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Appraisals and Valuations

Ryan Lundquist on appraising in a hot housing market

This week, HousingWire’s Editor in Chief Sarah Wheeler interviews Ryan Lundquist, market analyst, owner of Lundquist Appraisal Company and author of The Sacramento Appraisal Blog. In this episode, Lundquist discusses how the appraisal sector fared during the initial onset of the COVID-19 pandemic and how appraisers are navigating this year’s hot housing market.

Here is a small preview of the interview, which has been lightly edited for length and clarity:

Sarah Wheeler: I would love to have you recap what you’ve seen over the last year, during COVID-19, and then now into this year. What did business look like in those early months and what has happened now?

Ryan Lundquist: So, when COVID first began, the market stalled as prices sort of sloughed for a couple of weeks. You know, pending home sales were sloughing for about four to six weeks. I think a lot of people were watching and going, “Is this it, is the market going to start doing something else?” But then we had a dramatic rebound when mortgage rates went below 3%, and people were motivated by the pandemic. It brought everyone and their mom into the housing market.  So, it’s been a bloodbath as I think this is the most aggressive market we’ve had. It feels like there are about twice as many buyers compared to the number of listings, even on a national scale. I would say that the market is wildly imbalanced, and I would say words like chaos describe it very well. It shouldn’t be this difficult to obtain housing and to find shelter, but that’s what we have right now. And in terms of appraisals, I think the difficulty is that we have this auction environment where buyers are bidding way beyond anything that’s reasonable.

The Housing News podcast explores the most important topics happening in mortgage, real estate, and fintech. Each week a new mortgage or real estate executive joins the show to add perspective to the top stories crossing HousingWire’s news desk. Hosted by Sarah Wheeler and produced by Alcynna Lloyd.

Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:

Sarah Wheeler: Welcome, everyone. This is Sarah Wheeler, editor-in-chief at HousingWire, with the latest episode of our housing news podcast. I’m excited to introduce our guest today, Ryan Lundquist. Ryan Lundquist is a certified residential appraiser in the Sacramento area, and he also writes the very popular Sacramento Appraisal Blog where he talks about trends he’s seeing there and really serves as a source of information for other appraisers. Ryan has been an affiliate member of the Sacramento Association of REALTORS for more than a decade, and he was awarded the Affiliate of the Year in 2014. He’s also a board member of the Real Estate Appraisers Association of Sacramento. Ryan, welcome.

Ryan Lundquist: Hey. Thank you so much, Sarah. I really appreciate getting to be here. Good morning.

Sarah Wheeler: Yeah, good morning. We’re so excited to have you. So I’d love to start out on housing news. We really want to know how people get where they are. Were you 8 years old and were like, “I definitely want to be an appraiser”? Is that how that worked?

Ryan Lundquist: You know, there’s probably not too many eight-year-olds out there who are dreaming of being an appraiser. I think frankly mostly everyone who ends up working in real estate gets there by accident. And, for me, I was a teacher in a previous life, and my wife got pregnant by me. And I needed a career change. I needed to make more money. And that’s what it came down to. I knew some appraisers. I asked them to train me and they did. And so it was as simple as that. There were no aspirations. I honestly wake up sometimes going, “Who am I? What in the world? Why am I excited about Excel and numbers and telling the story of the market?” And I never anticipated that. And so I’m having a good time.

Sarah Wheeler: You know, you’re really known nationally because of your appraisal blog. So tell me how you decided to start writing that and what you get out of it. You know, what does that look like on a weekly basis? And why do you keep doing it?

Ryan Lundquist: Yeah. So for the past 12 years, I have written a blog and I put out one post per week. At first, of course, I was doing four or five because it’s just way too much. You can’t keep a subscriber list if you’re putting out too much content. But one a week. And it’s just really, you know, to put myself out there, to touch base with people. It really began as a way to… I wanted to track the type of clients that I wanted. You know, I saw, sort of, the writing on the wall in the profession at least and thinking that, you know, I don’t want to be a part or a victim to the AMC model as much as possible and so I want to try to do more private work. So it’s really helped me diversify, but it’s really morphed into this thing. I love it. It’s this conversation piece. It’s a tool just to connect with people and to be a resource. And so it’s sort of all of the above. It sort of checks a lot of boxes, I think, in my life. A lot of passions really where I know that sounds maybe nerdy but it’s really true.

Sarah Wheeler: We love nerdy. And I can say, because I’m a frequent reader of it, it’s really a community of people that you’re engaging with. So people send you questions. They might be new to the area or new to the profession. And you always take your time to really walk through your methods with them and kind of try to answer their questions. So I think it’s much more than just, like, you putting something out. It definitely seems like a conversation you’re having with people in that space.

Ryan Lundquist: Absolutely. You know, it’s a relationship and I think sometimes, like, the way we view social media is so backwards. They’re blogging. It’s sort of like this, “I’m going to blast out this thing and, you know, everyone’s just going to listen,” or whatever. That’s just so backwards. And so it’s more like I want to share this content that it becomes something else where, you know, the post is one thing but then it’s all about the comments. What are people saying? What are we learning down there? You know, it’s just like we read any article today, “This is a nice article, but let me go straight to the comments. I want to see how people are engaging.” And that’s where it’s at for me not only on the blog but taking the content on Facebook and Instagram and wherever and just being able to dialog and have conversation. I learn a lot from other people myself just through these conversations. So it’s fun.

Sarah Wheeler: That’s great to hear. Well, bring us up to speed, you know? Appraisals have been in the news as long as I’ve been at HousingWire seven years, and they’re a continual source of, you know, things that are going great in the industry and different ways. And then they can be the pain point in the lending process. Right now, they seem to… You know, most of the noise around them is around the appraisal gap that we’re seeing in different parts. But I would love to have you recap what you’ve seen over the last year, you know, during COVID and now into this year. What does business look like? What did it look like in those early months? And then what happened, you know, starting last May or so?

Ryan Lundquist: Absolutely. So when COVID first began, I think, you know, the market stalled. You know, prices sort of sloughed for a couple of weeks. You know, pendings were sloughing for about four to six weeks. And, you know, it sort of… I think a lot of people were watching, “Is this it? Is the market going to start doing something else?” But then there was this dramatic rebound. No mistake, coincidentally or no coincidence, I should say. When mortgage rates went below 3% and people were motivated by the pandemic, it just brought everyone and their mom out to the housing market.

And so it’s been a blood bath since then. I think that this is the most aggressive market we’ve had. It feels like there’s about twice as many buyers compared to the number of listings even on a national scale. And so I would say that the market is wildly imbalanced. I would say words like chaos describe it very well. It shouldn’t be this difficult to obtain housing and to find shelter, but that’s what we have right now.

And in terms of appraisals, I think the difficulty is that we have this auction environment where, you know, buyers are bidding way beyond anything that’s reasonable. And so an appraiser goes in there and is answering the question, “Not the highest auction price possible, but what is a reasonable value that the lender should lend on this property, that represents what the lender should lend?” And so I think market value and auction value are two different things.

And so there’s been a lot of hostility toward appraisers for a lot of reasons. And of course, when an appraisal comes in lower than it should, I mean, obviously people should be upset. If there’s a quality problem in the profession, people ought to be upset. But I think a lot of people know at times though, too, that, you know, there’s no way this thing should appraise at the contract price. And so I have a client who bought it in October. I re-inspected his property the other day. I’m doing a private appraisal forum, and he said, “I paid cash for this property. I paid about 15% above the list price and now today I think it’s worth probably what I paid for then.” And so he was fully aware in October that he was overpaying, right? Now, we can scrutinize that from the outside and say, “Oh, you know, the appraisal came in low, but, you know, [inaudible 00:07:29].” I was pulling comps the other day, and I thought, “Why is this one so much higher?” And so I emailed the agent. The agent was very communicative, I really appreciated it, and I said, “Hey, did any chance that the buyer paid above the appraise value?” “Yes, the buyer did $50,000 above,” and sure enough this one was about $50,000 higher than the other ones.

And so I think we’re in an interesting market like that in where I think the easy target is the appraisers, of course, I mean, for so many reasons that is, but I think we have to back up and go, “You know, appraisers aren’t responsible for these lopsided conditions.” You know, having over a decade of not enough new construction, going through a global pandemic, and having a shift in demographics, people staying in their homes longer, listings coming to market. We have the largest generation—Millennials who are now, you know, in the market buying homes. There’s so many reasons why the market is the way it is right now, and I think that we have to, in some senses, see that, you know, yeah, there’s some problems with appraisals but appraisers haven’t caused this market. And, you know, I feel for buyers. I really, really do, but, you know, the appraiser’s role isn’t to, sort of, match that auction price and get the deal done. That’s just not the fundamental role.

Sarah Wheeler: Well, it never was but especially, you know, in light of the things that were put in after the last financial crisis, you know, you guys are now one of the safeguards, right? So that, you know, the arm’s length relationship, so that doesn’t happen the way that it did then. So it is an interesting turn. But tell me a little bit. So, you know, I bought a house during the pandemic. Obviously, as editor-in-chief of HousingWire, I’m constantly reading about real estate and the market and things like that. So it’s hard for me as just a layperson to go, “How do you come up with like… When you say market value is not the same as auction value, how do you distinguish between those two? How would you define those two?”

Ryan Lundquist: So I don’t know if there’s a definition for auction value, a formal one, but I would say that that’s, you know, some person’s version of, “Here’s what it’s going to take to get this accepted, and I’m just offering this amount arbitrarily probably,” or, “Here’s what I think it will take to get into contract, right?” Market value would be the most probable price this property should bring in an open market. And, you know, basically, if you lined up a hundred buyers, what’s the most reasonable realistic price that this property should bring? And so, you know, I’m just saying that there can be a vast difference at times.

With that said though, the market has been moving very, very quickly. In Sacramento the past 90 days, our median price has increased by 11.3% in 90 days, right? All metrics are up about 20% from last year at the same time. And here we are in our 10th year of price growth, and we had this dramatic turn where the market was slowing down and then all of a sudden it’s driving 120 miles per hour. And so somehow in the midst of this, the appraiser answers a question, you know, what’s the most reasonable value here? And I’ll say, “I mean, it’s not easy to decipher that.” You know, like I said, you know, this feels very chaotic. But in the midst of that, the appraiser’s role isn’t just to sort of ratify the highest offer ever, which probably might not reflect value.

So, you know, let’s put it this way. I mean, what if a lender did a loan on that property back in October for the full amount and it was in contract 15% too high? Like, right now, in May 2021, it’s probably worth what that guy paid, okay? But we have this dynamic where I think a lot of buyers are going, “You know, I’m going to overpay, and then maybe hopefully the market will increase, and then I won’t be, you know, sort of, underwater.” But, you know, we have this dynamic where I think a lot of people are getting in the contract too high, they’re paying cash above the appraised value, and it’s the nature of the beast. I mean, of course, to be fair, at some point, we have to ask, “Well, does that represent the market, right?”

And so I think that that’s a fair question that every appraiser and market professional has to ask, but we have to be aware though that fundamentally what is the appraiser’s role here, and what is the market’s role, and just conceding that, gosh, I mean, I think everyone knows that it’s not always there. You know, even agents I talk to behind the scenes, they’re like, “Yeah, there’s no way this one is going to appraise,” or sometimes it does appraise that high, then they thought, “I don’t know how that happened. It was magic.”

Sarah Wheeler: So interesting. You know, you’re talking about Sacramento, and we know that Sacramento has been one of the hottest markets. So tell us a little bit about your market. You’re in California so it’s not like it’s been a backwater at any point, but tell us about what has happened over the last year. Where are you seeing all those buyers come from? And what do you attribute that to?

Ryan Lundquist: Yeah. So what’s interesting to me is, as I talk with colleagues and other real estate professionals across the country, this chaotic dynamic, it’s really happening just about everywhere. And so even though there’s no such thing as a national market, all we have, we have thousands of submarkets that make up the United States, but really we’re kind of going in that same direction. And so it’s interesting to compare notes.

So I’ll say what we’re experiencing here isn’t foreign to probably where you are, but one dynamic that we have that other people might not have as much though, we do have increased Bay Area migration. And so when you look at, like, migration data both out of New York and San Francisco, you know, Manhattan and San Francisco, there was a greater exodus from those cities. Now, some of the migration stats, it’s actually overblown. I mean, everyone thinks, you know, “Everyone’s leaving everywhere,” but really there was something legitimate that happened in San Francisco and Manhattan. And so we have been the recipient of more Bay Area migration.

Now, in my market, it’s easy to, sort of, blame everything on the Bay, right? I imagine like, in Austin, it’s all about like, “It’s everyone from California that’s making our market move,” or, in Florida, everyone says, “It’s everyone coming from New York.” And my observation is that every single market blames someone else, right? But the reality is that, even though there’s increased Bay Area migration, we have a really chaotic environment because buyers are hungry. Local buyers are pulling the trigger. And sometimes I feel like the narrative is maybe understating that or not recognizing that this dynamic of really aggressive real estate is actually happening everywhere.

And so sometimes when people say, “It’s just the Bay Area,” I say, “Well, but the market feels like this all across the country, right?” And one dynamic we’ve seen in Sacramento and even across the United States is a focus on the high end. And so luxury sales have really come alive. Again, part of that is the Bay Area. Part of it is people moving up and being, I think, propelled by COVID. I think the pandemic was a catalyst to help people, sort of, get off the benches and say, “You know, I want to get into the game, and I’m going to make real estate decisions. I’m going to buy that house. I want more space in an outlying county. I want more land. I want that house with the pool.”

And so I feel like COVID has really, you know, made that happen. And really, in my market, I wouldn’t be surprised if this is true across the country but, for the past 11 months, we’ve actually seen more sales compared to the previous year. And so the narrative in real estate is that we don’t have enough listings and actually that’s true but the reality is we are seeing more sales happen. And so buyers are basically buying everything that’s on the market. It feels really tight out there, but we’ve actually seen higher volume. Frankly, if we had more listings, we would see even higher volumes in what we have seen, but that’s kind of I think my market in a nutshell. I mean, we can geek out on a bunch of stats if you want. I think we’ll lose anyone listening though but that’s kind of how I’d describe it.

Sarah Wheeler: No, I appreciate those insights. And, you know, we saw early on I feel like you were one of the earliest markets to get that coming in from the Bay Area that we saw a pop and probably because you’re, you know, closer than some other markets, but we were like, “Why is Sacramento on the top of this list? Wait, let’s look.” And you guys have stayed, you know, in the top metro for movers. So it is interesting to hear you, you know, say, yes, that’s part of it but also just people… You know, the low rates and the demographics, you know, also, there’s some part of that that was just going to happen. So I think it’s an interesting confluence of things.

I will say that it seems like people in other parts of the country, you know, you being in California, I feel like you probably have more experience just over the years that you’ve been an appraiser of, yes, this is a very chaotic market but you’re used to rising home prices in a way that, say, someone from my market in Dallas, we’re just really not. I mean, you know, the amount of what I paid for my houses versus anything in your area would just be, you know, ridiculous. And there wasn’t just that huge appreciation right before the… You know, we didn’t have any of that. So, for me anyway, this has been one of the first, sort of, run-ups that I’ve seen or quick home price appreciation not just here but in Texas. I have a son in Austin, which obviously has been one of the hottest markets. And so, you know, what are some of the things that, you know, you could take from your experience and share to people who are like, “You know, I’m in Pueblo, Colorado. I haven’t had to, you know, appraise a house in this sort of rising rate environment before”? You know, what are some of the things you would say to them?

Ryan Lundquist: Well, first, I guess I’ll just say, “Welcome to California.” Everyone bashes California but at least I could say now that, “Hey, welcome to what trends are normally like here.” We are a market of extremes. I think sometimes appraiser colleagues look at some of my graphs and go, “I just can’t believe this.” Like, maybe they’ve had more appreciation lately, but they see our last few real estate cycles and the wild up and down swings. And so they’re really blown away. But I would say, in some senses, I think the whole country has actually experienced what the Bay Area is normally like. Okay, the Bay Area is about within two hours of Sacramento, and their market is honestly normally like this, okay? And Sacramento is not normally so chaotic, but it sort of morphed into, I think, what the Bay Area feels like and everyone’s getting a taste.

And so I just say to everyone that just be aware that markets don’t last. Markets are constantly changing. In my office, I have something hanging on the wall. It says, “The market is always moving.” And it’s just true. And this market won’t last forever. I know it feels like it will last forever, but, you know, you have to just ride the wave that is here. And it’s hard to give specific advice for that other than just to say, “Interpret the market as it comes and a market like this will keep you on your toes.” I think for real estate professionals anyway, what a market like this forces people to do, theoretically what it should do is it forces us to change our narrative and to let the stats actually form what we say about the market, right? The temptation in real estate used to be like, “Hey, it’s a good time to buy. It’s a good time to say.” Those clichés don’t work, okay? What does it mean to be a market expert? We have to get down and dirty in the numbers and to really know how are they moving, how are things changing within the market.

Anyway, if we have wild swings, what that does is it forces people to have to be that expert, okay? If everything is always the same, “Yeah, the market’s stable. You know, this is good. This is how it is in Fort Worth and Dallas. No problem.” But when things start to be chaotic, it forces people to have to look and go, “Okay, let me try to understand what’s going on here and find language to explain this,” okay? Because, you know, we talk a lot in real estate about tech companies and, you know, taking over, you know, humans. You know, that’s a whole other podcast probably, but I think that one of the things that the humans need to do is to watch the market, and to I think hone the numbers, and to lasso them in, and to tame them, and to find language to describe this market. So that would be, I think, my biggest takeaway or biggest bit of advice for anyone.

Sarah Wheeler: That’s great advice. I know that we’ve talked before, and I quoted you last week about how you’re really looking at how you as an appraiser make sense of that as things arise and so how do you find that true value. And so I would love for you to talk a little bit about how you track that trend like your scattergraphs, you know, kind of what your process looks like.

Ryan Lundquist: Yeah. Cat lovers will hate me, but I’ll say there’s different ways to skin a cat, right? A horrible metaphor, but there I just said it. But it’s probably true. So I don’t think that there’s one way to look at a market, but I’ll say for me philosophically first we have to realize that sales represent the past, okay? Sales are historical artifacts that tell us what the market used to be like. And so if something closed in early May, 2021 but it got into contract in April, well, that tells me more about the market in April when it got into contract. How has the market changed since that property sold or got into contract? Well, let me look to the pendings today. Let me look and try to gauge demand. And, you know, what’s going on? With days on market, how much more are properties getting bid up? You know, these are sort of clues into the market.

And so if I have, for instance, you know, sales that closed in May but they got into contract in February or March and say they’re at $500,000 but then all my pendings…as if it ever works this way, it’s all neat on paper. It hardly ever works this way. But say all my pendings are at $525,000, okay? There’s no rule that says how much a market can increase over time. I think sometimes people in the real estate space say 1% per month. You know, I would say no. There’s no rule. It can be less than that. it can decline. It can go up way more. And so if all my pendings are, say, at $525,000, that’s a clue that maybe the market is going up quite rapidly. And what helps me, sort of, supplement what I’m seeing in the pendings and I’m calling the agent saying, “What are you in contract for?” those properties start closing and, well, those are indicators of value. As long as they’re legit, if everyone’s overpaying for something, I got to kind of weigh the pending and go, “Hey, is that really real or is this just an example of a buyer overpaying some pendings I’m going to throw out? Just like I am for some sales because, hey, that person paid $50,000 above the appraisal. That’s just not a legit situation.”

But I’m pairing this with my scatter graphs also, right? I even have tutorials online. If anyone wants to know how to make a graph, I mean, that stuff is there. It’s so easy to do. I don’t have the background as a nerd. I didn’t get a degree in nerdom. I used to be a teacher, but, you know, here I am messing with Excel and, you know, looking at trend lines and going, “Yeah, this is really steep.” And lately, on my graphs, the trend line has been unreal. I can’t believe how steep it is. And so, like I said, for a while, the market was kind of flattening out so this trend line is flattening but right now it’s just going to the moon so to speak to steal from Dogecoin.

Sarah Wheeler: You got to steal from Dogecoin. Come on. That’s cryptocurrencies. That’s a whole other podcast that we need to do, but definitely appreciate that. You know, one of the things that I think that we think about when we think about a person doing an appraisal versus a machine-learning algorithm, whatever is that there are these intangibles. And one of the intangibles that you talked about, I think, yesterday or this week on your blog was some really interesting houses that have that sort of mid-century vibe or they had something that really appealed to home buyers right now.

And I guess that’s my question is, how do you factor something in like that? Because, like, you can look at two houses and, okay, they’re generally the same, whatever. Then you have that intangible thing that’s kind of hard to see if you were just looking at stats than when you go in or when someone else goes in and goes, “This is going to be more valuable to people because it speaks to whatever zeitgeist is at the time.” I would say mid-century. So I remember my parents had mid-century furniture. I wasn’t a huge fan, right, because that’s what I grew up with. My kids love mid-century. That’s what they want, which just cracks me up. I’m like, “I’ll take that orange Naugahyde couch that I had growing up. I’ll give that to you if only I still had it.” But how do you factor that in, in this market, when you know there’s so few of these kind of things or this is what everyone’s looking for? Like, how does that factor in?

Ryan Lundquist: Yeah. No, it gets really tricky. So you just guess. No, I’m just kidding. So you really have to look to the market for the answers, and that’s always the deal in the evaluation space where we have to let the market tell the story. And so if a property really is special in the eyes of the market, like, not in my eyes, I need to, you know, look at every house the same, all that stuff, but if a house is special like this mid-century home I wrote about, it sold, I mean, way above what it looked like it should have, okay? And maybe it did close too high also. I mean, I’ll let people be the judge of that, but I have to look to other mid-century comps. You know, what are buyers paying for? Because if something is commanding a premium, I should be able to see that premium in other sales, in other pending data, and in talking to agents also and relying on them saying, “What are buyers asking for? What are they looking for?” Or, like, in my market in 2020, we saw an 8.4% increase in the number of homes with pools sold.

And so it was a big deal during the pandemic to quarantine in style in the backyard. And so all a sudden, the backyard pandemic paradise has become a huge deal. And so on paper, you might have, you know, Zestimate or, you know, Redfin or, you know, whatever algorithm you looked at that says, “Okay, this lot is .185 acres. It’s a very standard, you know, postage stamp lot, but what is on there can make a huge difference whether a pool, or the covered patio, or the built-in barbecue, and the bocce ball, and the panoramic view.” And so there’s things that do feel more intangible or ethereal where we have to sort of be in tune with, “What are buyers really looking for right now?” From an appraisal perspective, that comes from crunching the numbers. It comes from, I think, relationships in the real estate community. It comes from listening to the numbers. It comes from just all these conversations. And so I just think that’s really critical.

But, yeah, it’s fascinating because I think tastes are always changing. You know, like the saying… I mean, like, cottage cheese texture used to be really popular. Not so much anymore, right? I hope it never comes back, but it just shows that things are… Like, the home office is a really big deal right now or, in my area, there’s two counties that have experienced really steep growth and so there’s a lot of migration into both those counties. It’s not only Bay Area, but a lot of locals are going, you know, “I want to be on the outskirts of town, not quite rural area, but I want to have more space. I want to feel like I’m less confined.” And so this idea of, you know, needing that space as a result of the quarantine, I mean it’s been very, very real. But here’s the thing. Will that last or will that eventually contract when people are working not from home anymore? I mean, we don’t know the answers to those questions, but right now those things have become more valuable and there are certain locations that are more valuable, you know, whether it’s the pool and whatnot or the county or the city, you know, simply because buyers’ tastes have changed.

Sarah Wheeler: Well, and to that point, I mean, you don’t know how long… It also depends on, like, what the impact of COVID had on individual people. So there are some people who are probably, like, just impacted, that’s just like, “I’m never living in a crowded apartment building,” or, “I’m never living in a condo,” or, “That sounds terrible.” There are other people who, you know, a couple years from now or even now who are like, “No, no. I can’t wait to get back to that.” So it’s also, especially after this year, very hard to determine how long those things are going to be important to people and just the importance of it wasn’t just like, “Oh, here’s a fad. Here’s a taste,” but, like, something that was so traumatic for people, that’s going to live with them for a while. And how does that, you know, have the memory going forward? Ten years from now, are the people who maybe were affected at this time be like, “Yeah. No, I still want space,” or are people going to be going back to that, you know…? What we heard two years ago was like, “Millennials want, you know, stacked living and walkable neighborhoods and everything right there in very dense communities.” It’ll be interesting to see. I just don’t know how you see that as opposed to, like what you said, just watching the stats and, as things change, you’re going to be able to see it in the numbers.

Ryan Lundquist: Yeah, I mean, trends are constantly changing. Like, you know, here we are. I see kids wearing fanny packs, and I’m like I would feel like a major dork. I would be a dork. I would be mopped by my teenagers if I wore that, right? But, you know, here we are and there’s some pop punk rock starting to come out again and I’m, you know, thinking, God, like, going grudge 2.0. Let’s repeat the ’90s. I’m there for it. I’m ready, okay? But things are constantly changing, and ironically there was so much attention on tiny homes, you know, but it’s like I don’t hear very much right now. That’s not to say that tiny home builders aren’t going crazy but just this idea of having less space, that’s not so keen on people’s lists right now, okay?

And so I would just say that things are constantly changing. Even condo sales in my market and I would suspect in many markets have sloughed, okay? They haven’t grown as much as those single-family detached homes with the backyard because that’s what, you know, people tend to want. And so, you know, things are constantly changing—styles, and music, and real estate, and people’s tastes, you know, what they want in life. I mean, that’s to me the whole fascinating part about real estate, and we never know what they would want. And even from a COVID standpoint, you’d think that, yeah, I don’t want to live in a hippie commune, you know? But here’s the irony is that, you know, those hippie commune developments probably didn’t do too well at the beginning.

But, at the same time, people crave community. And I think this is not really a real estate note but just, I think, coming out of the pandemic, we can recognize that we can’t do life alone. We need other people in our lives and it’s not working to be isolated. You have to have relationships intact. And so I think that, you know, a community like that, would it thrive right now? It would freak some people out, right? But other people would go, “I have tasted what isolation is like, and I can’t do this.” And so like you said, I mean, COVID, I think, hit everyone differently, and I think we’re all coming out of this in different ways. And, you know, we’ll have different effects. And some people are angry and, you know, really upset about politics. And I’m like, hey, you know what? Go over there if that’s what you want to do in your life. Too much negativity. Don’t live there people. There’s more to life than, you know, political talking points and, oh, my gosh, you know? So anyway I’m going off on a tangent but I can’t believe what I read though when I log onto Facebook and I think, “Are you still complaining about that?” or like, “Are we going to live there in perpetual negativity, whether you wear a mask or not?” And it’s just like, “You know, there is more to life. We’ve got to tap into what really matters, which is relationship.” So that was my sermon.

Sarah Wheeler: I appreciate that sermon. We are in interesting times as I say. I did an interview with Shawn Telford who’s the chief appraiser at CoreLogic and kind of asked him about some stats because one thing that we hear is just, you know, the appraisal gap is constant… You know, it’s being talked about on different forums. We’re on calls with people. It’s just out there, right? That’s what people are talking about because that’s what’s going on. But when I asked him about the stats on that, which, you know, they’re a stat company, they’re a numbers company, I love getting data from them, they showed that, you know, before the pandemic about 8% of appraisals came in below the contract price on a national basis. So these are national numbers. So, again, you know, you’re going everywhere from San Francisco to, you know, the middle of nowhere. So about 8%.

And then if you look at since just October 2020 till now, if you look at that whole thing, that’s risen to about 14% of properties. The appraisal is coming in below the contract price. And then if you narrow that window to just the last three months, it shoots up to 17%. So, I mean, there is definitely. It’s not just anecdotal, right? We can see that appraisals and contract prices, there’s a gap there. But whether that gap is, you know, good or bad is the question. And I think I want to go back to what you said about how people are kind of using appraisers as a scapegoat or, you know, really being upset at the appraiser when the anger is not placed correctly. And are you surprised by those numbers or does that seem about right to you? Because I thought it was going to come out much higher. For the noise that appraisal gap is, I thought it was going to be like 60% of… You know, because we see that how many homes are having bidding wars, so I excepted that number to be higher. But from your perspective, is that still pretty high?

Ryan Lundquist: You know, I don’t have much context to say whether that’s high or not because I never have access to that stat. But I’m frankly not surprised because it’s a reflection of the market. You know, especially since January, we’ve had this market that’s been moving, I think, more quickly than probably any market we’ve ever had. And, like, in my market, on average last month, buyers paid $24,000 above the original list price, right? And we don’t have an overpriced market. We have this market, when you line up 2,500 sales, to get to that number, $24,000 is just massive, okay? And so in my market, 104% or 4% above the original list price is what buyers basically paid. And so, you know, it makes sense when appraisers are going out there and appraising deals. It’s like, well, we have this chaotic environment. On one hand, appraisers absolutely need to recognize that prices are increasing, they need to do a good job. We need to do a good job measuring the market, okay? If we say we’re really reflecting the market but not giving adjustments up to the sales when the market’s gone up, then, you know, shame on us. We’re not doing a good job.

But I think also what we have to recognize, too, is you would think that 80% of appraisals are coming in lower, but, you know, I think the noise from that 17% is sort of the vocal minority and so we have I think, you know, a lot of complaining. I think appraisers are just getting, you know, kicked to the curb on all the major forms online, you know, but I can’t remember any post this year that came back and said, “Hey, I’m really grateful that this appraiser did a wonderful job.” Not that I’m fishing for that. That would be kind of weird to be honest, but I’m just saying is that people go to these forums to complain, all right? And that’s just human nature. And so I think that forms our perception where we think that everything is coming in lower or there’s no appraiser doing a good job out there when I would say, “Well, you know, what about the 83% of the deals that did go through?” And, you know, that’s not to justify or to explain away any issues that we’re having where if something legitimately came in lower. But, you know, I think sometimes our perception is maybe skewed from, you know, that 17% though so to speak.

Sarah Wheeler: Yeah, I really appreciate that. And I think that, even on your blog this week, you talked about, you know, that only 2.8% of all sales last month had 20 offers or more. Well, you would think, if you’re a seller right now, you’re like, “I’m going to get 20 offers, and I can put this outrageous price on there.” And just, again, that’s the one you hear, that’s what you’re going to hear your neighbors talking about, and that’s what comes through. But that 2.8%, that doesn’t… I mean, that’s obviously higher than normal, but that’s not… I mean, 2.8% is pretty small.

Ryan Lundquist: Well, yeah. And I think the danger in a market like today is we sometimes let the sensational numbers form our perception of reality. And so, you know, the reality, you know, the narrative becomes everything is getting bid up over $100,000 but then I crunch actual stats and say that’s not true. And, you know, everything is getting 20 offers. No, 97% of properties are getting way less than that. The average amount of offers is five. Now, that’s like twice as much as it should be, okay? And I think sometimes I share that number and then local agents say, “There’s no way. You’re off your rocker. What sort of pricing crack are you smoking? Like, you are so wrong.” I’m like, “No, no, no. That’s what the numbers say. It’s just what is normal, that’s what we need to ask,” and we should have about two and a half offers in a normal or even competitive market. But having five on average is just crazy.

So I think that, like I said, this market is or should force every real estate professional to really know the numbers and to look at the numbers in a different way because otherwise we’re going to look at that example in the Bay Area where a property sold literally $1 million above its original list price and we go, “Everything’s getting bid up by a million dollars,” or this viral example in my market, a property got 122 offers. And, you know, as soon as that happened, you know, this story was going nuts. And people say, “How am I ever going to get into a home?” And then as the numbers guy, I step in there and go, “You know, there’s literally four sales or four pendings right now with 40 or more offers.” We need to keep this in context. Like, let’s look at that and go, “This wouldn’t happen in a market that’s not so aggressive.” Like, this is a symptom of a market that is very lopsided but at the same time, it doesn’t indicate, you know, or doesn’t speak for everything out there right now in the marketplace.

So that’s kind of I think maybe my pedestal. And I don’t know if that sounds arrogant, but I think it sounds very reasonable. And I think if real estate professionals want to continue to be relevant, you simply have to be more informed about the numbers and become incredible storytellers, you know, conveying expertise in the local market. And that’s constantly what I share and anything I’m sharing, that’s been my daily stats. I’m like, “Let’s grasp this and hold onto it and really know that here’s how the numbers work. Here’s why things are moving, etc., etc. So I don’t want to keep beating the dead horse to use another bad, you know, metaphor for animals. So I’m cruel, I guess.

Sarah Wheeler: Well, Ryan, thank you so much. I really appreciate you sharing your insights today. It is a crazy market as you said. We’ll probably have you back on as we go through this year to see what it looks like and what some of these things have changed six months from now would be really interesting. And in the meantime, really appreciate you and your insights.

Ryan Lundquist: Thank you, Sarah. This is a joy and keeps up the great work. Love what you guys are doing.

Housing News

Hosted by HousingWire Editors, the HW Weekly Newscast is a conversational look at the most important stories coming across HousingWire's news desk.

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