Determine rate of market decline

[MZ818]

What is everyone else doing to determine % of decline. Is it better indicator to use the average sales price of the comparables properties that would be considered true alternatives and compare? Or use the average price per sf per each quarter and compare? I have been using the average sales price and have been dividing the current / 90 days average sales price into prior year average to determine the year decline. Thanks.

 

[Deuce of Spades]

I look at each assigment seperately and try to look for trends by quarter. In order for there to be statistical accuracy there needs to be about 30 sales per quarter, depending on the market area, it may be all single family homes or just true comparables. I then trend median sp, dom and median sp/sqft. I also trend current pending listings to see if the decline is even further. Our MLS has made this a lot easier with available statistics. If I don't have enough sales to work with, I used paired sales.

 

[Elliott]

Does the 1004 require you to indicate the % rate of decline?
I don't remember it requiring the rate of increase during the
go-go years.

To predict or calculate the rate of decline would be as easy as
tossing a knife into the air and giving its speed and direction
at 1 one second intervals. Every now and then I can calculate
the change in value for a particular property over a two or three
year period. But typically, I just use the most current and similar
sales available. I don't think a 1 month or 3 month old sale requires
much adjustment.

 

[KYLECODY]

Does the 1004 require you to indicate the % rate of decline?
I don't remember it requiring the rate of increase during the
go-go years.

To predict or calculate the rate of decline would be as easy as
tossing a knife into the air and giving its speed and direction
at 1 one second intervals. Every now and then I can calculate
the change in value for a particular property over a two or three
year period. But typically, I just use the most current and similar
sales available. I don't think a 1 month or 3 month old sale requires
much adjustment.

We have many subdivisions here where mean values have dropped 25-30% since this time last year and the 2% per month is consistent. To not make a time adjustment of 6% on a 3 month old sale would most likely make that sale appear artificially high.

 

[Jack Straw]

But typically, I just use the most current and similar
sales available. I don't think a 1 month or 3 month old sale requires
much adjustment.

You must work in a very active market. Where I work I make time adjustments, that way I can use the model match property which sold 4 months ago as a 4th or 5th sale rather than going out of my way to find more recent comps in a different area and ignoring what happened 4 months ago. Of course the more recent the comps the better.

But at some point common sense and good old fashioned "apples to apples" mentality should prevail. Basically what I am hearing you say is that you don't make time adjustments, is that true? Right now, in your market, are you making time adjustments in your reports?

 

[MZ818]

To not make a time adjustment of 6% on a 3 month old sale would most likely make that sale appear artificially high.

Very true! I appraised in South Gate a few weeks ago and used all comps within 3-4 months of appraisal report. There were no good comparables within 30-60 days. There were many pendings in the area that were being priced 3-6% below those sales from 90-120 days ago. I had to make time adjustment to reflect for current market conditions, because the pendings in the area are the current market. Even if the property sold 90 days ago, it still had to go trough 30 days of escrow. So does time freeze and market stays still because of escrow? Do you guys adjust based on contract date or escrow date? I find this information in Realquest, the contract date. I believe that is also an FHA guideline to make time adjustment based on contract date. Sometimes a property can go into contract 2 months prior to the closing date, but market doesn't freeze, if it's declining at a rate of 1-2% per month, then you have to adjust for time. Otherwise you end up with an inflated appraisal value.

Anyhow, back to my original question. I typically use average sales price to figure out rate of decline to support my time adjustment. I talked to another appraiser who feels that median sales price is better, but I disagree with that. He figures out median listing price and median sales price every quarter and compares to extract a time adjustment. Any thoughts? Average sales price, average sales price per sf, median sales price, etc..?

 

[Mztk1]

I use year over year data and year-to-data date (or 1/4 over 1/4 data) to show my reasoning in determining that the market is in decline, but ultimately the rate of decline is determined by the comparables based on changes from contract date to contract date, using - hopefully - at least one pending sale as well, preferrably two, but often the 2 most competitively priced active market listings due to a lack of pending.

If a market condition adjustment cannot be substantiated by the comparable data, I will based one on the statistical analysis, but that is rare and usually the stats are just supportive.

I also include the median value trend for the county on a month to month basis as researched by me, and a average price trend, month to month, as published by the MLS system. But these are strictly used as supporting data as well and only in the rarest of circumstances will I fall back on them to determine an market adjustment.

In my markets a 3 month old sale likely contracted 4 months ago and at the rate of 15 to 30% I've been seeing, on an average $200,000 house, not making the adjustment would make the sale stand out on the grid by $10,000 to $20,000. Even the sale that closed one month ago will have likely contracted 2 months, meaning its indicated value could be as high as 5% too much. Not making those adjustments would definately cause a house to be overappraised in most of my markets and certainly in a market that is decline 6% a quarter as well.

 

[David Sawyer]

NON- WATERFRONTAGE WITH & WITHOUT POOLS
1. ALL SALES WITHIN 2 MILE RADIUS FROM THE SUBJECT
DATES MEDIAM PRICE MEDIUM SQ FOOTAGE # OF SALES #ACTIVES #YRS % DECLINE
02/06/08-05/06/08 $140,001 1639 54 459 7.65 YRS -32.9%
02/06/07-05/06/07 $208,500 1607 60


2. ALL SALES WITHIN TWO MILE RADIUS FROM SUBJECT, BUILT 1975-1995 (SUB BUILT 1985), 15%+/- SQ FOOTAGE (SUBJECT IS 1,913 SQ FT) COMMENT: THE MEDIAN AGE IS NEWER THAN SUBJ AND HAS AN ENCLOSED POOL WITHIN THIS STATISTICALLY DATA MODE.
02/06/08-05/06/08 $170,000 1,858 9 63 7.0 YRS -30.0%
02/06/07-05/06/07 $242,990 1,912 7

3. ALL SALES WITHIN SUBJECT'S ZIP CODE, BUILT 1975-1995 (SUBJ BUILT 1985),
02/06/08-05/06/08 $127,500 1,480 36 256 7.1 YRS -34.8%
02/06/07-05/06/07 $195,500 1,527 23

IN FORMATTING A CONCLUSION OF THE ABOVE DATA FROM SEVERAL STATISTICAL MEANS, THE YEARS OF INVENTORY ARE RELATIVELY THE SAME. THE PERCENTAGE DECLINES IS RELATIVE THE SAME AFTER AN ADJUSTMENT ON THE MEDIUM SQ FOOTAGE IS MADE ON NO 2 EVEN THOUGH IT IS TOO SMALL OF A STATISTICAL SAMPLING. AN ANNUALIZE DECLINE OF -33% WILL BE USED FOR TIME ADJUSTMENTS ON CLOSED SALES. THE DECLINE TRENDS FROM EACH QUARTER TO QUARTER PER DATA REFLECTED ABOVE IS RELATIVE CONSISTENCE WITH THE YEAR TO YEAR ANALYSIS

 

[c w d]

Speaking of changes in the market I actually noticed an upswing in a small market area for the past 3mos. I looked originally at 12mos and it was a down trend but the comps I pulled which were very recent were telling me otherwise, so I looked at the last 6mos, still a down trend, then the last 3mos.....up....about 2%. I had actually appraised the subject six months earlier so it was a good chance to really compare the market.

In my comments on market conditions I noted the 12, 6 and 3mos trends. But, I could not bring myself to check the increasing box knowing this is most probably a temporary condition. So I basically said I didn't have any confidence in the 3mos trend due to the broader overall market conditions. Instead I checked the stable box as I could not ignore the upswing entirely.

I have noticed more market areas changing from declining to stable. But, it's hit and miss. Some are in decline. Others are presently stable. Heck I did a property last week thats approximately 3-4 miles away in the same part of town but a slightly different market area that is still in decline. So, It's just the luck of the draw these days.

Anyone else seeing these mixed trends? And if you are, how might you be checking the check boxes and explaining your conclusions?

 

[Deuce of Spades]

Stability or declining in the Orlando market depends heavily on how much foreclosure activity is present. I just did a townhouse REO where 24 of the 28 listings were either short sales or bank owned. When looking for recent sales, I had to look outside the sub and found a pocket of townhouses to the north that actually appeared a bit more stable - but the foreclosure and short sale activity was much less. Distress sales are ruling out market.