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

Even homogeneous markets are best served with personal observation

Even homogeneous markets are best served with personal observation

A couple of weeks ago I ran a posting of recent closed sales in the Ann Arbor market compared to four online-automated valuation models. The variances between actual sales price and these models were extreme even though the houses had adequate exposure to the market. My thought was that the computer systems would have picked up these advertised houses, and given that data, would have been a lot more accurate. It was a surprise to see how flawed the information was.

In order to be fairer to these online sources, I ran it again for a very homogeneous area and included only arm’s length sales that occurred in the past month. I found seven recent sales that are very standard subdivision houses, and compared them to four different online valuation models as well as the assessment values. The list below shows the actual sales price and how each of these models stacked up.

Names have been changed to protect the innocent

Model A was as close as 1.79% and as far off as -7.02%
Model B did not hit on two properties but of those that it did it was as close as 9.14% and as far off as -50.98%
Model C was universally under sales price and as close as -0.19% and as far off as -13.33%
Model D was universally high and off from 25.35% to as high as 133.61%.
The State Equalized Values were also off on most of these properties, but to the benefit of the homeowner in that the assessments were lower than sales prices. The smallest difference in price was -10.92% and the largest was -30.59%

What does this mean to you? It means that even in the most homogeneous areas with similar houses and decent sales activity, the valuation models do not stack up with reality for the most part. While some models appear to be better than others are (Model A was closest of the four), it really does not make sense to rely on these databases for a value estimate on your home.

If you are going to list your property, talk to an agent for the correct pricing, or call an appraiser. If you are going through a divorce, dealing with bankruptcy, or need a value for estate planning, talk to a local appraiser. Do not put your trust of this valuable asset in the hands of a computer.

Enjoy,

Rachel Massey, SRA www.annarborappraisal.com

Bromley Park – Superior Twp

Bromley Park

Typical housing images from subdivision

Bromley Park is a subdivision developed and built by Pulte Homes from 2002 through 2004, south of Geddes, north of Clark and east of Harris in Superior Township in the Willow Run Public school district. It encompasses the streets East and West Avondale Circle, Ravenshire, High Meadow, Wexford and Glenhill Drives. The subdivision has open green spaces to the west and to the north up to Geddes Road, and along the south and east there are many wooded views. Along the interior streets there are some areas with woods and walking paths. The development has a shared pool with the condominium development to the west.

Further information about Bromley Park can be located by accessing the development website at http://www.bromleypark.org/

Recent market data:

From 1/1/13 through 1/1/14, there were 26 sales reported through the Ann Arbor Board of Realtors MLS in Bromley Park. Of these, seven were bank owned and two were short sales, leaving 17 sales that were arm’s length in nature (65.38% of the market).
From 1/1/12 through 1/1/13, there were 20 sales reported, of which eight were bank owned and six were short sales leaving six arm’s length sales (30% of the market).
From 2012 to 2013 there was a rapid decline in the number of distress sales, which do show as helping the market recovery in this subdivision. As of 1/13/14 there were three houses for sale within the subdivision, two under contract and one available for sale. The two under contract are listed for $165,000 and $170,000 and are a short sale and a bank owned property, and the one that is currently available is arm’s length and offered for $199,900.

Data above was culled from the Ann Arbor Board of Realtors MLS with the data run from 1/1/11 through 1/1/14.

Verification

Verification

As Realtors ® most of you have had the experience of calls, emails and even text messages from appraisers who are trying to verify information in a sale that you participated in. As annoying as this can be, it is important, in particular if there are any unusual circumstances to the sale.

Although most MLS now allow for multiple photos within the MLS, photos are generally presented in such a manner as to sell the property, not directly for the appraisers benefit. How often have you looked at photos in a listing ticket and thought the house was perfect for a buyer, only to find when you get there, that the condition was nothing like what was represented in the listing? This happens quite often, and it does by the virtue of the listing being a tool to help you sell the property. If the house doesn’t appear attractive, the likelihood is that many potential buyers won’t want to see it.

This comes back to the calls from the appraiser. Most appraisers want to get a real understanding of the condition, updates and upgrades, and significant remodeling of that property. While the listing ticket may explain these features, often times it overlooks issues that are important. As an appraiser, I actually prefer to communicate with the selling agent more often than the listing agent in order to gain a real understanding on the house that I am potentially using as a sale.

Why? The main reason is that the agent will have shown that buyer other houses that were competitive, and will have a clear understanding why their buyer opted for this property over the others. Think of how powerful that information is to provide to an appraiser using the sale as a comparable! Your buyer saw ten houses, and of the ten houses, they chose this particular one because it had XYZ features that were important. Feel free to share this information with appraisers who take the time to contact you.

Why your buyer actually chose a house is relevant. Sometimes a buyer chooses a house because it is next door to their best friend, and they are willing to pay more for it than everything else. Wouldn’t that be relevant to the appraiser using it as a comparable sale? How about the house that sold to a relative with a different last name and sold at a discount; that information would be equally relevant.

As an appraiser, I spend a lot of time and energy helping agents who contact me with questions on how to handle valuation questions. I also find that most agents I talk with are extremely helpful, but occasionally I run into one who will not answer questions, or answer them in ways that are not helpful. Contrary to popular belief, agents and appraisers can talk and garner information from each other. Just like you as an agent, have a fiduciary relationship to your client; I as an appraiser have an obligation to confidentiality, and cannot share certain information such as confidential client information and most importantly, assignment results. This is similar to your fiduciary duties to your client and we both take these duties seriously. It does not stop us from communicating and learning from each other.

Feel free to call me or email/text me for advice, and at the same time, please do take the time to respond to questions that I will have from you regarding a specific property or two.

Thank you for your time.

Rachel Massey, SRA www.annarborappraisal.com

Washtenaw County snapshot

Days on market and current activity Washtenaw County, MI

Based on my experience, as days on the market for a property decreases, prices tend to increase. When days on market start to increase, prices tend to stabilize or decline.

One of the largest obstacles in measuring market direction is that closed sales are usually contracted for sale one-to-two months earlier than the closing. As such, the closed sales data lags even with the most recent data available. Including contracted sales would indicate a higher number of days on the market, but as many contracted sales do not close, the data below includes only closed sales, and absorption is addressed further in this discussion.

The chart above is a compilation of the different school districts in my local area, Washtenaw County. The data refers to days on market of sales, ran in an annualized manner. In other words, each data point is one years’ worth of sales but presented month-by-month. This helps eliminate the seasonality that we see as our market normally slows down after Labor Day and start to pick up in February.

What is noticeable at first glance is the convergence of days on market to a low point around June to July 2013 and a steady increase in days since August 2013. All districts are showing an increase in days on the market other than Manchester, and are mostly back to levels seen in late 2012/early 2013.

After examining the days on market, the next step is to look at how many sales occurred in the most recent period in each market (all of 2013 in this case) and then look at how many are on the market, not under contract, within the first two weeks of 2014. This information provides an estimated supply based on the most recent years’ worth of sales. The last column that chart is the contract-to-listing ratio (CLR) which simply looks at all offerings and compares the number under contract to the total number available and derives a percentage of absorption. From my perspective, a market that is active is normally hovering around 30% CLR and when it pushes upwards to 40% or over, is very active and a seller’s market. Conversely, when it is 20% or below it is much less active, and much less than 20% indicates a buyer’s market. Of course the ratios are all dependent on agents reporting contracts within the required period of their MLS so that it is not lagging by more than a couple of weeks.

At the same time that the number of days on the market declined in most areas, the number of sales increased. For example, Ann Arbor went from 805 arm’s length sales in 2011 to 939 in 2012 and 1,086 in 2013; yet in 2013 days on the market was virtually identical to 2011 (although it was lower in 2012). Ypsilanti went from 115 sales to 158 to 220, almost double the first year reported, yet days on the market dropped. In each market shown, the number of arm’s length sales rose in this period.

All data is gathered using the Ann Arbor Board of Realtors MLS. Sales data excludes distress sales and GLR MLS but does include Realcomp and therefore there is some duplication of listings throughout. This is not considered a significant sampling problem due to consistency in application throughout all market segments and current/contract offerings. Data run from 1/2/14 through 1/11/14.

Based on this information, my interpretation is that Ann Arbor looks like it is still very strong, and Lincoln appears to be in the throes of a seller’s market at the moment. Chelsea, Dexter and Saline are in the 20% range, meaning slow but a balanced market, and Manchester and Milan may have crossed into being a buyer’s market at this time based on these ratios.

Note, in each market run, the entire school district is examined, not submarkets. In an appraisal, the appraiser will look at the submarket, or “micro” market that relates to the subject property. If you are interested in knowing how your property adds up in today’s market, contact your local real estate expert for an analysis.

Enjoy – Rachel Massey www.annarborappraisal.com

Measuring market change

Measuring market change

Most of the measurements we see reported in the MLS relate to median price change over time, not price per square foot. As house sizes rise, the price per square foot falls and does so because price per square foot includes not only the gross living area, as well as the garage, basement, improvements to the house, decks, patios, and other site improvements, and even more importantly, the site itself.

Since there is a diminishing return as house sizes increase, it is easy to see how a shift upward in house size could make the market look like it is improving at a higher rate than it actually is. Conversely, if house sizes are shifting downward, then the market may look like prices are going down when they are not.

In this first graph, it looks like the market dropped in early 2012 to late 2012 and then had a meteoric rise in mid to late 2013:

In the second graph, the market shows only a slight leveling of price increases in 2012 and then another slight leveling in early 2013 followed by a much steadier price increase towards the end of 2013.

Which of these graphs better represent the market? How about a blending of the data? If houses decrease in size in general, the price per square foot rises at a greater rate, and by looking at both measures, I feel the read of the market is more realistic and I have accounted for the change of buyer preferences. Sometimes one indicator is more reliable than another, and in those cases market change is best measured by the one that makes most sense.

The next chart is what I used for my graphs. Statistics are run on a yearly basis but one month at a time. The data presents one year of data for each segment and is a nuanced way to measure market change. As an appraiser I am tracking the number of sales, the list-price-to sales-price ratio, and the median sales price, the median sales price per square foot and days on market cumulatively.

The data below comes from information culled from the Ann Arbor Area Board of Realtors MLS and excludes distress sales and duplicate listings.

The presentation above is just one way to look at changing market perceptions over time. I will continue to present data about my local market as I see it. Check back often, as markets are fluid and are subject to change rapidly. Forces that cause market change include, but are not limited to, change in interest rates, change in inventory levels, introduction or withholding of distress inventory, tightening of the money market, catastrophic events, local employment, etc.

As always, if you are in need of a local expert in the Washtenaw County market, go straight to the local residential appraiser expert, Rachel Massey, SRA.

www.annarborappraisal.com

Sales compared to Valuation Models

Consumers rarely see comparisons between sales prices and alternative valuation models accessible via the web. I’ve not seen an actual comparison to recent closed sales to these models and thought it would be an interesting exercise to see how they stack up with properties that closed within the past couple of weeks through my local MLS.

The following data is a compilation of 21 recent sales in the Ann Arbor school district that closed in mid to late December 2013. These houses were exposed through the local MLS and picked up by a variety of different valuation models. Since these houses were exposed on the open market, my thinking was the models would be fairly accurate, but nothing seems to be further from the truth!

The value estimates are all over the board as far as too high, or too low, with only a few exceptions.

The sales above are sorted by sales price. To help you read this chart, the layout flows as follows: zip code and some comments about the property. The next column is the actual sales price, followed by a valuation model, followed by the percent difference between valuation model and sales price. For example, on the first sale, the sales price was $80,000 and the first estimate was $104,654 or 30.82% over-estimated compared to the sales price. There are a total of four different models used as well as the State Equalized Value from the tax roll (multiplied times two as is practice in Michigan).

Upon review, the lower priced sales were over-estimated and the higher priced sales were under-estimated, but even standard subdivision houses that were exposed through the MLS had discrepancies in the variance. This was unexpected as they were on the market, in homogeneous areas, and not in need of work, so why did the models fail?

In my opinion, the models fail because the market is simply not perfect and can’t easily be measured by pure statistics. Value really relates to a specific market segment, buyer preferences, condition (that can’t be measured by computer model) and locational nuances.

Instead of either overpricing a property based on potentially erroneous information in these models, or leaving money on the table by underpricing; hire a local appraiser to provide you an expert analysis of the market and where your property fits within it.

Rachel Massey, SRA is a local expert with close to 30-years of experience in and around the Ann Arbor area. She can be reached at 734-761-3065 or through email (rachmass@comcast.net) or through her website at www.annarborappraisal.com. Rachel is available to help you with your appraisal needs for divorce, estate, tax appeal, bankruptcy, etc.

Ann Arbor housing market as of 12/16/13

Pulse of the market as of 12/16/13

What is happening in the general Ann Arbor school district market? Below is a brief analysis of sales exposed through the Ann Arbor Area Board of Realtors MLS (A2BR for short), excluding any distress sales and excluding listings offered in Realcomp and the Great Lakes Repository. These are excluded because the other MLS tend to create a lot of duplicates and that skews the data, and also excluding distress sales compares apples to apples as far as pricing/activity statistics.

In each segment one years’ worth of data is included at a time. This is done so as to avoid seasonal changes as it is typical to slow-down during the winter months and increase in number of sales and prices in the peak spring and summer selling seasons.

A brief analysis of each of these charts is noted below.

Number of sales – in the year 2011 the exposure of arm’s length sales through the A2BR was 805, and by 12/1/13 had climbed to 1,067 sales. This is an increase of 32.55% in number of sales from 1/1/12 to the most recent period in 2013.

The increasing number of sales indicates market optimism as more sellers are able to market and sell their properties and more buyers move into the market.

List price to sales price ratio – this is a good measure related to the degree of negotiating that occurs in the market over time. For the last three periods, the median sales price has exceeded the median list price slightly. In most of 2012 the sales price to list price ratio was in the 95.11% – 96.58% range, increasing to 96.23% to 100.72% in 2013 with the period from 10/1/13 to present showing slightly over 100% for the median sales price over list price. This provides an indication of less negotiation that is occurring in the market at present compared to recent historic data.

Median Sales Price – relates specifically to the median sales price regardless of differences in size. Since there have been a large number of sales in this dataset, and no distress sales are included, the price increases appear to be mainly due to improving market conditions. A drop in median prices did occur from the beginning of the study up through mid-2012, but then a steady increase in prices is noted after 4/1/13. Comparing 1/1/13 data with a median price of $258,000 to 12/1/13 at $286,000 means that the non-distress sales, as a whole, have risen 10.85%.

What about the change on price per square foot? What happens if median size increases or declines; does that affect the change in median price? Typically as size decreases, price per square foot increases for a property. The reason is that there is the underlying land value to a property, as well as the economy of scale of building a larger house. It is conceivable that a change in the median price can be tied to changes in size. As such, it is important to also look at the changing price per square foot. In this dataset prices show as almost steadily increasing, even during the period that the median price slipped somewhat. This is due to a decline in size on the median from 1,944 to 1,842 (5.25% smaller), which would logically equate to a drop in the median sales price.

From January 2013 to December 2013 the median price per square foot has increased from $141.60 to $152.13 or 7.44% compared to 10.85% if looking at median prices without regard to changing size.

In addition to this information, what is currently on the market and currently under contract also plays a role in the tone of the market. As of 12/16/13 there were a total of 292 houses on the market in the Ann Arbor school district, as described above. Of these, 99 were under contract. That contract-to-listing ratio is 32.90% which is a moving number that changes every day depending on how many houses go to contract, close, or deals fall through. The current contract-to-listing ratio is significantly lower than in the summer months but is still fairly active, indicating there is still good demand. In addition, this data also suggests that there are 193 active listings that are not under contract, and with the most recent period showing 1,067 sales in a year (88.92 per month) indicates that there is just over a two month supply of active listings based on the most recent sales data.

This data relates to all of the Ann Arbor school district, and each submarket within the area could be different with some increasing in price at a greater rate while others remain stagnant, or possibly even declining in price.

Markets are also subject to change quite rapidly, and the data above is a snapshot of the market in time. Interest rate volatility; increased supply; change of jobs forecasting, etc. can all play into a rapidly changing real estate market. As such, my recommendation is always to use a local appraiser who knows the market well and is able to analyze the market whenever you have any valuation needs.

If you have any questions, please feel free to comment on my blog or send me a message. I will do my best to answer whatever questions you may have.

Ann Arbor rentals part two – or why rent when you can buy?

(continued from previous post)

Why rent when you can buy?

Often the lack of a down payment, or a down payment that is small, compels the need for Private Mortgage Insurance. Sometimes it is the need for flexibility such as the ability to move and not be locked into a mortgage. There are a myriad of reasons not to buy, not the least of which is lack of money for the down payment and for ongoing property maintenance. With the upcoming changes in the mortgage market, financing a house/condo is likely to become more difficult and this upcoming change may also be spurring an interest in investment properties as addressed in the previous blog post.

In the previous post I addressed a $139,000 condo purchase. For a buyer with a 10% down payment and a 4.5% interest rate on a $125,100 mortgage for a payment of ~ $519, plus PMI of around $100 and taxes and condo fees of $580 combined for a payment that is almost equal to the landlord; but with benefits as well as risks.

The benefits include the mortgage interest deduction and being locked in to a payment that will only go up relative to condo fee and taxes. An intrinsic benefit is also that of being able to remodel, and even rent if the need arises. Pitfalls could include a market that declines in value, wiping out the small amount of equity; or like with the landlord scenario, too many rental properties in the project. Association fees could rise to a level where they are no longer affordable, and the owner is locked into a payment that may become too difficult to manage. Capital expenditures such as the need for exterior maintenance (roofs, siding, street paving, etc.) could come in the form of a high special assessment, further reducing the affordability. By renting, the tenant has the flexibility of simply picking up and moving if the financial burden is too great whereas the owner does not have that same flexibility.

A concern from the standpoint of the appraiser is that the market may be starting to repeat itself. The run-up in the market in 2002-2005 seems to have been driven largely by speculation in real estate, and therefore this increased push to buying properties as rentals is reminiscent of the prior run-up, and the fact that in 2013 over 32% of MLS sales in an area were purchased for rental purposes, gives me pause to wonder if we are taking that same direction again. This brings me to a future blog post: is history starting to repeat itself?

Ann Arbor – 2013 Rental purchases

Why so many rentals in Ann Arbor?

It was time to gather a bunch of rental data together in order to be able to handle more rental property appraisals when the time comes. I was expecting that I’d find 20 or so houses/condos that had been purchased as rental properties in Ann Arbor, but to my great surprise, I located at least 49 condos and 17 houses, all purchased to be income producing properties within the past year! This represents only those transactions that were completed through the multiple listing service, indicating there are likely quite a few more. In one area alone, 32% of the sales were sold to would be investor owners.

What does this mean? It means that buyers are optimistic about the ability to buy a property, and rent it for a profit. They are optimistic that when they do eventually sell, they will sell for a profit.

What makes these buyers so optimistic? Is it the belief that the market is going to continue to increase at the current rate, or that there are going to be more and more renters in the market?

My thoughts on the increasing number of purchases as rentals is that mortgage interest rates are still low, even on income producing properties; that the buyers of these properties are expecting to rent for a few years and then sell at a profit when the market has reached a point where they see another peak; that the income is high enough to carry the mortgage, insurance, vacancy and reserves; and there is the expectation that there will continue to be a number of quality tenants available.

Think about this – once interest rates start to increase (and they will), affordability will decline unless prices decline as well. There are costs of home ownership over and above the mortgage and tax payment. There is general maintenance and upkeep as well as significant improvements such as replacing cosmetic items and mechanical/structural components. Home ownership, although attractive, is not for everyone. It is not attractive to people who plan on staying in an area a short time as they would essentially be playing the market if they bought and needed to sell in a couple of years. The downturn that was experienced in the Ann Arbor market from 2005 through 2010 is a good example of why a short term stay may make a purchase inadvisable.

Take for example a $139,000 condo that currently rents for $1,500 per month (real example from the search results). If the buyer bought the condominium with a 25% down payment, they started with around a $104,500 mortgage, and if the rate of interest is 5.5% (1% over owner-occupied rates) they have a mortgage payment of around $590 per month. Add in the condo fee of $275 per month, and taxes of $305 per month and the entire payment is $1,170 meaning they are clearing $330 per month that can be set aside for repairs, improvements and vacancy loss. They are locked in to this nice low rate and have a property that is easy to maintain and pays for itself after the cost of the down payment and closing costs. In ten years, their mortgage balance should be down to around $86,000 all the while having someone else pay the mortgage. Even if that owner sold at a level price they would have recouped their initial investment of around $40,000 and had cash coming in on a monthly basis, plus realized the benefit of a tax write off.

At this price, and at this rental rate, the purchase makes sense to some investors even if the market stays level.

There are pitfalls to this purchase though: the market could decline, leaving the owner in a negative equity position; the condo association could become insolvent, leaving the owner with a larger association fee than previously expected; tenants could refuse to pay rent and drag out the eviction process and destroy the property in the interim; the condo complex could become heavily investor driven, losing some financing options which could easily affect the resale value of the property, etc.

(to be continued on next blog post)