Market Adjustment

[Vegan702]

This is a 5298SF house in a new subdivision that they haven't even finished building in yet and it is an REO all the sales and listings are homes that are new - 2 years old.

Normally when I make adjustments for market conditions (time) I have plenty of sales to use to arrive at my adjustment number. In this case I only have 6 sales over the last 12 months and the last sale was in 09/2007 and all but 1 is from the builder. So my data is like this;

Sales over the last 12 months
12/2006 - $1,105,000 5729SF Mountain View
02/2007 - $1,064,823 4870SF Mountain View
05/2007 - $1,019,912 4906SF Mountain View
06/2007 - $1,200,000 4766SF Golf Course View
07/2007 - $1,070,000 4670SF Mountain View
09/2007 - $1,012,259 5782SF Mountain View

Current listings in the subdivision that I am going to use
5782SF listed at $869,900 Bank Owned - Mountain View
4898SF listed at $894,000 Not Bank Owned - Mountain View
5782SF listed at $995,000 Not Bank Owned - Mountain View

So all my listings are below the sale prices so I would think an adjustment is needed. Normally I use the sales I researched to pull my comparables from as I search back 2 years and usually have over a 100 sales to use to get my adjustment in decline, but not this time.

So my scenario is this, can I research sales that are smaller in SF and find out how much they have declined and use that percentage applied to these larger sales?
Can I pair the sales from 12/2006 and 09/2007 and the sales from 02/2007 and 05/2007 as they are similar in SF and take the percentages from just these 4 sales to arrive at a percentage?
Or do I just use common sense and say that since the listing at $995,000 is the same size as the last sale in 09/2007 and 12/2006 that the percentage should be the difference between them?

I also have to factor in a list to sale price ratio of 95%.

I may just be over thinking this as it is late and I have been out all day.

 

[grtrbstn1216]

Thread

Is it one of the last sales in the developement? Supply and demand?

 

[Vegan702]

Is it one of the last sales in the developement? Supply and demand?

No they have over half of the development to go still. I have builder listings at the $1mil+ mark competing with the other listings from homes purchased last year that are up for sale now at $900k-950k.

 

[PropertyEconomics]

Vegan ... why not do a direct comparison on a percentage basis of the smaller homes and then a direct comparison of the larger sales with the listings and see how close the percentages are to one another? I think you could probably provide strong support for a downward adjustment based upon the data you have provided and indicated you have.
While its not perfect data its good data and I would almost bet you the percentages are very similar.
Its certainly worth the pencil whipping to see.

 

[Vegan702]

Vegan ... why not do a direct comparison on a percentage basis of the smaller homes and then a direct comparison of the larger sales with the listings and see how close the percentages are to one another? I think you could probably provide strong support for a downward adjustment based upon the data you have provided and indicated you have.
While its not perfect data its good data and I would almost bet you the percentages are very similar.
Its certainly worth the pencil whipping to see.

I was working on that when you posted. However I assumed when I posted without researching first that the smaller homes were also declining and apparently they are not and are appreciating at small rate. So comparing against the smaller homes is not an option and there is nothing bigger to compare against. So that leaves me with using the data from just the 4 sales or just common sense that since these homes sold for say $1 million 4-9 months ago and now similar homes are listed for and not selling at $850-900k that there is about a $100-$150k adjustment warranted.

 

[Mztk1]

To me, smaller homes and big homes are a different market and I wouldn't try to extract an adjustment from one to another. If the percentage change happens to be the same it was pure luck.

Have you contacted the builder or rep. Usually when the lsitings are that much lower than the builder listings, the builder is offering incentives and the resale market has to compete against them with a lower price. Also, are the builder listings spec homes? Or are they new builds? If spec homes he may be willing to discount heaviliy; if rebuilds, he may be pricing high because he has to get rid of other inventory first - sometimes in a different project/neighborhood.

One thing is for certain: There is downward pressure coming from somewhere because people would not just leave $200K+ on the table.

In similar situations I have found time adjustments to be difficult to make because in a market decline values do not usually go down in a straight line from month to month, the way they tend to go up. It has been my experience that when in decline, they are stable for a month or two and then plummet, then are stable for a bit again, and then fall. It is more like steps down than an incline. What I have done in your situation is provided my three best closed sales (often I find a competitive out of project sale that is more recent because, I figure, the downward pressure is coming from somewhere and if it isn't within the project, than it must be from a competitive project), and then I put on my three most competitive market listings. I check decline, state that the market cannot be measured on a reliable percentage basis to apply time adjustments, and then say all sales were considered in the opinion of value but due to the market conditions the listings are considered a cap on value at this time. My final number is lower than what the closed sales adjust to and is in line with the listings.