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Adjustment for declining market

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hal

Thread Starter
Sophomore Member
Joined
Apr 4, 2002
Professional Status
Certified Residential Appraiser
State
Michigan
How do you adjust for a declining market? This is what the underwriter wants. I thought that in a declining market the sales would already have this adjustment, because they have declined. Thanks in advance
 

Jim Bartley

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
How current are your sales? Are current listings lower than the most recent sales? If you checked "declining" market and you have sales that are older than 90-120 days, then It would be reasonable to ask why these weren't adjusted downwards to reflect current market conditions, right? If you run a Excel SS on your data, it is pretty simple to see the trend. You may have a market that HAS declined, but now is showing signs of stability. If that the case, you need to explain it. If you want some examples, PM me.
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Maybe the underwriter wants you to illustrate the decline? Are all your sales current, within the last month or so? Maybe throw in three more sales back six months or more and show where the decline is calculated.

Using the most current sales data will not show the decline.

Why not put in some information on DOM and List to Sale Price over the last three, six, and nine months? That should show the decline also, or at least show the lengthening marketing time and the increase in the difference between list price and sale price.
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
This is a sample of my support for a market change:


MLS ANALYTICAL YEARLY SALES DATA FOR RANDOLPH

Year to Date 2008

2008: 215 sales, $80,000 - $550,000, average price $261,593 and a median price $255,700 and an average of 121 days.

2008: List Price/Sales Price Ratio 96% - Original List Price/Sales Price Ratio 91% - Total Market Volume: $56,242,487

2007: 238 sales, $143,000 - $549,900, average price $306,074 and a median price $304,000 and an average of 101 days.
2006: 304 sales, $185,000 - $600,350, average price $334,992 and a median price $329,000 and an average of 84 days.
2005: 338 sales, $185,000 - $627,000, average price $351,693 and a median price $349,000 and an average of 57 days.
2004: 394 sales, $162,600 - $510,000, average price $319,536 and a median price $315,000 and an average of 45 days.
2003: 350 sales, $157,000 - $482,000, average price $293,445 and a median price $285,100 and an average of 50 days.
2002: 299 sales, $120,000 - $420,000, average price $269,426 and a median price $265,000 and an average of 39 days.
2001: 275 sales, $125,000 - $368,000, average price $228,030 and a median price $226,000 and an average of 38 days.
2000: 280 sales, $96,000 - $378,000, average price $199,173 and a median price $191,950 and an average of 38 days.

2007: List Price/Sales Price Ratio 97% - Original List Price/Sales Price Ratio 93% - Total Market Volume: $72,845,635
2006: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 95% - Total Market Volume: $101,837,623
2005: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 96% - Total Market Volume: $118,875,501
2004: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 97% - Total Market Volume: $125,897,217
2003: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 73% - Total Market Volume: $102,705,939
2002: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 100% - Total Market Volume: $80,558,474
2001: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 99% - Total Market Volume: $62,708,435
2000: List Price/Sales Price Ratio 98% - Original List Price/Sales Price Ratio 97% - Total Market Volume: $55,768,447

CURRENT MARKET CONDITIONS

There are several bank owned properties in Randolph and there are expired listings that failed to sell. Like most communities around the Boston area values appear to have been the highest in 2005 and for 2006, 2007 and into 2008 prices declined as did the volume and the number of sales. Days on the market have increased also.

As of November 16, 2008 there are 56 listings in the H3MLS system that are either bank-owned or are offered as a "short sale". The listing prices are $99,500 - $439,900 with an average list price of $235,366 and an average of 134 days on the market. These listings represent 41% of the total listings as of November 16, 2008. The 59% remaining listings are privately own and can be transfer by the owner without the permission from a lien holder. The appraiser believes this ratio is significant and adversely affects Randolph prices and values..

SALES COMPARISON BETWEEN 2007 & 2008

2008: 215 sales 2007: 210 sales
2008: $80,000 2007: $143,000
2008: $550,000 2007: $549,900
2008: $261,593 - average sales price 2007: $308,536 change in percentage: -15.21%
2008: $255,700 - median sales price 2007: $306,000 change in percentage: -16.43%
2008: 121 days - average days 2007: 99 - days change in percentage: +22% increase in days on the market

2008: List Price/Sales Price Ratio 96% - Original List Price/Sales Price Ratio 91% - Total Market Volume: $56,242,487
2007: List Price/Sales Price Ratio 97% - Original List Price/Sales Price Ratio 93% - Total Market Volume: $64,792,635

Volume Comparison: -15.20%

The data above is a comparison between the period of 01/01/2007 - 11/16/2007 and 01/01/2008 - 11/16/2008.

There are no positive indicators in this analysis. The number of sales and the highest price paid through MLS is stable, but all other components are in a decline in comparison between 2007 and 2008. Given the high percentage of offering, 41% of the Randolph offerings are bank owned or a short sale, prices and values will continue to decline.

There is another factor on a national level. The Dow recorded a record high of 14,164.53 on October 9, 2007. The one-year anniversary the Dow closed at 8,579.19 - down by 39.4% or 5,585 points from its high. There have been market changing events throughout the country with the significant change in the stock market. This is a barometer of the US economy. The combination of the declining values and the prices in Randolph with respect to the current events, I have chosen to apply a downward adjustment. The one percent per month for a market change is considered to be a reasonable adjustment. This is supported by the market change in the average and median sales prices between 2007 and 2008.
 

Tom Woolford

Elite Member
Joined
Nov 20, 2005
Professional Status
Certified Residential Appraiser
State
Florida
Kevin, nice analysis. Why not graph it?
 

David Dietz

Member
Joined
Oct 30, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Figure your monthly decline then adjust each comparable per month from the contract/pending date to the date of inspection. Make sure to explain how you arrived at the monthly decline and what is causing it or you will get an other call. I include charts rather than long winded verbiage that no one will read. See attached example.
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
I would suggest long winded verbiage followed by a graph. It is explained and illustrated ...
 

David Dietz

Member
Joined
Oct 30, 2006
Professional Status
Certified Residential Appraiser
State
Florida
I agree long winded is better but for residential fee's a summary explanation and a graph usually does the trick. Besides it is a summary report and all the supporting information is in the work file.
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
Hi Tom, I'm a text guy. I have to read the data, looking at graphs is not easy for me.
 

hglenbetts

Senior Member
Joined
Dec 3, 2007
Professional Status
Certified Residential Appraiser
State
Michigan
David,

Nice looking graphs. What program did you use to create them.

I use Excel, and well, we all know what that looks like..
 
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