Declining Market - need help

[Ross (CO)]

....."None of the 8-10 new homes sold in the past 8-9 months in this subdivision have been noted as declining according to the homebuilder and their mortgage company."
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...according to the homebuilder and their mortgage company.

From this stark acknowledgment one could begin to recognize the root cause to SO much of the problems occurring in the housing industry. There has likely been a greater measure of bait-and-switch occurring in the new-home gig than in the existing home marketplaces across the land. If anybody wants to know what a new house is truly worth.....just ask the builder. There really is so little need for any mortgage company lending on new construction to seek the opinion of an appraiser. Just look at the final line of the purchase contract and calculate 80%, or 90%, or 95%, etc. The last thing they would want.....is for any appraiser to identify and quantify any elements of concessionary influence taking the "price" upward and resulting therefore in a noted imbalance between a stated price and a demonstrated value ! Price and value are not always equal.

 

[Dee Dee]

Taurus,

Builders and their mortgage companies being in collusion are one of the primary reasons that so many of the defaults occuring today are in new home subdivisions.

Many of the same people who were hollering that prices never go down are now making their money by convincing anyone who can qualify for a loan that buying up foreclosures and short sales NOW is the winner's move. What they don't mention is that if your timing is off it may take many years before you break even. For what it's worth, I think that many who are jumping into the housing market now with the belief that they're going to profit from the mistakes of the "last fools" into the housing market are going to find that the joke is on them.

There will always be appraisers out there who will give you the opinion that you want to close your deal (that's another reason why we have so many defaults today), but you'd better hurry because their numbers are dwindling due to lenders getting smarter and the odds of being held accountable are growing.

Lenders are figuring out that the most likely borrowers to default are those with no skin in the game...the ones with no money down. There are many who have great credit scores but haven't got the financial padding that would be necessary in the event that they can't sell the property for what they owe or they can't rent the place for enough to cover the mortgage payments.

I'm not saying this to imply that you might be one of those fools, or to damper your enthusiasm in buying a new home. There's no doubt that real estate can be a great investment, but only IF you are willing to start your quest by wanting to know the honest truth about the market that you are buying in...not just the answers that you want to hear.

Good luck to you.

 

[toddmallard]

Taurus We as appraiser do not care if ,
1- you get the mortgage.
2- your interest rate.
3- if you close or not.
4- what the builder says.
We do however Care if,
1- we complete a fair and true appraisal.
2- you as a buyer are told of the true value of what you are buying.
3- all parties know what the market is doing at the time of the appraisal.

Declining markets can sometimes have a small pocket of stable or even increasing values in some type of subdivision, but in these markets, this is rare.

 

[taurus6]

Well, I guess it is what it is. I'm not an investor, just tired of the cold up north and wanting to move back to FL. This will be my primary home and I intend to live in it for many years. I'm only looking at an REO property because I have the skills to do any repair work myself and save some money. I don't mind living in a home while I do the work.

Anyways, what data would you suggest to substantiate a small area being stable? That's what I need to be able to prove now.

Thanks again, Tracy

 

[toddmallard]

The data is the data. All you need to do is look it up....and understand it. Thats why we have schooling, hours and hours of training, tests etc. By the time you understand all that is necessary, your market will have probably declined as most others are doing.

 

[Boonders]

everybody wants to manipulate the process...

are you agreeing the market is declining and just want to say that some 4 block area isn't declining? That isn't going to float with any reputable appraiser. Those homes still compete with the rest of the homes in the market. If everything else in the market is cheaper...buyers will migrate away from this "great" area and guy the less expensive homes that are in a similar neighborhood.

Why not just pony up the 5%? Its not like they are charging you extra points or anything...they just want you to have some skin in the game, which isn't a bad idea seeing as how all these people are losing their houses in these declining markets BECAUSE they don't have any skin in the game...it only makes sense they want some $$ down.

 

[Doug Wegener]

Declining values

I'm not an appraiser. Just an average person trying to purchase a home. Can any professional appraisers please give their opinion on the following?

The home is an REO home in Volusia County, FL 32713. Appraisal came in at $355k noting declining market and surplus of homes. Now of course the 100% financing I was well qualified and pre-approved for is reduced to a 95% LTV. This is what I would like to know please.

1. The goal of the appraiser is to accurately place a value on the specific property they are contracted with to do so. Is this correct?

2. Based on my research, Announcement 07-11 explains how notations for declining markets should be noted. I've heard there is some "place" on the appraisal for such notations. The intent of these new pieces of data is to reduce the risk to lenders should the buyer default. Is this correct?

3. It appears that lenders seeing an appraiser's notation regarding a declining market will reduce the LTV to 95%, 90%, or in extreme cases 85%. This would be to give the lender a "cushion" to help reduce losses in the event of foreclosure. Is this correct?

Assuming the above 3 statements are true? If a particular appraisal on a specific home (mine for example) was appraised at $355k as noted and specified as declining, would you reconsider restating the declining market note as stable if the lender disputed the appraisal based on the facts above and the loan value of the home is actually only $275k. Since the purpose of declining market notation is to protect the lender, and they want from 5-15% downpayment to cover the declining value should it actually occur, would you as an appraiser look at it this way? "The loan value of $275k is only 77% of my appraised value of $355k. If the bank wants a buffer of 5-15%, I can see that even if this area is a declining market, this home has a much greater "buffer" than that 5-15% and therefore the accurate appraisal of THIS property will NOT be affected by the declining market notation and I feel the lender is still protected and my information is correct to change my notation to STABLE?"

It seems to me that some appraisers are trying to appraise a state or MSA instead of the specific home they were contrated to appraise. Any help or thoughts on this are greatly appreciated.

Thanks, Tracy

Appraisers get pressure all the time to misrepresent a declining area as stable.

What you really are asking is for the appraiser to compromise his integrity.

The goal of the appraisal is to accurately value the property but also to accurately describe the neighborhood trends.

 

[WallyII]

Well, I guess it is what it is. I'm not an investor, just tired of the cold up north and wanting to move back to FL. This will be my primary home and I intend to live in it for many years. I'm only looking at an REO property because I have the skills to do any repair work myself and save some money. I don't mind living in a home while I do the work.

Anyways, what data would you suggest to substantiate a small area being stable? That's what I need to be able to prove now.

Thanks again, Tracy

Paired sales analysis. Have fun!

 

[taurus6]

Wow, you guys are pretty defensive. I'm not looking to change anyone's ethics. I'm just asking how you would present data and what data you would use to justify a stable market segment.

These are real numbers from the county tax appraiser's website. Could this substantiate a stable market in this specific subdivision? All homes are in this subdivision.

Summary:

Sold
7/04 $226k 10/07 $320k
11/05 $384K 03/07 $400k
12/05 $469k 02/07 $470k
11/05 $347k Current appraisal, this is the home I’m buying $355k

For Sale
Sold 4/04 $294k Active listing $299k

 

[Boonders]

So, you believe the appraiser is unaware of this data?