Rick Jarvis

Our Algorithm

August 16, 2015 By Rick Jarvis

If you ask 10 Realtors what their job is, you will get at least 11 different answers.

You would get answers like:

‘We make dreams come true’
‘We take the mystery out of buying or selling a home’
‘We facilitate transactions’
‘We market properties’

While all of those answers are true to some degree, we think they miss the most important and fundamental service Realtors can provide to our clients – accurately valuing property.

At the end of the day, helping clients understand where they stand in the market means impacting their financial health in the greatest of ways. How you market your listings matters … the same way understanding deeds, inspections, RESPA, Fair Housing, construction materials and zoning matters. But if you don’t understand the underlying value of what you are buying and selling, then the rest of it matters far less (and if you read any of our blog posts with any regularity, you know we spend a lot of time talking about values and valuation methods.)

Why do we feel this way?

Because if we can help you understand the reasons why properties are valued the way they are, then you will make a decision that benefits you both now AND in the future. In this new market of volatile market swings and conflicting information, helping our clients make sense of a hugely important financial decision is a responsibility we take extremely seriously.

The Rise of the Data

In case you missed it, the internet is having an impact. How we communicate, how we date, how we shop, how we research our decisions (ok, research each other), how we promote ourselves and how we get our news have all been impacted. And as the web continues to evolve, search engines, aggregators and analytics companies are becoming increasingly sophisticated in their ability to not only make sense of the mind-boggling amount of data available, but to present it to the user in better and better ways.

Algorithms are Everywhere

How are these companies making sense of the data? Algorithms, that’s how.

This is Zillow's algorithm to make short term adjustments to its short term pricing predictive model. Seems simple enough to me... — This is Zillow’s algorithm to make adjustments to their short-term pricing predictive model. Seems simple enough to me…

Algorithms for categorization, algorithms for valuations and algorithms for recommendation are becoming not only more prevalent, but more accurate. Google is said to take into account over 200 different factors in how it ranks pages. Zillow says it recalculates its Zestimates on over 1M homes per day. The city (and counties) collect taxes based on valuing properties they have never been in and have to be able to defend if challenged. And IBM advertisements claim that they can predict who is going to drop out of college based on how far they live from campus (or something like that.)

But are they getting it right? If they get the underlying data right, then yes …

Does Zillow capture floor level in their model? Doubtful ... — Does Zillow capture floor level in their model? Doubtful …

Agent Algorithms

Analyzing ‘housing’ (as an overall market) is one thing, but analyzing an individual house, and the surrounding neighborhood, and the floor plan, decor, color palate and neighbor’s car on blocks in the front yard, is quite another. And this is where the agent adds value.

Good agents have algorithms, too, and they are very accurate. Good agents have the ability to look at the data that matters and use it to help their clients make great decisions. And while they may not have the same number of µ’s and Σ’s in them that Zillow’s model does, our models contain one thing that the national predictive models never will – the correct and applicable underlying data set.

Do you think Zillow knows the difference in value between Grace Streets north and south sides? Good agents do.
Does Realtor.com know that Woodland Heights recently received its historic designation … and what the impact will be? Your agent should.
Can Google accurately reflect the subtle but important differences between the Ryan Homes and Eagle Construction warranty departments? Good agents can.
Can any computer model tell you where the shrink/swell soils are in Richmond? An experienced agent can.
Can Trulia tell you how another agent negotiates? Once again, a good agent can.

Our Algorithm

You want to know about our algorithm? And what makes it better than Zillow’s?

Here’s ours:

YOUR Best Decision = YOUR NEEDS + As Much Math as Required + Current Market Conditions + YOUR NEEDS + Schools + What is Available + YOUR NEEDS + Time of Year + Decor + Architect + Parking + Other Agent + Richmond + YOUR NEEDS + Timing + Development + Inspections + Lender + YOUR NEEDS + Builder + Trends + Whatever Else Needs to Go Into the Analysis + YOUR NEEDS

And do you know why our algorithm is better for your situation? Because we wrote it for you.
And do you know what else? If your needs change, we will change the algorithm accordingly …

Our algorithm was written for one person – you. YOUR best decision is about what YOU need and not what we think or what Zillow, Google, your buddy, your boss, your mother, a colleague, or a friend of a friend at a barbecue thinks.

Summary

At the end of the day, good agents are far better at impacting their clients decision about individual houses than any über-computer run by any team of Stanford grads will ever be. Our algorithms incorporate things that the computer models cannot even fathom and we change them each and every day based on the need of the clients we are working with.

All accomplished agents have advanced algorithms. We can’t always explain them, but they work extremely well.

Investing in Rental Property … A Primer

August 14, 2015 By Rick Jarvis

Everyone fears a broken toilet at 2 am ... — I may be jinxing myself but I have never had a toilet break at 2 a.m.

“I want to invest in rental property.”
“I want to flip houses.”
“I am thinking about owning some apartments … what the deal with those?”

We hear this constantly. And we love it because it means someone else is in the nascent stages of realizing what many have known for years – owning property is a fabulous way to build wealth.

Here are some things to consider.

Toilets Never (OK, Rarely) Break at 2:30 in the Morning …

It is amazing how many people have a fear of rental property and summarize their fear by saying, ‘I don’t want to be fixing a toilet at 2 in the morning.’ A quick secret – I have owned rental property for well over 20 years and I have yet to have a toilet break at 2 in the morning (and yes, I realize how badly I am jinxing myself). Have I had inconvenient timing on repairs? Of course. I even had a fire destroy a building (and no one was hurt, thankfully) but the unforeseen is the reason you buy insurance.

At the end of the day, the benefits of ownership far outweigh the cost of maintenance. When you grow your portfolio to a certain point, then you hire a management company and download the burden of maintenance to someone else.

Credit Reports Tell All

If you take nothing else from this article, please take this away – understanding what a credit report is telling you is the number one way to eliminate unnecessary work from your portfolio. While a busted pipe under the house is an annoyance, its impact is minimal when compared to a habitually late tenant or one who requires eviction.

Every time I found myself in front of a judge filing a ‘Pay or Quit’ notice or Unlawful Detainer, it was because I ignored my inner voice and took a flyer on someone with a marginal credit profile. All credit is not created equally … you need to understand what cause credit scores to fall and more importantly, why. I would far rather lease to someone with a bankruptcy or foreclosure than someone with a judgement from a landlord and utility company.

What Feels Comfortable?

I don’t have a great understanding of the retail market and thus, I own no retail space. I am also not familiar with executive rentals, so I don’t have high end residential properties for lease. I have a far better feel for 1 and 2 bedroom apartment rents, suburban and urban office rents and 3 bedroom house rents in good school districts. So guess what I own? Yep, apartments, some office and several single family homes in good school districts.

If you are going to invest in property, buy what feels comfortable to you. You will inherently have a better feel for the market and you will worry far less.

Know Finance

The best property owners do one thing extremely well – they correctly finance their properties.

Securing the lowest interest rate for the longest period is important, but sometimes flexibility can be important, too. Partial releases, renewal options, penalty-free payoffs, floating rates, caps and assumption clauses can all impact finance, too. Typically, if just a single family home, the Fannie Mae/Freddie Mac investment products will suffice, but when you begin to look into multi-unit properties or acquisition/rehab strategies, finance changes.

Correctly financing your property minimizes risk and increases cash flows.

Management Companies and Tenants

I like to think that there are two kinds of renters – future buyers and habitual tenants – and you need to treat each differently. Management companies, like Realtors, attorneys, architects, Doctors or accountants, do different things well. Don’t assume that a management company is good at managing all types of properties. Know who will best manage your property.

In Richmond, for example, the Downtown market can have student apartments, young professional apartments, ‘work force’ apartments and ‘affordable’ housing in close proximity. Each of these properties should be managed differently and often times, those who are good at one type are not as accomplished at the other.

Exit Strategy

Buying investment property can be easy relative to the sale investment property. The number of buyers for a single family home in (say) Brandermill is far greater than the number of buyers for a 12 unit apartment property in Jackson Ward. It does not mean that you should or should not buy one or the other, it just simply means that it may be easier to quickly unload a single family home than a 12 unit (or more) property.

Likewise, the way you sell each is different, too. A single family home rental offered for sale should be vacated, cleaned up and renovated to achieve maximum value while an apartment property should be sold while fully leased. Make sure to manage the leasing of the property well in advance of the sale to give yourself the best chance to maximize the contract price and minimize marketing time.

Summary

I highly recommend ownership of property as a vehicle to wealth accumulation.

Despite the ups and downs of the for sale markets in the last decade, rents have increased substantially and are currently as historically high levels. Having someone living in your property, making the payment to the bank through the rents they pay and hopefully putting a few dollars in your pocket along the way is one of the most risk free and time tested way of creating wealth over time.

And if your toilet breaks at 2 am you can call me to complain …

Homes in the Historic Districts

August 12, 2015 By Rick Jarvis

The word ‘Historic’ has different meanings for different people. When you say ‘historic’ to a Realtor in Richmond, Virginia familiar with Federal and State Historic Tax Credit programs, it means something pretty important.

Historic Tax Credits were a critical instrument for developers to renovate a large part of Downtown Richmond.

The HTC programs provide a powerful financial incentive to renovate properties in accordance with historical guidelines.

While the nuances and subtleties of the programs are many, the programs have been used extensively within the development community to bring many of the warehouses and other ‘historic’ properties of Shockoe, Manchester and Scott’s Addition back to life. And while the impact of these large scale renovations are readily apparent, few realize that the same programs can be used for smaller properties, including single family homes (subject to some different rules).

Anyone interested in using the Historic Tax Credit programs should spend a few minutes with a qualified architect, architectural historian or highly experienced contractor (we would be happy to make some recommendations) to get a sense of how the programs operate. They are complex and we do not recommend a DIY approach until you have navigated the process several times.

Below is a list of homes available for sale in these districts.

** DISCLAIMER – being on the list below simply means the property is located within the district and not necessarily that it qualifies for the credit prgrams. Before purchasing any of the properties in expectation of qualification for the Historic Credit programs, one should verify that the property qualifies.

St John’s Church
Franklin Street
Shockoe Valley
Jackson Ward
Boulevard
Hermitage Road
West Grace Street
Church Hill North

Dollar Per Foot, a Critique

July 29, 2015 By Rick Jarvis

‘How much a foot?’
‘What is the per foot on that home?’
‘Feels like a lot per foot!’

‘Dollar per Foot‘ is probably the most used of the comparative statistics in the valuation of housing today. Every buyer references it at some point during the home buying process — as do most sellers. And so do Realtors, architects, appraisers, developers, builders and your local tax assessor.

And while we are all guilty of using $/SF at some point, we need to be extremely careful to make sure we are using it correctly.

Dollar Per Foot is (Unfortunately) the Main Comparison Metric

The name itself suggests that the measurement is the ratio of the price of the home relative to its size.

Stated differently, if you were to buy one square foot of the home, how much would it cost?

But it isn’t quite that simple because the $/SF metric does not account for anything other than the FINISHED amount of square feet in the home relative to its price.

$/SF is measures the FINISHED space in the home and views all SF equally, including finished basements and 3rd floors

Do you what factors are not considered to be in the $/SF measurement?

garages
unfinished basements
oversized lots or extra lots
water frontage
fencing
screened porches
exterior hardscapes/landscaping
other outbuildings
roof decks
views
age of systems
poor floor plans
beds/baths

Do you know what else $/SF doesn’t adjust for?

finished 3rd floors are given the same credit as the first two levels
finished basements are give the same credit as the first two levels
finished bonus rooms or other finished rooms over garages or outbuildings

So as you can see, the $/SF is a metric with many flaws.

So is $/SF Worthless??

Far from it.

Citizen 6 in the Fan District — Do you think new homes built in decidedly modern aesthetic are accurate indicators of $/SF in Richmond’s Fan District?

$/SF can be a great measurement when the following conditions are met:

the homes being compared are similar in age
the homes being compared are on similar lot sizes
the homes being compared have the same amount of unfinished space
the homes being compared have similar materials

When you are comparing two homes in the same neighborhood, with similar characteristics, then using $/SF as a measurement is fine.

However, far too often, the $/SF is used far too broadly and without any consideration for the many factors that can skew the results. I cannot tell you the number of times I have heard a client say that Home A is a better $/SF than House B — and thus a better deal — without making any adjustments for a finished 3rd floor or far better lot.

Some Great $/SF Applications

One the best applications for $/SF is seeking the neighborhood highs and lows.

In every neighborhood, properties will trade in a range where no home’s value rises above or sinks below. Finding these data points can be extremely helpful when trying to establish pricing, especially when pricing unique properties.

MLS provides a function that will allow agents to quickly identify neighborhood value characteristics.

The more narrowly the homes in the data are defined, the more valuable this feature becomes in establishing the limits for the values. Agents familiar with this feature will be able to help a buyer or seller understand where the subject property fits into the range of values.

Using $/SF as a Time Machine

In case you missed the memo, 2008 – 2012 was a rough stretch.

Almost every market was impacted — equities, banking, real estate, manufacturing, retail — no asset (and no individual) was spared its wrath. The financial crisis was a wholly unpleasant adjustment in values and real estate arguably led the way.

As we continue to put that ugly period further in the rear view mirror, many who made purchase decisions at or near the apex (2006/7) wonder if the 20-30% loss has recovered enough to now sell. Using $/SF as a measurement is one of the best ways to tell.

As you can see from above, a yearly breakdown of $/SF vividly illustrates the relative health of different marketplaces. Using the same geographic data but changing the time periods measured is a fabulous application of $/SF and can lead to some great strategy decisions.

Using $/SF in Reverse

Often times, we recommend to our clients to look for HIGH $/SF to find underpriced housing.

Wait … what??

In certain cases, $/SF values considered higher than the neighborhood averages may indicate that the improvements on a piece of property are low and might be a good spot for an addition or lot split. Having a situation where the value of the land is at or near the value of the improvements often times means opportunity for the shrewd investor.

Many of the close in neighborhoods of the 1920-1940's have many homes with extra lots suitable for building as part of the sale — The remarks in this listing from 2005 references an extra lot. Note the dimensions in the Legal Description and the actual Lot Dimensions to see that they were combined at some point.

As an example, decades ago, it was a fairly common practice for an owner to purchase the adjacent lot to give their home extra privacy. Over the ensuing decades, these unimproved lots were often merged with the improved ones and simply sold as a package. As pressure to create more housing closer to the city center continues to increase, a growing number of builders are looking for infill lots and will pay a premium for the opportunity to build a home upon them.

Similarly, it is fairly common to see a small ranch or colonial-styled home nestled in amongst larger homes, especially in the neighborhoods of the 1930’s to 1960’s. If market values within the neighborhood exceed the cost of construction by a wide enough margin, these undersized homes present opportunities to add space to the home and create value.

Knowing how to set search parameters in MLS to identify possible opportunities for the contractor/developer/flipper can be of great service to the investment-oriented client. Mastering this application of $/SF will help an agent identify these ‘value-add’ scenarios and create both loyal clients and repetitive income streams.

Condos and $/SF

The Vistas includes TV and phone in the dues. Few projects include this expense.

In case you haven’t noticed, condos tend to trade a higher $/SF than single family homes. Far more often than not, the $/SF for a condo in the city of Richmond is anywhere from $5 to $20 higher than comparable single family.

Likewise, the $/SF for condos can vary wildly not only from project to project, but often times within the same building.

Why is this?

Condos compute square footage differently. They generally measure floor space while single family measures from the outside of the walls — thus condo $/SF tend to be higher than single family homes.
Condos tend to be more valuable on the upper floors or where the views are best. A condo on the 2nd floor looking at the parking deck should have a different price than a 10th floor condo looking at the River
Condo A might include more in the dues than Condo B and thus trade a premium.
Larger condo units sometimes include more parking than smaller condos — even in the same building.

So when applying the $/SF measurement to the condo market, you really need to makes sure the external factors influencing values are taken into consideration before any decisions are made.

Summary

Beware of the overuse of the $/SF metric as many sound decisions have been undermined by the misuse of the statistic.

As we continue to speed towards the era where more and more data is more and more available, we need to remember that access and analytics are two different things. The creation of new and complicated statistics is easier than ever before, but it does not necessarily mean they are relevant, accurate or applied correctly.

At the end of the day, the $/SF statistic is one of many and tells only one piece of the overall story. Make sure to understand its application and relevance before you make your decision.

The Curated Lists of Richmond VA

July 29, 2015 By Rick Jarvis

Recently purchased form the 'Critic's Choice' at the local wine shop. — Recently purchased form the ‘Critic’s Choice’ at the local wine shop.

I love the concept of ‘Curated.’

From the ‘Critic’s Choice’ corner of the local wine store to the ‘Staff’s Picks’ rack at the old video store, the idea behind ‘curation’ has been with us for a while. Why should it not be a part of the real estate market?

In all honesty, it should.

In full disclosure, the lists below are not ‘hand-picked.’ As everyone seeks housing for different reasons, we did not want to introduce too much human bias in the search. Rather, we elected to examine the characteristics in houses within specific neighborhoods that typically caused the homes to sell quickly. We then set up specific searches designed to screen the properties for you.

Feedback told us that just sending hundreds of homes in a list is not effective. Ideally, if we can pre-screen the homes before sending, it makes a huge difference.

So here is our attempt to do so.

Enjoy!

The Fan District
The Museum District
Church Hill
Bellevue
Vistas on the James
Westover Hills