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Two years of Ann Arbor market stats

We are so often bullish about our market, but is it as “hot” as news outlets like to believe?

We certainly have a shortage of inventory, which does create pressure on acting quickly and agressively on well priced houses that are in “show-ready” condition. That does not mean that prices are rising exponentially, or even that much at all?

Simple example is taking all sales of single-family houses that are already built, not new construction or “to be built”, and arrying on a monthly basis. This sample below includes everything in the entire Ann Arbor school district exposed through the local MLS, one month at a time. The prices and price per sqft are shown based on the medians. Each month has between 50 sales and 128 sales, which is sufficent for trending.


Ann Arbor is the test market, because it is the main market with the greatest number of sales within the Washtenaw County real estate market. Data above does indicate a slightly increasing median price over time, but a slightly declining price per square foot. This equates to stable, to a slight increase, not substantial. In fact, if you take July 2018 and compare it with July 2019 and July 2020, the median prices are not that dissimilar.

July 2018 had 127 sales with median price of $399,900 and median size 1,796 sqft
July 2019 had 121 sales with median price of $392,000 and median size 1,839 sqft
July 2020 had 128 sales with median price of $403,450 and median size 1,856 sqft

Comparing those same periods means that the current median price is 0.89% higher than the same time two years ago, while at the same time 3.34% larger median size. Not an increase.
The same period 2019 to 2020 shows a larger increase of 2.92% and 0.92% increase in size. Did prices drop in 2019?

Obviously, it is important to compare a longer period and look at monthly changes. It is equally important to compare the competitive market segment for any property, as not all submarkets increase or decline at the same rate. It is possible that the higher priced houses in the market are not selling well, with the lower prices gaining market share and increasing at a higher rate. Or it could be the opposite, or any number of reasons.

Above are two years’ worth of sales on a monthly basis, showing three measures; 1) number of sales, which shows how cyclical the market locally is; 2) median price over time, and 3) median price per square foot. There are other ways of looking at the market, including days on the market for the sales, list to sales price ratios, inventory levels, among others.

Markets can also change rapidly. If inventory increases, supply and demand can change. If interest rates rise, affordability drops, and prices could follow. If unemployment does not improve, fewer buyers can purchase, increasing inventory and affecting prices. If evictions increase, tenant occupied housing may become available for sale, affecting inventory levels. If mortgage forbearance is not properly handled, homeowners who obtained it could find difficulty in continuing in their present arrangements and may have to list their homes, changing inventory levels. If the virus increases in the Fall, as has been suggested, there could be more layoffs and more people thrown into circumstances that would cause them to sell. There is a myriad of issues that could change the market, but as of this writing, it looks stable to slightly increasing, and going through the normal seasonal cycles.

The importance of drilling deeper than broad statistics

The market statistics we get from the Board of Realtors is broad. It encompasses all properties, not segmented by school district or area, size, or any other factor. The December figures that came out a couple of days ago indicate a 7.3% increase in sales price, but if you do compare to the school district, it is not the same (also one month as opposed to one year). Point is that statistics depend on what is analyzed.

Below is a direct comparison of all sales in the Ann Arbor school district excluding new construction and “to be built”. This information comes from data found in the Ann Arbor Area Board of Realtors MLS and is something you too can pull for your analysis.

(sorry, you have to click the image to enlarge)

• Number of sales declined 1.4%
• Average price increase 4.37% but size declined 0.15%
• Median price increase 3.19% with size increasing 1.55%
• Average price per sqft increased 4.53%
• Median price per sqft increased 1.61%

Inflation rate noted currently at 1.76% between 2019 and 2020. This means that the rate of increase for average price is 2.61% and median 1.43%. If you consider price per square foot, it is similar on the average and a negative number on the median.

This information takes into account all listed houses in the Ann Arbor school district other than “to be built” and new construction. It does not segment by starter market, size, or another variable. Once that is done, data can change dramatically.

For example, if houses are segmented by size and age, differences appear in price changes. For that reason, it is a good idea to not hang your hat on an overall market change, but to consider other factors in whether the market segment in which the property is situated is changing.

I broke out the same information between houses up to 1999 sqft, between 2000 and 2999 sqft, and at and above 3000 sqft built between 1970 and 2000 in the Ann Arbor school district. This is still wide and takes all of these sales into account, but the differences where the market is most active is notable, and there is a difference between median prices and average prices. Choose one and stick with it. For the data trends I run, I stay with median because it takes care of the outliers.

Activity:
• 1999 sqft and below increase in sales 9.68%
• 2000-2999 increase in sales 1.27%
• 3000 and above level from one year to the next

Average price:
• 1999 sqft and below increase 11.50%
• 2000-2999 sqft increase 5.21%
• 3000 sqft and above increase 2.53%

Median price:
• 1999 sqft and below 3.30%
• 2000-2999 sqft increase 4.36%
• 3000 sqft and above increase 6.59%

What happens if the market segment is addressed; say all houses between 2000 and 2999 sqft in area 85, built between 1990 – 2005 (a building boom in that area around that time). A trend line is measured both on the linear and 3rd order polynomial and what it shows is a slight increase in prices over the past few months, and a decline in price per square foot (price increase affected by size increase).

All of this information is the type of analysis appraisers use in trying to measure the market in which the property they are appraising is situated. If an appraisal suggests the market is declining, or increasing (or stable) then the appraiser has gone through some level of analysis to determine what is happening both for the wider market, as well as the segment where the property is competing.

Appraisers analyze the market. They analyze not only the wider market, but the market which is competitive with the subject property. When you are considering hiring someone to handle your valuation needs, interview, and hire someone who will make sense of the complicated market they are working within.

Why price per square foot is not the appraisers choice

Often, buyers and sellers are under the impression that it is simple to price a house by its square footage. Nothing is further from the truth, unless of course, all the comparable properties considered are within a couple square feet of each other and have the same quality and condition and are in the same immediate neighborhood with no variation in the value of the site.

Underneath all is the land. This means that a house that sits on a hypothetical 60×120 sqft site should have the same underlying value if the house were 1,000 sqft or 2,000 sqft. If land is selling for $50,000 for this 7,200 sqft lot, then the value of the land does not change in value because it has a larger or a smaller house on it.

Take this following visual for example, it includes median sales prices over time for all sales in an area, as well as median sales prices over time for houses that are between 800-1200 sqft. Notice how the smaller houses measured with the moving average trend line, are sold for quite a bit less than those that encompass the entire market (in this case, a school district). The median size for the houses within the school district as a whole in this sample, were largely between 2,050 and 2,250 sqft. The median size of the smaller houses was largely between 950-1050 sqft. Therefore, the median price would be expected to be half for the smaller houses than the market as a whole, but that is not the case. The median price of the larger market sales was around $360,000, while the smaller houses was around $225,000, or 37% less, not 50% less.

Take the same information looking at price per square foot, and the scenario is now flipped on its head. The blue moving average line is that of price per square foot, which favors the smaller houses, running around $225 per sqft on average while the wider market was showing around $170 per square foot, or around 24% less per square foot.

Another way to look at this is, what is the value of a Tesla per pound? What is the value of a Yugo per pound? Obviously, they are not the same. This is the same idea behind price per square foot for real property valuations. If you have questions about how an appraiser values a property, please reach out to your local appraisal expert and ask questions. Better yet, if you need to know the value of a property, engage a professional to help answer your questions.

Hopefully this helps clear up why it is that appraisers do not simply use the price per square foot method in determining the value of a property.

Probate – proceed with caution

Probate can be a complicated process for the personal representative, who likely only handles this type of situation once or twice in a lifetime. For some people, such as the attorney, or the agent who handles many estate related sales, the process makes sense. To the individual tasked with being the representative however, they likely only have a cursory understanding of the process. A proper assessment of the value of the decedent’s real property is particularly difficult for the layperson anyone who is unfamiliar with real estate transactions.

When determining date of death values for the decedent’s assets, the temptation may be to use assessment data in order to arrive at the opinion of value as of the date of death, but is this working in anyone’s best interest? Is the assessment data a good indicator of value? Does having a value that is substantially higher or lower than actual value hurt those involved?
In order to determine whether or not these sources are reliable, I pulled twenty random sales in the area, and compared their sales prices to the assessment data. The TCV is the True Cash Value.

This random sampling of twenty sales that occurred in the area, compared to assessment data, shows assessment information both above and below sales price, and only two instances within a five percent variance (which is the variance that most appraisers consider the tolerance they look for in terms of acceptability). That means that assessment data would only have been useful ten percent of the time, depending on what was considered an acceptable variance.

The most reliable and defensible number will come from a formal appraisal, conducted by a certified real estate appraiser. Throughout the valuation process, the appraiser analyzes and reconciles the collected data to arrive at conclusions regarding the final value opinion. In the final reconciliation, the appraiser considers all the available data and uses knowledge, experience and professional judgment to arrive at a final opinion for the property.

The cost of an appraisal is minimal compared to the potential tax burden of an inappropriately provided basis. Equally important, a report of this caliber may help substantiate your claim that the values within the report are well-founded and accurate.

Saline MI – Wildwood

Every town seems to have a neighborhood which has broad appeal. In Saline, Wildwood is one such neighborhood. Here occupants find wooded lots, walkout basements and proximity to many area amenities. What I thought my readers would find interesting is how this specific market has changed over time, measured over the past 12 plus years as well as what I see happening now. The sales information is gleaned from the Ann Arbor Area Board of Realtors MLS and does not include For Sale by Owner properties.

This first image is a scatter graph of the adjusted sales price of each sale from 2006 to 2/28/19. Prices are clearly trending upward.
The next graph shows the adjusted price per square foot in the same period. Price per square foot is meaningful, in that in a data set that contains different size properties, it can normalize some of the increase that might show if the recent sales are larger properties.

This graph also clearly shows an upward trend in price in Wildwood.
Another way we could look at this is with a chart laid out in how many sales per year occurred, what the average and median sales prices were, the average and median sizes, and average and median price per square foot. This type of information could be useful in showing where the majority of change occurred. So far 2019 has only two closed sales, but these were on average, smaller houses.

The graph that follows uses the average and median sales prices compared to each other from the data above. The blue bar is the median, which is my preference in measuring a market. This layout is helpful in seeing there was a slight dip in the market between 2008 and 2011, with the greatest increase in 2016.

Continuing in the same vein, price per square also shows an increase, but with 2018 running slightly below 2017 in general. If an appraiser indicated the market was slowing, based on this data, they would be correct, to an extent. The past three years showed similar gross living area both in the average and median sizes, with 2017 having slightly smaller sales than 2016 and 2018, meaning the expectation is that the price per square foot range would be higher. That is precisely what shows below, while the graph above shows an increase.

What is the saying? There are three kinds of lies: lies, damned lies, and statistics.

As of 3/1/19, the MLS showed no active available listings in Wildwood. There were three properties under contract. The lack of available properties in a subdivision that has steady turnover, indicates higher demand than supply, which in turn tends to drive prices upward.

All of this information is to help the consumer understand the various elements of the market an appraiser may study to measure what is happening with the market at any given time. Since appraisals are snapshots in time, understanding the market is a major component of the analysis.

You can access my website for information about appraisals, and what services I can provide. Please think of me for your private appraisal needs. https://annarborappraisals.com

Peer-to-peer appraisal review

Peer review is a great tool to improve an appraiser’s work product. It is a critical eye on another appraiser’s work, with the intent to help educate and improve. It is typically a voluntary process, where one appraiser provides another with an appraisal to be examined in detail, where suggestions are offered in a manner that helps the submitting appraiser. It is confidential in nature, with agreements in place that no information will be shared outside of the agreed upon process. The process is structured in a way, where questions are asked in such a manner that the submitting appraiser has a “lightbulb moment” and may end up looking at answers to a problem in a new light. It is truly an educational and aspirational service.  When completed correctly, the recipient of this process should come away with greater confidence on how to proceed, or even that they have done a good job in explaining what needs to be explained so that an intended user can properly understand the report offered. After all, appraisers rarely receive feedback about their work unless someone is unhappy with it.

 

There are so many benefits from this type of service, including exposing weaknesses in a safe environment and helping coach someone through to a better understanding of the processes involved in developing and reporting the results of an appraisal. It can expose the recipient to new ideas, give some confidence where the work product is good, and simply help someone do a more thorough job, when the work is looked at with a fresh set of eyes.

 

Peer review should never be a place to be hurtful and unkind, as it is counter to its purpose. It should never be used to “internet shame” someone, or to group pile onto another. In fact, this type of consulting assignment should be confidential in all respects, and never exposed on the internet.  Peer review is not offering a second opinion of value, or a review in the sense of Standard 3 & 4, but as an educational tool in the truest sense.

 

There are different types of peer review. The most common we see is the formal peer review completed as a part of the designation process with some appraisal organizations such as the Appraisal Institute. In that format, several appraisal reports are examined and the peer reviewer interviews the candidate based on those reports. The screening reviewer asks questions that helps gauge the candidate’s level of knowledge that might not come across in the reports, and helps lead the candidate to a better understanding of where weaknesses may lay. Both positive and negatives are addressed, and deficiencies may result in a request to return with some improvements. It is never hostile and always helpful.

Peer-to-peer review is completely voluntary and undertaken when an appraiser is concerned there may be weaknesses in the reporting or analysis. Normally an appraiser will seek out someone who has an excellent reputation of both knowing the processes involved in completing work, and who can help educate without undue judgment. The terms of the process are negotiated between the two participants. As with formal peer review, the process and results are confidential.

 

Many appraisers are isolated, in that they work on their own and do not have anyone to bounce ideas off of, or ask for advice. Peer-to-peer review can be a way of gaining competence, confidence, and establishing relationships with other appraisers who can help them along the way. If done properly, it is hard to see a downside to it.

 

If I can be of assistance, please contact me related to your needs.

 

 

What is a comparable sale?

 

You have been working with your buyer now for five months. They have written six offers and have lost out on each in a bidding war. A new house comes on the market which meets their needs, and frankly, they are tired of making offers and losing out on the deal. This time they decide to come in with an offer substantially above asking price in order to beat out the myriad other offers they expect are coming. The strategy works and they win the deal. Trouble is, they still have to obtain financing. The offer does include a three percent concession for closing costs, which the seller was happy to agree to considering they accepted an offer that was twelve percent higher than asking price. They were particularly happy as the only other offer they received was slightly less than asking. This happens. The seller’s agent is not under any obligation to say how many offers were received nor what the offer prices were. The weary buyer offered in good faith to secure the property. They simply did not want to lose out on yet another property.

 

Along comes the appraiser for the buyer’s mortgage lender. The appraiser studies the market, notices that the market has started to cool, and that instead of houses receiving ten or more offers at a time, now they are receiving only one or two, if any. Houses are starting to remain on the market a bit longer than they were. The sales the appraiser analyzes are good comparable properties, but they all sold slightly lower than the asking price for the property, and 12-14% lower than the agreed upon sales price. After analyzing the market and the sales, the appraised value falls short of the sales price by 12%, in line with the asking price. The question is, do you try to renegotiate the contract immediately, or do you take the route of requesting a reconsideration of value claiming the appraisal was inaccurate and submit several sales that you say are better than those included in the report?

 

How are they better?  Is it just that they sold higher than any of the sales the appraiser used, or are they actually comparable properties? Are they already addressed in the appraisal report? Sometimes there is a narrative section which addresses sales that were considered and were not included in the comparable sales grid for one reason or another. If you have the opportunity, read the appraisal report in its entirety first, as you may find the report had a compelling discussion related to why the sales included were the best available and how the value was arrived at.

 

A comparable property is one that is a substitute for another property. It is uncommon to have properties that are directly comparable since every house has something unique about it. A car analogy might help you in choosing comparable properties for your market analysis, or to provide appraisers on your sales when you meet them at the property (and no, we do not mind having sales offered as long as there is no expectation that we are going to use them, just consider them).

 

Most people will want to buy as much as they can for as little as possible. If you have a budget for a new car of $25,000, it is unlikely you would be out looking at BMW’s or Mercedes, whereas if you have a budget of $60,000 and want a German car, you are unlikely to be looking at VW Bugs. Is the VW Bug comparable with a BMW 5-Series? Not likely. Are they both German Cars? Of course. Would the buyer of a VW Bug choose a BMW 5-Series if they were the same price? Most likely. Would the buyer of the BMW 5-Series buy the VW Bug if they were the same price? Highly unlikely. You get the picture.

 

This is the same idea with comparable properties. While a buyer of a good basic 1,500 square foot tract house would likely jump at the chance to buy a 2,500 square foot semi-custom house if they were the same price, in equal locations, the converse would not be the case. The reason for these basic terms is that we have all seen agents provide appraisers “comparable” properties that are anything but. To be comparable, the likely buyers of one would have to consider the other, so it is not only that the buyer for the subject will consider a far superior property, but the buyer of that far superior property would want to be reasonably considering the subject.

 

What does this mean when you provide sales to an appraiser? First, look for what the typical buyer for your property would truly look at as a substitution. When you do that, look at those sales in the same vein, as whether your property would be a reasonable substitution. Sometimes there is nothing even approaching comparable to your property. In this instance, look to what else has sold that has some element of comparison, such as location, or quality and size, and then try to find something that is obviously not as good as your property as well as something that is better. In that manner, at least you will know that the property should be worth more than something and less than something. Appraisers will do this on those unique circumstances when there is truly no comparable property to chose from.

 

This bit of wisdom will help you choose the comparable properties for your market analysis, and give you a good basis of comparable properties for the appraiser should you wish to share them.

 

 

 

Saline MI market trends

While the market appears to be moving at breakneck speed in parts of the country, even in some of the most popular markets, it is not exactly so. Changes occur constantly, with submarkets having different appeal at different times.

 

The data below is that of my community, Saline MI, just south of Ann Arbor. Although the data presented does not break out submarkets within Saline, what it does is break out by price range. I could have expanded the price range above the $501,000 mark, but chose to keep it at this level for simplicities sake. The way the data reads is as follows:

 

The chart shows the number of total active listings, then those under contract, one years’ worth of sales, and supply compared to the past year. Finally, it shows the Contract-to-listing ratio (CTLR) of percent of properties on the market that are under contract. This is relevant as it gives an overall pulse of what is happening in the market, with 20% or less being a buyers’ market based on my experience, and over 35% a seller’s market.  I have run these in price ranges as shown below, and have been tracking occasionally to see any changes.  This particular grouping is interesting because what we are seeing is the early spring market, the height of the market, the early fall market, and now the late fall market.  I will keep running these types of studies throughout the year to see if we have changes that start to happen, but what I am seeing from this is the expected slow-down as we head into winter.

 

Comparing March to June, the rate of absorption overall has increased and inventory in general has increased. The price range between $201,000 and $300,000 showed a slight slow down in absorption, while anything over $301,000 showed an increase in activity.

 

 

Compare early fall to late fall and the market again is changing, with the CTLR dropping and showing more balance. The greatest absorption has generally been in the $401,000-$500,000 range based on this information, with the exception of the current activity in the under $200,000 range. In both of these cases, over $501,000 is much lighter absorption in general.

 

We have gone from 34.58% CTLR in March, to 41.29% in June, then 29.35% in September and 28.88% as of today.  That is for the entire Saline market, with different price ranges showing different absorption rates depending on when the data was run.

 

What does this all mean? Long and short is that it shows how the markets change as far as activity based on the time of year, as well as in what particular price ranges the market is hottest at each one of these periods. It shows that although the market may be “hot” in one segment, another may be quite cool. Of course, this is by price range as opposed to an actual submarket, but the logic behind it remains the same.

 

Hope everyone finds this interesting.  If you have any questions about appraisals in the Washtenaw County market and beyond, please let me know. Feel free to visit my website at https://annarborappraisals.com for the types of services provided and the coverage area.

 

 

Data culled from the Ann Arbor Area Board of Realtors MLS

Dissolution appraisal reports

 

Appraisals for marital dissolution

 

There are many reasons to obtain a professional valuation on your property. One of the most difficult and sensitive reasons is for marital dissolution. Since the marital home is normally one of the most valuable jointly held assets, taking on an appraiser to do the work should never be done lightly.

 

As in all appraisal reports that are completed, utmost care should be taken in considering factors that influence the value of the property. Knowledge of the local market, including understanding supply and demand, absorption into the market, and pulse within the subject’s submarket is very important. Equally important is an understanding of buyer preferences in the submarket which the property operates within. For example, if the market expects two full bathrooms but the property has only one, how does that affect the value as well as the marketability of the property? If buyers expect a three-car garage in newer homes, but the subject has only two, does it change the buyer pool altogether?  Is the market slowing; is it increasing; are buyers out in droves looking at properties or are they pulling back and waiting? These are some of the types of questions appraisers examine as they study the market related to the appraisal report.

 

The written communication, the appraisal report.

When we think of the word “Appraisal”, we often think of the communication of the appraisal. The appraisal is actually the act or process of developing that opinion of value. What you, the consumer, will see, is the “Report”. The report is the communication of the appraisal (or appraisal review), which is transmitted at the completion of the assignment. As a party who is not typically reading appraisal reports on a daily basis, the communication should be addressed in a manner that is clear, understandable and not misleading. This means that jargon should be minimized, or if used, explained. It means that there may be no need to provide a mile-high analysis of the nation’s economy, but stick with specifics that relate to the property itself. Of course, it is important to discuss what is happening with the market, but for a single-unit residence, what is happening in California will not be relevant to what is happening in Ann Arbor, in most cases.

 

The report should contain enough information that, you the client, can understand completely how the appraiser arrived at their opinion of value, whether or not you agree with that conclusion. Sometimes clients will not agree with the conclusion, but it is critical that they understand the logic and reasoning behind it.

 

There are many steps that are taken to arrive at an opinion of value, and to communicate that opinion in a manner that is clear and understandable. Choosing an appraiser to handle this very important piece of the dissolution problem should be done with care. Your attorney should have suggestions for whom to use. If you are not working with an attorney, consult those who do see appraisal reports with regularity such as REALTORS, loan personnel, and other appraisers.  In fact, one of the best ways to hire a competent professional to handle this sensitive need, is to ask other appraisers whom they would recommend. Time and again, a couple names will surface. Interview those appraisers and go with whom you feel most comfortable. Other avenues of finding competent appraisers is to search appraiser databases from different appraisal organizations. The Appraisal Institute has the Find an Appraiser search function found here  The Relocation Appraisers and Consultants has a directory search found here , and the American Society of Appraisers has a search section here.

 

Fees and turn times.

Every appraiser sets their own fee schedule and turn time for completing assignments. Considering the time that is involved in properly identifying the problem to be solved (which includes the different factors that influence value), determining what is necessary to solve the problem, implementing those processes, and then communicating the findings, do not expect the appraisal report to be an inexpensive part of the dissolution process. Given the hourly rate of most attorneys, expect to pay somewhere between two and five hours of your attorney’s fee for the appraisal report itself, and an hourly rate for any testimony that is needed in the event of a court or deposition appearance. If the marital home is the greatest asset that is jointly owned, this is a small price to pay for peace of mind of a job well done.