Teton Realty Blog

Teton Region Real Estate Market Stats, Articles & News

Rental Analysis – How do I understand Rates and Projections?

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There is a lot to unpack here, and it’s important to know that rental markets change extremely quickly in the scheme of things. While COVID played a significant role in the short-term rental industry and our market locally, the long-term rental industry has been evolving at a fast pace as well. I’ve made some market predictions about both industries over the years and despite the outcome one thing is for sure, you don’t necessarily rely on what you hear today, because it’s inevitably (almost) always yesterday’s news.

Valuation
When it comes to valuing real estate, real estate agents (not appraisers and not offering appraisals) and appraisers use similar methods which include different types of valuation. The easiest, and most common is the comparable sale method. We essentially adjust the sales price of comparable properties based on differences between the property we are valuing and the property that has actually sold. Obviously markets change, so we generally don’t look back further than 6 or 12 months. The sales information is normally available mostly as a courtesy of the multiple listing service, a database of sales activity stored by local Realtor associations. Since Idaho is a non-disclosure state, counties often find difficulty valuing property for the purpose of tax assessment, so the public data is often skewed.

Depending on the area, rental data may be collected by a multiple listing service. However, in our area, it is not. The reason for this is based on several factors, but in my opinion it is primarily because Idaho does not require licensure for property managers. For this reason, property managers in the Teton Valley area are generally not members of listing services or Realtor associations, so they do not record the data. Even in Wyoming where property management does require a real estate license, much of the data goes unrecorded. So, how is the data tracked? Depending on whether we are talking about short-term or long-term rentals, there is some data that might be available, but often, you need to take it with a grain of salt.

Short-Term Rental Analysis
Much like the Zillow “Zestimate”, there are “data mining” companies and tools available that can help generate valuations even without multiple listing service data. Because Idaho is a non-disclosure state, Zillow does not have access to sales data. They do, however, have access to listing price data. Presumably when a property sells (even though Zillow may not have access to the actual sales price), they can make some assumptions based on market conditions, how long the property was on market before it sold and other metrics to estimate (or zestimate…) the sales price to help generate the “Zestimate”. There are similar tools available in the short-term rental industry available such as AirDNA and other data providers that are able to collect data. While I’m not an expert on AirDNA, my assumption is that they collect data from their own subscribers that report information, as well as data they receive from some of the marketplace giants like Airbnb and VRBO. I also assume that this data may be skewed based on what they receive. If it’s just a blocked calendar, one probably should not assume that it is necessarily a paying guest since it could certainly be a homeowner blocking their own calendar for personal use. Even though this data may in some instances be conservative, this is my best guess as to why we often find AirDNA provides data that may be unattainable in the real world (here in Teton Valley).

Long-Term rental analysis
This one is even more challenging. Not only are property managers not typically a member of the multiple listing service, but they rarely collaborate. This, coupled with the seasonality of long-term rentals (and short-term rentals, for that matter), can create some volatile expectations for both investors and tenants. Many years ago before the market hardly began to improve after the fallout in 2008, I distinctly recall many conversations with those trying to prepare studies and gathering data in order to do so. Similar to my life today, I was completely underwater trying to provide this data as a courtesy, often off the top of my head. While I’m generally pretty good at doing so, and can spit out fairly accurate information, it’s unlikely that any of the data was extremely scientific when it came to absorption, rates, and so on. While short-term rentals at least have some available information that might point to market conditions such as National software providers like Airbnb or VRBO, the local rental market does not. As a result, long-term tenants often find themselves jumping from property manager to manager and newspaper ad to marketplace listing to get a grasp on inventory, or lack thereof. I will give a shout out and link below a great effort set forth by the Community Resource Center of Teton Valley. They (painstakingly I’m sure) canvas the most well-known sources for long-term rental listings throughout the community and compile them into one list. It’s not perfect, and not up to date to the minute, but it’s pretty darn good.

The bottom line? When it comes to understanding rental markets in Teton Valley, trust your local professionals. While Realtors have a pretty good handle on most things around here (really, the local industry is lucky to have such a hardworking, professional and honest group) not all of them are heavily involved with property management. The best advice that I can give is to trust local property management companies. Similar to our group of real estate professionals in the area, all of the property managers in Teton Valley are extremely well versed and honest. Since I’m listing shout-outs (and yes, I do have an interest at stake here), Kerstyn at Teton Valley Property Management is amongst the very best.

Community Resource Center of Teton Valley

Teton Valley Property Management

My Property Isn’t Selling, What Should I Do?

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It’s funny how quickly markets change. Just yesterday (as I write this in October of 2023), properties were selling so quickly that buyers were all but waving inspections to get their foot in the door. I am also reminded of the changing landscape of the rental market, though I won’t rub it in with the “I told you so” comments for now. Regardless, and interestingly, prices haven’t budged much. This is mostly a product of supply and demand, but it’s also a different topic.

Speaking of prices, let’s get back to the issue at hand. Many property owners and Sellers haven’t adjusted to the market conditions today. Things are taking more time to sell. There is actually a way to calculate how long something should take to sell, and I have written several past articles relating to absorption. In addition, prices have adjusted. In some sectors of the market the prices have continued to rise, but most have stabilized, if not fallen as a result of affordability issues related to increasing interest rates. If you’re asking the subject question and you haven’t been educated on the average amount of time it takes to sell a property (or realistic valuations), then the answer is probably simple. Ideally, we set expectations before listing a property and take a realistic data based approach to valuation and where to begin marketing in terms of a listing price. The mentality of “we can always come down” can be more damaging to the prospect of selling a property than one might think.

This article, however, is aimed more at those considering not “what should I have done”, but “what should I do now”?

First; I would suggest evaluating absorption to make sure that you don’t have an unreasonable expectation. If the market data suggests that it’s going to take 6 months to sell a property, and you’re asking this question 3 months after listing, patience may be the answer.

Second; let’s take a look at pricing. If you made a decision to list at a higher number with the mentality that you can always reduce the price, it may be time to do just that. This being said, you may need to reduce more than you otherwise would have needed to. I would suggest taking a look at the original valuation, as well as market conditions that may have changed. Are we now outside of peak months? *Yes, I have an article on this as well* Have the interest rates now changed market conditions? The bottom line is that market absorption calculations only work with properties that are listed at actual market values. If you are provided with data that suggests that there is 6 months’ worth of inventory and a suggested listing price of $850,000, yet choose to list the property for $975,000, you can bet you are going to be outside of the absorption window. Additionally, those that provide this data, whether it’s an appraiser or a real estate agent, can’t control the market and they don’t always hit the nail on the head. It’s important to have follow-up discussions and plan your next move ahead of time.

Finally; let’s talk about seasonality. We talked about the seasons and how they can impact marketing time, but the seasons also come with… seasons. If you listed a property in July, and you’re making adjustments in December, it might be time to discuss updating the photography to something that doesn’t scream: “I have been on the market for 7 months!” This is usually most important in reverse, Winter photos should always be updated in the when things green up in the Spring or early Summer months.

Condo and Townhouse HOA Dues Increasing

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Most condo and townhouse associations in Teton Valley share the same set of responsibilities which are collectively paid by owners in the community. Usually these include exterior maintenance, exterior insurance, snow removal, lawn care, open space taxes and maintenance and in some events, trash, water and sewer. Not very many communities have additional amenities but those would be included here as well. Another important item includes reserve funds for future repairs. While this line item isn’t generally ignored, it is often overlooked. New communities usually don’t require much maintenance with new siding, new roofs, new parking lot surfaces and so on. However, all of these items (and many others) eventually require maintenance.

It was common with most of these early developments for the developer to have some level of input with respect to establishing the dues. For obvious reasons, it was in the developer’s best interest to keep the dues low. This might be influenced by the developers desire to keep the dues low during their ownership (though this can be structured a number of different ways) but also to keep the dues low to attract new owners in the development. This isn’t necessarily bad practice as these developments simply didn’t require much in the way of maintenance early on.

As units sell in a development there is usually a transition where a board of owners is formed. This process is normally outlined in the subdivision’s documents. Developers often work with management companies or accountants to oversee the process, but admittedly, it can oftentimes be difficult to gain participation. Historically, Idaho has not had a clear guideline with respect to these processes, but the state is beginning to publish some basic requirements. Based on my experience, the dues are often kept at the same developer rate for many years with many new owners resisting an increase, particularly when there is no need for immediate maintenance. The problem is that this mentality perpetuates which ultimately leads to two choices;

1) A drastic increase in dues when it is apparent that the community will lack funds for major maintenance items

2) A “one time” special assessment

Obviously the best path would be a proactive approach considering future maintenance and building reserves. While it is too late for this process in many instances, my personal preference is a combination of the two – a reasonable increase to consider future maintenance items and beginning to build reserves coupled with a special assessment to address immediate concerns. This keeps the dues within reason for resale values, but also addresses all issues.

Today, we are beginning to see many communities employ these tactics not only for maintenance, but also for inflation. The general cost of maintenance has undoubtedly increased. Even at a 2% per year increase for consideration of inflation would result in a significant increase after 10 to 20 years, which many communities have not accounted for. As we all know, recent inflation has been significantly higher than 2%. Similarly, roofs, siding, parking lot surfaces – all of these major maintenance items have a bookmark sometime in the 20-year range, which is fast approaching for most communities developed in the 2005-2007 real estate boom. My advice for community members and associations is clear, but buyers should also consider these imminent increases. Personally, I would be more concerned with a community with low dues when compared with a community with high dues. HOA meeting minutes, budgets and reserve accounts are always available to buyers, and this is something that should be reviewed or at least discussed with an HOA representative.

Deferred Maintenance and its Impact on Value

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Homeownership comes with maintenance. In fact, it can oftentimes be one of the key driving factors for one to consider selling a home, particularly in an area subject to second homes, as well as the high maintenance aspects of Teton Valley. From snow removal to home staining and constant deck refinishing, it isn’t always easy.

In past articles I have identified home upgrades that can help with resale value, but one of my most recent articles on the subject was way back in 2015. The cost of remodeling, additions and even maintenance was significantly lower back then. As a result, my (current) advice is typically to sell as-is without major upgrades because the return on investment can be so hard to achieve. In some events, I provide this same advice even for deferred maintenance, because the availability of contractors can be so limited that one might miss an opportune sale window by waiting for contractors.

Because of this, I can’t stress the importance of ongoing maintenance (and repairs) enough. Throughout my career in real estate I have witnessed so many circumstances where a seller concession was so much more than the collective maintenance would have been. The same goes for repairs. A small shower glass leak that continually pools water eventually finds its way to the subfloor, creates mold, requires tile replacement, etc. While this seems obvious, what we tend to forget about is the additional cost of a sales concession to satisfy a concerned buyer. We usually can’t remedy a bathroom overhaul during a contract period. As a result, buyers look for concessions in excess of the cost of repair, which honestly makes sense. They assume the liability of the repair, the risk of unseen damage, the organization and completion of the task and the inconvenience of it all until completed. There was a time through 2021 where sellers didn’t need to make concessions in order to finalize the sale, but the market has shifted, even if it hasn’t been as much with respect to values.

In addition to the concession needed to satisfy a buyer that is so often in excess of the cost of maintenance repair, the other obvious benefit of regular home maintenance and repair is how well a home shows during its time as a real estate listing. It’s amazing how much sooner offers are received, how much more buyers are willing to negotiate, and how fewer days on market accumulate with well-maintained homes in good order. While feng shui and declutter is important, the feeling of a well-maintained home is hard to beat.

With the above said, below is a list of home maintenance items I often see overlooked.

Staining!
Nearly every home inspection report comes back with siding maintenance either desperately needed, or recommended. It’s easy to put this one off, year by year – particularly when you contact the local staining company of your choice each Spring, just to learn that they are booked through Fall. Make your appointments in the Winter, and get on the schedule early. The frequency of home staining can vary dramatically. I stain my full wraparound deck every other year, but only need to stain the exterior of my home about every 10 years. My home is mostly shaded, but receives heavy snow load on the decks that I clear after every storm with a snow blower. The lack of direct sunlight and wind-driven moisture provide shelter for my house, but most homes in Teton Valley are subject to high UV sunlight (something we sometimes miss) and wind that both drives moisture and dries siding. Stains with high transparency tend to need more frequent maintenance whereas opaque stains or paints usually don’t need refinishing quite as often. There’s a big argument between oil and water-based stains, but I’m not getting into that with this article. At any rate, once siding loses its protection layer, it doesn’t take long for warping, cupping, cracking and the loosening of fasteners to occur, only adding to the cost of the deferred maintenance.

Decks and Deck Railings
Same comments, above.

Roofs/Ice Dams
There’s no better time to take care of ice dams than in the Summer months when you can stand on your roof! You can read a recent article HERE.

Stone, Metal, Flashing
Stone or brick falling away from chimneys and homes are usually doing so for a reason. Finding the source of a water leak, bad flashing, etc. can save a major overhaul down the line.

Windows
Window seals often fail, and getting glass replaced can take months to find contractors, order glass and install. Waiting until you have a contract on your home puts you in the precarious position I described at the outset of the article. On a related side note, removing window screens during the Winter months is a great way to add longevity to them.

Driveway Sealing and Sidewalks
Sealing concrete is becoming ever more important with Idaho salting roads for Winter safety. This chemical compound rides with your car in the wheel wells and undercarriage, and melts away on your concrete drive creating “spalling”. Simply sealing concrete can help you avoid costly repairs. While asphalt tends to be more resilient in this area, it also requires sealing. Settling concrete walks are also relatively common in the area. Many foam injection companies have moved into the region, offering concrete leveling without the jackhammer. Leveling and sealing sidewalks so that you aren’t worrying about concessions (and trip hazards) down the line is an easy repair and offers great peace of mind.

Hardwood Floors
Hardwood floor refinishing is another one of those services that can vastly improve value, but it requires scheduling far in advance of listing your home for sale.

Lawn & Sprinkler Maintenance
If you’ve ever noticed those hard water deposits on a few of your windows or the white “arcs” on the side of your house, a simple sprinkler adjustment can easily remedy the problem and save thousands in repairs. Similarly, weeding and grounds maintenance is a whole lot easier before it gets out of control.

Rodent and Pest Control
I’ve touched on this and past articles, but rodents and pests can wreak havoc on homes. Field mice can cause significant issues relative to home systems, particularly insulation in crawl spaces. Carpenter ants can do nearly as much damage as termites (which we generally don’t have) in this area, particularly with timber or log homes. Getting a handle on pest control at the outset is a must.

HVAC / Plumbing
Other overlooked maintenance items include furnace filters, house ventilation filters, dryer vent cleaning, electric heater register cleaning, water filtration replacement, HRV filter cleaning and more. If you aren’t capable or interested in maintaining these items, have it noted every time these home systems are serviced by a professional. If you are, a dry erase marker on your HVAC duct is a great indicator as to the last time all of these home systems were serviced. Buyers asking for concessions for these types of services (if they are not obviously maintained) is common.

Tile, Stone and Grout Sealing
Most tile does not require sealing, but stone and granite countertops as well as grout lines usually do. Most stone fabricators will tell you that the initial sealant on granite countertops is good for anywhere from 5 to 10 years, and grout can be sealed more frequently, even as much as annually depending on traffic patterns and use. This isn’t a fun task, but it’s something to consider.

General Cleaning
Easy to forget surfaces such as the tops of cabinets and window tracks are much easier to keep clean if they are cleaned frequently. No, I don’t clean my window tracks every year, but I try to do it every other year if I can.

Each home is different, and each home requires a unique maintenance procedure. Keeping a notepad along with your other house service manuals and getting a feel for your investment can not only save costly repairs down the line, but also pay back in dividends when it comes time to sell.

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