Expert Appraiser Shares: Navigating Today's Tough Housing Market

Transcription

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Bob: They raised the rates like they did a year and a half ago. We went from 3 to 8, but bounced around 7 to 8 range. Looking forward to that time, I thought we were going to adjust maybe 20%. You either have to have income go up, you have to have lower interest rates, or you have to have lower prices. So that's what we've been struggling with for the last two years. And that's what the Fed tried to solve by raising rates to get values tapped down a little bit.

Pete: Yeah, they tried to. They had to slow it down. They had to completely slow it down, obviously, inflation.

Bob: Exactly. Values haven't dropped much since they did that. So, affordability is still a major issue.

Pete: So Bob, thank you so much for coming in.

Bob: Thanks for having me, Pete.

Pete: Yeah. I appreciate it. So, I will just introduce to the viewers who you are and what you do.

Bob: Sure.

Pete: So you've been an appraiser here in Shasta County for a little over 20 years.

Bob: You betcha.

Pete: Yeah. And I didn't know this about you, but you were in lending before that.

Bob: Yes.

Pete: You've also built quite a few spec homes.

Bob: Correct.

Pete: And you're also an investor as well.

Bob: Correct.

Pete: Yeah. It looks like you enjoy the apartment complexes.

Bob: Yes. Start with single families and work the way up to apartments.

Pete: Nice. That's awesome. We might get into that a little bit. And then your current projects. I am looking to find a business in this market and maybe find some deals.

Bob: Right.2 Tough market the past year.

Pete: Yeah. You love to travel.

Bob: Yes.

Pete: Which is awesome. I call you often, and you're in some other country, on a cruise somewhere.

Bob: Yeah, we do a bit.

Pete: Yeah. Do you love to play golf?

Bob: Yes.

Pete: And your goal is to visit everywhere?

Bob: Yes.

Pete: Awesome. And then, let's see, topics of interest. We'll just see how to see where it goes.

Bob: Sure. Absolutely.

Pete: So, where have you been?

Bob: We had a trip to China and Japan that was canceled because of COVID, so that's one place we want to go to.

Pete: Oh, I see. Wow.

Bob: We've been to Africa a couple of times, but we haven't been to the Serengeti portion of Africa yet. During COVID, another trip that we had to cancel was India.

Pete: Oh, wow.

Bob: Yeah.

Pete: So you got Africa, you wanted to go to Tanzania?

Bob: Yes.

Pete: Got it.

Bob: Yes.

Pete: You've been to Africa and other parts.

Bob: A couple of times. Yeah.

Pete: Got it. Where in Africa?

Bob: We've been up in the north in Tangier, and then we've been down at Cape Town and around the horn there.

Pete: Wow. What's your favorite place you've been to?

Bob: Ooh, as far as favorite, there's one place that we said if we ever said we left the United States, we'd live, and that'd be New Zealand. We've been there a couple of times.

Pete: Oh?

Bob: Love New Zealand. Yeah.

Pete: I've never been to New Zealand. But my sister lived there for, I don't know, 15 years.

Bob: Really?

Pete: Yeah. In Auckland.

Bob: Auckland's awesome.

Pete: Yeah. Auckland, New Zealand.

Bob: Wow.

Pete: So she just moved back to Indiana, and she's got five kids, and they all have little Kiwi accents. It's pretty cool.

Bob: Did she love it?

Pete: Yeah, she liked it a lot. They moved back because COVID was hard for them.

Bob: Yeah. They locked them down completely.

Pete: Yeah. They cracked down. It was tough for her to go to the market.

Bob: Oh, geez.

Pete: So, they wanted to come back closer to family. Her husband's family lives.

Bob: Gotcha.

Pete: So, yeah. But no, I was supposed to attend their wedding, and I'm ashamed I didn't. At the time, I wasn't doing very well. In 2009, I just went through bankruptcy, and I couldn't afford it. But I should have just made it happen. I was looking back.

Bob: Too bad.

Pete: Yeah. But no, that's awesome. New Zealand. That's great. Cool. Well, I have some questions here.

Bob: Sure.

Pete: And it's an exciting market we're in, and I appreciate you coming on. So, for most of our listeners, my goal for this channel, this podcast, is to help many first-time buyers understand the process and existing homeowners navigate each market's ins and outs. Please help them to be a successful homeowner. And so that's the goal. You are a very well-known appraiser in Redding and Shasta County, and you've been around for a long time. And so you have a really good pulse on the market, a perfect pulse with home values. So, I wrote down some questions. I know we talked a bit about some more questions, so I will go ahead and get into the first one.

Bob: Sure.

Pete: So how do appraisers account for uniqueness? Well, this has to do with the features of a home. How do appraisers account for the unique features of a home when determining its value? And what fundamental factors are most influential in this assessment?

Bob: So when we do an appraisal, you go out in whatever neighborhood it is, your goal is to find three similar sales in that immediate neighborhood that are similar in size and quality. That'd make it easy. You probably wouldn't need an appraisal if it were that easy. So, hopefully, you find one or two and then go to a similar neighborhood to find a similar situation with different features. If you have a pool, but the sales in your neighborhood don't, well, you need to go outside the neighborhood to find a similar house with a pool.

Pete: So that makes a lot of sense. I know many people who will go to Zillow and look at this estimate for a home value. How accurate have you found Zillow to be for home value?

Bob: I'll be 100% honest. I've never looked at Zillow.

Pete: Oh?

Bob: No.

Pete: Really?

Bob: Yeah.

Pete: Wow. That's interesting.

Bob: It doesn't even concern me.

Pete: Yeah.

Bob: I've had people tell me, hey, that came in pretty close to Zillow, or that was high, or that was low, or Zillow's just throwing a dart at the wall. Sometimes, they will hit the correct number, and other times they will. Zillow lost $550 million, flipping houses when the market had its highest appreciation year. How could anybody lose money in the market back then?

Pete: Wait, say that again, they lost how much?

Bob: $550 million flipping houses in a market that was up 20%.

Pete: Oh my gosh. I did not know that. Really?

Bob: Yeah.

Pete: Wow.

Bob: I mean, you go back to 2021, you look at those appreciation numbers. It was almost impossible to lose money.

Pete: Yeah. So we just came out of, we just came out of 2023. In 2021, we had interest rates at 3% and 2.5-3% interest rates over double in 2022. And then we saw some appreciation in 2022. What will we do for 2023?

Bob: So the easiest way to describe '23 is values went up, down, up, down, and stable. They've done everything.

Pete: Got it. And in 2023.

Bob: They are unpredictable and hard to figure out, Pete.

Pete: Wow.

Bob: There was one quarter that was up and one quarter that was down. And then two different quarters were not enough to say it went up or down.

Pete: Wow.

Bob: I'm glad I'm an appraiser. It's because my crystal ball doesn't work.

Pete: That's for the Shasta County area up and down.

Bob: Yes. Yes. And it's pretty similar throughout the California area.

Pete: Yeah. Oh, in California. Got it. And so, with that being said, what are some of the reasons why it's been so up and down? What do you think?

Bob: Well, when they raised the rates like they did a year and a half ago. We went from 3 to 8 but bounced around 7 to 8 range. I mean, at that time, looking forward, I thought, God, we're going to adjust maybe 20%. You either have to have income go up, you have to have lower interest rates, or you have to have lower prices. So that's what we've been struggling with for the last two years: affordability. And that's what the Fed tried to solve by raising rates to get values tapped down a little bit.

Pete: They had to slow it down. They had to slow it down ultimately. And inflation.

Bob: Exactly. Well, values haven't dropped much since they did that. So, affordability is still a major issue.

Pete: Still a challenge. It's still a challenge. We're seeing it on our end on the lending side.

Bob: So much more than I'm, I would see it.

Pete: The affordability. I was looking at these numbers on the MLS and trying to prepare a bit. I went back to 2006, 2000. I went back 20 years to 2004, 2005 right in that area. I'm going to pull up the number of transactions here because I think it's very interesting to look at.

Bob: So, the number of transactions per month or year?

Pete: Per year.

Bob: Per year.

Pete: That's, yeah. Here it is right here. So in 2003, the total amount of transactions in Shasta County was 3000, 3031. Excellent. And it consistently, well, okay, so that was in 2003, so.

Bob: It went up a little bit.

Pete: Yeah. In 2004, 3,200, 2005, 3,300, 2006.

Bob: Start to tail off.

Pete: 2300. Total transactions. And then 2100 and then 1900. There were 1900 total sales in 2008, the lowest in 20 years.

Bob: That was.

Pete: 1900 total.

Bob: Those were terrible years for all of us.

Pete: So, how many do you think we did in 2023?

Bob: '23? I would guess it to be less than that.

Pete: We did 2300, according to what I was looking at.

Bob: So not too much different.

Pete: Yeah, not too much difference. What's interesting is, so like.

Bob: Are you doing Shasta County or just Redding?

Pete: Shasta County.

Bob: I was thinking of Redding.

Pete: Shasta County. Sorry. So, in Shasta County, we did '23; we hadn't done 2300 total transactions since 2011. in 2011, we did 2,400 transactions. We did a little bit more. We did in 2010, we did 2000 total. This is the total sales on the MLS. So, since 2008, it has consistently grown every single year. We didn't have one down year until 2021. Now, this is the number of transactions and deals.

Bob: Sure.

Pete: I used to get confused because I used to think, well, if the number of transactions is down, home values are down. That's not the case. So I thought that was interesting. So, the year before, we did 3000 total transactions. So it was down, I don't know the percentage, but 2300 to 3000. So it's like 700 fewer transactions.

Bob: From the appraiser standpoint, that huge drop off in '07, '08 appraisers still had plenty of business because people were foreclosed on. And those houses need to be appraised.

Pete: And you're not having that right now.

Bob: Yeah. So you had your business backfilled then. This time, you're not.

Pete: You were appraising the homes returning to the bank. They want to know the value and everything.

Bob: Yes. Now, we don't have that, which is generally suitable for the people. But less business for us.

Pete: No, that's yeah. It's very interesting. Another thing that I thought was interesting is that we had $1.4 billion of total transit volume- 1.4 billion in 2021, which is the most we've ever had in total volume. $1.4 billion worth of real estate went back and forth, which is a lot of commissions. It's a lot of money circulating out in the economy. And so last year was 926 million, just shy of a billion.

Bob: Yeah, you'd take the realtor's commissions, the loan officers.

Pete: Loan officers.

Bob: The appraisers, the title companies, the home inspectors. That's a ton of money not circulating through our economy.

Pete: And so that money that we all got, I mean, we all, it's all being spread around in the economy, going out to dinners and going out to lunch and doing all of that.

Bob: Exactly.

Pete: And all that slows down. And then it also affects local businesses and the cycle. So, have you seen similar markets to this?

Bob: No. This market has been unique. I've been doing appraisals for 20 to 23 years, and I have been lending for 20 years before that. And this market is exceptional. The fact that interest rates went up so much so fast. Everybody is in extremely good, historically low-interest rates. They don't want to get out. It's like, plus, even if you wanted to, how do you say, okay, we're ready to move from our 1500 square foot house to a 2,500.

Pete: Yeah. If the family grows or something.

Bob: You can't do it because of what your payment will do. You would know that better than I do. Do you see it every day? Probably.

Pete: Yeah. There are a lot of families out there that want to upgrade.

Bob: Exactly.

Pete: Or downgrade. The seniors, I think, have a little bit easier time downgrading because they have the equity that they can figure that out.

Bob: Sure.

Pete: Most of them. But the ones that need to be upgraded are very challenging. A lot of people are on the fence right now to do that. I just heard a statistic a couple of days ago of how much equity the average person has in the US. The combined loan-to-value is about 46% combined loan to value.

Bob: That's it.

Pete: For the US. That's it.

Bob: Wow.

Pete: Meaning there's only 46% of the actual total value of the home that has mortgage or debt on the house.

Bob: I would've guessed quite a bit higher than that.

Pete: I know. So, a lot of people have tons of equity.

Bob: Wow.

Pete: So if interest rates come back down, you'll be much busier. We all will be busier.

Bob: I would think so.

Pete: I think many people will start to access that money to pay off all the credit cards they've been using.

Bob: Yeah, exactly.

Pete: Yeah. So, no, that's what I thought was interesting. So, the next question is here. As an appraiser, you see lots of homes and come across many different types of properties. What happens when someone wants to buy a house and when you go out to appraise a home? And you're not looking at the purchase price. You are a little bit, but it might come in less than what they're buying it for.

Bob: It's possible. Yes.

Pete: And so what, when a home's appraisal comes in lower than the offer price? So if someone's making an offer, and let's say they're offering 350,000 and the home, and you and you go out to appraise it, and it comes in less, what are the typical next steps for buyers, and how can they navigate this situation effectively?

Bob: So there's a couple different options. First, you need to look at it with your realtor. And, like, okay. Is that a good appraisal? Are the comps genuinely similar? Do we have some unique features on this house that the appraiser may not have considered? If the house was really improved to the point that it was better than the ones in the neighborhood, did they find something outside the neighborhood? And if the answer to that is no, these comps look good, well, then it's time to negotiate a better price. If you look at it and say, well, look, this house and this house are the same, and they sold it the correct number, then the appraiser needs to take a second look. And that's where I think what you guys call it, an ROV reconsideration of that.

Pete: Reconsideration of value. And I've only done a few of those with homes in the last couple of years.

Bob: And generally the appraiser, they're going to, they know what the purchase price is, they have the contract. So they're focused on their comps to support that. So they've done their homework most of the time.

Pete: Yeah. So what a recon, just for the viewers, what a reconsideration of value is. When the lender, if I get an appraisal, that comes in light. I'm going to look at it, and I'm not going to do a reconsideration of value. Most of the time, I don't. And because I'm going to look at the comps that the appraiser used and see what they used, if I see another home or know other information that wasn't there, maybe the square footage might be incorrect. I've only done a few of them, and the appraisal system is pretty good in terms of how they are trained. Looking at similar recent homes, there are times when it can be somewhat subjective.

Bob: Absolutely.

Pete: And that's the part I'm not quite versed in regarding how far you can be subjective with an appraisal.

Bob: Well, the square footage is a fact. This, where the house is, is a fact. You're built, is a fact. The room where the ambiguity may come is how much the house has improved.

Pete: Yeah. It's the upgrades to the house.

Bob: Yeah.

Pete: And can you find a similar one with the same amount of upgrades, then what, the house that you're looking at?

Bob: Exactly. Exactly.

Pete: Yeah. And then, you can adjust those specific upgrades.

Bob: Yeah. Yeah. Often, Pete, we know what we're hoping for before we even go out there. And if we see a contract, I say we, most appraisers, not everybody, we're all different, but if I see a contract that seems out of line on my way out there, I'm giving the realtor a call and just asking, how'd you price it? Why is this one higher than the other? So give them a chance to get involved.

Pete: And then they can.

Bob: I rarely get an ROV because I've already talked to them and tried to find out.

Pete: Right. Which is a sign of a very good appraiser.

Bob: Thank you.

Pete: That's why we love working with you. So, market stability and future projections. I know we don't have a good call. Considering the current market dynamics, with it being a little bit volatile, what are your forecasts for the real estate market soon? Are areas in Shasta County at risk of value decline due to market saturation?

Bob: What do you mean by market saturation?

Pete: Shasta County risk of value decline due to market saturation.

Bob: Too many listings?

Pete: Yeah. Well, we don't have a lot of listings. That's not a very good question because we don't have, we don't have.

Bob: Well, it's a bigger question: where do you think values are? We're coming into a period where the Fed is pretty much telegraphed, maybe not in March, but maybe in May. He's going to start lowering them. And I don't think it's going to help a lot in the big picture in the long term. However, in the short period, I mean, every time, I mean, if he lowers at a quarter point four times in a row, that's that many people that are going to get off the fence.

Pete: Correct. Yeah.

Bob: And, and so we'll see a good little bump, I would think, this year when that happens.

Pete: Yeah.

Bob: Yeah.

Pete: I would agree with what you're saying. What you're saying is if they lower the rates, the affordability will get better if the rates come down.

Bob: Yes.

Pete: And there is a lot of demand for people who need the interest rate.

Pete: The average first-time home buyer age is about 36, and there's a lot of them. There are a lot of millennials, 30 to 36 years old, who need housing. And affordability is a big, big challenge.

Bob: Yes. You know what, though? Affordability has always been a challenge. I remember when I first bought a house.

Pete: Very good point.

Bob: You've bought many houses In your life.

Pete: Yeah.

Bob: Did you ever buy it based on the interest rate? It was more of a life change.

Pete: Correct.

Bob: It's like, okay, I can afford a house now. I'm going to buy it. Or I got married, and we're having a kid, and I want to buy a house.

Pete: Yeah, that's true.

Bob: The interest rate determined how much house you could buy. Not if you could buy a house.

Pete: Yeah. That's, it's very true. When I bought my first house, I was a first-time buyer. It was so scary.

Bob: Yeah. Tell me.

Pete: It was very scary. I was 21 years old. I was living with my parents, and my parents were like, you're making some good money. I was working at Verizon Wireless at the time, and I was making about 20 25 bucks an hour at the time. And they're like, you need to buy a house. I was like, okay. Well, I hadn't ever paid rent or anything, and my mortgage, I was making like 2500 bucks a month, was my income, and my mortgage payment was like $1200. I was so scared. I was like, but I did it. I took a little bit of a leap when I did it. But, what happened is my income continued to increase.

Bob: Sure.

Pete: Over time. Interest rates dropped. So, a year later, I refinanced my payment, and I got my payment down to about 900 dollars a month. And so it just got easier over time.

Bob: It got easier, it gets easier. Yeah.

Pete: And that's the thing for first-time buyers. Sometimes, it's hard to look at that because it's a fixed payment. And when you, when I, if I was to continue to rent, that rent's going to continue to go up.

Bob: Right.

Pete: Every single year.

Bob: Right.

Pete: As a mortgage payment, it was fixed?

Bob: Yeah. I was reading an article and having a discussion, and we were, I wouldn't say, making fun of the younger generation but commenting on how they whine about affordability.

Pete: Yeah.

Bob: And we were like, you know what when we were that age.

Pete: That's so true.

Bob: We had the exact same debt-to-income ratios as they did.

Pete: Wow.

Bob: One thing I pointed out, though, that's unique for them, we didn't have $5 coffees and $50 lunches and stuff like that.

Pete: Yes.

Bob: So it is harder on them.

Pete: Yeah. That's true.

Bob: But those are things you can cut back and make it happen.

Pete: Yeah. Absolutely. With the cost of groceries and everything else, the whole inflation thing is hard.

Bob: Yeah.

Pete: It really is.

Bob: Absolutely.

Pete: It's tough. So the broad answer to that question is what I'm hearing you say: you don't see much change other than it could improve when rates come back down.

Bob: that would be what I would think. Yes.

Pete: Yeah. And we haven't seen, honestly, so I don't know the numbers for Shasta County and what you're saying is pretty much flat across the board for last year.

Bob: Yeah.

Pete: But I know nationwide for last year, we will probably be around 5% nationwide appreciation. 5% to 6%,

Bob: For this '24?

Pete: 2023.

Bob: '23. Okay. For '23.

Pete: Yeah.

Bob: Yeah.

Pete: We just got the numbers from Black Knight showing that appreciation for December was 0.1%, and 10.1%, for the month. So the year ended up at around 5%, 5% to 6%, depending on if it's CoreLogic.

Bob: You did see CoreLogic's prediction for Redding for '24.

Pete: I saw that. You saw that, too.

Bob: Isn't that nice?

Pete: Yeah. So, the Redding prediction.

Bob: Makes you feel good.

Pete: Yeah, Redding. Yeah. We were number one on the list for CoreLogic prediction Of 7%. Do you agree with that?

Bob: Yeah. Yeah. I can see that happening by June and then flat the rest of the year.

Pete: Yeah.

Bob: Who knows? 5% to 7% can happen in a heartbeat.

Pete: Yeah.

Bob: And it does happen in a heartbeat. Usually, appreciation or depreciation happens in chunks, but then we amortize it monthly.

Pete: Yeah. Correct. So, like in January of 2023, real estate declined nationwide, and it declined by 10 percent. But normally it slows down anywhere anyway in the winter months.

Bob: Yeah.

Pete: Yeah.

Bob: Yeah.

Pete: So, but like what you're saying in the spring and summer, I mean, it just shot up like crazy.

Bob: Right.

Pete: And did well.

Bob: Yeah. And 5% to 7% happen in three months.

Pete: Yeah.

Bob: That's why trying to time the market is never good.

Pete: So True. So true. I'm working on a document that I can give out right now. It shows you if you invested for 10 years from 1941, and every year if you bought a house for a hundred thousand, it's just a hundred thousand. If you purchased a house for a hundred thousand, I'll put it up in this link, but if you bought a house for a hundred thousand in 1941, what was your return in 10 years? In 1942, what was your return in 10 years? Every year, except for one year in 2000, if you bought a house in 2006 for $100,000 and sold it 10 years later, you'd have $97,000.

Bob: That's pretty close.

Pete: Pretty close.

Bob: And that was a terrible, terrible year.

Pete: Terrible time to buy, but 10 years later, it was only $3,000. That was the only year that you didn't turn a profit. Every other year. And it was like 100%, 200%, 250%.

Bob: If you considered the interest rate write-off, taxes, and things, you would probably come out ahead anyway.

Pete: That's true. Very true, yeah, very, very true. Yeah, so speaking of investment, I want to ask you, what do you look for when you are looking for a good investment or apartment complex? What are some of the things that you like and are looking for?

Bob: When we first started buying single-family residences, we were looking for three and two that were at the lower end because we could only afford so much. And so, we'd save a little bit of money, so we had enough to put a down payment, but then we wanted the loan for 15 years.

Pete: You're going to pay it off.

Bob: Yeah. We've never taken out a 30-year mortgage.

Pete: Really?

Bob: Yeah. We always want to get things paid off quickly. So, you start building equity a lot quicker that way. And then as values go up, whatever they may go up, 5% or 10% a year, you'll see a lot more of that.

Pete: So I heard you say that when you look for an investment, you made sure that on a 15-year term, that home could have cash flow?

Bob: We weren't looking to make money.

Pete: You weren't looking to make money.

Bob: As long as it came within 100 bucks as we got older and had more income, it didn't even have to come that close. But as long as it could be pretty much flat.

Pete: Pay for itself.

Bob: Yeah.

Pete: 15 years, it gets paid off.

Bob: Yeah.

Pete: And that is one big secret that many people don't necessarily know is amortization. Amortization on that mortgage is huge. Over time, things get paid off, paid off, paid off, paid down.

Bob: Exactly.

Pete: So, that's cool. That's awesome. 15-year mortgages. So, are you still buying a single family?

Bob: No, We haven't bought a single family in quite a few years. The last one we got rid of was probably about six years, seven years ago, and we rolled it into apartments. So, we have a 12 units, 18 units, and four units.

Pete: Okay. So, the multi-units are just completely different games.

Bob: They are especially when you go above, I think it's either 16 or 18, that number, you have to have an on-site property manager. I know that kind of freaked us out the first time. We were like, oh, God, how will this work? And that was a little scary.

Pete: Yeah, so, are you looking right now for deals, investments?

Bob: No, we're pretty good where we're at. Yeah.

Pete: Yeah. That's awesome. So, I have a few more questions here for you.

Bob: Sure.

Pete: So, a lot of customers right now are a lot of homeowners, and they might be in their home, and they can't upgrade or maybe downgrade, but they may want to do some home improvement?

Bob: Sure.

Pete: What would be your recommendation to focus on to make sure they're getting the value back out of that house and what they're improving on?

Bob: The most important thing is the kitchen.

Pete: Kitchen.

Bob: Yeah.

Pete: Okay.

Bob: And then the bathrooms after that.

Pete: Kitchen and bathrooms.

Bob: That being said, a roof needs to be upgraded. That's more of a maintenance thing in my mind. Paint, roof, and upgrade the windows when they need to be. But if you're trying to step it up and get the most, then.

Pete: So, kitchen kitchen, you get the most appraised value in the kitchen?

Bob: Correct.

Pete: Why adding a bedroom does not help. What is it? Why kitchens and bathrooms?

Bob: As far as a bedroom?

Pete: Yeah.

Bob: because a bedroom is already reflected in the square footage.

Pete: Got it.

Bob: So whether you make a den a bedroom or cut out a family room and make it an extra bedroom. That might be logical for someone considering using it as a rental, as they can get more rental income for a four-bedroom versus a three-bedroom. But a family. Will you pay more for a four-bedroom without a family room, or do you want that one? I'll take the family room.

Pete: Totally.

Bob: But some people have more kids, and they want that. So, it all bounces from the square footage for those things.

Pete: So, this is another question I didn't have listed down, but it just came up as ADUs years are becoming increasingly popular ADUs. And if someone wants to do a new ADU and put it in their house, how does the value work out with an ADU?

Bob: So, again, it's back to appraisers, not set values. We're just reflecting on what the market gives us.

Pete: Which is what I'm sorry about. That's the question. Does an ADU if, let's say, I put a new ADU in for $100,000? Do you see where that could increase the value of $100,000, or do you think it is hard to get the dollar for dollar like a pool?

Bob: It's hard to get dollar for dollar. However, I've seen some nice ADUs built and $100,000 adjustments on the appraisal.

Pete: Really?

Bob: Yeah, but those are nice. The square footage might be low, but they're spending 150,000 to build those things.

Pete: I've seen some nice ones, too. I learned this through working with a couple of customers. I learned that many people think this is what I thought, too. If I add square footage like an ADU, I can't include that square footage in the home's total square footage.

Bob: Correct.

Pete: If I have an ADU that's 500 square feet and my house is 2,500, I don't have a 3,000 square foot home.

Bob: 100% correct.

Pete: And I have a 2,500 square foot home and an ADU. Then, the appraiser or you will go out and find other comparables with another ADU.

Bob: Exactly.

Pete: That's trying to find a 2,500-square-foot home.

Bob: Exactly. And that applies even if the ADU is attached to the house.

Pete: Even if it's attached.

Bob: If you have to leave the house and go through the outdoors or a garage to get to something separate.

Pete: It's detached.

Bob: Then it's separate.

Pete: Detached. Got it.

Bob: Yeah.

Pete: Wow. Yeah. And it's burned some. I've had experiences where it's hurt quite a few, like not a lot, but it's hurt some people because they put all this money into thinking they have the value and, but the value really is not there.

Bob: Right. It doesn't and quite the same as if the house was expanded.

Pete: Yeah. Yeah, no. Yeah. ADUs are super popular, and I know that's going to be a big topic.

Bob: Right.

Pete: Yeah. Cool. And then let's see, what else do I have for you? Let's see. Oh, what do you think about like, so like, is there a correlation between Redding or, let's say, Cottonwood or Anderson, as far as trends, the outlying areas, do you see trends up or down in other areas in Shasta County?

Bob: Not as far as Palo Cedro, Anderson, Cottonwood.

Pete: Yeah.

Bob: They seem to be pretty much in tandem with the ups and downs of Redding. Shasta Lake is a little different. It rose more than.

Pete: Shasta Lake did.

Bob: Because their values were so low.

Pete: Oh, got it. Okay.

Bob: But it got crazy, and they've had a terrible couple of years where Redding has been kind of flat the last year and a half, two years.

Pete: Yeah.

Bob: They've taken quite a hit.

Pete: Got it. Shasta Lake.

Bob: Yeah.

Pete: Why do you think that is?

Bob: I think they got overpriced.

Pete: Yeah.

Bob: when buying a starter home for $300,000 in Shasta Lake, it just didn't make sense.

Pete: Yeah. 2020 is if you find a house, you have to buy it.

Bob: Right.

Pete: Yeah. Makes sense.

Bob: Yeah. And so the values just ran up. People were looking, okay, in a 1,100 square foot house in Redding, which is $325 to $350.

Pete: Yeah.

Bob: I can get one in Shasta Lake, but I don't have to pay $300. Well, that's still too much or it should have been too much.

Pete: Yeah.

Bob: Now those numbers have backed up.

Pete: Makes sense.

Bob: A solid 25 to 50 grand.

Pete: Wow. Okay. One of my last questions is insurance has been going up a lot, homeowner's insurance, buyer insurance, and also utilities. I know the City of Redding just raised their prices or are going to be raising their prices. Do you see that affecting the demand in the outlying areas or with insurance? Or are you seeing not much difference in home values? It's pretty.

Bob: After the Carr Fire, the amount of sales on acreage on the west side went down tremendously. The values were pretty soft.

Pete: After the fire?

Bob: After the fire.

Pete: Really?

Bob: Yeah.

Pete: Really?

Bob: And so lately we've started to see more sales out there despite the high interest rates.

Pete: Yeah. Okay.

Bob: But, if you were out in the Grant School District in those nice neighborhoods those were some of the higher values in town.

Pete: Yeah.

Bob: Well, actually, when I was running numbers last year, some of the in-town neighborhoods were even more than those neighborhoods.

Pete: Wow.

Bob: Because of all the things you mentioned.

Pete: Yeah. The insurance, and yeah.

Bob: It's balanced itself out now, and people expect to pay higher insurance.

Pete: Yeah.

Bob: It seems like many buyers out there now are coming from out of town and have a little more money and can afford those increased expenses.

Pete: Okay. Cool. Well, that's very helpful. It's very helpful to know. Yeah. So, are there any other topics or anything else that would be valuable for the listeners, first-time buyers, or existing homeowners in this market?

Bob: As far as buyers, if they're buying a fixer house or existing homeowners, the question I get a bit, and I imagine you probably get quite a bit, is someone thinking about remodeling their house.

Pete: Yeah.high-interest that you're stuck in your house, but it's hard to move up now.

Pete: Right.

Bob: So you're thinking about remodeling, and it's like Pete, if I put 25,000 into this, am I going to get it out?

Pete: Yeah.

Bob: If I put 100,000 into it, that's where appraisers look at the sales in the neighborhood. Well, 25,000, that's pretty easy to get out. Most people want to put in new countertops, carpets and fixtures and make their house look nice.

Pete: Yeah.

Bob: There are plenty of sales to support those numbers.

Pete: Okay. That's super awesome.

Bob: Yeah. You're putting 100,000 in.

Pete: Different.

Bob: If you're going to be selling and doing it for yourself, that's great. But if you're going to be selling in a couple of years, you want to make sure you'll come pretty close to recouping. Then you need to be talking to your realtor or an appraiser, and it's like, are there sales that support it in like neighborhoods? Maybe nobody's done that in your neighborhood that sold, put 100,000 in, and recouped it.

Pete: Right.

Bob: But if you can go to a semi-identical neighborhood and oh, here's the same size house, they did it, and they were able to sell it and recoup it.

Pete: Yeah.

Bob: That's what appraisers are looking for when you're doing those unique houses.

Pete: That's a great point. So, essentially what you're saying is if you're a homeowner and you got some equity or you maybe got an equity line or something, you want to make some improvements to the house. If it's 25, you're doing flooring or countertops, kitchen-related stuff, what you're saying is pretty easy to get that extra 25, 30K out of the house.

Bob: Yeah.

Pete: But what you're talking about is if you want to do a complete gut of the kitchen.

Bob: If you're going in and putting highly custom cabinets, tearing up the ceiling, and putting beams in, you're doing all kinds of cool things like that. Does the neighborhood support it?

Pete: Yeah. And so basically, talk to your realtor, an appraiser or someone to see if there are supporting comparables to get to that.

Bob: Yeah.

Pete: Yeah, it's super helpful. There are a lot of people that do overspend, including myself I kind of knew what I was getting into.

Bob: But it's for you.

Pete: Oh yeah. It was. In my situation, I was a little bit potty. I gutted the house, not talking or thinking anything. And then I had to rebuild it. I can't sell a house when it's gutted.

Bob: No.

Pete: One tip for the listeners: if you have a house, you gut it, it's going to be very difficult for you to sell the house.

Bob: You're only cash buyers are the only ones that can buy it.

Pete: Cash buyers, yeah.

Bob: Yeah. And they don't buy things for the market.

Pete: Right. That's what I was talking about. I was so committed that I had to go all the way. And I ended up turning it out nice.

Bob: You got a cool house; that's fun.

Pete: Yeah. Yeah, so, okay. And then, let's see, anything else? That was a good topic, super. Oh, I got another one, solar. Solar. I know solar's. They just made some changes with solar. But if someone wants to install a $50,000 solar system in their house, what is your recommendation?

Bob: So, solar system, $50,000. What the appraiser's looking at is, okay, they paid 50,000. They will generally get back 20 to 30% rebates in tax benefits. So their net cost is probably going to be 30,000. Okay, you'll probably see about half of that as an adjustment on the appraisal.

Pete: Adjustment of the appraisal.

Bob: So then it'll be a 15,000 adjustment.

Pete: Let's think about solar. I have people knocking on my door, saying, you needoverspend, including myself, andth on your utilities, $600 a month. It's a significant number to save every month. But if I think I will sell that house in the next two or three years, do I do it?

Bob: I would have to run the numbers. I would think not.

Pete: Yeah.

Bob: But I'm sure the solar salesman could come up with.

Pete: Yeah. I can tell you.

Bob: A few reasons why.

Pete: Yeah, I can tell you my experience. For me, and I'm not saying for anyone else, but I almost put solar on a house in Redding on Cumberland. I still have the house. I was going to save four or $500. Maybe I should have done it because I still own the house. That was about five years ago, but I thought I was going to sell. So I just ran the numbers, and I wasn't going to get out. If I was going to sell the house. That's why I decided not to do it.

Bob: You know what scares me a little bit is the maintenance.

Pete: On the solar?

Bob: Yeah. I'm sure they're not maintenance-free. Is anything you own maintenance-free?

Pete: Right, yeah.

Bob: And who repairs it? Can you get them out there? Are they going to be bankrupt in five years?

Pete: Yeah.

Bob: I've heard a lot of horror stories.

Pete: Wow.

Bob: Yeah. That's not anything against solar.

Pete: Yeah, no, solar is, I mean, there's a lot of viewers thinking about solar. And I think that.

Bob: If I lived on acreage like you, I would have solar.

Pete: Yeah. I bought my house with solar. So I didn't pay for it. So, which is another good thing? If you're out in the market and you find a house with solar panels,

Bob: Yeah. You get a good value.

Pete: You're getting a good value because what you're saying, it might be a $50,000 system.

Bob: That you're paying probably 15,000 for.

Pete: I have a first-time buyer right now. She's in contract with a house in Anderson, and it has solar panels. Previous owners, it was like 30-something thousand dollars for the solar.

Bob: Yeah.

Pete: And she's buying it and she's getting the solar with it. And she's not paying $30,000 for the solar.

Bob: No, not even close. Yeah, yeah. Good value if you can find the house with it. And you like the positioning of the solar. Personally, I don't particularly like pulling up to the front of a house. If your house faces south and you have to put it on the front of your house.

Pete: Aesthetically.

Bob: Exactly.

Pete: Exactly. Yeah.

Bob: We spend money to make our house look pretty.

Pete: A big metal thing.

Bob: Yeah.

Pete: Yeah. Well, Bob, I really appreciate your time and coming in. I think the local community is going to get a lot out of this, of what we talked about.

Bob: Good, that was great. It was fun.

Pete: Yeah. So one thing for Bob, you do appraisals, not just for banks, but also for anyone that needs to get a value. So if someone needed to get a value, mind if I share your information?

Bob: That'd be great. Yeah.

Pete: Yeah.

Bob: Now, in the past year and a half, Pete, probably close to 50% of our business has been non-lender.

Pete: Wow. So that's just people needing to get an appraisal.

Bob: Right.

Pete: Where they probate something.

Bob: Yeah, exactly. State probate, divorce. We do a bit of pre-listing.

Pete: Yeah. Okay.

Bob: Some cash purchases.

Pete: Well, I'll put Bob's information in the comments below.

Bob: I appreciate it.

Pete: Reach out to you.

Bob: That's great.

Pete: Thanks a lot, Bob. Really appreciate it.

Bob: Thank you.