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My crystal ball is broken. how do I answer this condition?

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Ken Whitaker

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Jan 19, 2005
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Licensed Appraiser
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California
Condition (verbatum): -Appraisal addendum how the forclosure rate is affecting the values in subject neighborhood, did declining trend reach it's bottom?

A) The report already has extensive comments re: foreclosure rate affecting the market in the body of the report... obviously they neglected to read them.

B) Did declining trend reach its bottom?

Are they serious about that question? How the heck am I supposed to know the answer to THAT? Has anyone else been asked to see into the future like that? I'm not sure how to respond except to say something like "The appraiser is not qualified to provide guidance regarding future market conditions.... "

anyone?
 

Josh Shapiro

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Jan 17, 2006
Professional Status
Certified Residential Appraiser
State
Florida
I had one of my clients request a PVO. I told them that if I could do that I would be rich....oh yeah, and to go fly a kite!
 

panappr

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Dec 5, 2007
Professional Status
Certified Residential Appraiser
State
California
I believe there are some AVMs out there that are providing some sort of forecasting based on historical trends, so someone is probably assuming that it is possible.
 

Rice Brewer

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Joined
Dec 14, 2004
Professional Status
Certified Residential Appraiser
State
Arkansas
I have been asked the same question. My response was along the line that if this thing caught even Alan Greenspan off guard and he really has no idea when it will end, I would not presume to imply than I am smarter than he.

The response? "Who is Alan Greenspan?"
 

Mile High Trout

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Feb 13, 2008
Professional Status
Certified Residential Appraiser
State
Colorado
I deal with this a lot, as an REO specialist! This could be answered under the realm of supply & demand.

This seems like a question aimed at getting information regarding the supply of homes (1yr, 2 yr, 3 yr, etc) and the relationship of that supply to declining value trends. The lender usually wants this information for risk management, to determine what level of liquidation price is appropriate. In many cases, lenders have sold to soon for a loss, or alternately held on too long, for even bigger losses.

While you can't answer the question in terms they asked for, an answer should still be in your data sets. It's pretty simple really. First categorize your home as high mid or low quality. Then categorize your home as smaller, larger, two, ranch etc, based on typical builds for the neighborhood. Then find the relationships from your home in the marketplace, to other homes with similar quality & curb/market appeal conditions. These refinements will be relative to the size of your subdivision. If you can find a large more congruent data set to work with, it's easier than making assumptions based on reasonable comparisons of other homes in the marketplace.

Check 2-3 years back, get your topical information on total of active vs sold of comparable homes. Then analyze your findings. If the supply vs sold of homes is constant, it might be relatively easy to predict declining value trends, apply time adjustments, and appropriately determine wheather your home may or may not be susceptable to these declining conditions. (Typically the lower quality & lower sized homes experience more dramatic & consistent devaluations.)

It's not likely that you'll find steady sold vs active. In that case check if supply has increased, do a 1 year analysis of the absorbtion rate. Analyze wheather or not distressed properties are getting absorbed. Provide your final answer in ambigous terms, to let them make that final decision. Quite right that you do not have a crystal ball.

Something like this? The neighborhood had previously shown increasing valuations over the period of x years. While some homes continued to show increases to value, seller distress was noted in the marketplace as commonly occouring around 2006. While distressed sellers have caused for overall value declines in the neighborhood, the supply of distressed sellers has reduced. Topical analysis of available bank owned properties shows a reduction in the amount of available LO properties & milder valuation reductions, as the supply of distressed & lower priced properties is reduced. OR The volume of distressed sellers is substantial enough to indicate that ongoing valuation declines may continue to occour. Absorbtion rates have decreased over the past 2 quarters, indicating currently distressed sellers, may further contribute to continuing or ongoing declines in this specific marketplace.

ecit - The moderator just called me on not using spell check..... My bad....
 
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Mile High Trout

Elite Member
Joined
Feb 13, 2008
Professional Status
Certified Residential Appraiser
State
Colorado
Thanks Walter.

I think I gave it a little more of a go though.... There is no easy way to research. It's a question worthy of answering.
 

DaveH

Junior Member
Joined
May 5, 2007
Professional Status
Certified Residential Appraiser
State
Ohio
I would never answer that question, because who really knows. Tell them I don't know and that if that kills the loan then the client really didn't need to be borrowing the money.
 

Mile High Trout

Elite Member
Joined
Feb 13, 2008
Professional Status
Certified Residential Appraiser
State
Colorado
You guys are probably right..... o.k. what you said does sound better. Why speculate in uncertainty? I guess that analysis has more relevance in REO appraising.
 
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