Supporting your conclusions on market conditions

[Kristina Ledesma]

Okay, I am new to market conditions like this. Please be gentle, I ask for enlightenment so I can improve myself, any advice or suggestion is appreciated. Hey, if you don't ask, you don't know....

Our office has suggested that if you check the decline box, you better have good proof to support it (most likely because the borrower, lender and/or agent is going to come back and dispute it-like what happened to Timothy). I acknowledge that a lot of areas have seen a decline in property values and/or have an oversupply of homes. Aside from the media input (which mostly pertains to the City of Detroit itself), what factors are you keeping in your work file to support your conclusions? Is there a slight allowance in either direction (increase/decrease property values) that would still be acceptable for it to be considered "stable".
E.g.: Gas prices at our corner gas station has bounced up and down from as low as 2.98 to as high as 3.18 within the last few weeks. However, overall I would not consider gas prices to be decreasing or increasing (at least right now) and the trend has been reported as "stable". (Neat website to help you find cheap gas http://www.detroitgasprices.com/)

So, a house itself depreciates, with inflation that we typically see as increasing prices, with the final direction of market value driven by economic/political/geographical factors. It is a huge tangled mess out there, some areas are maintaining, others are doing not good at all. A few of the areas that saw the largest increase in value (in a past competitive sellers market) seem to be the ones that have not done well.
E.g.: Milford, for most homes property values were going up fast, supported by a lack of homes for sale, greedy sellers and agents. There reached a point that you could get a similar house in a nearby area for much less (sometimes almost half) and people started going to those more affordable areas, which left those homes in Milford in a bit of a lurch. In an area like that, where you may have seen an artificial increase in values (higher than they should have gone) now have adjusted downward to where they should have been all along. (Kind of like those damn 'beanie babies'...)

I have been paying very close attention to prior sales (within the last 3+ years) of all sales I pull when searching for comparables. Depending on the area and/or home style, there is a good portion that had sold prior for less or the same than they currently resold for, with little done to the home since the last sale (limited info gathered from MLS tickets/photos).
E.g.: In "somewheresville" a typical 3BR 1000sf brick ranch is selling for $145,000. Two years prior the homeowners purchased it for $142,500. Since then, they painted the interior and fixed some plumbing. Two of the four comparables used from within the same subdivision had also sold within the last few years at about the same price they are selling for now. Yet within the same subdivision colonial style homes are not moving as well and are showing a slight decrease in values. Which may or may not be due to the handful of bank owned colonials in the subdivision.
So, In a case like lenders dispute the necessity of marking "decline" in property values, because that particular home style in that particular market does not appear to be in a state of decline.

 

[Mike Kennedy]

"a typical 3BR 1000sf brick ranch is selling for $145,000. Two years prior the homeowners purchased it for $142,500. Since then, they painted the interior and fixed some plumbing. Two of the four comparables used from within the same subdivision had also sold within the last few years at about the same price they are selling for now."

Assuming that last comment implies the 2 of 4 (or all 4) comps were truly similar RANCHES....and the data u posted is verifiable........ it would be appropriate to report value trend of the most SIMILAR property sales; like to like, apples to apples, i.e. stable.

Further suggest, analyzing IF the "colonial REO" market has negatively impacted other style properties, has had positive impact (i.e. stabilizing the Ranch market), or has had NO impact on Ranch sales.

Report Overall Market conditions; then the current Trend for the most "similar, recent, proximate" indicators supported by Resale Market Analysis including Inventory, DOM, Concession/Discounted, Expired, Withdrawn, Active, Contracted Listings, and Sold Data. Illustrate Inventory vs Shortage, Oversupply, or Demand / Supply are Balanced.

 

[Kristina Ledesma]

"a typical 3BR 1000sf brick ranch is selling for $145,000. Two years prior the homeowners purchased it for $142,500. Since then, they painted the interior and fixed some plumbing. Two of the four comparables used from within the same subdivision had also sold within the last few years at about the same price they are selling for now."

Assuming that last comment implies the 2 of 4 (or all 4) comps were truly similar RANCHES....and the data u posted is verifiable........ it would be appropriate to report value trend of the most SIMILAR property sales; like to like, apples to apples, i.e. stable.

Further suggest, analyzing IF the "colonial REO" market has negatively impacted other style properties, has had positive impact (i.e. stabilizing the Ranch market), or has had NO impact on Ranch sales.

Report Overall Market conditions; then the current Trend for the most "similar, recent, proximate" indicators.

Thanks Mike, that is pretty much what I have been doing. My example given is not an 'actual case', but a complilation of what I have seen several times. I want to make sure I am accurately reporting what I am seeing, I don't want to be one of those appraisers that rubberstamps 'decline' all reports when the sales data within the report itself suggests otherwise.

 

[Narkissos]

I also take into consideration seller concessions. I have seen many properties sell for the same as they had two to three years prior. However, now the seller contributed $9,000 in concessions when this was not the case for the prior sale. So, in my opinion it has now sold for less. I see many appraisers that are afraid to check the declining box and state that there is an oversupply. Well I to am located in southeast Michigan and I am sorry but many of the markets in this area are declining and there is an oversupply. I will not perform an appraisal making sure all the information, analysis are correct except one. I would suggest pulling several sales, not just the ones you are using for comparables and checking prior sales history. In my opinion 4 sales do not make a trend in this market.

 

[Kristina Ledesma]

I also take into consideration seller concessions. I have seen many properties sell for the same as they had two to three years prior. However, now the seller contributed $9,000 in concessions when this was not the case for the prior sale. So, in my opinion it has now sold for less. I see many appraisers that are afraid to check the declining box and state that there is an oversupply. Well I to am located in southeast Michigan and I am sorry but many of the markets in this area are declining and there is an oversupply. I will not perform an appraisal making sure all the information, analysis are correct except one. I would suggest pulling several sales, not just the ones you are using for comparables and checking prior sales history. In my opinion 4 sales do not make a trend in this market.

Agreed Timothy, as I stated in my original post, I acknowledged that a lot of markets are or have been in a state of decline. Also, I always take into account sales concessions (both then and now) when I am interpreting the information. In my example, I am not referring to only 2 of the 4 sales that I used (as an example) as that would not be strong enough support, but also the sales I came across when selecting my comparables. I have been printing those too (ones that had prior sales) and keeping them in my work file. Even though I did not use them as comparables in the report, they support my conclusion as to whether there is stability or a downward trend.

 

[Narkissos]

Agreed Timothy, as I stated in my original post, I acknowledged that a lot of markets are or have been in a state of decline. Also, I always take into account sales concessions (both then and now) when I am interpreting the information. In my example, I am not referring to only 2 of the 4 sales that I used (as an example) as that would not be strong enough support, but also the sales I came across when selecting my comparables. I have been printing those too (ones that had prior sales) and keeping them in my work file. Even though I did not use them as comparables in the report, they support my conclusion as to whether there is stability or a downward trend.

That is what I do as well. You sound like you got it covered. I have had some areas where I could not clearly prove a decline or an increase. I just state such in the report. That no clear market derived time adjustment could be extracted. You sound like you are giving much more thought to this than many others I see right now. All you can do is analyze the data and report what you find. It is what it is, if you can not prove a decline. Then you can not adjust for one. I know Artemis works in a few markets were the values are stable. He has charted and graphed the sales to support his statements.

 

[Kristina Ledesma]

That is what I do as well. You sound like you got it covered. I have had some areas where I could not clearly prove a decline or an increase. I just state such in the report. That no clear market derived time adjustment could be extracted. You sound like you are giving much more thought to this than many others I see right now. All you can do is analyze the data and report what you find. It is what it is, if you can not prove a decline. Then you can not adjust for one. I know Artemis works in a few markets were the values are stable. He has charted and graphed the sales to support his statements.

I am so worried about every case I touch, sometimes I overthink things. But, I would rather do that than fly through these with no thought to the consequences. My family doesn't understand.......
Family....."so much work coming in lately"
Me....."no, very little work is coming in"
Family...."so you have lots of time to (insert activity, eg; golf)"
Me......"No, I am very busy with work"
Family....."I don't get it-how can that be?"
Me...."the files are complex, there is a lack of sales and lots more research and verification involved in each case"
Family......."huh?"
Me......"nevermind" :Eyecrazy:

 

[Tim The Enchanter]

I am so worried about every case I touch, sometimes I overthink things. But, I would rather do that than fly through these with no thought to the consequences. My family doesn't understand.......
Family....."so much work coming in lately"
Me....."no, very little work is coming in"
Family...."so you have lots of time to (insert activity, eg; golf)"
Me......"No, I am very busy with work"
Family....."I don't get it-how can that be?"
Me...."the files are complex, there is a lack of sales and lots more research and verification involved in each case"
Family......."huh?"
Me......"nevermind"

Only other appraisers will understand that one.

Our MLS allows you to customize and export data into a spreadsheet for further analysis.

 

[Narkissos]

I am so worried about every case I touch, sometimes I overthink things. But, I would rather do that than fly through these with no thought to the consequences. My family doesn't understand.......
Family....."so much work coming in lately"
Me....."no, very little work is coming in"
Family...."so you have lots of time to (insert activity, eg; golf)"
Me......"No, I am very busy with work"
Family....."I don't get it-how can that be?"
Me...."the files are complex, there is a lack of sales and lots more research and verification involved in each case"
Family......."huh?"
Me......"nevermind"

I soooooo agree with you on that. I am not nearly as busy as I was last year yet I am working seven days a week. I have not had a cookie cutter in ages. The last one I thought would be easy. Two story, Brownstown Michigan, 38 years in age, standard lot. Well I get there and it backs to a RxR right of way and there had only been three sales in the prior 12 months with 19 active listings. One of the sales were a FSBO. So, I had to contact the buyers(they were nice enough to let me do a walk thru). The lack of sales in areas where sales were always plentiful are really making things difficult. Every time I think I find a good sale. It is entered incorrectly in the MLS. Close date states 12/06/2006, look it up and it closed 05/27/2006. The agent failed to update the MLS and just stuck the date the it was updated in. Then not to mention the REO activity. My reports have considerably increased in length and detail. I feel you on the overthinking. I find myself reviewing a file 2-3 times, double and triple checking everything.

 

[Kristina Ledesma]

I have had a few cases that I had to turn back because they were way over my head and/or I knew it would be the case that doesn't ever go away. A few the lender just cancelled because they couldn't find someone willing to take it and/or the lender just didn't want to deal with it.

By the way Timothy, gorgeous Shar Pei. We had a chocolate horsehair Shar Pei. She was the sweetest smartest dog I ever owned. Sadly, she was not healthy and we had to put her to sleep 4 years ago-still miss her dearly!