How are my peers dealing with this?

[SANDY]

For those of you in declining markets and with few recent comparable sales to choose from--how are you dealing with the lack of market based data to develop/verify your adjustments for differences between the subject and comps? We are getting a little uncomfortable with relying on older paired sales, relative ranking and other methods that are becoming more and more based upon older data. So I thought I might learn something from you folks on what you are doing to deal with this situation.

 

[Mike Boyd]

Good question. So far it has not been a problem but I can see problems coming up if we remain in the same situation for another year.

 

[CANative]

Sandy... do the best that you can and then a little more. Just make sure you do as well or better than a reviewer. You have to watch out for squirrely market activity that sometimes defies logic. If you stress out about long enough though the bits and pieces will start to make sense. Get the client ready for page 2 by providing more market detail and subject property detail on page 1 (and the supplemental addendum)

Market conditions:
Real estate markets remain volatile and unsteady at this time on a nationwide level and many economists and experts in the industry are of the opinion that a rebound is not likely to occur soon. Many lending programs and products that were readily available less than a year ago are no longer available and there has been a significant decline of investors in the secondary market. The result is higher borrower qualification, less liquidity and other conditions resulting in fewer loans being made. Fewer loans available reduces the amount of purchase-ready buyers and increases the amount of competition among the sellers for those fewer buyers. When sellers are competing for buyers, they do so by lowering prices. Media saturation campaigns detailing the current problems in the mortgage lending industry and it's effect on real estate markets, in particular the specter of upcoming foreclosures resulting from resetting adjustable rate mortgages in combination with declining residential property values appears to be exacerbating the problem. Additionally, as sellers become more anxious to sell, potential buyers have become hesitant to buy due to worries that pricing will fall still lower and the economny has become uncertain with rising fuel and food prices. This dynamic has become apparent in trend analysis and its influence, based on my research and conversations with market participants, is present in this market and is likely to increase. Median sales price in Mendocino County has fallen 14% in the past year. Areas most affected are the more metropolitan areas in the incorporated cities of Ukiah, Willits and, in the Mendocino Coastal area, the City of Fort Bragg. Median price in Ukiah for the 12 month period between June 1, 2007 and May 31, 2008 is $343,000. Median price for the last six months is $317,000 and for the last three months is $285,000. Average days on market has not changed significantly during the previous 12 months but is up versus the same period in 2006/2007. There have been 125 closed sales in the greater Ukiah market over the last 12 months with 60 closed sales in the last six months and 30 closed sales in the last three months. There are currently 200 property listings of which 6 are pending and 29 have contingent contracts and are still considered active. This data indicates that most sales activity is occuring at the lower range of property types by buyers seeking "bargains" due to foreclosure and short sale activity. Many of these properties are purchased for investments. It also indicates that supply and demand are not in balance and that pricing is in decline. For the superior westside neighborhoods in the vicinity of the subject where owner occupancy is more prevalent there are few sales or listings and this is likely the result of property owners not being under pressure to sell at this time.

or for an REO appraisal in a different area...

The Subject's neighborhood, the City of Lakeport has had recent growth with many new home developments emerging. There is an oversupply of single family homes with 104 listings. There has been a total of 18 closed sales this year at the rate of about 4 sales per month. The rate of sales in 2006 was about 7 per month and between 5-6 sales a month in 2007. See market analysis of Lakeport area attached to this report. The median price of homes have droped from $352,500 in 2007 to $320,000 to date. Based on the available data it appears as though there has been 12% downward decline in the subject's immediate market area during the previous 6 months. Markting time has slowed over the past year. The median days on market for a single family home in Lakport in 2007 was 162. Average exposure at this time appears to be over 200 days but can range from less than 20 days in some cases and up to 660 days when a property has been listed at above market accepted pricing. Estimating accurate exposure time in Lake County is difficult due to the manner in which the MLS calculates days on market. It appears that some agents are taking short term listings on properties and then relisting them in order to reset days on market to zero. This is known as "listing churning." It should be noted that there are built to suit homes for sale listed for $330,000 and have been on the market for 278 days. Other new homes are between $415,000 and $595,000 and have been on the marketed from 327 days to 600 days. It appears that conditions are becoming increasingly severe in this market and due to the number of REO listings and sales, auction sales, short sales and increasing number of properties nearing foreclosure, none of which are considered market sales, as strictly defined, it has become very difficult to develop a reliable opinion of market value expressed as a single point number.

or for a refi in a semi-rural area with extremely few sales (but not the worst of the area I work)

Market conditions:
The market remains slow in most areas of Mendocino County with some areas more affected by adverse conditions than others. Most measurable declines in property pricing and increases in unsold inventory appear to be occurring in the more densely developed and populated areas such as the incorporated cities of Ukiah, Willits and Fort Bragg. In the rural areas of the county it is difficult to reliably measure pricing trends due to limited sales and lack of conformity between properties. In general, the available data indicates that overall price may have declined slightly over the last 12 months but exposure time has increased significantly. There is very little market activity at this time so statistical market trend analysis is not reliable. In 2006 there was 45 closed sales, then dropping slightly to 38 closed sales in 2007. Exposure time has increased from about 107 days in 2006 to about 139 days in 2007. Currently the average exposure time is about 118 days. There have been only 5 closed sales in 2008, year to date and there are about 23 active listings and 4 contingent sales. My conclusion is that while there is no documented trend of decline in property pricing in the Redwood Valley market there is also too little recent activity to measure. The increase in active listings and days on market would indicate that if a property owner had to sell within a reasonable amount of exposure time (90-120 days) a discount in the offering price would be expected. For other rural areas of the county where a pricing trend can be measured, prices have declined by about 10% over the last 12 months. It is reasonable to assume a similar trend in Redwood Valley.

 

[SANDY]

Greg:

Pretty darned good stuff. So are you relying on past paired sales analysis for individual adjustments and are you to the point where you feel you have to add comments like--"individual line adjustments are becoming less reliable due to lack of recent market data" or something along those lines?

Now that I think about it most of the individual line adjustments should still be reasonably accurate enough even if based on somewhat histicorical data because the decline in sales prices would be reflected in time adjustments/market conditions. Lack of closed similar sales though presents a problem in accurately estimating time adjustments and if forced to go farther away, then location and other adjustments get less reliable too.

Guess I have too much time on my hands-starting to argue with myself?

 

[CANative]

No, I wouldn't make a statement that "individual line adjustments are becoming less reliable" because I wouldn't rely on line adjustments anyway... and I certainly wouldn't want to rely on or ask someone else to rely on individual anythings.

Adjustments are merely the opinions of an appraiser. They're not accurate, inaccurate, reliable or unreliable. They can often be supported by mathematical calculations laid out in pretty rows of grids, impossible to argue with presentations of sales data, or an in the park home run of sales, income and cost prestidigitation that magically results in the same number.

More often it is just the appraiser's good judgment based on experience in the market.

 

[SANDY]

Greg:

I am impressed with the honesty of your last statement. However, the older the good judgement and experience is, ie.... when it's based on potentially outdated data and in a changing market, the less reliable the good judgement and experience is!
Lack of quality and quantity of data automatically means less reliability regardless of experience and judgement.

However I will give you this point-lack of quality and quantity of data combined with lack of experience and good judgement is worse!!!

Perhaps worst of all is a lack of quality and quantity of data combined with a false sense of one's experience and good judgement to recognize that such conditions automatically equate to less reliability!

 

[JCONNOR3]

Sandy-experience is only palpable once you obtain it. Till then you are simply amazed every 5 years and look back at how dangerous you were 5 years earlier.

 

[SANDY]

Sandy-experience is only palpable once you obtain it. Till then you are simply amazed every 5 years and look back at how dangerous you were 5 years earlier.

True-I also live by the following especially in the areas of life that I "think" I have become profcient---be careful of what you think you know because before you know it you don't know anything.

 

[Elliott]

So I was at a garden party last weekend and when I had to admit what
I did for a living, 'er ah, real estate appraiser,' then the questions started
flying. "So what's the market doing? Is it going up or down."

My answer is, "Well, I don't actually have to predict the market, as
long as I can find really similar sales that have closed recently. I
only have to estimate the current value." The urologist looked the
most disappointed that I had punted the answer.

 

[Deleted member 77547]

Sandy-experience is only palpable once you obtain it. Till then you are simply amazed every 5 years and look back at how dangerous you were 5 years earlier.

..Amen!!!!