Need Help-is This A Declining Market

[WEAVER APPRAISALS]

i have an ocean front condo located on an island. the island is approx. 25 miles lone and 1/4 mile wide. this island has seen rapid increase and decrease in values. the data i found was based on just oceanfront condos. the data is as follows:


DATE RANGE
MEDIAN SP
AVG DOM
# OF SALES
LP/SP RATIO
%INCRESE
% DECREASE
07/2007 TO 07/2008
$186,500
232
46
91.29
STABLE
STABLE
07/2006 TO 07/2007
$185,750
180
62
92.21
NA
33.18%
07/2005 TO 07/2006
$278,000
117
81
96.03
39%
NA

07/2004 TO 07/2005
$200,000
98
182
97.75
NA
NA

as you can see oceanfront condos on this island increased 39% in one year then decreased 33% the next year. but this current year as compared to last year show a fairly stable market.

my question is this. when i run a report of the current listings i find that there are 303 current listings with a median list price of $175,000. if you adjust the median list price by the last years lp/sp ratio this brings the adjusted list price to $160,000+/-.

last year and the previous year show 46 and 62 total sales for the year. 303 listings would indicate an oversupply.

based on this data the market is stable when comparing last years median sp to the current year. but if you consider the oversupply of listings it appears a decline is going to happen. would you consider this a stable market or a declining market? do we predict the future based on listings or do we just state the market is stable at this time but appears a decline is going to happen?

 

[Joyce Potts]

i have an ocean front condo located on an island. the island is approx. 25 miles lone and 1/4 mile wide. this island has seen rapid increase and decrease in values. the data i found was based on just oceanfront condos. the data is as follows:


DATE RANGE
MEDIAN SP
AVG DOM
# OF SALES
LP/SP RATIO
%INCRESE
% DECREASE
07/2007 TO 07/2008
$186,500
232
46
91.29
STABLE
STABLE
07/2006 TO 07/2007
$185,750
180
62
92.21
NA
33.18%
07/2005 TO 07/2006
$278,000
117
81
96.03
39%
NA

07/2004 TO 07/2005
$200,000
98
182
97.75
NA
NA

as you can see oceanfront condos on this island increased 39% in one year then decreased 33% the next year. but this current year as compared to last year show a fairly stable market.

my question is this. when i run a report of the current listings i find that there are 303 current listings with a median list price of $175,000. if you adjust the median list price by the last years lp/sp ratio this brings the adjusted list price to $160,000+/-.

last year and the previous year show 46 and 62 total sales for the year. 303 listings would indicate an oversupply.

based on this data the market is stable when comparing last years median sp to the current year. but if you consider the oversupply of listings it appears a decline is going to happen. would you consider this a stable market or a declining market? do we predict the future based on listings or do we just state the market is stable at this time but appears a decline is going to happen?

No, I don't think declining values are going to happen, I think they already have. Do you need a bigger 2x4 or what?

If you can buy an identical or suitable alternative substitute FOR LESS MONEY than the last, historic closed sale that contracted 60 days ago and closed 30 days ago because those who want or need to sell continue to lower their asking prices, don't you think that has a direct and signficant impact on market values?

At the end of the day, every appraiser needs to ask themselves this question:

If my client had to this property back as of the EFFECTIVE DATE of MY appraisal, and sell it to satisfy the outstanding loan balance, could they realistically sell it at or near my appraised number?

Enough of this seeking out comps to fit a some kind of pre-determined or the HIGHEST number possible. That's the mindset that got us into this mess not once, but twice within the last 18 years. We had too many Skippies and appraisers who thought they were doing the right thing by providing the HIGHEST, pie in the sky numbers so the applicant could consolidate their credit card bills?

Do sellers price their properties based on the closed sales? Sometimes.

Do people then begin to lower their asking prices when they get no lookers or offers? Sometimes.

I don't care if I have three nearly identical units that sold in the $500K range within three months of each other in the same building. It's not JUST about the closed sales, IT NEVER WAS. m2:

Whether I have a single or mutliple similar condos in the same building with virtually the same oceanview in similar condition that have been on the market for 90, 120, 180, 200+ days that originally had an asking price of $500,000, but are now priced below $450,000 with no bona-fide offers, what on God's green earth makes anyone think your subject property would sell for $500,000 or above?

In fact, if listings typically set the HIGH end of the range, I think therein lies another compelling argument that the property is probably still over valued.

Rest assured my appraisal would indicate more than 6 month marketing time and declining value trends. And if they don't like it, then go hire Skippy and let the short and long term chips fall where they may.

Or go put a loan app into Wells Fargo. Right, Mr. Hawkings?

Being able to analyze ALL THE MARKET DATA and write a comprehensive appraisal report sets the appraisers apart from the closed sale form monkeys, IMO.

 

[Couch Potato]

Being able to analyze ALL THE MARKET DATA and write a comprehensive appraisal report sets the appraisers apart from the closed sale form monkeys, IMO.

That sums things up quite well.

 

[WEAVER APPRAISALS]

i agree i think the property values have declined based on the current listing data however the sold data shows the market to be stable.

to put it another way lets assume that the sold data shows that like condos have sold for $100,000 but like listings are on the market for $90000 with a typical list to sale ratio of 95%. this would make the $90000 listing adjust out to be $85500. what would you appraise the property for. $100,000 based on sold homes or $85500 based on current listings.

and to put it another way lets assume the sold homes show a market value of $100,000 but comparable listings are listed for sale at $125,000 with a list to sale ratio of 95% which would adjust out to $118750. would you appraise the property for $100,000 based on sales or $118,500 based on listings.

 

[Couch Potato]

As a rule of thumb a upper limit does not draw things to it, just limits how far up things can go.

 

[WEAVER APPRAISALS]

would that rule be the same for the lower limit?

 

[WEAVER APPRAISALS]

couch, can you help by answering my last two questions?

 

[Joyce Potts]

i agree i think the property values have declined based on the current listing data however the sold data shows the market to be stable.

I think you're missing the signfiicance of the 'time' factor. That's why you can't solely rely on the historic closed sales. You need to check the listings, pendings, withdrawns, expireds that often hold a wealth of information if analyzed correctly. Again, it's NOT solely about the closed sales. Frankly, FNMA did a disservice to appraisers by mandating them to appraise to their guidelines that are often misinterrpreted or abused, instead of doing a legitimate non-constrained report without fear of FNMA guideline rejection disease.

to put it another way lets assume that the sold data shows that like condos have sold for $100,000 but like listings are on the market for $90000 with a typical list to sale ratio of 95%. this would make the $90000 listing adjust out to be $85500. what would you appraise the property for. $100,000 based on sold homes or $85500 based on current listings.

Given the details you provided, and given my firm belief that the Principle of Substitution is the cornerstone of basic appraising methodology, you better believe I'd appraise that property for $85,500 with no reservations whatsoever.

Now, do I ALWAYS adjust the listings with a list to sale ratio? No--not always. Should I, if the market supports it? Probably. Why don't I ALWAYS do it? Probably because I'm one of the few appraisers in my market who include a minimum of three closed sales with at LEAST two listings and/or pending sales in support of a market condition adjustment even on sales that closed as recently as 60-90 days ago in some cases.

Frankly, I've continue to endure criticism by many that I'm already ultra-conservative and anal to the point that I've about given it up. That said, I clearly denote in the report that the list prices on the actives typically set the high end of the range and more than likely will sell under their asking prices. The problem within my current market is asking prices vs. sold prices are usually all over the damn place to the extent that it's difficult to extract any reasonable consistent LP to SP range. How's that for an honest answer?

and to put it another way lets assume the sold homes show a market value of $100,000 but comparable listings are listed for sale at $125,000 with a list to sale ratio of 95% which would adjust out to $118750. would you appraise the property for $100,000 based on sales or $118,500 based on listings.

It depends. If there an absence of lower priced, competitive listings then I would probably rely on the closed sales, if their asking prices were in the similar $125,000 range. The other factors I would look at are the number of listings, absorption rate and the average days on market.

Back on 2005-2006 when we had contract wars going on in Central Florida, I was one of the few who were using upward time/market condition adjustments because we had a vast UNDER supply of inventory. I figured that was far more reflective of the actual market than 'whoring' higher priced sales from superior areas and backing into the contract price. I often had Realtors willing to provide me with multiple contracts in support of a bidding war. Properties were often selling before the signs would go up in the yards.

In an undersupplied market, yes--I would analyze the data or lack thereof to support an upward time adjustment if the data supported it and I felt I could make a compelling argument. Bottom line, I caught just as much grief for upward time adjustments from most undewriters because they'd simply never seen them before. They either accepted them and my value opinion as well supported or they had the choice of getting another appraiser or simply not doing the loan.

Don't shoot the messenger. I'm here to interpret the past actions of buyers and sellers in the market within the context of present and sometimes future dates. I do it with Relocation/ERC appraising every day with forecasting adjustments. It's NOT about my personal opinion, it's about my professional opinion based on a sound analysis of ALL THE MARKET DATA.

I hope at least some of it make sense.

I apologize for any typo's as my spell checker has disappeared off my screen.

 

[WEAVER APPRAISALS]

i really appreciate your help. im still not sure how i feel about the issue im trying to clear up. i understand the principle of substitution but it seems appraisers, underwriters and lenders only want this principle addressed if its for a downward market. i also put three to four sales in every report and two listings in every report. the problem i have is when the sales data shows a value of lets say $100,000 but the listings show a value of $90000 then the underwriters send the report back saying that the value can not be any higher than the listings which typically show the high value range. but when the sales data shows a value of $100,000 and the listings show a value of $120,000 they will not let you value the home any higher than the sold properties. unless im not understanding you right you think the same way. my question is how can you considered listings to determine your final value estimate only if the values are declining. if you try to appraise a home at a value higher than the sold properties based on listings that are higher, the underwriter and lender is going to think you have lost your mind. so how can we justify doing this only if the values are declining. there is no way we can predict the future. we have a good idea of what might happen. so i think the data i first presented would show the property values are stable with the likelyhood of values declining in the future and it should be presented to the client that way.

i know i may be over thinking this. but in my opinion i just cant see how we can consider listings to determine our final value estimate if the listings price is lower than the selling prices and not do the same if listings show a values are increasing.

i didnt proofread this either so i hope i got my point across. please give me your thoughts on this.

 

[Joyce Potts]

I guess I didn't make myself clear. I did use the listings to support upward time adjustments when the market data was there.

Don't make this more complicated than it needs to be. Put yourself in the shoes of a typical, knowledgeable buyer who's looking to purchase either your subject property or a property similar to it. Given what's available, are you likely to pay over the asking price, at the list price, or under the list price and why?