Analyzing Markets/Market Timing Adjustments

[SumthinU]

I work in a very rural area where housing varies greatly in all respects. With that said, am I the
only one who feels he was not able to see a slightly increasing market with confidence while
he was in the middle of it ? I can see it now through historic comparisons, but at the time, not
enough data for certainty. How much market activity are appraisers using before being confident
in determining direction ?

 

[J Grant]

I like to see at least a 4 months of activity to call it a trend and also see the reason for the change to either increasing;g or decrease - change in supply in demand, or mortgage rates, an economic boom or bust, local reason etc

 

[SumthinU]

That makes sense, but its often the case in this rural market expanded to literally hundreds of square miles
that there have been less than 5 sales. My go to period is a year to year comparison.

 

[J Grant]

That makes sense, but its often the case in this rural market expanded to literally hundreds of square miles
that there have been less than 5 sales. My go to period is a year to year comparison.

If tht is all the sales you have, it is what it is.

 

[Terrel L. Shields]

How much market activity are appraisers using before being confident
in determining direction ?

The more sales the better the data. Also, i am of the mindset that while the economy can impact various classes of real estate, normally I do not expect say entry level homes to decline in price while luxury homes increase. I don't expect land prices to increase, but small lot home sales to decrease. IMNSHO, all boats are lifted by a rising tide and fall accordingly.

So, for me, I want the whole trend line in a given region and enough sales to have at least 100 data points per year. I know what your problem is. For an entire year, you might only have 14 sales for a large rural region. It is impossible to guesstimate a monthly change in prices. The best I could think of is like using Redfin data by county with them doing a seasonal adjustment, and even then they find it impossible in very rural counties.

This is an entire county in Oklahoma - what kind of time adjustment does it imply?

 

[Joe Flacco]

I work in a very rural area where housing varies greatly in all respects. With that said, am I the
only one who feels he was not able to see a slightly increasing market with confidence while
he was in the middle of it ? I can see it now through historic comparisons, but at the time, not
enough data for certainty. How much market activity are appraisers using before being confident
in determining direction ?

Don't feel bad. It is complicated.

 

[J Grant]

Imo, a county wide trend and a local trend need two different exhibits, they are not always the same and that can be commented on,

10 or more sales is enough to form a trend line- fewer than that becomes more difficult, then need to rely more on listings, DOM, talking to RE agents etc.

 

[Mejappz]

I predict the GSEs will remove this requirement once the unethical stakeholders begin to complain. They are already backtracking by allowing the HPI. When AMCs complain about profit margins, the GSEs will likely relent.

 

[Terrel L. Shields]

Imo, a county wide trend and a local trend need two different exhibits

Markets move in tandem. Because if one area gets too far out, the other area increases sales and the hot area slows down. Otherwise, we'd have houses selling for $50,000 in NYC somewhere.

And Los Angeles County, CA is a far cry from Montezuma County, CO. Markets are not isolated from each other except by virtue of their appeal. And again, higher prices drag other prices along behind it.

 

[Tom4value]

I work in a very rural area where housing varies greatly in all respects. With that said, am I the
only one who feels he was not able to see a slightly increasing market with confidence while
he was in the middle of it ? I can see it now through historic comparisons, but at the time, not
enough data for certainty. How much market activity are appraisers using before being confident
in determining direction ?

I am very impressed with this post! No to your first question. You, like me, take market adjustments very seriously. Of all adjustments on the sales comparison grid, market adjustments are the ones that I only do when I have clear, undeniable data to back them up. We all know that changes in market values can vary not just by months but by neighborhoods, house styles and price ranges. My pet leave is when people ask, “where are the values going, up or down?” It is like saying, “what is the temperature of the U.S.?”.

You live in a rural area. You have data that is far less than say, LA. Appraisers there can confidently say, “ranches of 1,000 to 1,500 sqft in this neighborhood have increased x%/ month over the last 12 months”. You can’t. For about 90% of my area, I can’t. I just don’t have enough data on a wide range of properties. If I do a large colonial in a rural area with 5 sales all year and apply a x%/month adjustment, a 5 year old could determine it was POA.

If you are like me, give as much detail as you can in the market conditions section of the report and then in the sales comparison reconciliation, explain the strengths and weaknesses of market conditions in your determination of value.