Forecasting problem?

[Thomas J Kirchmeyer]

I would like anyone's opinion on the way to address this on an ERC report:

Property is in Western New York, probably the most stable market in the country - prices really never seem to go up or down and if they do, it takes years. Typical mkt time is 55 days in this mkt for sales in the 160k-190k mkt. 35 sales have occurred in past year or approx 3 per month (absorbtion rate). 15 active competing homes or a 5 month supply. ERC wants an under 4-month (120 day) antisipated sale price (ASP) which leaves a 1 month over-supply. Average sale to list price ratio is 97% in this area.

All other local economics considered stable, would there be a forecasting adjustment required? Maybe for the extra 1 month of supply? And if so, how is that adjustment determined, since it has to be a flat adjustment across the board to the comps? I did not make one but the relo company stated this:

"You did not adjust for any forecasting in your report. The USPAP Laws and regulations states that an ERC Relocation Appraisal report with no forecasting adjustment (whether negative or positive) violates the Worldwide ERC Guidelines and Anticipated Sales Price. Please add forecasting to your report at this time. "

Am I wrong in not making any adjustment for forecasting?

 

[Jan Roseberry]

I won't get into the meaning or ramifications of what they stated to you since it will not solve your problem!

Before I decided if and what forecasting adjustment is required on the property due to over supply, I would look at the list to sale ratio for properties that sold under 30 days compared to 30 to 60 days, 60 to 90 days, 90 to 120 days, 120 to 150 days, 150+ days. That should give you a clue if the adjustment is needed or not.

If it isn't needed I would simply say you did not think a forecasting adjustment was needed as long as the asking price was market appropriate. Use days on the market as your rationale.

 

[PropertyEconomics]

I would like anyone's opinion on the way to address this on an ERC report:

Property is in Western New York, probably the most stable market in the country - prices really never seem to go up or down and if they do, it takes years. Typical mkt time is 55 days in this mkt for sales in the 160k-190k mkt. 35 sales have occurred in past year or approx 3 per month (absorbtion rate). 15 active competing homes or a 5 month supply. ERC wants an under 4-month (120 day) antisipated sale price (ASP) which leaves a 1 month over-supply. Average sale to list price ratio is 97% in this area.

All other local economics considered stable, would there be a forecasting adjustment required? Maybe for the extra 1 month of supply? And if so, how is that adjustment determined, since it has to be a flat adjustment across the board to the comps? I did not make one but the relo company stated this:

"You did not adjust for any forecasting in your report. The USPAP Laws and regulations states that an ERC Relocation Appraisal report with no forecasting adjustment (whether negative or positive) violates the Worldwide ERC Guidelines and Anticipated Sales Price. Please add forecasting to your report at this time. "

Am I wrong in not making any adjustment for forecasting?

I would think your market would reflect a selling time certainly of under five months and there is an 80% chance your property will sell in 4 months or less. Whether it will sell tomorrow or five months from today you cant accurately tell.
What kind of adjustment are they asking you to make ... for a one month holding period?

 

[EDWARD BERRY]

Caps For Old Eyes.

What You Is Discount For Each Month Over Required Time.

In Our Area That Is About 1 % A Month. In Highcost Areas (moying, Security, Interest, Etc) It Could Be 3%.

God Luck,
Arkie Ed

 

[Thomas J Kirchmeyer]

They are simply asking for a forecasting adjustment. They are not telling me any more details. Even if it is for a 1-month holding period, how do I come up with a number? I was in a class once that said the typical holding costs for a $100k house, per month, was $1,500. Don't really know how accurate that is today.

 

[Thomas J Kirchmeyer]

1.5% per month?

 

[PropertyEconomics]

1.5% per month?

It would need to come from the market. I remain thinking that if you analized the properties based upon price, location, etc. that you may find your subject sitting in the bottom 80% and thus have a marketing time of less than 4 months. Its just a guess not knowing the specifics.

 

[Thomas J Kirchmeyer]

I should add that the subject property appears to be presently over-listed. But after the relo company takes over they should move the list price down accordingly and it should sell within 4 months. The question still remains: why should I make a forecasting adjustment in this market?

 

[Esox]

I should add that the subject property appears to be presently over-listed. But after the relo company takes over they should move the list price down accordingly and it should sell within 4 months. The question still remains: why should I make a forecasting adjustment in this market?

Arrgh! I wrote a detailed response and lost it to a server busy message.

I'm surprised to read a relo company dropped the USPAP card on you to get you to make a forecasting adjustment. Forecasting is a part of the SOW for every ERC appraisal. The only question is if the adjustment is +, -, or 0. You have forecasted and decided the adjustment should be 0. How did you explain your 0 adjustment?

The corporate clients of today's relo companies have been taking a real beat down on home sale losses. It is understandable that they want to make sure that if no forecasting adjustment has been made, they understand why. They should not, however, bully you into making an adjustment if one is not warranted by market conditions.

Inventory levels higher than 120 days do not necessarily translate into marketing periods longer than 120 days. Perhaps a five month supply is healthy in your marketplace. Inventory levels could constantly replenish, while marketing times remain at 55 days. What's important to consider and discuss in your report are inventory level trends. Are they higher than last year, last quarter, last month?

What about seasonal activity? The next 30 days puts your subject into the school year, the next 120 into November. In my market that means less activity. I list quarterly sales activity. Could marketing times be longer in the fall? Have you broken down average DOM per quarter?

What about new construction competition? New typically trumps resale in areas with ongoing construction. Any REO competition?

Did you adjust your listings to come up with a range of suggested list prices for the subject? Does your anticipated sales price estimate fall below that range? It should. If it doesn't that's one way to determine an adjustment is warranted.

Obviously, I have not seen your report. If you thoroughly considered and reported the sampling of market conditions above, (and more) they should not be telling you to make an adjustment. They will, however, question you, if all you've commented on is the average days on market and current inventory levels.

The USPAP comment sounds more like something that would come from an AMC that outsources requests for a relo company. I have one in mind. We don't do business.

Kevin

 

[Tom McClure]

I would like anyone's opinion on the way to address this on an ERC report:

Property is in Western New York, probably the most stable market in the country - prices really never seem to go up or down and if they do, it takes years. Typical mkt time is 55 days in this mkt for sales in the 160k-190k mkt. 35 sales have occurred in past year or approx 3 per month (absorbtion rate). 15 active competing homes or a 5 month supply. ERC wants an under 4-month (120 day) antisipated sale price (ASP) which leaves a 1 month over-supply. Average sale to list price ratio is 97% in this area.

All other local economics considered stable, would there be a forecasting adjustment required? Maybe for the extra 1 month of supply? And if so, how is that adjustment determined, since it has to be a flat adjustment across the board to the comps? I did not make one but the relo company stated this:

"You did not adjust for any forecasting in your report. The USPAP Laws and regulations states that an ERC Relocation Appraisal report with no forecasting adjustment (whether negative or positive) violates the Worldwide ERC Guidelines and Anticipated Sales Price. Please add forecasting to your report at this time. "

Am I wrong in not making any adjustment for forecasting?

_____________________________________________________________________________

Tom, it would appear using your numbers that a forecasting adjustment may be warranted due to the low absorption rate. Is the typical marketing time for similar comparable properties less than the specified short term period of 120 days? Are competing properties in the neighborhood priced reasonably within the market? Remember, there are usually comparable listings that are clearly priced well above the market. If your market data reflects no forecasting, so be it.

It may be the other appraiser utilized a forecasting adjustment and now your client needs you to do the same to keep the range within 10%, so as not to order a third appraisal. In this case, don't let them pressure you as this is not your problem.

Tom McClure, Ohio