Changes over time

One of the reasons an appraisal value is a point date, is that markets are fluid. What happens today, may not happen in the future, and likely did not happen in the past.

computer

The image below is a chart of four different price segments, as well as the overall market for Saline Michigan. It is run by price ranges (not the way we appraisers do our analysis, but relevant in measuring where the activity lies). This data is over a six-month period, with three data runs in March, June and September. What shows is an increasing inventory overall, and currently lower concentration of listings that are under contract. The June market data showed the highest absorption of the listings into the market, but we expect that since the summer months are most active.  The lowest absorption is shown at present, which is also expected as the market softens most often after the height of the summer.

 

Saline has consistently had a lack of inventory for less than $200,000, but as of 9.21.18, there were three offerings of single-family properties (not including condominiums) for less than that. The number of active listings has increased across the board, but the most active markets continue to be between $201,000 – $400,000 based on this information. It does show a sharp drop off over $300,000 in the most recent data run. Meanwhile supply builds in the $401,000-$500,000 range. This is likely due to numerous “to be built” properties being input into the MLS in this price range.  Throughout this data set, the market over $500,000 has shown balance to an oversupply based on the number of available properties for sale.

 

saline snip

The reason for a point date, is that markets change. The evidence is easily seen here, with the supply and demand factors changing between each data run. The current information shows the market is slowing in terms of absorption, and the amount of inventory overall. The caveat of course, is that each of these price segments is different, and some are staying level as far as inventory and absorption (mainly the $201,000-$300,000 range), while others are changing rapidly.  If an appraiser were to value a house at $350,000 in March, there would be very little competition based on this information. If it were in June, the competition would also be limited, but if it came on the market today, there would potentially be 20 other properties competing. This does change the dynamics of the appraisal analysis, even if it only relates to how long it is expected to remain on the market.

 

When markets are sizzling hot, there are few listings operating as competition for a property. When markets cool, listings become ever more important as part of the analysis. Understanding what is happening as far as supply and demand in the market is critical, and should be part of any appraisal. Knowing where the subject property stands in terms of the competition is part of the analysis.

 

Please feel free to contract me for any of your appraisal needs in local market. My website address is https://annarborappraisals.com and you can contact me here by email.

 

Ann Arbor market snapshot by price

 

stats

 

Although appraisers do not run search parameters for their comparable sales by price range, occasionally running market information by price can help isolate where the shortages and excesses are. Take for example, this information from 9/18/18, run between 8 – 8:30 PM through the Ann Arbor Area Board of Realtors.

 

This is a very quick snapshot of how many sales occurred in each price bracket shown within the Ann Arbor school district compared to what was available for sale, and those that were already reported under contract (P&C). The CTLR column refers to the contract-to-listing ratio, simply put the number of properties under contract compared to the total number listed for sale at any given time. The last column relates to how many months supply there is based on the last 12-months sales in that price bracket.

 

Not unsurprisingly, the lowest priced houses showed the greatest absorption into the market and the lowest supply. Up to $500,000 the market showed good absorption with over 37% of the houses on the market under contract and less than a three month supply, and over $500,000 the absorption rate drops (other than the anomaly of the $801,000-$900,000 range) and months of inventory increases.

9.18.18 price snapshot

This is good information to consider, as the narrative in the news may be that we are experiencing a severe housing shortage, but if it is broken down into a price range, what shows is a housing shortage under a certain price point, and excess inventory over that price point.

For the potential trainee

trainee

Just saw a poorly worded post on social media, with the poster asking a group of appraisers for help finding someone to mentor their trainee. It turns out the poster was actually asking for suggestions on how to find a mentor, and that she was the trainee. This is a common question, and many of us who have been appraising for a long-time, field these types of questions on a regular basis. The question is essentially what can I do to become licensed or certified.

 

We need fresh blood coming into the industry, but the appraisal field does not have a limitless supply of work, and taking on a trainee is a time-consuming and costly venture for the supervisor. The commitment of the potential mentor is much more onerous than that of the trainee. Not only is the time commitment enormous, if done correctly, but the potential of training someone who lacks loyalty and harms your business is real. As such, the potential trainee needs to approach the supervisor with something of value that would help create a mutually beneficial relationship, not one that is one-sided. The trainee needs to be committed to being loyal to the person who takes the time to properly mentor them, and not to start with the idea of “hanging their own shingle” as soon as certified.

 

Appraisers throughout the blogosphere are talking about a lack of work. While it is common that the autumn months are slower than the early spring through summer months, this could be different. There is not a plethora of work for residential and commercial appraisers alike, and when appraisers see fewer orders, they are less likely to consider taking on additional help, including trainees. The cyclical nature of appraising makes it more likely, in my opinion at least, that a potential trainee will more successfully navigate finding a supervisor in the spring, than in the fall or winter. If the slow-down in work continues, then it may be difficult regardless of the season. In that case, the potential trainee is going to need to bring something valuable to the table.

 

Becoming an appraiser takes commitment and gumption. Just to become a trainee, the trainee has to have 75-hours of pre-licensing qualifying education including the 15-hour National USPAP course. That is without the guarantee of a supervisor.  The trainee will have to be directly monitored by a Supervisory Appraiser who is in good standing with their state. The supervisor has to maintain an experience log with the trainee, and will need to directly supervise until they deem the trainee is sufficiently competent to complete certain aspects of the appraisal process without direct oversight. The supervisor remains responsible for the work of the trainee throughout this training period, which typically lasts at least two years.

 

More information about the trainee and supervisor requirements can be found on the Appraisal Foundation website at Appraisal Foundation.  If you are exploring the idea of becoming an appraiser, please study these requirements, as well as listen to the Real Value Podcast from Blaine Feyen about trainee appraisers.  This is found at Real Value Podcast.

 

Both trainee and supervisor have uncertainty related to the future. The supervisor can rightly worry about training someone who will leave as soon as they become valuable, and the trainee has a legitimate concern about being taken advantage of, and working with someone who lacks either ethics or competency, or even both.

more trainee

Appraising can be a fascinating and rewarding career, and I do encourage people to explore it. If you have a passion for research, communication, and are able to put in a sufficient amount of time to properly develop your skills, then it can be a fabulous career. Great appraisers never stop learning and never stop expanding on their skillsets, be it with the valuation analysis, type of property appraisal report, or writing skills, or in other aspects. If this excites you, and you want to put forth your best work at all times, please do the research and talk with appraisers. Network, and take high quality coursework. Although not limitless, there is always room for ethical and competent appraisers in the field. It is not necessarily easy, but those of us who love it, remain passionate about it throughout the years.

 

 

September Washtenaw County Snapshot

Snapshot of the market for 9/1/18

pexels-photo-164359

How are we faring in Washtenaw County as far as market absorption?

A quick run of the Ann Arbor Area Board of Realtors MLS data for single family properties (includes duplicate listings due to multiple board insertions) shows mixed trends. To read the chart below, the data is arrayed by area, the number of prior closed sales in the last year, supply based on these sales (only includes available properties), total number of listings, those that are reporting as available, those under contract, and the contract to listing ratio.

9.1.18 snapshot

I have found the contract-to-listing ratio (CTLR) the most meaningful in measuring how a market is faring, and consider anything under 20% to be a buyers’ market, between 21-34% balanced, and over 35% as a sellers’ market. Based on this information three markets are showing as sellers’ markets, those being Lincoln, Milan and Ypsilanti. Ann Arbor and Chelsea are tilting towards a sellers’ market, and Manchester, Dexter and Saline are showing balance.

 

Based on the total number of sales in the past year, compared to what is currently available, Lincoln, Milan and Ypsilanti again are all showing less than two months of inventory, which helps support the thesis of a sellers’ market in these areas. Ann Arbor has less than three months inventory, while Chelsea, Manchester and Dexter are showing around 3.5 months in general. Saline shows close to five months’ worth of inventory, but my suspicion is that much of this relates to a larger number of “to be built” offerings in Saline as there are a number of new subdivisions under construction that are inputting offerings into the MLS. This may be the case as well in Ann Arbor and Chelsea, where new subdivisions are underway.

 

As we head into the fall, and new school year, the markets tend to slow down, and there is evidence based on this larger data, that this is the case with some areas. Of course, this information is “macro” data in that it includes each entire school district as opposed to the sub-markets within each one. I plan on running this type of information monthly for this blog, so we can compare how markets track over time. Please feel free to share the information gathered, and if you want to subscribe to my email distribution list, let me know, or sign up to follow my blog at https://annarborappraisal.blog//. I am always available to chat or assist with your appraisal needs.

Chelsea snapshot 8/22/18

One snapshot in time

 

Market snapshot as of 8/22/18

DowntownChelseaMI

(photo from Wikipedia)

There are many ways to look at what the market is doing, but one of the most relevant ways is comparing period-to-period and what the market activity is as of the date observed. We can compare year-to-year, month-to-month, week-to-week, quarter-to-quarter, or other ways such as over a longer period of time, macro market, submarket, sales that resold over a given period of time, etc.

 

The snapshot below is a quick run of the Chelsea school district, without any filters other than trying to eliminate duplicate listings. If you observe one years’ worth of data, we had 209 sales compared to 53 that are currently showing as available, not under contract. This equates to 3.04 months’ worth of inventory based on the prior years sales. There are an additional 34 houses showing as under contract, meaning that out of a total of 87 houses not closed, 39.08% are under contract. That is quite robust in terms of number of properties showing as under  contract.

chelsea

I prefer median price observations as opposed to the average, but have included both for reference. Median prices normalize some of the wide swings of highs and lows and tends to be more consistent. If you look at this information, what you will see is that median sales prices have increased each quarter, but only on sales price, not sales price per square foot. Sales price per square foot has been more variable, as sizes have increased over the past quarter. Overall this shows an increasing market for this larger macro segment. What is very interesting is looking at the median list price of the properties under contract compared to the median list prices of the previous two quarters. This can be used as a predictor as to whether the market is continuing to increase, or if there may be a correction that is occurring, as is typical after the Fourth of July. The current median asking price on a median 2,033 sqft house is $299,900, but the previous quarter showed a median asking price of $322,000 for a 2,046 sqft house. That does show a correction in my opinion, closer towards the previous quarter. Again, this would not be unexpected because the market is most active in the summer, and the past two quarters would encompass those properties that went under contract and closed in the active months.  If you compare the prior year to the present data, the median list price was $10,000 lower than current, but the median size house was also smaller, meaning some of the change may relate to size.

 

Why do we care about current contracts and inventory levels? We care because these do help bring us to the present, instead of focusing only on the past. Although we could extrapolate a list price to sales price ratio for those houses under contract, it would only be an educated guess. They may well close over list price, as shown in the past two quarters, or they may close lower than list price, as shown by the first quarter, which may more closely mirror the current market.

 

Staying in touch with what is going on in the present, does not predict far into the future, but could help us understand a short-projected period. We have to know the past, but we also have to pay attention to supply and demand, number of properties going to contract, and their respective prices.

 

Bye-bye 1004MC, hello analysis

man-and-dog-jumping-in-air

On July 31, 2018, at the Appraisal Institute Annual Conference, Fannie Mae announced the end of the 1004MC. News quickly spread among the appraisal blogosphere, and on August 7, 2018, the new Selling Guide showed that the 1004MC was no longer required.

Rejoicing was heard throughout the land.

Although the 1004MC is no longer required by Fannie Mae, the appraiser still needs to support their opinion of market trends, supply and demand, and marketing time. The exact verbiage found in the 8/7/18 updated Selling Guide is:

The appraiser’s analysis of a property must take into consideration all factors that affect value. Because Fannie Mae purchases mortgages in all markets, this is particularly important for neighborhoods that are experiencing significant fluctuations in property values including sub-markets for particular types of housing within the neighborhood. Therefore, lenders must confirm that the appraiser analyzes listings and contract sales as well as closed or settled sales, and uses the most recent and similar sales available as part of the sales comparison approach, with particular attention to sales or financing concessions in neighborhoods that are experiencing either declining property values, an over-supply of properties, or marketing times over six months. The appraiser must provide his or her conclusions for the reasons a neighborhood is experiencing declining property values, an over-supply of properties, or marketing times over six months.

When completing the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report forms, the trends must be reflective of those properties deemed to be competitive to the property being appraised. If the neighborhood contains properties that are truly competitive (that is, market participants make no distinction between the properties), then all the properties within the neighborhood would be reflected in the One-Unit Housing Trends section. However, when a segmented or bifurcated market is present, the One-Unit Housing Trends portion must reflect those properties from the same segment of the market as the property being appraised. This ensures that the analysis being performed is based on competitive properties. For example, if the neighborhood contains a mix of property types not considered competitive by market participants, then a segmented or bifurcated market is present. The appraiser should also provide commentary on the other segment(s) of the neighborhood when segmentation is present.

What does this mean to the residential practitioner operating in the mortgage space? It means that the requirement for analyzing the market remains, and it is now up to the practitioner to support their opinion, without the benefit of a flawed format. Appraisers can now choose how they present their analysis, which may include multiple sources to support an opinion. Fannie Mae is clear that the one-unit housing trends section should reflect properties that are directly competitive with the property being appraised. The following information relates to several different ways to support trends, but is not an exhaustive list.

Appraiser developed trends

sample macro image

The data array above considers all sales other than the “to be built” properties in a specified school district, over a 20-month period. The sales are run year-to-year, advancing on a monthly basis. This way it is possible to see changes in a subtler manner as opposed to year-to-year study, when related to any adjustments that are made for changing market conditions. For example, comparing a property that went under contract in April 2018 to the appraisal effective of August 13, 2018, lines 16 and 20 would be compared. This can be used in combination with the submarket chart, to see what is happening with the market. Ideally both median prices and price per square foot are analyzed.
The columns in the chart relate to the timeframe, number of sales, the median list and sales prices, the list to sales price ratios, gross living area (GLA) and price per square foot (PPSF). The reason that GLA and PPSF are included relates to changes in size affecting sales prices. The final two rows in the chart relate to how many listings are active and under contract as of the date of the study, referred to as the “contract-to-listing ratio” which is relevant. In my opinion, this is one of the most relevant pieces in the analysis, as indications of change are noted before sales close. It also supplies information related to supply and demand.

price over time
Laying the sales price information out in a chart can help the visual reader as well.
It is evident by observing this data, that the market has increased over time — from $328,000 to $355,000 or 8.23% (row 8 to 20) — but in the past year, not as substantial an amount, from $349,900 to $355,000 or 1.46% (row 8 to 20). Price per square foot has increased from $148.08 to $160.49 over the 20-months period (8.38%), and $156.72 to $160.49 year to year (2.41%). What this shows is that, although there was an increase of over 8% in the measured period, the past year does not show as marked an increase, and it could be construed as stabilized or stabilizing, based on the appraiser’s analysis, in particular after studying the current contracted sales.

There is another piece to this puzzle, and that is how many houses are showing as under contract in this macro market, and what the supply looks like relative to demand. This is the “contract-to-listing ratio” which shows 90 houses on the market total, with 22 under contract. This is a ratio of 24.44% in this segment. Through employing this type of analysis on each appraisal report completed, it is possible to see a shift in the market start to occur, before sales prices reflect it. In my market, 24% of sales under contract is indicative of a normal market, one that is neither favoring buyers or sellers. What is also extremely meaningful is the listing prices of the houses under contract compared to the listing prices of the previous segments sales. The listing prices of those properties under contract are now $10,000 lower than the list prices of the previous period, in spite of a small increase in median size. This tells us that we may have a price correction occurring, but before closing, we cannot be certain. We can however use this information and explain to our client, what we see happening in the market.
Fannie Mae wants to see the specific market segment, and not necessarily the macro market — although that is relevant as well since understanding the larger macro market is necessary before an assignment specific market can be analyzed. The submarket in this instance shows an increasing market in prices, but the median asking prices of the contracted sales are 13.33% lower than the asking prices of the previous segments sales. This is in part due to a decrease in median gross living area, and also in part due to a much smaller segment of data for analysis. Nevertheless, the market also shows a greater absorption of these properties than the macro market as the contract to listing ratio shows over forty percent of the properties offered as under contract. We could easily see this market as either stable, or still increasing slightly. It is up to the appraiser to explain their thought process on the conclusion of market trends.

sample micro
It is possible to structure something similar to what is reflected in the chart above with whatever is considered relevant by the appraiser doing the analysis. The appraiser might wish to do year-to-year, month-to-month, monthly, weekly, or whatever period the appraiser considers relevant. Whatever is chosen provides support for the appraiser’s opinion as to market trends. In the event of a change in the market, we have some evidence-based data supporting our market trends conclusion.
Additional sources
As much as we might want to rely on our own data, there are other sources available that can also help with a determination of market trends. Using the same hypothetical property above, it is easy to pull various sources such as Realtors Property Resource (RPR), Realist, Trulia, Movoto and others.
The RPR sample below uses a sale in the same area above, and shows the following graph. The property price increased over time, but is generally stable over the past year. The zip code shows an increasing price, and the county prices increasing steadily, as to, the entire state of Michigan. This is useful additional data to include either in the report itself, or in the workfile for posterity.

RPR sample
Most appraisers have access to both RPR and Realist via their MLS. An example of market trends from Realist is shown below. This data is not related to the subject submarket, but does include the zip code and city, as well as county, showing mixed trends data compared to the appraiser developed data addressed above. If one relies on this information, the market shows as increasing after a dip over the winter.

realist

Trulia, Movoto and other similar applications are not able to differentiate between the submarket and the overall market, but are useful and provide additional sources of support. Movoto enables the user to observe data trends over different segments of time, and by price per square foot as shown below. It also allows segmentation between single family properties and condominiums. Examples of properties in the same market as the sample discussed throughout this report are shown below.

movoto
(snapshot from Movoto on price per square foot over 2-years)
Trulia allows the user to identify the number of bedrooms, or include all sales.

Trulia
(snapshot from Trulia for Dexter)

Sale/resale
Another way to support change is to observe sales that resell in a defined period. This is particularly useful when the subject property has a recent prior sale. It helps provide a basis for where the property was at the time of the prior sale, compared to the market today. Most MLS have a data export ability, and it is simple to set up a search within your parameters, observe any sales that resold, and then compare possible changes between the sales periods. My research in this market isolated two sales that were within my search parameters over a 2-year period. One set sold 4/17/17 at $399,500 and then again on 4/9/18 for $647,500. That is an increase of 62% and unlikely market appreciation. Looking at the MLS comments and photos, the difference relates to the first sale as a more original property, somewhat tired to today’s standards. The second sale shows a gut-rehab with HGTV style bling. I could use this sale/resale as evidence of value added for a significant remodel, but would not want to rely on it for market change.
My second set of data included a property that sold 8/9/16 for $411,500, and then again on 6/27/17 for $439,000. This is an increase of 6.68%, but the most recent sale was over a year old. The only change noted was a new roof in the interim. Given the data shown in the charts above, the increase was in line with the submarket increase and is further support for the increase that was occurring before January of this year, but does not provide good information for the current trends.
Conclusion
All of this information combined can help support the opinion of where the market is as of the effective date. More importantly, it can help defend the report in the event that the market changes and the appraiser is accused of having ignored market conditions that were noted at that time.
Many participants in the market are concerned there is a shift that is inevitable, either on the immediate horizon, or off a few years. In any event, with the elimination of the 1004MC as a requirement, appraisers are not absolved of supporting their opinion of market conditions at the time of the appraisal report, and all of these tools, and others, are available to the appraiser to better help support the decision.
Let’s view the elimination of the 1004MC as an opportunity to really shine and support our work. After all, we are the neighborhood experts, but we need to be compelling in our decisions when faced with increased computer models and data alternatives. This is our opportunity to show the value that we bring as analytical researchers.

Basement double-dipping

Jamie Owen of Cleveland Appraisal Blog shared a great post related to not double-counting finished basements in the gross living area.

Please see the link to his blog post Here and be careful how you handle counting this area in your listings. In Michigan (and in Ohio it seems), we certainly do like our basements, in particular those walkouts with significant finish.

Observe, Analyze and Report – in that order

The more things change, the more they remain the same. We still need to pay attention to our analysis of both sales histories and listing histories for our subject properties and comparable sales.

scales

Observe, Analyze and Report- In that Order
By Maureen Sweeney, SRA, AI-RRS and Rachel Massey, SRA, AI-RRS

Appraisers have always faced objections and challenges to their reports as soon as they leave the office. Some are preventable, such as typographical errors or taking a photograph of the wrong comparable property- after all, we are only human. Others are out of the appraiser’s control, such as a foreclosure or a loan repurchase of a property we appraised.

When a loan is repurchased, the Government Sponsored Entity (GSE) or lender may turn to the original appraisal to evaluate its accuracy and verify that the observations made during the time of inspection were correctly documented. They may look to see if the contract, market conditions, prior sales history and other observations were analyzed, and that those observations, analyses and conclusions were communicated in a manner that was not misleading. Many of us are great at documenting what we see at a property as well as communicating these observations in our appraisal reports. Unfortunately, many appraisers are not as strong at analyzing data and are uncertain of what needs to be addressed, particularly as it relates to prior sales of the subject and the comparable properties included in the report.

To analyze something is to examine and interpret it. For the appraiser, it is the analysis of the data that we collect, examine and interpret. Appraisers need to report their analysis clearly and accurately to prevent future problems; “an ounce of prevention is worth a pound of cure.” Remember, most of our clients are not mind readers and may need to be walked through why there was a price increase or decrease to the subject or one of the comparable properties.

Most residential appraisers whose work is exclusively mortgage related, work mainly with the Fannie Mae Uniform Residential Appraisal Report (URAR, Form 1004), Individual Condominium Appraisal Report (Form 1073), and/or the Small Residential Income Property Appraisal Report (Form 1025). While these three forms appear to be very different, they have many similarities. Each is tailored to a specific residential property type but each includes a Scope of Work, Statement of Assumptions, and Limiting Conditions. We are all so busy that it is easy to forget what is in the Certification that we sign with each report. As such, it is a good practice to read the pre-printed certification and limiting conditions pages occasionally. This is because each time we sign our report we are confirming that we have completed the items listed on those pages.

Analyze This
There are pressures that appraisers face daily, including time pressure, ever-growing engagement letters that require all kinds of additional details and information, and the constant battle for reasonable fees. Many of us have developed language and statements that help us save time in writing appraisal reports. One thing that boilerplate and drop-down menu statements cannot help us with is data analysis. This is one timesaving corner we cannot cut.

As much as we would like to think that presenting the facts about a sale is analyzing data, it is not.  Analysis is more than a statement that a property sold on such and such a date, for such and such a price. The analysis includes how that sale was positioned in the market at the time of transfer or sale. Was the sale at arm’s length? Was it a REO sale in need of a total overhaul? Was the sale under duress because of some need to sell? Was it one family member selling to another? We need to address why it sold for what it did in relation to what the current appraised or final sales price is. We must analyze the prior sale as well as the current contract, if applicable, and explain and report the results of the analysis or explain why it was not performed.

As markets are rarely static, we need to analyze the current market and any changes to the market since the prior sale. This analysis of the market, and how it has fluctuated, is a basis for part of the analysis of the prior sale in comparison to the current market value. Because of the requirement by the GSEs to use the Market Research and Analysis Form (1004MC), sometimes there are inadequate data within the report to support a trend which might otherwise help paint a picture of an increase (or decline). When there is inadequate data to adequately complete this form, there is nothing stating we cannot include additional information outside of the MC form.

Often, those who look to find fault with an appraisal turn to this section first, because sometimes appraisers do not analyze the data presented in the 1004MC. Boxes may be checked, boilerplate statements may be added, but the data analysis is not summarized. The appraiser knows the market and knows what is occurring, but did not add a summation of the analysis or trends that may be reflected in the data. Are foreclosures and short sales an issue in the market?  Appraisers may click the box “yes” yet not report the impact of those foreclosures and short sales in the subject’s market. When analyzing the market conditions, analysis is not a “should,” but a “must.” As appraisers, we are often so busy and it may seem so self-evident, but six months or a year down the line it may be very difficult to remember precisely what was happening in the market at the time. This extra bit of communication of what we observed in the market at the time can be very helpful, not only to our clients, but to ourselves in the event of a challenge to our work, months or even years down the line.

This analysis of the market conditions is used when analyzing the prior sales of the subject, as well as all comparable sales. Currently Fannie Mae and Freddie Mac require a minimum 36-month sale and transfer history of the subject to effective date, and 12-months for all comparable sales since their most recent closed date. After September 14, 2015, the FHA requires 36-months for the subject and 36-months for all comparable sales.  We are starting to see more ”flipping” again as the market has improved in many parts of the country. There are often examples of houses being purchased below market because they were in need of repair and then rehabbed or renovated, and resold. 

 

Were any of the comparable sales sold previously below market value due to their condition and lack of modernization?  Did these houses sell for a higher, similar or even lesser amount after improvement and is this consistent with the market conditions analysis?  Sometimes this cannot be determined by looking back 12 or 36-months. Perhaps the comparable prior sale sold 40-months ago, but sold at a similar time as the subject’s prior sale.  Would comparing that prior sale to its current sale further support the changing market conditions?  Would it support the information presented in the Sales Comparison Approach to value? If the prior sale was a “trashed-out” REO sale and there are photos in the MLS, consider including a few of these photos, in addition to the narrative, as they can add needed support for the change. As appraisers, we may have to go beyond the minimum time and reporting requirements to accurately analyze the prior sales in order to develop credible assignment results.

Analyzing a Sale
How does one analyze a sale?  The following is one simple example:
“Comparable sale 1 sold on 01/01/2015 after being exposed to the market for 7 days.  It was bank owned, and in need of significant work, including replacement of all cabinetry, flooring, light fixtures and paint.  It also needed a new roof and furnace. The water heater was in working order and the electric had previously been upgraded. The house was listed for sale for $99,000 and sold under a bidding war for $105,000.  The purchaser of this property gutted what was remaining, replaced cabinetry, flooring, light fixtures and windows, as well as installed new siding, roof, and furnace.  The entire interior was painted and the owner had the property staged for sale.  It was offered for sale on 06/01/2015 for $225,000 and received three offers according to the listing agent. The house sold in 5 days on the market for $230,000 without concessions. The increase in price of $110,000 was partially related to the increasing market but in larger part due to the remodeling that took place in the interim.”

In this example, the appraiser analyzed the prior sale, then reported this information in the body of their appraisal report. This sale, which would have generated many questions, did not. The appraiser communicated their analysis in writing instead of only keeping notes in the work file. There was no need for questions by the appraisal reviewer, especially since MLS photos showing the prior and current condition were included in the report.

The Working RE story Supporting Market Conditions has one example of how to complete a market analysis outside of the 1004MC form. In short, if there are insufficient data points to provide any type of robust market analysis, include additional information supporting the position of how the market is changing or has changed, before the effective date of the report. Let the client know what has happened in the market since the prior sale of the subject as well as what has happened to the subject itself. Part of our jobs as appraisers is to help clients understand the market.

Should Do/Must Do
The appraiser’s job has changed dramatically in the past 10 years. We are under increased scrutiny by all parties in the mortgage industry as well as state regulators, attorneys and borrowers. Those of us still in the industry are paying for the sins of individuals who were part of various financial crimes, some even appraisers. Many of those who were guilty of these sins were not appraisers, yet many in the industry, the media, and the public insist on pointing the finger at us.

Some of the bad apples left the industry, by their own choice or through the encouragement of their state appraisal licensing boards. Because of this, what once was a “should,” has turned into a “must.”  It is important to observe what is at the property and what is happening in the market, analyze that information, and provide at least a short summary of our analysis. Because of the massive amounts of information we are required to know and the constant changes that we see in the industry, sometimes we know much but don’t report enough. Sometimes we have to show our work. By showing our work and including our data analysis, objections and challenges of our reports will be a thing of the past. This is particularly the case related to prior sales of the subject property and the comparable sales included within the report.

 

Note, this originally appeared with WorkingRE 2.5 years ago, but the sentiment remains very much the same. This has been republished with their permission.  Please visit the original at Here if interested.