Rocket Science & Real Estate
The sale of real estate is not ‘life or death’. Buyers choose their house and their agent. The house has to sell itself. My job, if I’m valuable, is to tell the buyer what’s WRONG, not what’s RIGHT, with the house and property. (I have to be very careful about telling the buyer what’s WRONG with the area – redlining and such.) There are a plethora of advisories and disclosures to assist the buyer in performing their contractual rights and duties of investigation and inspection. But it’s not rocket science. I can tell you, factually, that many agents couldn’t spell ‘rocket’ let alone describe the science behind it.
Then one of my past clients told me they refer to me as the Rocket Scientist of real estate. That’s how they describe me to others. That’s makes me very proud.
My system of tracking, analyzing, and reporting of the local market is not rocket science. Not many agents can translate my information and even fewer go to the same lengths of understanding the data. I love data, trends, and, if you can’t tell, yelling my opinion from the mountain top (you are reading it now).
Figures never lie but liars sure can figure. This is a favorite adage of mine. As I watch the government agencies tout their success and predict more success in the future (a la Consumer Confidence, Housing Starts, etc.), only to revise their figures lower in the next month, the adage comes to life before my eyes. It is so obvious that I have stopped tracking and reporting on those figures which come from a government agency. Am I a cynic or just want to avoid inclusion of bad data? A rocket would fail if the scientists used bad data. That’s as close as I get to being a rocket scientist. But I love the moniker.
The last 3 years are shown in this Swing chart. Since summer of last year, the momenta of zip codes in our market are still at an odd relation to each other. When the number of unchanged (NC) momenta indicators exceeds UP and DOWN, it typically signals a ‘swing’ from UP to DOWN, or vice versa. But that swing is usually obvious in a short duration.
Equilibrium, although rare, is when swings are seasonal and NEVER show a spike in any direction. Equilibrium, by definition, is when a single buyer and single seller agree on a price [and the appraiser agrees, too]. For an entire market to be in ‘equilibrium’ means supply and demand are perfectly in sync. Anything perfect cannot happen.
So what’s up with this behavior?
Fair Oaks — June 2016 is a Seller’s market! The number of for sale listings was up 17.5% from one year earlier and up 8.8% from the previous month. The number of sold listings decreased 14.3% year over year and decreased 14.3% month over month. The number of under contract listings was up 5.8% compared to the previous month and up 15.9% compared to the previous year. The Months of Inventory based on Closed Sales is 2.5, up 38.9% from the previous year. (See web page for Fair Oaks details)
Fear And Value
A buyer has the right (and duty) to investigate and inspect many things about a house, property, community, and area once escrow begins. Typically, a buyer pays for Home and Pest inspections, reviews the seller’s disclosures, Title report, HOA docs (if any), the hazard report, and any lease agreements that survive the close. The findings in these investigations and inspections are usually documenting minor issues which are found in most homes in California. The findings also don’t generally create a “fear” in the mind of the buyer.
But then the buyer may find a neighbor’s house was swallowed by an un-mapped mine. But nothing was mentioned on the hazard report and the County doesn’t have any documentation showing the existence of mines (but their lawyers produced a disclosure warning of the possibility). This finding could, and has, caused fear and a cancellation. Would this and, potentially, multiple cancellations have an effect on the eventual appraisal of the property? It destroyed the valuation in the mind of these buyers. Why wouldn’t an appraiser concur?
Or, then the buyer may find a “green dot” on Megan’s Law Database and the buyer has small children. This is a “no go” website for REALTORs because we would have to disclose the “green dot” and it may be incorrect or outdated information. The law would rule me at fault for disclosing incorrect information – I am a broker so would automatically be at fault. It doesn’t change the fact that the buyer, now fearing the potential criminal in the area, wants and needs to cancel their purchase. It destroyed the valuation in the mind of these buyers. Why wouldn’t an appraiser concur?
Or a seller, who must disclose material facts (but not be the arbiter of ‘material’), tells buyers there was a death on the property. This causes fear in many buyers. This death is especially harmful if the death was violent (or self-inflicted). And, therefore, that house has less value than the next-door neighbor (ceteris parabis). And if the final sales price of that house reflects the ‘taint’ of the death, then subsequent appraisals of a neighboring and comparable house can be pulled lower by the tainted sales price. Appraisals don’t have an adjustment for ‘death on property’. Why not?
Fear, by definition (not the acronym), reduces the value of that which brings the fear. A house near a “potential” mine shaft or a “potentially accurate” location of a criminal can and will reduce the value of that house for most buyers. Should the buyer’s lender also consider that in their evaluation of their risk?
This issue goes very deep and has many consequences to buyers, appraisers, agents, sellers, lenders, and neighbors. If the house may get swallowed by a mine or accosted by a pedophile or may have a stigma of any kind, there is fear. Fear affects value. But why doesn’t it affect the appraised value?
That place where the internet and real estate values meet
My Grandma never considered the internet when buying her first house, but these days it’s on all of our minds. Think about it this way. Would you buy a house if internet access was going to be impossible for some reason? Assuming we’re not talking about a secluded cabin somewhere, it’s safe to say most buyers would have a huge problem with that (not just Millennials either). Yes, there would probably be a value impact to not have internet, but the really intriguing part begins when we consider that what happens online or digitally at or around an address can also potentially impact value. This wasn’t even a part of the conversation just a handful of years ago, yet here we are.
Digital World Meets Real Estate: A few months back I heard of a house in Kansas that had 600 million IP addresses pointed toward it. If you don’t know, every computer has what is called an IP address, which is basically a string of numbers to identify that individual computer. Well, in this case due to a company’s digital mapping error it looked like 600 million computers were being used from this one location in Kansas, which led to a whole host of problems for the occupants. As the article states, the owners and tenants have “been accused of being identity thieves, spammers, scammers and fraudsters. They’ve gotten visited by FBI agents, federal marshals, IRS collectors, ambulances searching for suicidal veterans, and police officers searching for runaway children. They’ve found people scrounging around in their barn. The renters have been doxxed, their names and addresses posted on the internet by vigilantes. Once, someone left a broken toilet in the driveway as a strange, indefinite threat.”
Yikes. Assuming buyers knew about the IP address problem and unwanted visitors and threats, couldn’t a mistake in the digital world cause buyers to pay less? Or maybe renters would pay less? Appraisers, would this be considered external obsolescence?
BIG POINT: What happens online or digitally around an address just might impact value. Think of the advent of Pokemon Go and how a digital game has the power to bring customers to commercial properties or maybe even help increase use of neighborhood parks. Remember, if you’re tired of hearing about Pokemon Go, don’t worry because there will be many more games just like it in the near future. Again, the digital world and real estate are colliding, and we can expect more of that in coming years.
Questions: Would you buy a house without internet capabilities? What other types of activity online might impact a home’s value?
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