Short/Foreclosure Is The Market

[Metamorphic]

This is a bit we've used from an area where the foreclosures are dominating the market: "PROPERTY VALUES ARE SLIPPING & DECLINING AS BANK OWNED PROPERTIES HIT THE MARKET WITH BANKS DEEPLY DISCOUNTING THEIR PROPERTIES TO SELL THEM OUT OF THEIR INVENTORIES QUICKLY. IT ALSO APPEARS THAT THE HIGH NUMBER OF BANK SALES COMBINED WITH THE PRICING DESIGNED TO SELL QUICKLY RATHER THAN MAXIMIZE PROCEEDS FROM THE SALE, HAS CREATED A NEGATIVE FEEDBACK LOOP IN THE MARKET THAT IS DRIVING PRICES DOWN ON ALL PROPERTIES MORE QUICKLY AND SEVERELY IN THIS NEIGHBORHOOD THAN OTHER WISE MIGHT BE THE CASE. "

 

[Mike Garrett RAA]

Define slipping. Define feedback loop.

I hope you don't type it all in CAPS!

 

[Joyce Potts]

It it's a refi, who cares? Right?

Just ignore the listings, pendings, foreclosures and all the other market data. Refi's are different or so I was told.

 

[The Sheriff]

Here's my narrative that I utilize... the narrative changes for each report after pulling the market data. Hope this helps you somewhat.

The subject's neighborhood is considered part of the core city of Chandler. East Del Rio Street is a quiet, residential street located in the subdivision Superstition Ranch. Ray Road, a local traffic artery, is located within a mile of the subject, and offers access to schools, employment centers, recreational activities, and freeways. Property values have been declining based on recent non-distress resale activity coupled with an extensive search of similar current active non-distress listings offered for sale. Currently, the REO market is driving market value in the subject's market area due to the distressed state of the subject's surrounding area.

During the last three quarters of 2004 and the first three quarters of 2005, the Phoenix metropolitan market and outlying areas were heavily influenced during a speculator influenced buying frenzy, creating an unstable, inflated market. Builders in the local market area over projected housing demand due to the sudden housing boom across metropolitan Phoenix, eventually mass producing properties in an attempt to reap large profit margins. With the mass exodus of investor speculators in the second quarter of 2006, the surge on home values stopped, and values eventually plummeted by over 20% in areas of Chandler where the subject is located.

Per MLS statistics and upon review of the subject's overall market area in the previous six months as of the effective date of this report, there were a total of 106 sales recorded. Currently, there are 179 active listings. A review of MLS data quarterly over the previous 15-months demonstrated the average sales price of a single story 1,767 sq ft HOA-managed property within the subject's neighborhood boundaries was $297,464 ($168.34/Sq Ft) in the first quarter of 2007. The 2008 average first quarter sales price of a single story 1,735 sq ft HOA-managed property within the subject's neighborhood boundaries is $240,862 ($138.82/Sq Ft) per MLS statistics. It should be noted that many variables play a role in the statistics produced by the ARMLS and it should not be inherently used to a represent specific data set for a subdivision due to the general search parameters that are utilized in creating the data set. This data is used only to help clarify current market conditions in the immediate market area over a 15-month period.

The subject's subdivision has a total of 139 improved lots. The homes were constructed between 1997 and 2000. An average property in the subdivision has 2,383 square feet with eight rooms and 11 bath fixtures. There are 22 residences with pools which is 15% of the total. There are 109 single story homes and 30 two story homes in the subdivision.

 

[Metamorphic]

Define slipping. Define feedback loop.

I hope you don't type it all in CAPS!

Slipping = Another way of saying declining. Super thinks it adds flair

Feedback Loop= In this context, it describes the way that the value of today's sale becomes the market value setting comparable property of tomorrow. In colloquial terms "negative" feedback is a feedback that is working to reduce the subject of the feedback. However, this is not a an technically rigorous use of the term as it would be used in the sciences. If used rigorously as in the sciences, the influence of below market bank sales in the market working to accelerate the decline in values, would property be described as a "positive feedback loop reducing values". Positive because it is a phenomenon that is self-reinforcing. The "negative" is usually used for behaviors that are self-dampening. But I thought "positive feedback reducing values" would be confusing to your average MB.

I wish I wasn't typing in all caps, apparently its an old school appraiser thing. Just be glad I un-bolded it before I posted.

 

[Doug Wegener]

Foreclosures and short sales predominant

What verbiage do you use when explaining your market description when foreclosures and short sales are predominant?

I've got a refi where there is a very similar home which sold under "normal" circumstances in the same subdivision in..........October. One other similar home sold in another community in February. Everything else is recent but short/bank-owned. A couple were purchased for cash when the price was right --- and they sold much quicker than the typical 3-6 months. Do I make adjustments for this "short"-circuited sale condition? If so, how is it figured?

BTW, this is going FHA.

Thanks for all help.

There were 12 sales in the subject neighborhood in the last year in the subject Thomas Guide 898F3. Average sales price was $323,525. Average days on market was 64. 11 of those sales were vacant and believed to be REO properties.


In the subject neighborhood (TG898F3), there were 2 sales the last 30 days. One was a short sale and one was an REO. In the last 30 days average days on market was 93. Average sale price of all properties was $307,500. There are 14 current listings in the subject neighborhood or 6.5 months of inventory, 13 of those are REO's and one is a short sale, clear evidence that REO;s are driving this market. .Average days on market for the current listings is 75.

 

[Alison Swain]

Very helpful. Thanks to all for the gracious replies. :laugh:

 

[Howard Klahr]

DEFINITION OF MARKET VALUE:
Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised and acting in what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.

Despite the abundance of distressed sales, these transactions do not meet the definition of value in the report. This is not to say that the data from distressed sales is to be ignored, but it is not the basis of Market Value as defined within the report.

 

[Alison Swain]

Despite the abundance of distressed sales, these transactions do not meet the definition of value in the report. This is not to say that the data from distressed sales is to be ignored, but it is not the basis of Market Value as defined within the report.

Thank you, Howard. I agree completely.

 

[Metamorphic]

Despite the abundance of distressed sales, these transactions do not meet the definition of value in the report.

Why not?

The REO market is open and competitive, buyers and sellers are acting prudently and knowledgeably. The stimulus of the bank to sell in these markets is not any more "undue" than the any of the "regular folks" sellers (in fact you could argue that the bank's pressure to sell is less acute than an individual feels). When 9/10ths of the sales are REO's, have been for months, and likely will be for months more, you have to consider the motivations are typical at some level. Presumably the banks are well informed and acting in their own best interests. Most of these sales have reasonable exposure; the DOM's suggest better exposure of these properties now, then when they were getting multiple 1st day on market offers in 1994. There's no atypical financial or payment stuff going on.

In fact, based on the numbers of REO's in some neighborhoods, you could argue that the normal person to normal person sale is the atypical situation.