, plug into an appraisal, and quickly report the results. I can’t wait to see NightHawk roll out.

From Left: Jon Reiter, Susan Reiter, Stephanie MacLean, and Amy Bolton-Christopherson. The panel was organized by Lou Rusert, standing far right

After lunch, we shifted gears to a panel of local builders. We heard from Amy Bolton-Christopherson, president of Christopherson Builders, Stephanie MacLean, CEO/President of Blue Mountain Enterprises, LLC, and Jon and Susan Reiter, owners of Reiter Fine Home Building.

This panel was especially interesting because each builder occupied a different market segment. Blue Mountain is a production home builder with communities across Northern California. Christopherson Builders is based in Santa Rosa and aims for the custom, higher quality market. I recognized Christopherson because they have rebuilt homes destroyed in the LNU Complex Fires north of Vacaville, one of my prime markets. Reiter Fine Home Building is a top of market spec builder in the Wine Country, with homes starting at $15,000,000 going up to more than $65,000,000.

Amy from Christopherson emphasized the difficulty in building new homes in California because of regulations and high indirect costs. Her example of a 1,200 sf accessory dwelling with a base price of $558,600 was eye-opening.

Stephanie from Blue Mountain reviewed the process her company goes through for developing a subdivision, from conception through feasibility, acquisition, marketing, and selling. She highlighted a new subdivision in Elk Grove with entry-level homes at $400,000, very reasonable and attainable for many in the Sacramento region.

Reiter Fine Home Building is different. Jon Reiter described their model of staying current with the latest trends in the very top tier of new homes in the US, designing and building one at a time. He discussed the importance of site selection for privacy and views for those who can afford a $65,000,000 home and emphasized that home size is less in demand in the top tier. He also discussed evolving tastes and how his company moved from Mediterranean to barndominium to modern.

All three panelists were kind enough to answer questions at the end of their presentations.

Yours truly in the deadliest slot, last

The final section was a discussion of short-term rental properties. Seth Carlsen, a Sacramento-based real estate investor, shared with us an introduction and lessons learned in acquiring and managing his 21 short-term rental properties. He reviewed AirDNA, the primary data source for short-term rentals, and provided comparisons to data provided about his properties by AirDNA and the actual data. He warned us to be careful to compare properties with similar amenities and maximum guest count, and to use multiple data sources.

I wrapped up the day with a comparison of short-term rentals to the standard rental properties residential appraisers deal with on a regular basis and warned about the relatively common request appraisers receive from lenders to provide a “rent survey” for short-term rentals. I encourage everyone interested in the topic to read John Dingeman’s article about the issues regarding lender rent survey requests and short-term rentals.

Thanks to host Northern Solano County Association of Realtors for allowing us to use their excellent facility. Thanks to all of our speakers who traveled near and far to share their wisdom and expertise. Thanks to Lisa Estes from the Appraisal Institute for managing the logistics so well. And thanks especially to my fellow committee members Lou Rusert and Chris Daniels, SRA for their work in planning this event.

Quiet, too quiet, and upcoming speaking engagements

I had a problem earlier this week with this website reverting to a 2016 version but was able to quickly fix with the help of the fine folks at my host, SiteGround. When reviewing the issue, I noticed that my last post was last summer. Yikes! Here’s the first effort to be more timely with my writing.

The Northern California Residential Appraiser Conference

Friday, May 3 (tomorrow), I am speaking at the Northern California Residential Appraisal Conference in Fairfield, California. My topic is a brief introduction to short-term rental (STR) properties with a focus on the issue of what to do when a lender asks for an appraiser to report “rental income” for a STR on the 1007 form.

Denis DeSaix, Penny Woods and I came together to produce the first joint conference between the Real Estate Appraisers Association (REAA) and the Northern California Chapter of the Appraisal Institute (NorCal AI) in 2018. Our goals were to bring the excellent teachers from NorCal AI to REAA residential appraisers and to build connections between the two organizations. Tomorrow is the fifth annual conference (Covid canceled the 2020 event) and we have a great group of speakers.

More information here

Other upcoming classes

The California Probate Referees Association has invited me to speak at their conference on Monday, May 20. I plan to discuss market change adjustments and contrasting, two quick and easy tools every valuation professional should use. This event is not open to the public but if you’re a probate referee in California, I hope to see you there.

Tuesday, June 4 I am teaching a time adjustments/market change adjustments class via Zoom for REAA. I will discuss time adjustments in detail here in a series of posts over the next several weeks.

Click here for more information or to register

What I’ve been doing instead of updating my website

I immensely enjoyed my trip to Palm Springs for the Community of Asset Analysts meeting in January. It was great to see in person many of my valuation friends. Below are some photos from the trip.

From upper left clockwise: George Dell speaking at the Community of Asset Analysts meeting; my fellow asset analysts; Brad Bassi in real life!; first time in Palm Springs; Joshua Tree NP was amazing; Yosemite Valley in the snow on the way home

Early 2022 Sacramento MSA Rental Vacancy Rate

It’s tough to be a renter in the Sacramento market now. Per the US Census Bureau, the Q1 2022 rental vacancy rate dropped to 3.0%. Good luck to anyone trying to find a home to rent.

For appraisers and real estate agents, this data is published for the top 75 markets in the US by the US Census Bureau. Go here to grab the data plus some other cool stuff from the Feds.

Like many appraisers, the past two years have been crazy for me. Life is starting to slow down so I hope to post more frequently.

Davis, Woodland, and Arbuckle Market Update for April and a quick discussion of appraiser shortages

I hope you’ve had your Covid-19 vaccine shots. If not and you’re in California, sign up now here.

Inventory continues to be low in the region with rising prices and competition for most properties. Sales volume is rising as shown below for Davis and Woodland:

Activity is up in Davis from the previous 12 months
Woodland sales volume continues to increase

Inventory has risen in Davis but is still on the low side. Woodland continues to run significantly below normal.

Prices overall are increasing rapidly in Woodland and moderately in Davis. Keep in mind that specific market segments may be trending differently depending upon demand.

Includes only single family homes in Davis city limits sold through Metrolist
Woodland sales reported to Metrolist in city limits of single family homes only

Multiple Offers

Everyone is talking about competing against 15 offers and prices 30% over initial list. Davis and Woodland are competitive, but not that competitive, as shown below.

Mean number of offers received trending up in Davis. Source: Metrolist
Woodland showing a significant increase in offers received

Arbuckle Market Trends

Arbuckle is an unincorporated community of approximately 5,000 people located about 45 minutes northwest of Sacramento along Interstate Highway 5 in Colusa County. It features homes built in the 1940-50s plus newer subdivisions built over the past 20 years and is surrounded by farmland.

Inventory is very low, not that unusual given how small the Arbuckle market is. Sales volume in 2020 was down 10% from 2019, not unusual for the area. Prices have increased significantly over the past 12 months as shown below.

Rapid price increases in Arbuckle during the pandemic per Metrolist

A longer look shows the effect of the pandemic on pricing:

Prices were stable heading into the pandemic but increased as most markets I cover did over the past 12 months
Arbuckle, CA is surrounded by farmland and split by I-5

Of the 37 homes sold in Arbuckle since 1/1/20 in Metrolist, 17 had one offer and 20 had more than one with a peak of 17 offers for one property. Competition has picked up in Arbuckle, following trends throughout the area.


Every day I receive calls and offers from lenders, agents, and buyers hoping I can help them with a purchase appraisal. I’m very fortunate to be busy and can’t finish anything quickly now because of my workload. I strongly suggest everyone to be patient if an appraisal is part of your transaction. This graph below from Freddie Mac will help explain the situation.

Source: The Effect of COVID-19 on Appraisal Volume – Freddie Mac Single-Family

Appraisal volume ties directly to interest rates. When rates fall, mortgage financing rises and drives appraisal volume up. When rates rise, appraisal volume falls. However, as shown above, the number of appraisers in the US who work with lenders has been relatively stable over the past eight years. The interest rate cycle rises and falls much more rapidly than the time it takes to develop a productive appraiser, causing appraiser shortages in times like now.

Good luck.

Davis, Woodland, and Winters Market Update September 2020

Six months after the Covid-19 stay-at-home order hit Yolo County, what’s happened to residential real estate in local markets?

Sales activity in Davis was low at the start of 2020 before the pandemic hit and continued into the spring with a massive drop in May. As shown below, Davis is way behind in sales compared to last year but we may make up ground in the fall.

2020 vs. 2019 single family residential sales in Davis per Metrolist
12 Month change in Davis single family residential sales per Metrolist

In contrast, Woodland started 2020 with strong year-over-year sales activity, putting on the brakes in April and May. Some of the missing activity shifted into the summer but Woodland is still behind last year’s numbers.

Woodland closed sales 2020 vs. 2019 per Metrolist
12 Month change in Woodland single family residential sales per Metrolist

While demand (sales) fell over the past six months, supply fell even further in both Davis and Woodland. We have seen an increase this summer in homes listed in Davis, hopefully a sign of the traditional summer market spilling into the fall.

Davis single family residential new listings per Metrolist.

Woodland saw a sharp drop in new listings in April and May and is continuing to track lower.

Woodland new single family residential listings per Metrolist

Net effect on both Davis and Woodland is a supply imbalance leading to rising prices. Davis is showing year-over-year increases in five of the past six months.

Prices have increased on a year-over-year basis in five of the past six months in Davis per Metrolist

Woodland prices are rising too as shown on the scatter graph of all sales below.

The Woodland SFR market has increased over the past 12 months per Metrolist

Below is a quick summary of both markets:

The standout statistic above is the incredibly low inventory in Woodland.

Winters is a much smaller market than Davis or Woodland. As the graph below shows, sales are increasing at present. Also note the lack of sales in April and May in Winters, similar to other Yolo County markets.

Prices have increased in Winters over the past 12 months too

Takeaways for Davis and Woodland

  • Sales volume is down
  • Inventory has declined more leading to a supply imbalance
  • Prices are increasing

Pay Attention To

  • Interest rates. The historically low rates are jet fuel for the residential market. When rates go up, pay attention
  • The local economy. We’re still in a recession with massive job losses and a large percentage of mortgage forbearances. So far, impacts to local housing have been minimal but that may change in a hurry

Are you seeing the same things in your markets?

Who needs an appraisal more than someone selling to an iBuyer?

Opendoor wants to buy my house!

Have you heard about iBuyers? This is a relatively new business model in residential real estate where companies offer to buy your home for cash with a very short turnaround. These companies, such as Opendoor and Offerpad, make a preliminary offer, do a property inspection to determine needed repairs, and quickly offer a price for the home. The iBuyer then prepares the home for market, cleaning and making any necessary repairs, and lists the home for sale. Zillow, Redfin, and national real estate brokerages are starting to offer this model, too. Here’s a quick primer from Housing Wire that explores variations on this basic model.

Some clear advantages to the seller include fast turnaround and simplicity. Accept an offer, receive your cash, bid on the house of your dreams. This is a compelling story in our short attention span society. But what is the cost?

This story discusses the only study to date showing that sellers receive, on average, 11% less than on the open market when all costs are included.

That’s $45,000 in my neighborhood.

The iBuyer model works only if there is sufficient profit between buying the home and selling it. This creates an obvious incentive for the iBuyer-make the lowest offer to buy and sell the home at the highest price possible. What supposedly separates the iBuyer from the traditional flipper is advanced analytics to determine the market value of a home. The iBuyer model relies on a seller not knowing the market value of their home and/or a seller willing to accept a below market price. Sellers are trading money for speed and convenience.

There’s variation in the data. Some transactions were closer to market value, some were further. The key to making an informed decision is to understand what current market value is for your home before you accept an offer.

Before entertaining an offer from an iBuyer, learn the market value of your home from a local, independent appraiser.

Why does North Dakota want to waive appraisals for 5 years?

Once again, the fine state of North Dakota has requested regulatory relief from mandatory federal appraisal requirements. Current law requires lenders to obtain independent appraisals when loan limits are above certain levels for federally related transactions. This law, passed in the aftermath of the savings and loan crisis in the 1980s, supports prudent risk management for a lending industry that has shown time and again an inability to manage itself.

This time, Governor Doug Burgum has requested a five year exemption on the argument that appraisers are hard to find in North Dakota. His argument for the waiver is that there is a shortage of appraisers in North Dakota. But is that really true?

I decided to test this. I downloaded a list of all active appraisers in the US from the Appraisal Subcommittee website and compared the number of active appraisers in each state to that state’s population. If North Dakota has a shortage of active appraisers, the population to appraiser ratio would be higher than in California, my state, where there is an oversupply in Southern California, right? I prepared the two graphs below to answer this for 1) residential clients (residential appraisals can be completed by any licensed appraiser); and 2) commercial lending clients (certified general appraisers only). So where does North Dakota fit in?

As of yesterday, North Dakota had 2545 people per appraiser. California, in contrast, has 4,194 people per appraiser. The US overall has 3,490 people per appraiser. North Dakota is in the top 15 for coverage for all appraisers.

North Dakota has even better coverage for commercial with 4,069 people per active certified general appraiser (US Coverage: 8,371 people per appraiser). It is top 5 for coverage in the US.

Do 35 states have a shortage of residential appraisers? Not that I’ve heard. Do 45 states have a shortage of commercial appraisers? No other state is asking for relief.

So why does North Dakota want undermine prudent financial safeguards?

I hope everyone who reads this will comment on the Federal Registry. Use this link. Comments close on 7/1/19.

Find My Appraiser

FindMyAppraiser.com

I’m excited to join the nationwide network of appraisers Find My Appraiser.

The residential lending industry is moving away from appraisals after seven years of rapid appreciation when many markets in Northern California are showing signs of slowdown and stability. I joined FindMyAppraiser.com because of their strong advocacy for appraisers and consumer protection.

From the FindMyAppraiser.com website:

FINDMYAPPRAISER.COM IS A NATIONAL REAL ESTATE APPRAISER DIRECTORY AND JOINT MARKETING CAMPAIGN

FindMyAppraiser.com serves as the link between local property appraisers and the public that needs these services.

Let the buyer beware!  Now more than ever American consumers must protect themselves when purchasing a home, buying rental property or investing in a business.   These decisions are “life changing” and can effect consumers for many years to come.  Buying a home is the biggest financial investment one will make and getting an accurate property value from a qualified local appraiser is best way to make sure you are making a wise decision.

Many banks don’t order appraisals!  That’s right.  Many home buyers believe banks will order an appraisal when they apply for a mortgage but more and more banks are using AVMs (Automated Valuation Modules) or out-of-the-area “valuers” in the mortgage process. These valuations are not performed for your benefit, they are only used by the bank.  You don’t own them and you should not rely on them to make your purchase decision. You need a properly trained market expert. You need an Appraiser.

FindMyAppraiser.com is dedicated to supporting professional appraisers and promoting consumer protection.”

Thanks to Phil Crawford and Lori Noble for putting this together.

What’s A Comp And Why Should You Care?

Sample Comparable Search in Woodland, CA

Two recent posts from my friend Jamie Owen at the Cleveland Appraisal Blog plus a planned realtor office visit inspired me to write this. Jamie did a great job blowing up the myth that comparable sales need to be within one mile of the subject in this post. He also tackled geographical competency, or the need to have boots on the ground knowledge about a market in order to credibly value properties in a second post.

Both posts touch on the subject of what is a comparable sale and why should anyone in real estate, or even the general public, care? The quick answer is that “comps” are the basis for how we, both those in the real estate industry and the man on the street, value residential real estate.

Per the Dictionary of Real Estate Appraisal, 3rd Edition, comparables are:

…similar property sales, rentals, or operating expenses used for comparison in the valuation process; also called comps.

Comps are used in the Sales Comparison Approach to Value, especially in residential real estate appraisal. All of us, appraisers, real estate agents, and folks considering buying a home, use the theory of substitution to determine the value of a home. What would the typical buyer shopping in that neighborhood buy instead of the subject?

A comparable sale is a sale of a home that the typical buyer of the subject would buy instead of the subject.

Subconsciously, everyone who owns a home compares it to homes in their neighborhood. We learn about a recent sale on our block and place a price on ours based on whether we think it’s better than ours, relatively similar, or inferior.  The formal version of this is the sales comparison approach used by appraisers.

We appraisers find the most similar sales, adjust the comparables for differences from the subject, leaving each adjusted comparable sale an indicator of value for the subject. The vast majority of single family residential appraisals in the US rely upon this methodology.

In the context of the sales comparison approach to value, the key is to identify the comps for the subject.

The easiest way to get the value of a single family residence wrong is to get the comps wrong!

As my mentor George Dell says, “What does similar mean?
(Now go subscribe to his blog. He’s really smart. Then take his classes)

Residential real estate, such as a house, a condominium, a home on a small acre lot outside of town, etc., have characteristics (“dimensions”) that serve as descriptions of a specific sale for a specific property. The more similarities between a sale and the subject under consideration, the better a comp. We can go into a deep dive, like George does in his classes; instead, I want to talk about what I do specifically for simple single family residential work in conforming neighborhoods.

Some examples of dimensions and characteristics important to valuing homes include transaction terms (financing, credits, etc.), motivations, location, views, quality, design, condition/age, floor area, and amenities.

Some dimensions/characteristics are more important than others and can vary dramatically in importance depending upon the location. For example, pools are valuable in the Sacramento region but have less value in the Pacific Northwest where the weather is cooler. Basements are common in the Midwest and East Coast but not so here. In the Whisper Creek Subdivision in Arbuckle, CA, a tract of large homes on half acre lots, RV parking is a significant factor unlike other nearby markets. This is why the geographical competency that Jamie discusses is so important. Appraisers with geographical competency understand what characteristics define a true comparable and get the subject’s value right.

Time usually matters except when it doesn’t. If a market is rapidly changing, using the most recent sales can reduce the impact of market change. When a market is relatively stable, time is less important and so using older comparables is reasonable. I downplay time frequently because time is usually the easiest and most reliable adjustment to make.

For a typical tract home in my area, the most important factors are motivations for the purchase or sale, time, location/proximity, and size/floor area. I start with a map search using my neighborhood boundaries and go back 12 months prior to the date of value for closed sales. I exclude from consideration REO sales, short sales, and other transactions where motivations likely had an impact on sale price.

I search for homes a little smaller than the subject because most buyers can make do with a slightly smaller home. Because the typical buyer can accept a larger home than the subject, I set the upper boundary on my floor area range wider than the lower bound. For example, if the subject has 2300 sf of living space, I will search for comparables with 2000 sf to 2800 sf of living space (300 sf smaller to 500 sf larger).

After I set my criteria in the MLS search, I run the search and review the results.

Metrolist Search Results
Search Results

I mentally draw a box around the subject’s important characteristics so I can place it in the competitive market. This is known as bracketing. Reasonably, would the typical buyer consider the sales found suitable substitutes for the subject? Are the sales similar in quality and design? Are there differences in lot size or age? Do I have larger and smaller homes? Do I have homes in similar condition, or inferior and superior? I try to account for every significant characteristic of the subject so I can show, by comparison, the value of the subject by using these comparables.

If I’m comfortable with the sales found, I can start my adjustments analysis. If not, I revise my search criteria and run the search again until I am happy that the sales found reasonably describe the subject.

Once I have my initial candidate comparable sales identified, I dig in and look for most representative comparables of the subject and decide on which sales to research further (view the exterior, contact agents involved in the transaction, etc.). I review outliers, sales outside the normal range, and try to determine why the sales deviate from the norm. I either adjust for the issue or remove the outlier from consideration. The remaining comps, after adjustment, are my indicators of value for the subject.

Comps are usually easy to find in conforming neighborhoods as long as the subject is similar to the rest of the neighborhood. When the subject is unusual, or when there are few sales available and they are all different (“non-conforming”), comparable selection is difficult. The appraisal becomes complex and beyond the scope of this article. I do have tips in my article about appraising complex residential properties.

How do you search for comparables? What are some tips for a real estate agent or new appraiser you can share?

Why You Should Join An Appraisal Organization Especially Now

I’ve posted the full version of my article Why You Should Join An Appraisal Organization with links to the organizations mentioned in the article. Now is an important time for the residential appraisal industry to join together because of threats to our place in the US real estate market. We need to spread the word of the role of appraisers, especially to federal regulators who want to diminish our standing.

If you haven’t heard, federal financial oversight groups such as the FDIC, Federal Reserve, and others have proposed changing the de minimus for residential lending in the US from $250,000 to $400,000. This is exactly the wrong time to reduce oversight in residential real estate given widespread signs nationally of markets slowing and potentially nearing a peak. Did we learn nothing in the last market crash?

Ryan Lundquist has an excellent summary on his blog (link). I strongly encourage you to sign the petition started by Ryan and Jonathan Miller at change.org (link) and to comment in the federal register about why this is a bad idea.