Market Conditions Relative To Effective Date

[Lucien Hamernik]

ZZ,
I envy you having MLS data for some kind of market analysis. But, I'm curious; in your sub-market, is the neighborhood marketing time the same as the exposure time in the definition of market value?

 

[ZZGAMAZZ]

Lucien: In this particular scenario it appears the market time is less than market exposure with offers being made on listings much quicker than the number/range reflected by market exposure--primarily because not much of anything sold 10/07 -- 01/08. (Now if we could only prompt MLS to require agents to describe the amount and use of "concessions"...)

Lee: A contradiction exists, intuitively, and that's what prompted me to post my inquiry because I'm unable to determine what it is. It's also possible that my question wasn't succient; I'm just wondering if market value as of the effective date needs to be the focus of the market analysis. Alternatively, is it appropriate to describe equilibrium at a level at less than market value?

Mr. K answered succintly "no" and he's never wrong as far as I'm aware (what a kiss up I am...) but others aren't quite so sure...

 

[Ray Miller]

The market will stablize at some point. It may well stablize below the market values of 6 months or a year ago. But it will become stable at some point. You establish that with you market data. Besure you are looking at the entire market and not just a sub-market with the general market. At the point it becomes stable for a period of time, the market then has the option to decrease again or to raise in values.

Someone posted this on the form several months ago:

"Based on the data, the market has "stablized", with current prices lower then the previous prices within the last 6-months, if the downward trend continues, it would be accurate to state that the market is experiecning an overall "decline" in property values. At this time, there is not enought data to resonably conclude a trend other than "stable", and I have therefore indicated such in my report. Due to the fact that my trend indications is based on previous sales data, an actural change in the market direction would be concluded after that change has begun."

 

[ZZGAMAZZ]

Ray: When I force myself to think that deeply, and when I realize the importance of my professional opinion, I typically conclude that we should be paid 2x or 3x the typical residential fee...

 

[Marcia Langley]

it appears the market time is less than market exposure with offers being made on listings much quicker than the number/range reflected by market exposure--primarily because not much of anything sold 10/07 -- 01/08

ZZ,

I'm still getting a muddled message here. When you are working on an appraisal, say on the same day as your effective date, virtually all of your available data comes from the exposure period leading up to the effective date. Even the active listings are historical data compared to your effective date.

You do not have any data from the marketing time period going forward from your effective date because it has not happened yet.

With no future data from the period occurring after the effictive date, there is nothing to analyze for the future and that is why appraisers don't typically stick their neck out to make a forecast.

The trends you can determine from your available data are all part of the current trend in the periods leading up to your effective date.

If you have been in a declining market and recently your data has shown that the active listings and pending sales are roughly equal to your closed sales and have been for a reasonable length of time then your market may be stablizing. Those trends are all prior to the effective date.

 

[Ray Miller]

Ray: When I force myself to think that deeply, and when I realize the importance of my professional opinion, I typically conclude that we should be paid 2x or 3x the typical residential fee...

We should but that is not going to happen, not in my life time now. too many bottom feeders, we have been a race to the bottom in the residential side for over two or three years now.

I am starting to see it as well in personal property appraisal and equine appraisals and equine commercial. To many MB/LO's are trying to move over and they are bring there ways from the residental side with them.

 

[Mztk1]

Am I reading this right? You have closed sales at let's say the $100,000 range and you have pending sales, a whole bunch, at $85,000 and it is your opinion that the market has stabilized at $85,000?

If that is the general twist, than you do not have a stable market, but an actively declining one.

Place your sales on the grid, put the pendings on the back, doing so will force you to make market condition adjustments down on average 15%. Adjusting down for market conditions is a decline.

Whether this is where they will stabilize is anyone's guess and it is likely that the buyers right now are buying, one way or the other, on speculation. For instance, you can be getting spring buyers coming out early on the assumption that the market will become hot in a few months and then, who knows, the market may cool down...Or, you can be getting just one, two or three investors who have decided to buy up in your area and once they are out of the picture so will be the demand. Also, you do not know the contract prices of those sales (I'd assume), nor whether concessions are offered.

Whether the market will stabilized from here, like you think, increase from here like perhaps your speculators think, or will have the appearance of stability only to step down in values once more in the next month or two is anyone's guess. But the fact is today the average sold house closed for $100,000 and tomorrow the average closed sale will be closing at $85,000, that is black and white decline in my book.

 

[ZZGAMAZZ]

Ray: Maybe what you're experiencing in different industries reflects a significant macroeconomic trend that hasn't been diagnosed/publicized yet? Maybe USA can't be competitive worldwide because even the most modest of our personal lifestyles is lavish relative to the rest of the world; and income certainly isn't keeping up with expenses--at least not mine or very very few other of whom I'm aware...

Martha: I have been associating, perhaps incorrectly, active listings with market time, and closed sales, with exposure time. Also, the actives & pendings are way below market value--if market value is defined by very recent closed sales and disregarding active & pendings...

Jim: Yes, that is exactly the scenario. Because there are so many pending sales, I'm rather certain the actual median selling price won't differ much from the respective list prices. The intent of my OP was to inquire whether I could decline that scenario as "stable," if I appropriately described my rationale. You've interpreted my scenario perfectly and say "absolutely not." But others previously in the thread also seem to understand, and relied "sure."

 

[Marcia Langley]

Martha: I have been associating, perhaps incorrectly, active listings with market time, and closed sales, with exposure time. Also, the actives & pendings are way below market value--if market value is defined by very recent closed sales and disregarding active & pendings...

ZZ,

Yes, this is incorrect.

I think Stefan was the only one that said, "Sure" and I don't think he understood what you were saying.

Everyone else is trying to tell you the same thing.

 

[Mztk1]

For what it is worth, FNMA Guidelines:

"The appraiser’s analysis of a property must take into consideration all factors that have an effect on value, recognizing that a well-informed or well-advised purchaser will pay no more for a property than the price he or she would pay for a similar property of equal desirability and utility if it were purchased without undue delay. To accomplish this, the appraiser must analyze the closed or settled sales, the contract sales, and the offerings or listings of properties that are the most comparable to the subject property in order to identify any significant differences (or elements of comparison) that could affect his or her opinion of value for the subject property. This is particularly important in declining markets because the competing listings and contract sales probably reflect the upper-end of value for the subject property as of the effective date of the appraisal. This analysis will result in more accurate reporting on market conditions, including trends that indicate sale prices for contract sales and asking prices for recent offerings or listings have declined.

So basically you have sales at $100K but when you look at the pending data there is a significant drop off that would affect your opinion. These are used to reflect your upper level of value and are important to use and to analyze because your market is declining.

What you have is the guideline's example of a declining market. It couldn't get more picture perfect.