Comments on declining market

[Amy Perkins]

Rather than add a canned comment, it is important to give some real data especially when you are stating that the market is declining.

Determine how you get a decent population sample that is representative of the market for your property.

Then explain why this population represents your subject property.

For Instance: Say my property is a typical single-family residential property for the area and I appraise it for $300,000. A 2 mile search of properties from 240-360K revealed 25 sold properties in the past 6 months and 40 in the previous six months, I like to use a 20% below and above the appraised value because this is what a typical buyer could afford. Then search for actives, pendings and expired/withdrawn with the same criteria.

A market analysis was performed in 2 mile radius search from $240,000-360,000:

Time period: Past 6 months Previous 6 months
# of closed sales: 25 40
Average Price 300K 350K
Absorption rate: 4.16 6.67
# of listings: 40
# of pendings: 3
# of exp/wthdrwn: 30 10
Remaining supply: 9.61 months

Based on the past 6 months and previous six months market analysis, supply and demand are considered to be: oversupply
Typical marketing time: 6 to 9 months
Subject's est. Marketing time: 6 to 9 months at the appraised value.
Typical financing is conventional concessions are typical in this market.
Prices are declining and the average price has declined 16.6% in the past six months compared to the previous six months.

Now if you have a market that is more difficult with a wide range of values/dissimilar properties you will have to determine how to search for your statistics on a case by case basis, rather than the 20% range.

Keep it simple and use plain straight forward language, getting fancy doesn't help your reader understand you.

 

[Parker]

Rather than add a canned comment, it is important to give some real data especially when you are stating that the market is declining.

Determine how you get a decent population sample that is representative of the market for your property.

Then explain why this population represents your subject property.

For Instance: Say my property is a typical single-family residential property for the area and I appraise it for $300,000. A 2 mile search of properties from 240-360K revealed 25 sold properties in the past 6 months and 40 in the previous six months, I like to use a 20% below and above the appraised value because this is what a typical buyer could afford. Then search for actives, pendings and expired/withdrawn with the same criteria.

A market analysis was performed in 2 mile radius search from $240,000-360,000:

Time period: Past 6 months Previous 6 months
# of closed sales: 25 40
Average Price 300K 350K
Absorption rate: 4.16 6.67
# of listings: 40
# of pendings: 3
# of exp/wthdrwn: 30 10
Remaining supply: 9.61 months

Based on the past 6 months and previous six months market analysis, supply and demand are considered to be: oversupply
Typical marketing time: 6 to 9 months
Subject's est. Marketing time: 6 to 9 months at the appraised value.
Typical financing is conventional concessions are typical in this market.
Prices are declining and the average price has declined 16.6% in the past six months compared to the previous six months.

Now if you have a market that is more difficult with a wide range of values/dissimilar properties you will have to determine how to search for your statistics on a case by case basis, rather than the 20% range.

Keep it simple and use plain straight forward language, getting fancy doesn't help your reader understand you.

Amy, with all due respect, you may not want to be in the position of trying to defend your method in court. You are on the right tract, but you step into dangerous territory when you ‘bracket’ based on price and/or ‘buying power’.

Here’s what I mean, let say your mortgage broker sent you an appraisal request, it says all the normal stuff like ‘estimated value $300,000. Let’s say you do your appraisal in the normal manner, you’re not pushing value, but it just happens that your value estimate came in at $300,000. The loan goes bad and ends up in court; maybe the Mortgage Broker is being sued. And of course, any good attorney will sue the appraiser at the same time. Oh, and guess what, the Mortgage Broker has a habit of sending appraisal requests (to other appraisers) that not only shows the loan amount, but also states ‘must hit value’. The suing attorney found that out during ‘discovery’ (that’s when they get to investigate the normal business practice of people they sue). Your method of ‘market analysis’ will be presented as ‘targeting’, as hitting the value. Why, you ask. Mostly because it is the number one method used by appraisers caught committing fraud. Another weakness of the bracketing by price method is, you miss sales of comparable properties that do not fall within the ‘bracket’.

Again, I think you are on the right tract, but instead of ‘bracketing’ by price or buying power, bracket by key features (location, type, size of parcel, GLA, etc…).

 

[Jim Onderisin]

Amy: I learned from an SRA to research the market by searching sales both 20% higher and lower than the client's "estimated value". It helped speed research, but occasionally required me to make yet another trip to the market area to take pictures of houses priced lower or higher than those included in the original search. I never like to go back. Driving time is costly.
It didn't take long (just YEARS) to figure out not to use any criteria on the sold prices. Once I've looked at the subject, it doesn't take long to isolate its likely value range in the field.