Quick questions from a non-appraiser

[ericmichaels3]

What are the standards for determining if a market is declining/stable/increasing and also for if a neighborhood is "balanced" in the number of homes on the market, etc.?

I am evaluating an appraisal for a home in a distinct gated, vacation community with 75 properties. 20+ are for sale, 1 sale in the past 18 months, most on the market 100+ days and most asking prices have declined 15-25% in past 18 months.

Appraisal calls this Stable and Balanced.

Thanks

 

[NORTON]

This might sound hard to believe but unfortunately there isn't any rules that clearly define when a market area is considered in balance vs over supply, declining vs stable, etc.. Those types of determinations should be the result of the appraiser's research of prior trends when compared to today. The situation you mentioned does sound out of whack, 26% of the vacation community are for sale..WOW! 100 plus days on market isn't unreasonable for a vacation destination but with only 1 sale in the prior 18 months, that leaves u with approximately 30 years of inventory which is the definition of over supply.

 

[Smokey Bear]

List prices are determined by the seller and the agent. Sometimes sellers are unrealistic but insist on a set list price. Often it's related to how big of a loan they need to pay off. Sales price trends are much more indicative of the market.

100 days plus on the market is not unreasonable, and if it's less than 6 months in a vacation community, it could be downright good. I see you're in Illinois - is it a winter or summer vacation spot? Or all year round? That could affect the very recent trends as well.

I wouldn't call 1 sale in 18 months, with 20 currently active, a balanced market.

Basically would need to see the research of the appraiser to determine whether the market is stable.

What is your concern with the appraisal? Too high? Too low? If the value was what you wanted, would you be concerned about how the market is displayed on page 1?

Keep in mind that Fannie Mae has so screwed up the URAR form and requirements that they way they expect us to fill out the market data is completely flawed. If you look at the 1004MC form (if this was done for a loan that might go to Fannie), it specifies that the data must come from the NEIGHBORHOOD, but in a vacation area, the market area would probably be much larger. They expect the 'market' data on the top of page one to match that on the 1004MC, which is flawed. Garbage in, Garbage out.

 

[Riick]

What are the standards for determining if a market is declining/stable/increasing and also for
if a neighborhood is "balanced" in the number of homes on the market, etc.?

Property Values Declining/Increasing
One way is to compare sales thus far this year -v- Same period last year
(Given that the sales/houses are similar in size, age, amenities, etc., in both periods)
Has median value increased, decreased?
You need a half-decent number of sales to determine this.
I've read that 20 (per period) is smallest sample size that's somewhat reliable, more sales give more reliable results -per Statisticians.

Supply / Demand:
FannieMae says
Shortage = Homes take under 90 days to sell
In Balance = Homes take 90-180 days to sell
Oversupply = Homes take over 180 days to sell

.

 

[ericmichaels3]

Thanks guys. I suspected this was the case.

I was a little surprised at the question about whether the end valuation was what "I wanted" and if I would care about these page 1 details if the number was what I wanted.

This question seems odd from an appraiser.

Isn't it a mistake for someone to "want" any specific number on an appraisal? I want the right number. To me, if all the details on page 1 are correct then I should more likely believe the end number. If they are not correct, I should doubt the end number regardless of what it is. No?

 

[Delta85]

Isn't it a mistake for someone to "want" any specific number on an appraisal? I want the right number.

You're in the minority. Most users of appraisals want the number that will make their deal work be it a broker, realtor, or homeowner.

It's a battle appraisers fight daily. We want to give the right number.

 

[Delta85]

I am evaluating an appraisal for a home in a distinct gated, vacation community with 75 properties. 20+ are for sale, 1 sale in the past 18 months, most on the market 100+ days and most asking prices have declined 15-25% in past 18 months.

Appraisal calls this Stable and Balanced.

Thanks

What's your background? Are you competent to "evaluate" an appraisal?

 

[Walter Kirk]

I have done a lot of work in seashore resort areas and have found that a larger percentage of properties are listed for sale than in average residential areas. Perhaps this is because more people consider their vacation property to be an investment.

You can determine whether the specific market is in balance by comparing the number of listings vs the number of closed sales over a number of years.

 

[Appraisal MAN]

Riich is on the money

 

[David Mescon]

I have done a lot of work in seashore resort areas and have found that a larger percentage of properties are listed for sale than in average residential areas. Perhaps this is because more people consider their vacation property to be an investment.

A lot of people jettison secondary homes when times are tough, (like now).