Stable market?

[dane84094]

Here in Utah/Salt Lake County we typically do not mirrior the markets on each coast nor do we mirrior the values either therefore our markets in Salt Lake County for the most part are stable but there are areas that appear to be in decline due to the size and sales price of the homes. My question is, how do you determine in your area if your market is in an increasing, stable or declining market? I am asking this question because a lot of the underwriters I deal with are on the coast and they believe that the whole nation is in decline which is not true for this market as a whole. I don't think they believe the data that I include on my report. This is not to say that tomorrow won't be different I just need to know how some of you come up with your information/data and how you incorporate this information on your reports? :new_llying:

 

[Sid Pachter]

With all the doom and gloom that is being reported on a national level and due to the collaspe of the sub prime market and the ensuing ripple affect, lenders are becoming much more cautious when it comes to reviewing appraisals. That is to say that lenders are also modifying guidelines, making the qualification process more difficult for persective borrowers.

With regard to your question, if you are truly providing a comprehensive market analysis by; measuring sales data and comparing it to the prior year and prior three months, this sales data should include unit sales volume, median selling prices, comparing marketing times and comparing the listing to selling price ratios. Also a discussion of listing volume increasing or decreasing and absorbtion rates is needed.

As Salt Lake County is fairly densely populated and should have an active MLS the type of data needed to complete an intelligent market analysis should be available. Remember on page 1 of an appraisal report form in the neighborhood section under market conditions, the form says "including support for the above conslusion". As a reviewer it is more the norm that I don't see any form of market analysis. If you are located in a more remote area you should still be able to provide some sort on statistical analysis. Remember the end user of your report may be located out of your area and hence a comprehensive market analysis should educate the reader as to subjcet market conditions. This also should help the reviewer/reader understand why you had to use more dated sales or had to geographically expand the serach for comps.

 

[dane84094]

Thanks Sid

Do you have an example of a completed "market analysis" that you can email me? I would like to see one that you feel is correct/complete. I am going to be quite honest with you, I feel this is my weakness when it comes to my reports and if I can better my reports I would appreciate it!!!

Thanks Dane

 

[EVAUSA]

Thanks Sid

Do you have an example of a completed "market analysis" that you can email me? I would like to see one that you feel is correct/complete. I am going to be quite honest with you, I feel this is my weakness when it comes to my reports and if I can better my reports I would appreciate it!!!

Thanks Dane

All of my territories are in decline, but this should give you an idea of how to outline your statistical data.

Market Conditions
Within 1.0 miles, there are 33 active listings (over supply), 10 pending sales, and 15 closed sales within six months. Per MLS, median list price is $339,000, median sales price is $318,000, and 110 days exposure time on average. When properties are competitively priced, less than 90 days marketing time is reasonable.

Recent listings priced below recent sales is an indicator of market decline. The subject's market is REO driven. MLS indicates 52% of all listing and sales activity in the neighborhood is “REO” or “In Default”. The increasing numbers of REO's and Short Pays in the market area have contributed to inventory and the "over supply" of listings.

Per Dataquick, SFR's in the subject zip code show -24.4% market change in the median price of SFR's from March ’07 – March ’08. Within a 0.25 mile radius of the subject, MLS reports a -7.6% market change in median housing price since January 2008. Note, this data is not neighborhood or property specific, but represents the market as a whole. Time adjustments are extracted out for each report. Different size and style homes may decline at different rates. As outlined in the Sales Comparison Comments, recent sales data indicates decline at a rate of 2% per month for the subject property.

 

[MZ818]

Note, this data is not neighborhood or property specific, but represents the market as a whole. Time adjustments are extracted out for each report. Different size and style homes may decline at different rates. As outlined in the Sales Comparison Comments, recent sales data indicates decline at a rate of 2% per month for the subject property.

So wouldn't it be better to narrow down your search parameters into what the subject would compete with? I know some areas I work have varying % of decline, due to size, age, location and they are all within 1mile of subject.

 

[Mztk1]

In my markets I can't compare this three months to the prior three months because it would give false readings. Real estate is as much affected by the seasons as it is by the trends. I do year-to-date data (or 1/4 over 1/4 if there is enough data) and year over year data. Below is a typical example of my market comments. Forgive all the dashes, I couldn't get the data to set apart nicely on the forum.

I just read that Salt Lake is one of the 13 strongest markets in the nation, BTW.

Market Conditions Continued:
Interest rates remain low and financing is typically conventional or FHA with the seller often paying buyer closing costs as an incentive. Gift programs for downpayment are not unusual. VA financing is also not uncommon.

Market conclusions reached on the first page of the report were determined using the data below which came directly from the local MLS as of the effective date of this report.

The search for data included two sets of criteria, the first of which is all residential property sales, active and pending, inside the subject project, Symmes Grove. These findings are reported below as the top two rows of information and reflect a year over year comparison. Also, year-to-date data was compiled by expanding the market search to include all residential properties between latitudes 27.82184613625773 and 27.85774511938376 and longitudes -82.34690666198729 and -82.3021721191406, more loosely described as that area south of Gibsonton Dr and Boyette Rd, west of McMullen Rd, north of Rhodine Rd and east of I-75, that were built from 2000 to 2008 and are between 1,550sf and 2,350sf. This second data search is shown as the second set of data below. The third set is the number of active and pending sales in the subject project.

Dates of Sale----------#Sales-----Avg GLA-----Avg Price-----$/SF-----Median Value-----Avg DOM
05/08/2006 - 05/08/2007-----13-----1,483sf-----$198,877-----$136.99-----$200,500-----75
05/08/2007 - 05/08/2008-----4-----1,428sf-----$172,400-----$122.85-----$171,450-----71
-------------------------------------------------------------------------------------------------------------
01/01/2007 - 05/08/2007-----44-----1,922sf-----$235,883-----$123.10-----$235,678-----131
01/01/2008 - 05/08/2008-----26-----1,832sf-----$186,637-----$102.27-----$189,343-----134

The top set shows the year over year data for the subject project is a limited sample but it indicates a decline in median value of 14.48%. The year to date data for the surrounding market shows the median value drop at 19.66%.

Number Listed-----Avg GLA-----Avg List Price-----LP:SP Ratio-----Adjusted List Price-----Adj $/sf
8 Active Listings-----1,626sf-----$192,475---------------98%-----$188,626---------------$116.00
1 Pending Sale-----1,926sf-----$149,900---------------98%-----$146,902---------------$ 72.27

The active and pending sales in the subject project indicate that the market is continuing to decline. Out of the 9 active listings 3 of them have been on the market for 6 months or longer. This coupled with the fact that there were only 4 sales in the project over the prior 12 months, means that the market is in an oversupply.

Final estimation of the market decline rate per year was left to the comparable data and was supported by the data above at 15%. Days on market is estimated at under 6 months due to the average days on market still remaining under 5 months. The market is, however, considered in an oversupply.

Comments On Economic Depreciation:
Due to the economic conditions that have resulted in a slow down in the area growth rate, the builder's price to build on a per square foot basis, based on accepted cost manuals, is not being met by the typical buyer. This results in economic loss taken as economic depreciation in the cost approach at $10,000. The adjustment is not made in the sales comparison approach as it is already accounted for in the sale prices of the benchmarks used.

There is also economic loss specific to the subject as the result of it being bank owned. Bank ownership of a property is considered a stigma that has an effect on value. Based on the market data this is an additional external depreciation amount of $5,000, giving a lump sum adjustment for economic depreciation of $15,000 in the cost approach. The bank ownership adjustment of $5,000 is made in the sales comparison approach to units sold with a private owner.

 

[dane84094]

Thanks for all of your input/information. I feel that MZ818 has a good point when MX818 ask about specific neigborhoods. This is a question I left out. Is this data compiled from the county in whole? City? Zip code? or actual neighborhood boundaries? From the 1004 form this question (Market Conditions) comes from the "neighborhood" field. I do need to state the Utah is a non-disclosure state therefore not a great deal of information is released unless it is sold by a realtor. MLS only!!!

I do have a better understanding on what needs to be researched for me to relay the market conditions on my reports.

Thanks again Dane

 

[Sid Pachter]

Eva and Jim have provided two good approaches/examples. You should disclose that Utah is a non disclsure state. The type of data needed is complied by various sources such as local MLS and State assoiations of Realtors. Even other sources such as DataQuick and Case-Shiller. However since Utah is a non disclosure state it may take additional effort to gather such information. You may want to start your own database in core areas that you mostly appraise in. Just remember if most of your clients are using you for mtg. financing purposes and assuming these clients are MB/Lenders, then the client is aware of current interst rates, so avoid the boiler plate comment about how mtg. financing is readily available and that interest rates are at historically low levels. The client will well aware of this.

 

[EVAUSA]

Market Conditions
Within 1.0 miles, there are 33 active listings (over supply), 10 pending sales, and 15 closed sales within six months. Per MLS, median list price is $339,000, median sales price is $318,000, and 110 days exposure time on average. When properties are competitively priced, less than 90 days marketing time is reasonable.

Recent listings priced below recent sales is an indicator of market decline. The subject's market is REO driven. MLS indicates 52% of all listing and sales activity in the neighborhood is “REO” or “In Default”. The increasing numbers of REO's and Short Pays in the market area have contributed to inventory and the "over supply" of listings.

Per Dataquick, SFR's in the subject zip code show -24.4% market change in the median price of SFR's from March ’07 – March ’08. Within a 0.25 mile radius of the subject, MLS reports a -7.6% market change in median housing price since January 2008. Note, this data is not neighborhood or property specific, but represents the market as a whole. Time adjustments are extracted out for each report. Different size and style homes may decline at different rates. As outlined in the Sales Comparison Comments, recent sales data indicates decline at a rate of 2% per month for the subject property.

"Note, this data is not neighborhood or property specific, but represents the market as a whole. Time adjustments are extracted out for each report. Different size and style homes may decline at different rates."

So wouldn't it be better to narrow down your search parameters into what the subject would compete with? I know some areas I work have varying % of decline, due to size, age, location and they are all within 1mile of subject.

Yes, read the next sentence. My time adjustments are determined from sales activity of COMPARABLES. In my market, it's easy to find 3 sales and 3 listings to adequately estimate market change, which is outlined in the Sales Comparison comments. Some times I'm lucky enough to have a sale that has a previous arms length sale within the year to further prove time adjustments!