Ann Arbor market Archives - annarborappraisal

April 1, 2019 Washtenaw County market snapshot

4/1/19

Mixing up my monthly run related to how the market is doing (not looking at prices, only supply and absorption).

The current monthly stats, run today, show most markets with limited inventory compared to the past 12-months sales, with only Dexter and Saline running over three months’ worth of inventory. Both of these markets have an abundance of new construction and that is considered to be partly to blame for the higher supply levels. Since I started running the information including “to be built” properties months ago, I have decided to keep running this particular data in the same manner for consistencies sake.

Below is a snapshot of how this Washtenaw County market looks right now, with a shortage particularly in Whitmore Lake, Milan, Lincoln and Ypsilanti, and very high absorption (firmly in a seller’s market) for Chelsea, Whitmore Lake, Lincoln, Milan, Ypsilanti and Ann Arbor.

The next image is that of comparison of month to month, color coded to show where activity has been since I started tracking this on 9/1/18. Green is go, meaning seller’s market. Orange is slowing down, in a buyer’s market, and yellow is in between, what I would consider “balanced”. Looking at this color chart, it looks like spring is shaping up to be very active again, but as we tip towards more inventory, could reverse, such as what is currently seen in Dexter.

Of course, within each of these areas there are market segments, and the information provided only shows the entire school district sales and listing activity, for residential single-unit properties. I could run this on condominiums and in market segments as well, but since what I am looking for on a monthly basis, is the broader overview, this works well for me, and I hope for you.

Hope you all find this useful, and remember, if you have any appraisal referrals for people who need a valuation for estate, probate, divorce, asset division, relocation, cash sale, or any other reason that is outside of mortgage lending, please think of me.

Happy Spring!

Contemplating a Remodel?

You love your location, but you are growing to hate your home. It is simply too small, awkward and out of date, so you consider moving.

After looking at what is available, and the hassle of picking up to ready your house for sale, let alone finding a suitable house in the price range you are comfortable with, you start entertaining the idea of having your home remodeled and expanded. Who wouldn’t? Of course, before undertaking a large project, getting an idea of where you currently stand in terms of your properties value, and where you will stand after the project is completed, is a good idea. The following is a brief discussion of what to consider.

Renovating and/or expanding your existing residence can be a great idea. You already own the property so do not need to worry about competing with others for another one; you know your neighbors and get along; your taxes won’t go sky-high by moving and uncapping the current rate; you don’t have to get a new mortgage other than perhaps an equity or renovation loan, so you can keep the lower underlying rate. Other than the mess and disruption of living through a construction project, are there other downsides?

The downsides on taking on a large construction project (or even a smaller scale one) are that it is very easy to spend more than you will recoup in the market. In fact, it is good to go into the project with the expectation that you will NOT recoup your costs, but that you are contemplating the project to take a home that you are beginning to hate and turn it into one that you absolutely love.

Do not go into a project expecting it to give you a high return on investment. Logically it makes sense to take a look at the value of your property before the renovations and what it would be worth at the same time with the proposed renovations. This is where a professional appraiser can be your best option in terms of possibly scaling back the plans, or going forward understanding where you stand.

A professional appraiser who knows your market has the ability to both provide a current value, and a value “subject to” the proposed changes. Appraisers approach each problem to be solved in a competent, independent, impartial and objective manner. The appraisal process itself is designed to conclude to an opinion that is logical, and factors in identifying what the problem is the client (you) are trying to solve. There is significant training and experience required to become a certified appraiser. In fact, experience and qualifications for anyone who you hire should be considered as critical, including the architects, designers, and building contractors. Professionals will be eager to provide their qualifications and experience upon request. If you are contemplating any remodeling, approach hiring the professionals with as much care as you would the actual remodel.

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.

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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.

I am not “just” a residential appraiser

This article was originally posted in AppraisersBlogs (http://appraisersblogs.com/not-just-residential-appraiser) and I am resharing as it needs repeating. If you are searching for an appraiser to handle a residential assignment, look for someone with ample experience, who goes above and beyond the minimums related to education. There are countless appraisers out there who fit that bill, all you need to do is interview the appraiser about their education and experience related to the property, location, and intended use of the assignment.

I am not “JUST” a residential appraiser!

There is no doubt that moving to obtaining a certified general appraisal license opens doors to varied and interesting work. If it is in one’s capacity to obtain this level, it is a great idea. That said, the idea of being “just” a residential appraiser has got to stop. A good professional residential appraiser who studies the market, knows how to analyze and solve a problem, and can communicate effectively and succinctly, is a very valuable appraiser at that!

As professional residential appraisers, we constantly work at honing skills. We work at becoming better appraisers every day, realizing that learning never ceases if one is open to it. As professional residential appraisers, we exceed minimum qualifications and minimum education requirements. Many of us have earned designations that take significant study and testing. Many of us spend a lot of time, money, and resources honing our skills and trying to improve every day. We work with most people’s largest single assets, and we are aware of that. We must be aware of nuances in buyer preferences, and how they change and evolve. We must be very aware of what is happening in our markets and pay close attention to changes as they start to occur.

Homeowners hire us because they have a real need. They need to have someone who is independent, impartial, and objective help answer questions they have. They need someone who knows the market, knows how to analyze segments of the market, and who can present their findings in a way that makes sense and is usable, regardless of the opinion of value. Homeowners hire us to answer questions as varied as “what will this proposed addition add in terms of value” or “what will my value be after I split off five acres from my seven-acre tract of land” or “will it be cost effective for me to complete the list of improvements recommended by my REALTOR prior to listing my house for sale”? There is a myriad of reasons a homeowner would want to hire us directly to answer questions.

Attorneys hire us to answer questions as well. They might need to know what the value of a property was as of the date of a marriage in 1992, and what the current value is. They may need to hire us to address what a property would be worth if there was no construction defect, as well as with the defect indicated. They need someone who is not only independent, impartial and objective, but someone who is knowledgeable about retrospective valuation, or understands construction properly, and can complete a report based on both the as if value, and as is value.

As residential appraisers, we often come under extreme pressure. Pressure to ignore issues with a property, pressure to turn in assignments too quickly and to cut corners, pressure to meet sales prices that are too high, pressure to appraise lower than market value to accommodate some interest or another. For someone who is proud of their work ethic and quality, and is independent, impartial, objective and knowledgeable about the work they do and how to support it, we will never be “just” a residential appraiser. We will forever be standing up for doing our work the right way and not bending to pressures. This is the mark of a professional. This is the mark of someone who takes the profession seriously and understands how important our work is.

For those of us who treat being a residential appraiser seriously, and as a significant responsibility, we will never be “just” a residential appraiser. Think about that next time the word “just” crosses your mind. We must change this narrative from within. Be professional, be the best you can be. Be proud of being a residential appraiser. I know I am!

Measuring the market (part 2)

So many ways to measure (part 2)

Yesterday I wrote about two different parts of the analysis of market conditions and today I will finish my story.

There are a number of different ways to measure the market, but what I am doing now (and I do change things up as I learn of new techniques) is taking one years’ worth of data at a time, run on a monthly basis and compare and measure how markets change. The data is run as one year periods because it neutralizes the seasonality that you see happening in this area. It is almost clock-work to see our local market start to slow after Labor Day, and to start to pick up in February or March, depending on the weather. In addition to measuring year to year, I have also eliminated from the data below distress sales and “to-be-built” properties because including them skews data. This is addressed in a previous blog post. Depending on the market, it might make sense to include the distress sales but Ann Arbor hasn’t had a lot in general (Thank You University of Michigan) and if they are included the market actually looks like it is picked up more steam than it truly has. Apples-to-Apples with the data below.

My findings are in graphic formats below with a small explanation underneath the graph.

The amount of negotiation that takes place as a whole in a market is also a good indication of how the market is doing. The more negotiation, the wider the disparity between list price and eventual sales price; the less negotiation, the stronger the market in general. As seen above, there has been some fluctuation with this ratio, but that it is tightening over time and in the macro market (all of Ann Arbor) have had sales price at 100% of list price, or above for the past five months. This is the median price but is still very meaningful as it means there is excitement and optimism in this market and much less negotiation than is expected.

In area 82 there is more negotiation occurring but still at a very high level of consistency between list price and sales price, from a low of 99.40% to 99.78% in this five month period. In short, the past five months has seen very little price negotiation in the market.

The median sales price in all of Ann Arbor shows a slight decline in early 2012, stability in mid to early 2013 then steady increases in price up through late 2013. A small decline is showing in the last few months of 2013, and an increase back to same level at the end of 2013 for the most recent two months (the last five months have waffled between $280,000 and $285,000 as median price).

Area 82 generally mirrors the market as a whole up to July 2013, after which the prices have stayed fairly steady on the median between $245,000 and $250,000 but with the past four months at the same even median price of $247,500.

Looking at the median sales price the conclusion would be that area 82 sells for less than the market as a whole, however this would be an erroneous conclusion if only the median sales price were considered. Take the next graph into consideration.

In both market segments there is a trend upward in price over time but the price per square foot in area 82 is much higher than it is in the market in general. If you look solely at price per square foot, it would appear that area 82 is higher priced than the market as a whole; which is contrary to the information posted above. Why is this?

It is higher in area 82 primarily due to size. The median size in area 82 is smaller than the overall market running from a low of 1,328 sqft to a high of 1,374 sqft in the past five months, compared to 1,834 to 1,882 in the same period in the market as a whole. Why does the smaller size equal a higher price per square foot? It relates to the underlying value of the land. It is most common that a smaller house will have a higher price per square foot than a larger house, all things being equal.

As an appraiser, the way I currently look at price appreciation (or depreciation) is to look at both median price and median price per square foot and blend the two for any change. For Ann Arbor as a whole, from February 2013 to February 2014 the median price increased 10.89% and the median price per square foot increased 9.58%, reconciled to 10%. For area 82 in the same time frame it increased 5.32% in price and 8.81% in price per square foot, or 7% blended.

On an appraisal, the appraiser would narrow the area down to what is actually competitive with the subject property, and there might be completely different results, because markets do not move at the same rate. This is evident above where the entire area moved at about 10% whereas area 82 moved at 7% for the same period. If there is this much difference within a school district, just think how much difference there could be from national statistics? Add in distress sales, and the gap could be even greater. This is why it is so important to look to the neighborhood experts as opposed to national statistics when trying to make a decision about your real estate needs.

My final observation for market trends relates to the contract-to-listing ratio. This ratio takes all properties exposed in the MLS at a time and compares the number under contract to the whole. As of 2/9/14, in the entire Ann Arbor market there were 237 houses on the market, of which 98 were reported to be under contract. This represents 41.35% of the market under contract which is indicative of a strong and active market at this time. In area 82, there were 55 houses on the market, of which 19 were under contract, or 34.55%, not as strong as the market as a whole, but still very active and indicative of a market favoring sellers. I pay a lot of attention to this trend because it is a leading indicator of where the market is going before these houses start to close and sales prices are known. I can’t base my value opinion on what I don’t know (what these houses are going to close for) but it does help me understand market forces in action, and what the Realtors are dealing with on a daily basis.

Tie all of these data points addressed above in with yesterday’s blog post and you have a good read on the market.

Hope you enjoy this information and find it useful. As always, if you have questions about the market from the perspective of the local appraisal expert, call or write. I am always happy to field whatever calls or emails that I can.

Rachel Massey, SRA, AI-RRS www.annarborappraisal.com

Data above is culled from the Ann Arbor Board of Realtors MLS

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.