annarborappraisal - Page 3 of 9 - Pulse of the Ann Arbor real estate market

Relocation Appraisal – hire an expert

The reason hiring a RAC member matters

Agents, employers, potential transferees; do you know what RAC is? Do you know why it would be important to consider appraisers who are members of this organization for the employee taking a buyout? In short, RAC is the organization that is dedicated to Relocation appraisals. RAC is the acronym for Relocation Appraisers & Consultants, and it is made up of peer reviewed experts in relocation work or those who have demonstrated expertise in complex residential appraisal assignments.

Why does this matter? It matters because the transferee has the option of taking a buy-out from their employer, facilitated by a third-party company that specializes in seamless employee transfers. The buy-out offer is made after two independent appraisals are obtained that address the positives, negatives, market conditions, and any unusual features of a property. These appraisals are not market value based, but based on a definition called “anticipated sales price”. Anticipated Sales Price (ASP) is actually a projection into the future, as to what a house will sell for within a specified period of time. It is not market value, which is back in time, forward to the date the appraiser views the property.

Appraisers who have expertise in this type of work are aware of the nuances in a market relating to what buyers expect, what types of repairs or improvements need to be made to put the property in the best position to sell, and exactly where it is positioned in the market as of the date of value. This means that odd floor plans are addressed. Dated cabinetry or flooring is addressed. Special features which may sway buyers to that property over others are addressed. The appraiser pays close attention to the market at the time of the valuation, and in particular the competition.

RAC member appraisers have this expertise and are the natural choice for any relocation assignment. When offering advice to your clients on choosing the right appraisers to complete these assignments, asking for RAC members to be included should be one of the first questions the client asks. It makes the transferees life easier, as well as your job as agent who will be handling the transfer. Don’t cut corners, go straight to the best, hire a RAC member today!

The RAC website is www.rac.net and I recommend that it be consulted in addition to the WERC website, with a search for “Worldwide ERC® Appraisal Trained” appraisers. The directory is found at https://directory.worldwideerc.org/18.aspx

Why hire an appraiser?

There is a myriad of reasons that someone would need an appraisal, from mortgage financing, to estate planning, relocation, litigation, among others. This piece relates to work engaged directly by a private client specific to that client’s needs. A testimonial is included as it shows how this type of work can be a direct benefit to the client, plus it was such a nice one that it bared sharing.

An appraisal seeks to answer the question the client has, and the report that is received is the communication of that process. Clients do not see, unless it is explained, the thought process that goes into developing the appraisal. Because of that, the reporting process is critical. Reporting needs to communicate enough about the process and the property to help the client understand how the appraiser arrived at their opinion. It should not require the client to take a “leap of faith” to understand how the appraiser ended up where they did. After all, we are hired to answer a specific question so that our clients can make an informed decision.

As much of my work is for private individuals who have various needs, I want to make sure that I explain what I have done, and what the problems particular to the appraisal at hand are. Some problems are more complex and require more explanation. Some are more straight-forward, but I still want to be sure that my client understands what I did and why I did it. Clients do appreciate the explanation, whether or not they appreciate the answer. Even if they do not like the answer, there should be enough information offered that they can understand the rationale behind it.

On private assignments I will often ask my clients whether the report was helpful, and sometimes ask for testimonials for my website so that other potential clients can see how an appraisal has benefitted them. I recently completed a very complex assignment where explanation was greater than typical due to the uniqueness of the situation and problem to be solved. My client wrote the following for my testimonial page:

“Rachel Massey was actually recommended to us by another appraiser in the Ann Arbor area who could not fit us into his schedule. Given that she is a competitor, I was surprised when he freely admitted that “Rachel is the best around,” and now I know why. Indeed, we were very impressed with Rachel Massey’s services! Our market appraisal was a challenging one in that we were purchasing a lake property which included a very old, tiny cottage in pretty rough shape. Because houses do not go up for sale very often on this particular lake, finding comparative values was difficult, especially given the condition of the house itself. However, Rachel proved to be extremely knowledgeable about how to accurately assess lake properties. In the end, she provided us with an extensive, detailed report that far exceeded our expectations. It gave us all the data we needed to be able to offer a fair, market-based price for such a unique property. My husband and I would wholeheartedly recommend Rachel Massey’s services to anyone who is in the process of buying or selling a home!”

Now of course if there was an issue or disagreement with the analysis, I want to hear it as well (but not on my website) and be offered a chance to provide further explanation if something was not clear. It helps me better understand where I can improve the communication process going forward.

If you have a question that requires a thoughtful, independent answer, please consider hiring a professional appraiser to help. Interview the appraiser about their processes, and about how they communicate the report. Interview them about their knowledge of a specific problem that is to be solved and ask for recommendations if at all in doubt. An independent appraisal specific to the problem that you need solved is an invaluable tool that should not be overlooked.

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.

Westridge of Dexter

Westridge in Dexter

Pass under the historic Dexter Railroad Bridge heading west, and on your right, along the curve towards Pinckney, is Westridge subdivision. Like many developments that took place during the housing boom of the late 1990’s and early 2000’s, this development was a roaring success until the local real estate market started to hit the brakes in 2005. Most houses in the development were built between 2000 and 2006, although there were a handful in 1999 and 2007. The remaining lots started to be sold off to individual builders and new construction began again in 2010. The development splits between these older and newer houses, with the newer houses primarily situated on the northern side of the neighborhood, although there are scattered newer houses throughout. Only a couple vacant sites remain at this writing.

Houses are tract built, but with variety. There is ranch style, colonial, and some transitional houses with first-floor owner’s suites. Many have walkout basements and back to wetlands or wooded areas. Some back to walkways or parks. There are smaller houses, just north of 1,300 sqft, as well as some larger houses closer to 3,000 sqft. The newer houses tend to be higher priced and with modern upgrades as expected.

Westridge has a fortunate location adjacent to the Huron River and attendant park systems. It is along the Border to Border trail, offering easy access to both recreation and to the city center through a well-maintained pathway. This is particularly attractive in that there are no walkways along Island Lake Road, near the Railroad Bridge, making pedestrian traffic potentially life-threatening otherwise. The pathway that connects the subdivision to the downtown core requires only a few blocks walk, and many buyers consider this a particular selling point for this development.

Newer subdivisions appear to have been hit fairly hard during the Great Recession, at least locally. Westridge was no exception. The Ann Arbor Area Board of Realtors, from where my research is gleaned, maintains listings back in time, but only in a robust manner to 2006. In a map search (above) of the development, I found sales back to 2001, but only a limited number. The data that follows is a scatter graph of all sales at their adjusted sales price, over time. Following that, is a yearly chart showing differences in sales prices per year, and at the end is information about current activity.

As is seen in this scatter graph, the market declined to a low point between 2008 and 2009, and current prices are well above the prices seen in 2001-2006 before the decline.

Laying this out in a yearly manner makes this information a bit more readable. The data below shows only median adjusted sales prices and price per sqft for simplicity purposes. Caveat on the data is that between 2001 and 2003 there were only minimal sales retained, and the number of sales started to increase in the MLS in 2004. Nevertheless, this information shows how the market declined over time and how it has recovered and exceeded previous prices. In the median adjusted prices, there is a blip upwards in price in 2005 followed by a decline to 2009. The 2010 price jump relates to size, therefore the next chart that follows shows price per square foot.

Looking at price per square foot the data shows the peak in 2003, declining steadily from 2004 through 2009. In my experience as a local appraiser, this appears more reasonable. I recall, in mid-2006 telling my husband the market had dropped around 10% and I didn’t see it going much lower. Oops.

The median Sales price since 12/5/17 (one year to the date of this writing) was $400,000 and the median asking price $420,000 on a 2,145 sqft house. There are currently two offerings in the development not under contract. The median asking price is $372,450 and a median 2,047 sqft house. Asking price is lower than the previous asking price of the sold properties by 11.32% and median size difference is 4.57%. Therefore, this information shows that prices may be down, as the asking prices are lower still than the difference in size. There are two properties under contract, and their median asking price is $369,900 and size 1,967 sqft. That means the asking price is 11.93% lower and the size is 8.3% lower, still indicating there is a decline potential.

Until we have a bit more data it is hard to call, but as an appraiser this information is meaningful, and I would not be calling the market increasing in spite the recent price increases noted in the charts above. For those of you actively participating in this market, please pay attention to “chatter” from buyers, sellers, agents and appraisers. Who knows exactly what will happen going forward, but there are indications that the market is changing.

Why the contract?

Why does the appraiser need the sales contract?

This is a question we hear over and over again. It seems counter-intuitive, that if an appraiser is hired to come to an independent opinion of market value in a sales situation, that they would require a copy of the contract. There are a couple reasons that the appraiser will request the contract.

One is that it is a requirement of the Uniform Standards of Professional Appraisal Practice (USPAP) to which appraisers must comply. Specifically, the appraiser needs to comply with Standards Rule 1-5 (a), which is:

When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business: analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal; and (b) analyze all sales of the subject property that occurred within three (3) years prior to the effective date of the appraisal.

This is the development standard, meaning when the appraiser is doing the analysis portion of the assignment. The reporting standard, the meat of what the public sees, applies to Standards Rule 2-2(a)(viii). In it, the comment section, third paragraph is:

When reporting an opinion of market value, a summary of the results of analyzing the subject sales, agreements of sale, options, and listings in accordance with Standards Rule 1-5 is required. If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existing of the information and citing its lack of relevance is required.

As noted above, analyzing and reporting on the contract is a requirement of USPAP. This is the primary reason you will be asked for a copy of the sales contract.

Another reason that you will be asked for a copy of the contract is to analyze what the meeting of the minds was, as the negotiation process can be meaningful. If the house was listed for $250,000 and there were five offers from $250,000 to $260,000 and it sold for $260,000, then the seller was in a very strong position and it is evidence of a seller’s market. If it was listed for $250,000 and sat on the market for six months, before getting an accepted offer at $200,000, then the buyer was in the best position. What if this house sold for $240,000 and the appraisers’ sales were from $220,000 to $245,000, and the value indication was $238,000? What if the adjusted range of the sales was from $235,000 to $240,000, but the most similar of the sales was $240,000 and adjusted at the same? Even if the indication from other sales was $238,000, that $240,000 was also supported, and it was the most relevant sale. If the appraiser opted for that $238,000 value instead of considering the negotiated contract between willing buyer and willing seller, they may be remiss. It is one data point in a series of other data points, and should be considered. Now of course, if the best indicator was $235,000 and there was only one odd sale supporting $240,000, we would expect the opinion to be at $235,000. There is normally some swing in range, in which one sale will stand out as better than the others. This is one of the reasons that the appraiser asks for a copy of the contract. It is also one reason that appraisers do not average adjusted sales prices, as there is often one or two sales that are more similar to the subject property than the others.

If the lender underwriters could make a decision based on the adjusted and unadjusted range of values, it would make this contract analysis less important. Unfortunately, a range of values has not been accepted by the government sponsored entities as a viable position, in spite of it being most relevant from the appraisal standpoint. As long as a point value is required in the reporting of the value opinion (and required by USPAP), appraisers will need to keep analyzing the contract. It bears repeating however, that an appraisal should never be a “bulls-eye” and if the value falls lower than the sales price, then it is quite simply possible that the property sold over market value. This happens in particular in highly undersupplied markets, or with buyers who are unduly motivated or lack knowledge of the market. The appraiser’s role as the unbiased third party is critical at that juncture. Reading the tone of the market and completing a true market analysis is vital, as markets are fluid.

Regardless of whether the appraiser is able to obtain a copy of the contract, they still need to address what steps they took to obtain it, and they need to analyze the listings of the property. Although USPAP addresses listings current as of the effective date of the report, the Fannie Mae/Freddie Mac forms go further with the specific question “is the subject property currently offered for sale or has it been offered for sale in the twelve months prior to the effective date of this appraisal?” That means that even if it is not offered for sale today, but was offered for sale six months ago at $200,000 and is now under contract for $250,000, there is going to be a need to discuss what happened in the interim. Did the market change drastically in those six months, such as the city being awarded the second Amazon Headquarters? Did the house undergo substantial renovation? Was it taken off the market six months ago in order to mitigate the problem points with buyers, such as installing a new roof and a new kitchen after complaints indicated those were huge sticking points? The appraiser is going to have to address it regardless, if the report is for mortgage financing.

Even though it may seem strange that the appraiser is requesting a copy of the contract, or even asking about prior listings, it is part of our due diligence process. It is a requirement of our professional standards. Please be forthcoming with all information that has been negotiated, including any sales concessions or repairs that may be on a separate addendum. Afterall, it is part of what is required of the appraiser in their analysis of the sale.

Vernon Downs

Situated north of Scio Church Road and south of Avondale, on Ann Arbors West Side, Vernon Downs is a long popular development built in several phases between 1955 and 1965 by George Airey. The houses are well-built, and a mixture of ranch, split-level, capes and colonials. The majority of houses are ranch style, between 1,200 and 1,400 sqft in size. The oldest parts of the subdivision along Winsted, Sanford, Weldon and Waverly are primarily smaller ranches with varying degrees of off-street parking including carports, detached, attached, and no garages. The later part of the development along the west side, towards Maple Road (Waltham, Agincourt, Covington, and others) have more mixture and larger houses, with attached garages standard. The primary school is located on the northwestern side of the subdivision, and the area high school is less than one mile east across Seventh.

The Ann Arbor Area Board of Realtors no longer retains hardcopy MLS books, but does retain fairly robust data back to 2005, and in some instances earlier. Doing a search for the word “Vernon” in the legal description of all sales found online, and then restricting these to ranch style only, it is easy to track movement in price over time, including the Great Recession that hit Ann Arbor as well as the nation in general. The first graph shows price reductions for individual sales over time. This was included as price reductions are a leading indicator of a changing market. Using this information, it was clear that price reductions had started in 2005-06, and that they had increased in number between 2007 and 2010, then a second spike in 2012.

The next data run was related to net sales price over time, showing increases at a significant level over the past few years, and the largest dip in prices here between 2009 and 2010.

Because there were varying size houses in the mix, and because the neighborhood is spread out in phases with the newer larger houses tending to sell at higher prices, price per square foot was also run. This data also shows a dip in prices in 2009 and 2010.

Because there were so many sales using this method (204 in total), it was also broken out year by year, and finally comparing current activity in the neighborhood using the same criteria of “Vernon” and ranch style houses. This is displayed in average price over time, as median and averages were largely similar.

In observing this data, what is particularly noted is that right now, there is only one active and one property under contract, but both are lower priced than the past two years sales. Of course, the contracted property is smaller than the averages and likely in the older section, but it is worth noting.

Using the data above on a yearly run, It is easy to see how the list price to sales price ratio widened over time to a low point in 2005 (too few sales) and 2010, and rose over 100% in 2016 and 2017. So far, 2018 is lower, just over 97%. Part is likely due to the increasing prices however. Again, this could be a bellwether indicator of a market in transition.

Average sales price over time shows a decline from 2004 to 2005, but again there were too few sales in the MLS at that time to be meaningful, and an increase slightly in 2006 and 2007, followed by a decline to a low point in 2009. Because markets are very location specific, this is very interesting to observe, as the condominium study that was completed last week showed a decline in prices starting in 2005. Those condominium properties are on the southwest side of Ann Arbor, only a couple miles from Vernon Downs. It actually makes a lot of sense to see rates of decline and increase at different times, because so much of what we see related to price fluctuation can be related to supply and demand. In areas with ample supply, the market may change at a greater rate, and at an earlier time. The average sales price per square foot ratio is much the same as the average price ratio, so is not posted in addition, but there is a leveling of price per square foot noted between 2017 and 2018.

For the real estate professionals reading this blog, how does the current market “feel” to you? Does it feel like a normal winter slowdown, particularly with some early cold snaps we have had, or are the interest rates and price increases over the past couple of years perhaps taking a toll? Probably none of us can pin this down at the moment, but it is worth watching what is going on with the market, particularly the properties that are on the market and not going to contract, the price reductions, and the list prices of the contracted listings.

Hope everyone had a great Thanksgiving, and be safe out there!

Rent versus buy?

Real estate social media shows a constant narrative about the benefits of owning a property versus renting. This brief synopsis addresses how this is not always true.

In real estate, it is location, location, location. What is true in one area may not be true in another, and renting is not always more expensive than owning. So many articles that compare ownership versus renting costs do not account for the necessary set-asides that have to be factored into homeownership. They do not address the flexibility of renting; meaning that if someone is still in an upward career trajectory, they may not want to be tied down to a property. They do not factor in what could happen if markets change and prices move downward. Of course, values could continue to rise and rents could continue to increase, so each person considering owning versus renting needs to consider their own unique needs, as do the professionals assisting them.

To make a comparison, look at the most recent rentals within a series of condominium complexes, and compare them with the most recent sales. The data is segmented into three different unit sizes and uses the rental cost versus the cost of ownership with a 20% down payment and 4.5% interest rate. Many buyers are not going to have the 20% down payment, so the cost would be higher, as the loan payment would increase not only by the amount of the mortgage, but with the added cost of private mortgage insurance (PMI).

The above table shows rents between $1,400 and $1,700 per month. The yellow highlighted properties are the ones that are compared to cost of ownership, as there were sales of the same models available in the same period.

The next chart shows the sales, with the stated homeowners association fees and monthly tax burden, plus what a 30-year, 4.5% interest rate mortgage at 80% loan to value would equate to. The “total” column is the mortgage plus taxes and HOA. Insurance is not factored in as it is variable. These stated taxes were largely incorrect however, as they were the seller’s taxes, not the taxes that the buyer would be paying once the property reset to the State Equalized Value as opposed to the lower Taxable Values.

Factoring in the reset to taxable values for the properties that were highlighted above shows a different scenario. In this scenario, the actual tax burden was added, plus a 10% set aside for repairs and upgrades, and a “true total” comparison made. Because the 1,126 sqft unit was renting for $1,500 per month, the difference is only $1 per month in savings. The 1,376 sqft units showed a better buffer of between $76 and $140 per month, but the larger 1,382 sqft unit would have been more expensive to purchase than rent.

It bears repeating that the data above factors 20% down payment, and not everyone who is looking at renting versus buying, has these resources. Not every situation is the same, and it is very important to look at each case individually to make comparisons between renting versus owning. Although national data can be enticing to make a case that one is better than another, it is not the case in every situation.

Consult your local professionals for advice related to what works best for your situation.

When it is slow…

The blogosphere is ablaze with tales of woe, with appraisers saying how little work they have and how slow it is in their areas. It is amusing (in a sad way) when one thinks of the past couple years push towards lightening requirements to become an appraiser. This was done because of a perceived shortage. Many appraisers were saying there is no shortage, and the current lack of work in much of the United States is part and parcel the effect of that truth. This is not a piece about the reduction in requirements for become an appraiser, but instead one about what we can do that is constructive, during this slow time.

Slow times happen. Having been in the appraisal profession since 1989, I personally have experienced at least three very slow times. One time was so bad, that I was fortunate to be able to procure a couple of assignments per month. Others were not so bad, but definitely put a stress on finances and being able to pay for the necessities of life. One of the very real problems with slow times, is that we tend to have little reserves set aside that we can use to improve ourselves, but there are options that do not involve a lot of money. Some of the things we can do during these slow times are expensive, but also help set us up for better positions when the market improves.

What are the things we can do when we find ourselves twiddling our thumbs for lack of work?

We can consider learning how to become a public speaker. Toastmasters is a great way to start. There are many opportunities for appraisers to speak in the public realm, from talking with Realtors; to meet and greets with lenders; to attorney function; to teaching courses. Toastmasters offers a structured environment to practice and advance through a series of assignments and feedback that help polish the presenter. Afraid of public speaking? Most people are. Start small. Start with groups of real estate agents in a more informal setting. We may find that this is not something that we want to pursue, but it does open doors to different types of work.

Read – Read appraisal texts that outline a problem that you have encountered in the past and want a better way to solve. There are many excellent appraisal texts that are available, including the extensive library found at the Appraisal Institute. There are also countless articles that are found online that can be printed and saved for later reference. Never underestimate the enjoyment that can be found in reading something that is not real estate or appraisal related as well. Now might be the time to tuck into a good novel or two.

Pursue a designation – No one comes out of the womb knowing how to appraise. We all have something to learn. Many designation paths are very education intensive, and put the candidate to the test of really being able to show what they know, and what they do not know. Consider buckling down to a course of study that will be intensive, frustrating, but ultimately extremely rewarding. Some that have considerable study materials and course work are the Appraisal Institutes designations, and also the American Society of Appraisers. Take a look at the resources at the end of this post and consider doing what it takes to earn a designation.

Blog – Appraisers are writers. We are technical communicators when all is said and done. We take a problem, complete an analysis that helps us solve the problem, and then express in writing what we did to solve it. If you like to write, consider blogging. There are so many topics that can be tackled, such as giving market updates in your specific area of expertise, writing about a particular problem or observation, or any of a myriad of ideas that can pop into your head. Blogging can be fun and is inexpensive, and a great outlet for those who are slow with work but want to write about what they see.

Take classes – Expand your knowledge base. Did you always want to learn about solar energy and how to value solar panels or other high-performance improvements? There are classes for that. Did you want to learn how to expand your services into doing expert testimony? There are classes for that too. Interested in doing eminent domain work? You guessed it, there are classes for that as well.

Vacation – It seems whenever we schedule time off, the flood gates open and work comes rushing in. I am not saying that we schedule something in order to have work come in, but Murphy’s Law does seem to come into play with this for some reason. We are often too busy to take time off, so when it is slow, why not? Even if we lack the funds, there are small vacations that we can take close to home. How about a day trip into wine country? Fancy craft beers? What about having a designated driver take you and a few friends to the different breweries within a few hours drive? How about a museum tour at the local university? Maybe rent a cabin in the woods for a couple of days and simply unplug?

Help each other – I was recently a casualty in a reduction of force. Because of that I have very few clients, and trying to get on panels in a down market is like pulling teeth. Many appraisers I know are helping me by referring me to their contacts at different lenders in order to provide that personal touch. Others are referring work they do not want to take. This is one way to help each other. Another way is to be available to bounce ideas off of, or even walk somebody through a problem. I had a very kind man help me sort out where I should focus my efforts in marketing, and in developing a new business model. Be there for other professionals. It always returns in spades.

When it is slow, sometimes we resort to behaviors that may not be wise in the end. It can be very difficult to remain positive when assaulted from all sides, particularly negative press in the media, and the whittling away at appraisal fees from clients.

Too much whining – a bit of whining does not hurt. It feels good to commiserate with others, but try to keep it to a minimum. Also, try to keep it off the internet if possible. Admittedly I am guilty as charged about whining, but am aware of it and try to stop it. It is tough out there, and it is hard to come to grasp with spending an entire professional career to improving yourself, only to see that some clients do not care. Instead of worrying about them however, find the clients who do care. They are out there, and part of the work we need to do when it is slow is identifying them and making the introductions.

Spiraling into negativity – this is part and parcel of the same problem of too much whining. One of the problems with the various Facebook groups and internet forums is that we read conspiracy theories (some of which may well be true) and put our own thoughts into them which can turn into a death spiral of negativity. Cut that out!!!!

Cutting fees – everyone does what they need to do to survive, but in my 29 plus years as an appraiser, I have never found cutting fees to get work to be the answer. There is always someone willing to go lower, and it becomes another form of death spiral, plus it is hard to pull back out of when things improve. Figure out what your time is worth and charge accordingly.

Having been through several cycles of decline in workload, I can offer the glimmer of hope, that it is a cycle we are in. The market in general goes in cycles, and we are likely at the top of a long upward climb in prices and activity. Interest rates had been held low for such a long time, that when they started ticking upward as they needed to do, a lot of work simply ceased to be. Prices may end up ticking downward, which could then spur more activity, and we will be busy again. People sell, and need appraisals. Homeowners take new jobs and relocation work picks up. We all die, and estate appraisals are needed. People do not always get along, and dissolution appraisals are required. At some point we will all be so busy that we will again be turning away work. Until then, do something to advance your career. Good luck with everything, and stay positive.

Resources

Toastmasters https://www.toastmasters.org/

Appraisal Institute https://www.appraisalinstitute.org/

American Society of Appraisers http://www.appraisers.org/

The boomerang

Condominium developments offer a perfect opportunity to measure what has occurred in the market over time. Ann Arbor has four condominium developments that are adjacent to each other, built in rapid succession between 1991 and 2000 by the same builder. They have largely similar floor plans and amenities. Although the properties within the developments vary somewhat, they are not too varied for comparison purposes. The only exception to this being properties that have attached garages. The units on that street were eliminated from the study to retain better consistency. In total, 506 sales were used to conduct this market study.

In short, this particular market has boomeranged and is now higher than it was at the apex pre-crash.

The Ann Arbor Area Board of Realtors MLS retains data robustly to 2005/06 at this point, but there is still information available online in some instances as early as 1998. Running a map search of the developments turned up sales as far back as 1998, which offered an ideal dataset to show trends in this market over a longer period of time than normal.

The data above shows that the number of listings retained do increase in 2005, but there were sufficient sales prior to that to show the run up in prices between 1998 and the peak around 2004 for these condominium units. The trend towards declining prices is clear by 2006, and the lowest point of the market is between 2010 and 2011.

If sales are arrayed by average and median price per year, the differences become much starker. Bear in mind, that the data up through 2002 was spotty, but trends can still be determined, showing the height of this market in 2004, starting a decline in 2005, and then rising again starting in 2012. The blue bar is the average price and orange bar the median prices. While the mortgage crises were largely said to have started in 2008, in the Ann Arbor market, the decline was evident much earlier, easily seen with the data below.

This is another example of why national trends cannot be used uniformly, and why each market has to be looked at on a local basis, even hyper-local. This is because condominium properties do not necessarily move at the same rate as single unit properties. Different price ranges may have different market trends, and different property types different market trends. Trends can also reverse quite quickly, therefore paying close attention to current activity is important.

There are currently 11 condominium units on the market in these developments, with three under contract. The average asking price of the units available is currently $200,025 while the median asking price is $196,950. The average asking price of the units under contract is $194,617 while the median is $194,000. This indicates preference to the lower prices in general.

What is particularly interesting in this data, is that only three of eleven are under contract, meaning the contract-to-listing ratio is 27.27%. That is stable market activity. In the past twelve months there were 30 sales (excluding the garage unit street), meaning that there were 2.5 sales per month, so the eight remaining units not under contract would be expected to absorb in 3.2 months, again a balanced market. The interesting piece of this puzzle is that the average sales price of these 30 sales was $202,037 and median sales price was $195,500, with list prices a fraction higher.

If the units that are under contract have lower asking prices than the previous twelve months sales, are we starting to see a shift occur again? After all, the properties on the market, and particularly those under contract, are leading indicators of where the market is going. Couple that with supply of over three months, and normal contract-to-listing ratios, and the market could be showing softness above the normal autumn slow-down.

Affordability in Chelsea Fairways

Affordability and rising prices

We have seen rapid price appreciation from recent market lows in 2007-10 in this particular submarket. Rising prices are great for sellers, but are they good for buyers? How do the increasing prices affect affordability?

Chelsea Fairways is a newer subdivision on the southeast side of Chelsea in Michigan. It has had a handful of developers active over the years, with the initial sales starting in 2002 and stalled around 2006 when the market slowed down locally. The final build out was completed in 2016 by a different builder, but throughout, the housing stock remained similar in quality and scope. Arraying the sales by price less concessions, it is easy to see how the bottom of this market was towards the 2008-10 period, with rapid increases from 2014 through 2017.

Other than completing the build-out of the development, not much has changed in the subdivision. The houses remain similar, the housing stock has aged somewhat, but the area is well maintained and continues to be a popular subdivision.

How do the increases in price affect affordability? We hear arguments about how the low interest rates made payments much lower, allowing buyers to stretch their housing dollars, but interest rates have been increasing slightly over the years based on the data found through Freddie Mac (see link below) which references historic interest rates by month.

One sale sold and resold a few times during this period, and is a good indicator about how payments would change over time with the hypothetical same buyer, with 20% down payment and prevailing interest rate for the time. In June 2012 the house sold for $226,200 and had taxes equivalent to $427 per month. Interest rates showed as 3.68% at that time. In May 2017 it sold for $335,000 and taxes of $493 per month. Interest rates showed at 4.01%. In July 2018 it sold for $359,000 and had taxes of $480 per month. Interest rates showed at 4.53%.

Based on the old rule of 28% housing-debt to income ratio, the following tables shows how the increasing interest rates and mortgage payment, increases the amount of income necessary to afford the same house. Although the 28% rule no longer applies, it is relevant in gauging changes in affordability. The same house purchased today would have an increase of almost $500 per month compared to six years ago. Does the typical buyer have the additional $500 per month to spend on mortgage payments, and would it affect the amount they could set aside for eventual needed repairs on the house? The increase in the properties sales price in six years was 58.71%. The rise in property payments over the same period was 54.25%. Have incomes increased over 50% in six years?

Of course, this example may be extreme, but since the sale was recent, and it sold several times over the past six years, it was germane. Interest rates rose, taxes declined slightly from the 2017 to 2018 period, making the payment a bit less than would otherwise be expected. In 2012, most of the houses sold were in the mid $200,000’s. There were a few REO sales that brought median and average lower, but the five non-distress sales had an average price of $236,274, therefore the sale used as a test was in the range of the others. In 2018 there were five sales with an average price of $372,300, also indicating an increase of over 57% in that same period.

Is this type of increase, coupled with the increasing interest rates and increasing taxes (for the most part) partly responsible for the current slowdown we are seeing? Is it just that we are entering a traditionally slower time of year? I do not have a crystal ball for the future, but throw out the question about affordability, since most people I know did not have a 50% increase in income over the past six years that would be what is needed to afford the same house.

Historic interest rates found through the following website:

http://www.freddiemac.com/pmms/pmms30.html