Yesterday, the OFHEO announced the annual appreciation rates for homes across the nation for Q2 of 2007. Sacramento has dropped to -6.07%. Our high was back in Q3 of 2004 at 26.58%. In less than 3 years, that’s a drop in rate of 32.65%!!!!
Ok, what does that mean to you? If you are a seller, you must understand that the value of your home has probably significantly dropped. The annual appreciation rate has dropped 12.58% in just 1 year! The good news is that homes are selling…lots of them. To be among the “solds”, you must price it for today’s market, not yesterdays.
If you are a buyer, it means you are likely to pay less for a home in the Sacramento area than a year ago. Before you dance too high, remember that interest rates are higher than they were a year ago, too. So as usual, it’s a balancing act between interest rates and home prices. If you wait for the market to keep dropping, you may also see the interest rates rising. Where is the balance? Remember, we won’t know where the bottom is until the prices start going back up. So, now is a great time to buy.
Ok, ok, that’s residential real estate, but what is happening with commercial real estate in the Sacramento area? For 1 thing, cap rates are coming up. As cap rates come up, it means prices are decreasing. Additionally, tighter lending guidelines are coming into play. And again, interest rates are going up.
I just spent a day at a technology seminar. One could get the idea that people are being replaced. After all, with games like War of the Worlds, parents are communicating with their children via text message. Are bedtime stories and helping with homework at a table a thing of the past? Am I being a June Cleaver by not staying up with the times?
Which brings up another point. In the past, the real estate agent’s value was clear. If you wanted to know what properties were available, you needed an agent. That was in the dark ages before computers, of course. Now, you can go to Zillow or Redfin to find out the value of a property…or can you? Is the value of a property as simple as looking at the recording data from each sale? You could have 2 homes in the same area with the same floor plan. One has upgrades galore and one just the builder basics. The one with upgrades is $20,000 more than the “basic” model. How does Zillow and Redfin account for those differences? If it’s an average, that won’t give you a clear picture of your property’s value. A real estate professional is still needed to help with the subtle nuances that make each property unique.
Now let’s look at a piece of commercial investment property. Value can be determined in 1 of 3 ways: income, comparables or replacement cost. Which one do you use to establish value and who do you work with to help you determine what is in your best interest? A big part of that answer depends on if you are buying or selling.
If you are buying, you want a low price. The lowest price is typically yielded by using the income approach. If you are selling, you want a high price, which is typically derived by using replacement cost. A good commercial real estate broker can help you determine how to close the “gap” between those numbers and get to a closed transaction. Sellers who list a property above what the current market will bear have chosen to hold on to the property. After all, they have made the highest bid and no buyer has agreed to match it. Buyers who want a “deal” may pass on a property that meets their objectives because they got stuck on not getting the “deal” they wanted. Five years from now, they may be kicking themselves for the deal they let get away in this “buyer’s market”.
When you have a professional that understands your objectives and takes their fiduciary responsibility seriously, you have someone worth their weight in gold. They are not the transactional broker who just wants to close the deal and collect a check. Rather, they want a relationship with you for this transaction and the next and the next. To do that, they may not get what they want today. However, they are willing to trade truth today for your business tomorrow.
For commercial and residential brokerage services in the Sacramento area, get to know us as Smith & Associates Real Estate.
