So, you ask; where are we at the end of the fourth quarter in 2017?
Have a look, call or email me with your questions.
So, you ask; where are we at the end of the fourth quarter in 2017?
Have a look, call or email me with your questions.
I specialize in homes under $300,000. The value of looking at entry level homes is as you go further and further down in price, the value of the home gets closer and closer to value of the vacant land. By the time you get to homes priced below $200,000 you see almost every home is beyond repair and needs to be removed. From this price point you can determined the value of the land only.
I attached a link to this blog that takes you to a spreadsheet that has every home sold or listed for sale in Nevada County this year that is or was priced under $200,000. Have a look. The two homes marked in yellow were in good enough condition to qualify for conventional financing. The seven marked in pink would qualify for a government backed rehabilitation financing. If the borrower met the qualifications for a loan, the government would loan enough money to buy the home and fix it up to make it move-in ready. Such loans have a $30,000 cap on rehabilitation funds. The seven homes in pink are not in good enough condition to pass an inspection by an appraiser, but for less than $30,000 in repairs and fixes the homes could be made livable.
The other 21 homes on the list are “land value only.” Everyone of the other 21 homes is so far gone that the home needs to torn down. In some cases not even the septic system has survived the ravages of time and abuse these properties have suffered. In other cases, the homes have failed roofs, failed siding, or have walls, doors, and windows missing. In some cases, there is no home, just a trailer, yurt, or shack.
My blog features entry level homes, fixers, and rural properties.
Sign up and get regular email updates of listings I am profiling, or give me a call, let me know what you are looking for and I will set up a unique search for you and your needs.
Found this interesting graphic. An average price per square foot is not an indication of the value of any one home. Homes vary greatly in their individual pricing. But, on average, if we assume that in the market place over all, month over month and year over year, there are about the same number of homes of all kinds sold in any given month, then the average price per square foot, averaged over the entire market, gives and idea of the trending prices. As the price goes up or down, consumer sentiment about the value of homes rises and falls proportionally. If the general rise in the price per square foot is up on average 2% over the course of a quarter, then any given home is probably worth about 2% over the same time period.
So, take a look at this graph and you will something quite interesting, and perhaps unexpected if you do not follow home prices closely. In the late summer of last year home prices slowly rose till they reached their highest level of the year in September. Then the market suddenly declined in October, and remained stuck in that range until May of this year when prices suddenly broke out of the range with a sudden leap higher. In July of this year prices backed off a little. August number are not in yet, but the indications is we have seen the high water mark for the year and prices will decline back into the range that was establish last year or the rest of this year.
Call me if you want to understand more about this!
This link will take you to a page called “CALL TO ACTION”
Click on the button, and it will link to a download of Excel spreadsheet with seven properties located around the geographic are that have or had homes that had such sever structural damage the best use would be tear the home down and repurpose the land and remaining improvements for a new home.
When a home cannot be renovated and must be torn down and it is located in a neighborhood that is already completely built out it gives a rare glimpse into the value of the undeveloped property. In neighborhoods where new homes are rare, knowing what the price a spec builder or developer will pay for the land gives a window in to the what that developer expects the value of homes in that neighborhood will be when they finish their project in the coming year.
If you are thinking of buying a fixer or a home that needs major structural renovation, and there are no other vacant lots to for a comparative price analysis, this spreadsheet gives you a way of looking at land values that spans a wide range of geographic locations and neighborhoods. The answer to the question that every investor needs to know is what is the value of the lot? This gives you a chance to see that buyers are paying for lots and land.
Loan companies and banks, the ones who lend the money, look at three things to determine who they will lend money to and under what terms.
1) They look at your income. They determine your income by looking at your tax returns. If you have income that is not reported on your tax returns, then that money is “not counted” by the lenders. Lenders don’t report you to the IRS and they don’t care if you pay taxes or not, what they care about is the “documentation” of your income, because the people who lend the money, the actual investors who provide the funds that you use to purchase your home, want assurance, or a least a high degree of confidence, that the person borrowing the money will be able to pay it back, and the way they make that determination is based on your tax returns for the last two years. They want to see exactly how much money you made and who you worked for, and what sorts of revenue streams you have coming in, and they use that information to determine how likely you are to be able to pay back the mortgage amount, month after month for the for as long as you might own the house. If you get paid “under the table” even if you put the money in your bank account, it makes no difference to the lender, they don’t count it as income unless it shows up on your tax return. If you run a home business and you get paid in cash, you are still expected to file a tax return showing how much money you earn from one quarter to the next. How much you pay in taxes is not what the lenders care about, they look at the total earnings, not how much you pay in taxes to determine how much they will lend you.
2) The second thing lenders look at is your overall money in the bank and how it got there. Lenders want to know how much money you have and where the money you have in the bank came from. If you have been saving it, then lenders want to see the deposit slips showing that you made regular deposits into your account that added up to the amount of the down payment. Let’s say your down payment is 3.5% of the purchase price, and you are buying a $200,000 home. Then your down payment would be about $7000. Lenders want to know, how did you get the $7000 you are using as your down payment. If you saved it up over the course of a year or two years, they want to see deposit slips from your bank showing that made deposits once every two weeks or every month reflecting savings from your income. If you got the money from some other source, like a family member, or even from the sale of a car or some personal property, then they want to see the receipts showing when you received the money and how much of it you put in the bank. What the lender wants to know, is, of course, that you acquired the money legally, and don’t owe the IRS money. Also, the lender wants to make sure that where ever you got the money, from a friend or family member, that person does not have some sort of extra-legal relationship with you. For example, if you borrowed the money for a down payment from a family member and the family member expects you to pay them back, then of course, you would be expected to pay them back in addition to the loan payment, and that might be more than you can afford, and the lenders know, family always get paid back first. If things get difficult, you will stop paying the bank before you stop paying back a family member, and for that reason, your lender will not allow you get the down payment from family members unless it is certified by that family member to be a “gift” which means you are not expected to ever pay it back. The lender will seek documentation to prove exactly how you came about having the money for you down payment.
3) The lender will look at your credit score. A credit score is a compilation of all the things you do that don’t involve cash transactions. It includes you credit cards and car loans, any other loans you might have, and how much money you earn and spend every month that can be tracked from debit cards to lease information regarding any items you pay off over time. It can even include your PGE bill or telephone records. If there have been late payments or delinquencies, or a financial judgment against you from a court and that is on your record, the credit service has that information and they use that information to come up with a “credit score” which is just a number that tells the lender how well you have done in the past in paying off any debts you might have incurred, as well as keeping a record of any debts you might being paying off in addition to the new debt you are applying for with loan.
The lender looks at all three of these measures of your credit worthiness before they make the decision to lend or not lend you the money.
I have a lender that could assist you in navigating this terrain. She is very helpful and can guide you to the right decision regarding ways to improve your credit worthiness. Her name is Schan Delle Nettles and her phone number is 530 271-3748. Give her a call, mention my name. She will help you out.
I made a 35 minute video addressing the market conditions and trends for homes priced between $500,000 and $650,000. There is no graphics, just me presenting the details about the market in a organized presentation using my notes and data from comparable sales. It is a bit long, so you need to watch it from your computer. It should work on a phone or tablet, but it might be annoying to watch on a small screen. You can also just listen to the audio, as the actual video is just me in my office, talking, and looking back and forth at a pile of note papers.
The information is helpful baseline data for the decision about the list price and strategic market considerations for a half million dollar home in the 3rd quarter of 2017. If you want to know where the market will be at Thanksgiving, repeat the same data search when we get to the end of September and see what the trend lines and emerging prices have to say about the coming market for 2018. Have a look at the video, if you have specific questions, of course, send them along. I can unpack the information in greater detail and that might be a good thing to do in another video, but for right now, this establishes a baseline for where the market is at.
In real estate, comparable sales data is the holy grail of broker information about the value of homes and land. The near terms record of escrows closed on homes similar to your home tells buyers they should expect to pay a similar price for your home. When real estate professionals add up all the sales of similar homes over the last 30 days and find the average price, as well as the full range from the highest to the lowest price buyers have paid, as long as there enough sales data to make a reasonable sample size, its a pretty good bet that your home will sell somewhere within that range. By comparing your home to the average and adding or subtracting dollars for the replacement cost or upgrades that constitute the differences between your home and the average home, you can come up with the likely price and buyer will offer for your home. I am not being facetious here. That’s really how it is done. Lots of homes, everyone a little different, but in truth, homes have a lot more in common than there are differences. Appliances, floor covers, even paint and carpet are all relatively small costs when compared to the total price of the home. Consider this, every home has a kitchen. The only difference between an expensive home’s kitchen and less expensive home’s kitchen is the cost it would require to make the less expensive home have the same kitchen as the more expensive home. Same goes for bathrooms, fixtures, and every other thing that is built or developed on a piece of property. Homes are made of sticks and bricks, and every house is valued based on what a buyer would pay for your home or a reasonable replacement. If a reasonable replacement for your home offered at lower price by another seller, then buyer will purchase that home or make a lower offer on your home to match what they think is the fair price. So here is a secret hardly anyone knows. Homes sell at the lowest price any seller will accept for a home that is reasonable replacement for any home in the same general class and condition. Sellers control the price of homes, not by adding up the value of the features and amenities of their home, but by competing with each other for buyers and cutting their price low enough to cause a buyer to make an offer on their home and not some other home that would otherwise be an acceptable substitute. The reason sellers cannot collude to inflate prices is there are simply too many of them. The result is a fair market evolves where prices float to the natural level of the lowest price any seller will accept based on a free market conditions where buyers can shop and compare. Real estate is not rigged. If somebody is willing to sell their home for less than you want for your home, their home will sell and not yours. When you decide to lower your price so that every other similar home listed for sale is a little more expensive then your home, then your home is the one that sells first. Home prices rise and fall based on the supply and demand of the available homes. The condition of the home is only an important determinant of price in relationship to the expectations of buyers with regard to the condition of all the other homes they are looking at in the same general price range.
Real estate sales require a buyer and seller to agree on a price and terms. The negotiation between a buyer and seller is the ultimate arbitrator. Of course, you can refinance your home and then the value of your home only matters to you and your lender, or you can do an appraisal for estate planning purposes which means the value of your home is just a number on a spreadsheet, but when friends and clients ask me, what’s the value of my home? Inevitably, what they really mean is, if I list my house sale today, how much can I expect a buyer will be willing to pay for it?
The first principle, and the one basic assumption that anyone who asks what their home is worth must implicitly accept is called the “rule of substitution.” Some of you might be familiar with this rule from an economics class taken sometime in your distant past. Here it is: The rule of substitution says that any time a consumer is offered a choice between two products that have the same intrinsic features and qualities the consumer will always chose the less expensive of the two products.
This is not rocket science, and it is common sense. Two bars of soap, both are the same, one is for sale for buck, one is buck and a half. Consumers buy the one for a dollar. Two cars on Craig’s List, both are the same, the cheaper one sells first. Nothing surprising about this. If this same rule did not apply to real estate just like any other consumer product, then the entire science of price prediction would be impossible. Once you accept that people buying homes are really no different than consumers of any other product and that they shop and compare homes based on features and amenities, and then buy the home that offers the features that they need and want at the lowest price, then you can begin to wrap you mind around the true impact that the supply and demand has on the price of a home. The real reason that home prices range up or down a few percentage points from one week to the next, and trends start and stop with prices moving first one way then the other, is all based on the ever changing inventory and the ever widening and shrinking pool of buyers.
When I make predictions about the value of a home is it because I have been previewing the inventory continuously week after week and I have seen every kind and style of home in our county and I know what buyers and sellers have agreed those homes have been worth over many cycles and seasons of our market. The result is I can quickly run through the catalogue of similar homes and what they recently sold for, and know pretty well what a buyer would expect to pay for your home. How I do that will the subject header of many future blog entries.
I want to start by telling a story. It a humbling story, but it serves good purpose. Back in 2007 and 2008 when the housing market was in its initial state of decline and home prices were falling quarter after quarter there was considerable disagreement among real estate professionals about just how bad this dip in prices was going to be. I was an optimist. I believed, without any real evidence, that the downturn would be short lived, home prices would quickly rebound, and in 2009 I thought we were about to turn around and home prices would rise. I was advising my buyer clients this was buying opportunity and I was advising my sellers, just hold on a few more months. I was betting the market would return to the long term historical trend of increasing value and homes would once again be the rock solid investment they had been my entire life.
I was wrong, as we all know. It got worse, much worse, and the decline in values lasted much longer than I had hoped or thought possible. People who bought in 2009 with the anticipation of rising values in the near term went under, and people who held on for another year might not be out from being underwater even today! Hard lessons and difficult decisions. The real estate market is docile today compared to 2010 and 2011. But the lessons of those “bad” years are not to be forgotten. Prices fluctuate, supply increases and decreases and then increases again in regular heart beat tuned to the seasons, and buyer demand goes up and down based on perceptions that are often times driven by media hype. Hubris is a powerful enemy to fact based decision making. The market never lies, but sometimes it is difficult to see when the facts contradict entrenched beliefs. Homes always sell for exactly what a buyer and seller agree is the right price. Sometimes principles that are the most self-evident are the most difficult to apply with integrity. So, for this first blog entry, let me do a little “be honest” (a term favored by one of my business coaches when he wanted to make a point that required rational introspection rather than usual self-aggrandizing hype of a sales person). I don’t have a crystal ball. Nobody does. Nobody knows what will happen two or three years down the line. Nobody can tell you today if the home you buy or sell now will be worth more or less 24 months from now. It would be unprofessional and pretentious, and an outright lie if I claimed to know the future. That’s not what I do, and that’s not the point of this blog.
So, I empathize with my clients. What I hear every day from my clients who are in the process of buying or selling is they are trying to decide to act or wait. They want to know if they wait will they be rewarded with greater leverage in the transaction then if they take decisive action today? Of course, long term, a decade or more, prices will rise the same as general rate of inflation for all goods and services, but in the intermediary time frame, two years, or less, the price or value of a home is uncertain, and buyers and sellers are grappling with this uncertainty and are seeking my professional advice on what might amount to tens of thousands of dollars of additional costs or lost equity if they act imprudently. What I can assure my clients is that while the price of a home is uncertain it is not arbitrary and it is not irrational. I have dedicated this blog to understanding the logic, math, and statistics of our local housing market. Nothing so refined as an exact formula is possible. But what is possible, what is actually doable, and really makes a great deal of sense, is knowing what is happening in the real estate market in terms of short term trends, especially if you want to know what is likely to happen in the next 12 months. What I am very good at is knowing where we are today, and where we are going in short term, and that turns out to be very useful to just about everyone who wants to buye or sell right now, and that’s why I create this blog.
As a real estate professional I study homes and prices every day. I have a mental catalogue of the number and type of homes that populate every neighborhood in Nevada County. I am intimately acquainted with every street and know the houses by price range and condition over the full spectrum of our housing inventory. I don’t determine what buyers want, need, or can afford, and I certainly do not tell sellers what to do with proceeds from the sale of their home. What I actually do is advise buyers and sellers on the trends, preferences, the historical facts about the value of homes. I assist them in making reasonable assumptions about the near term fair market price of any particular home they are considering buying or selling. For sellers, I help them to set the price that will generate interest by potential buyers and present them with offers for consideration and response. For buyers, I help them understand the market considerations of making offers on property they want and assist them in crafting an offer with a price, terms, and conditions that will be accepted by a seller.
Every week, on Friday afternoon I take the pulse of the market by summarizing all the sales activity for the previous week. I record the data on a spreadsheet and make graphs so I can grasp the data visually. I look at new listings, new pending sales, and closed escrows. I compare homes and prices as buyers and sellers jostle to find the “meeting of mind” that makes a transaction possible. Over the course of several years in times of rising and declining supply and through all the seasonal changes in demand, I have come to understand how prices fluctuate week over week and month over month. I know how, why, and when the market continually adjusts to meet the expectations and desires of buyers and sellers.
My observations and knowledge of the housing market are put to use every day by the buyers and sellers I represent. Individual clients don’t need to know and rarely care about market factors that determine how home prices are changing beyond the specific home or neighborhood where they want to buy or sell. Nonetheless, I generate a great deal of information about the broader market and track trends and watch the changing home prices regionally, every week, regardless of whether I have a client that can use that information on any given day. For one thing, I am always acquiring new clients with new wants and needs, but I am also tracking parallel markets and neighborhoods far afield of where my own clients might be located as a way of understanding our regional market, and because trends that grab my attention in one neighborhood or subdivision tend to spread.