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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.

Changing markets

By Rachel Massey, SRA, AI-RRS

It is easy to miss the market. Sometimes subtle changes are occurring and it is too early to pick up on a trend. Or there is conflicting information indicating both an increasing and a declining market at the same time, depending on the market segment.

If appraisers had crystal balls into the future, we would be doing something other than appraising. The money would be in predictions, not in measuring the current market. We are expected to be in touch with the market however, but basing our opinions on past, closed transactions is not necessarily the current market. This is one reason analyzing current offerings, pending sales, expired and withdrawn listings, and listening to the chatter of those involved in real estate sales is important.

Between 2007 and 2010 much of the nation experienced significant declines in real property values. Some appraisals that were developed and communicated in that period indicated the market was stable, even with evidence to the contrary. Appraisers were reluctant to mark the declining trends box on the form reports, due to very real concerns of losing lender business by doing so. The 1004MC form, that became mandatory after April 1, 2009, came to being in large part as a way to help ensure that appraisers analyzed the market. Like it or not, this provided structure and direction to lead the appraiser to look at what was happening in the market, at the time of the appraisal. Although many appraisers state this form is woefully inadequate, few supplement it with additional information supporting their market trends decision. This is the thesis of this short article; to be aware of other elements to observe in addition to the MC document, as well as what to watch for as the market starts to change. Because change is inevitable.

Ten years after the market decline, large parts of the country are experiencing significant increases in real property values. Some markets have surpassed the previous highs, and many appraisers are concerned about a repeat cycle reminiscent of the 2007-2010 market. How do we as appraisers, protect ourselves against being accused of incorrectly measuring what market conditions are? How can we analyze what factors are driving the market, and what should we be aware of as possible bellwether indicators of a changing market?

Although not exhaustive, below is a list of some of what is driving an increasing market in many of our individual areas.

Low inventory
Low rates
Few builder specs
Builder entry prices (due to labor shortages and increasing costs)
Owners converting housing to rentals
Taxes making moves difficult (resetting to higher assessments)
Need to sell to buy and lack of opportunity to do so – making downsizing difficult
Owners holding on to their residence due to no desire to change circumstances
Fear of rising rates causing panic buying
Optimism that prices will continue to increase

Being aware of what is driving the market is a good first step to being aware of what could ultimately change the market. Each of the points above can cumulatively or individually result in a change to market conditions. In addition, the following factors should be watched.

Incomes not keeping pace with price increases
Increased inventory
Rising rates
First time buyers priced out of market deciding to opt out
Property taxes exceeding allowable write-off

Ways to check what is happening

Contract to listing ratios
Expired and withdrawn listings
Days on market
Price reductions or increases
Listing prices lower than comparable sale prices
Widening gap between list and sales prices
Comments in listings “bring offers” “priced below recent appraisal”
Agent interviews – agent chatter
Falling rental prices
Incomes not keeping pace with price increases
Increasing relocation assignments

Contract-to-listing ratios are a concept that agents use, but most appraisers do not seem attuned to. It is simply taking a pool of competitive properties into consideration, and looking at the percentage of the listings on the market at that time that are under contract. If the determination is that the competitive market for the subject property is a 1,000 – 1,500 sqft ranch house built between 1940 and 1960 in such and such an area, the appraiser may find there are 100 listings on the market, but of those 100 listings, 40 are under contract. That is a 40% contract to listing ratio, and indicates the market is strong and houses are absorbing into the market. If on the other hand, there are 100 listings but only ten are under contract, that is a 10% contract to listing ratio and is weak, showing the market is not strong. This can be used to measure whether the market is favoring buyers, sellers, or is generally balanced. Through keeping track of this type of information in various market segments over time, it can be used to predict near-term changes in the market. For example, price pressure may show all the listings 20% higher than the sales, but if very few are under contract, it is unlikely there is going to be a jump in prices, but if most are under contract in spite of the spike in prices, it is likely they will close higher and it affords a chance to be left behind. Take for example, this sample that I ran (by price, not by market segment for the simplicity of this article) for my market on 2/16/18 and run again on 3/18/18 for comparison, to see what areas in the market were experiencing the greatest pressures:

Overall the market shows extremely tight, with less than 2.75 months’ worth of inventory as a whole in the entire school district, and by price, in the same realm through to the $500,000 price range. Over that, there is more inventory and a much lower contract to listing ratio, at 24.53% compared to 32% for just a bit lower priced, between $401,000 and $500,000, and even greater at 57.14% in the $301,000 – $400,000 range. How does this type of information help inform the reader of the current market? It simply shows what inventory is like as well as how active the market is. It doesn’t show price increases if they are occurring, but it is pretty unlikely that a market with 50% of the houses on the market under contract is going to be either stable or declining. If your opinion of value on the property was $190,000, there would be no active competition as of this date and it would be a good bet that the house would be in high demand. Conversely, if your opinion of value was $650,000, there would be much more competition and the expectation would be a longer marketing period. In addition to how the subject of the appraisal might be positioned, keeping track of ratios over time can be useful in noticing a trend before it becomes well known in the market, realizing that figures could vary in a day. In the example above however, the trends appeared similar, showing the highest levels of activity in this market in the $201,000 – $400,000 range, with no inventory under $200,000.

When markets are tight and increasing, it is just as important to discuss the market and any changes that are evident, as it is when the market is declining. Ignoring an increasing market is just as incorrect as ignoring a declining market. Stating that one only adjusts downward for declining markets, but not upward for increasing markets is an incorrect procedure. Document the changes and include what you can in the report.

Document, document, document, as silly as it may seem, using Trulia, Realtor.com and other online tools can help you with keeping a record of trending information on top of what you present in your report. Realtors Property Resource has a tool which provides trending analysis for the property under consideration, the zip code and the county. Realist also provides for price trends, as do Trulia, Realtor.com, Movoto and other sources. Although these data sources provide broader market data, simply having the information you pulled related to trends in the market, in your workfile, is helpful in the event someone comes back years later saying you should have marked declining on the report when all indications were that the market was stable to increasing at the time you completed the assignment.

Markets can change overnight. For those of us appraising in 2001, we can remember how the world stood still on 9/11, and how it took a month or two for the country to breathe again and get back to doing business. Significant market changes can happen quickly, and we have to be able to be aware of what is going on in our market, even with these events. Agents who are active in the market will be in a perfect position to talk with us about what they are seeing as well. It is a good idea to build trusting relationships with agents, who will share their concerns as well, even if it is “off record”. These relationships do matter.

If the market in your area begins to decline, do not be afraid to report what you see – even if the short-term repercussion is decreased work from such and such lender. The long-term benefit of being truthful is more important. Appraisers must work with integrity and not be afraid of losing business for doing the right thing.

This post has been copied in its entirety (well, without ads) from the original source of publication, WorkingRE, with their permission. Original link below. Please visit their site often as well 🙂

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Walking at work

It certainly would be ideal to have a magic pill that would allow one to stay in shape, at the same time as staying productive at work. The advent of the treadmill desk and its increasing popularity is making this magic pill seem a real possibility. Imagine being able to work, talk, research and type, all while walking. Sounds great doesn’t it? It is, but there are limitations. The set up can be awkward, and if you are vertically, or space challenged, there can be limitations with the workspace. If you are a bit of an overachiever, like I have a tendency to be, there can be real limitations to the physicality of the system.

I purchased my first treadmill desk in 2011 in an effort to get up off my seat and ease my aching back. Sitting was causing a whole host of physical issues, not the least of which was an increasingly widening girth and backside. I already owned a good solid treadmill from the days when I was a runner, and trained on this workhorse of a machine. The desk itself was something that could go on top of any treadmill and that was very appealing because it made the set up much less expensive than buying one of the combination treadmill desks that have gained popularity in the marketplace.

This brings me to the first limitation: space! If you have a large scale treadmill then it is not going to have a small footprint. If you are going to be using one of these beasts upwards of four or five hours (or more) per day, then it darn well better be a workhorse or the motor and/or deck and/or belt are going to wear out very quickly. So the big treadmill takes up space, and the desk itself can take up a lot of space as well. The area that contains my treadmill desk takes up eight by seven feet and this doesn’t include any of the office peripherals such as bookshelves, printers, cabinets and so forth. While you may be able to get by with a smaller workspace and treadmill, most people want to have at least two monitors at their disposal, and therefore the larger workspace may be imperative.

Another limitation to the setup is the treadmill itself. Treadmills that are for runners and exercise are not designed to do long hours at slow speeds and the motors can burn out quickly, in particular if you have something like an orthopedic belt to soften your tread. If the treadmill deck is too narrow, or two short, drift may cause you to step on the rails and crash, not a pleasant experience. A good wide deck that is long enough to have your body close to half way back, in order to accommodate the desk, and a treadmill that can take hours of use every day at a low speed, is going to cost a pretty penny. At the same time, if you buy one that is not robust enough to handle the stress, it will burn out far sooner than desired and the expense of purchasing a new one is often cost prohibitive. There are some brands that have both treadmill and desk combined, with a treadmill that is built specifically for the long hours of use at a slow speed, and these, while expensive, are often the best solution.

Limitation number three, at least for me, is height. At 5’2” I am a bit vertically challenged, and my treadmill desk does not go low enough for me to work at a good ergonomic height. As such, I had to purchase a laptop that had a wide and comfortable keyboard that included the integrated touchpad in the center of the computer so I didn’t end up with carpel tunnel from repetitive motions, i.e., no mouse. That and sometimes my shoulders are touching my ears, not a good thing for ergonomic design. The large laptop and a smaller monitor next to it work well though, without me having to look down.

The final, but most limiting of limitations for me was repetitive use and the development of tendinitis in one of my feet. Because I have a tendency to overdo things, I thought that if walking four hours a day felt so good, walking six hours a day would feel even better. At first it did. I lost weight, I felt great, my energy was superb, but within a year of having upped my walking to six, and sometimes seven hours a day, I developed a roaring case of tendinitis that sidelined me from walking for months. Now over a year after taking a couple months off, I cannot walk the way I used to without aggravating my tendinitis, and am happy walking only two or three hours a day, and nowhere near the speed I used to walk. Unfortunately the weight has come back, and with it, the feeling of sluggishness. That said, when I walk, I feel great, and my mind is clearer and I am able to concentrate better.

The limitations that I described above are all just cautionary for those who are thinking of a treadmill desk setup. Four years into using one, I cannot imagine returning to sitting for more than a couple of hours at a time, and hope to be able to use one of these desks until I decide to turn in the keyboard. Limitations that arise are nothing compared to the benefits that are gained in my opinion.

The treadmill desk is a magic pill to a stationary office worker, as long as moderation is used and forethought is exercised in setting up your workstation. Remember a good solid treadmill with a wide and long deck is key, and no orthopedic belts because they will burn out the motor faster. Think how you will use the desk, and make sure you have a place to sit in between periods on the treadmill because most of us cannot spend a full working day walking, without consequences.

Originally published with AppraiserNews in 2015

Courage of your convictions

…….Or put your money where your mouth is

As an appraiser who works a very small area, and has for many years, I am fortunate to have quite good relationships with the agents in my community. Because of this, I get a lot of calls and emails asking for help when they run into situations with appraisals on their sales. Often the situation involves an appraisal that is under sales price where the agent is adamant that the appraisal is wrong.

Yesterday I had an email from an agent who told me that she had done her CMA and had arrived at an estimate of $325,000 for a sales price and that the house went under contract for $321,000, so pretty darn close to what her estimate was. The appraisal came back at $286,000 which is quite a bit lower than sales price, and the buyers and sellers were in negotiation to have the seller come down in price and the buyer bring more money to the table. The agent was adamant that the appraisal was faulty and used old sales that she did not think were appropriate. I offered to do a review of the appraisal as well as provide an opinion of value, all for a fee of course.

In this instance the agent balked and said that she didn’t want to spend the money; that the seller didn’t want to spend the money. My question is why? If you are convinced the appraisal is wrong, why not spend the money to either show that indeed the appraisal is wrong, or to provide a second opinion that the appraisal is actually correct? If there is $35,000 difference at stake, isn’t $500 or so for a second appraisal or review a worthwhile use of money? Or, is it possible that the reason that the agent didn’t want to spend the money, is in examination, that the appraisal might be fine?

What I really want to know from agents is why they don’t take the route of getting a second opinion from a local appraiser who knows the market well? If the review indicates there is a problem with the appraisal, then the agent can share it with the lender to see if there is recourse, such as a new appraisal, or a review from one of the lender panel appraisers. If the appraisal is shown to be fine, then there is a level of comfort that the agent and seller can have to negotiate, or move forward (or not) with the transaction.

Thoughts?

Market snapshot – Ann Arbor/Saline

Market snapshot – comparing Ann Arbor and Saline

Prologue

I admit it; I am a data junkie. There is something about graphs and charts that I just get all-geeked out about. Maybe it is simply having too much time on my hands, or maybe it is a thirst for knowledge (hoping for the latter, but with understanding it may be the former).

Without further ado, I offer my recent take on the comparison of two markets, because they often compete with each other.

The data below is run as one years’ worth of data at a time, but compared month over month (so if you see a comparison from June 2012 to June 2013 each of those sets has an entire years’ worth of data leading up to the date. In this first graph, I have compared the cumulative days on the market of sales in Ann Arbor school district, as exposed through the Ann Arbor Area Board of Realtors MLS, compared to the same in Saline. I took all sales and looked at the median. In both segments, days on market declined to a low point in May/June 2013, and have since risen and then stabilized. Saline had longer median days on market but shows as stable compared to Ann Arbor, which is slightly increased over the past couple of months.

What about price? On the median price, Saline is ahead of Ann Arbor. On median price per square foot, Ann Arbor is ahead of Saline. Why is this? It is related to median size. The median size of a house in the Saline market is greater than the median size of a house in the Ann Arbor market. As price per square foot is normally higher as size declines, it makes sense that you would see that.

If you compare month to month, for the past five months, the closed sales in the Ann Arbor market show as flat (although that is changing now) whereas Saline has been rising. If you skip down to the price per square foot, the rising prices in Saline are at a slower rate than just by the median price.

Inventory levels as of 4/8/14: Ann Arbor had 152 active offerings in total, compared to 1,176 sales the year before, or 1.55-months’ worth of inventory (not much). Saline had 50 offerings compared to 297 sales in the year prior, or 2.02 months’ worth of supply. In both instances, supply was quite limited, and this limited supply does appear to be driving many multiple offer situations. In both markets, the contract-to-listing ratio shows as favoring seller’s, with Ann Arbor at 40.16% and Saline at 41.18% as of the 4/8/14 run date.

When the contract-to-listing ratio and low inventory favor sellers, prices typically increase. When they favor buyers, prices typically decrease. Markets are very fluid and changeable, and what is apparent a week ago, may well change dramatically a month from now. The market is sensitive to interest rates, employment rates, income changes, and national news, among other issues.

Epilogue

Appraisals are “opinions” of value by educated professionals. They are opinions based on factual data, but in the end of the opinion of a professional. Not all appraisers have equal qualifications and experience, and therefore not all opinions are equal. If you are shopping for an appraiser to help provide you an independent opinion of value, base your selection on the breadth and depth of that appraiser’s knowledge and experience, not the price of the appraisal assignment. After all, it is typically your largest investment, and does it make sense to be penny-wise and pound-foolish?

Rachel Massey, www.annarborappraisal.com

Latest comparison to online valuation models

Latest comparison to online valuation models

It is quite frustrating to see how many people rely on these online value estimators to either price their home, or use it for marital dissolution, or other reasons. As will be shown in a minute, these can be off by a significant amount, either low or high.

I just ran sales in Ann Arbor, in the 48103 area for the past couple of weeks. I then compared the sales prices to two online value estimators and State Equalized Value times two. The only consistency to the information is that these online value estimators overestimated on houses in need of work and underestimated on those houses that were remodeled. In only a small percentage of cases, were the value tools within five percent of the actual sales price.

If you are shopping for an appraiser to help provide you an independent opinion of value, base your selection on the breadth and depth of that appraiser’s knowledge and experience, not the price of the appraisal assignment. After all, it is typically your client’s largest investment, and does it make sense to be penny-wise and pound-foolish?

Rachel Massey, www.annarborappraisal.com

Another bifurcated market snapshot

Bifurcated Market Snapshot

4/1/14

In my venture to stay abreast with what is happening in Washtenaw County, I offer the latest study of differences in median sales price and number of sales for one market within the larger area.

In short, prices are up from the same time last year, but there are signs of weakness and even a possible decline in place in this market segment right now.

The analysis relates to all sales exposed through the Ann Arbor Area Board of Realtors MLS between 1/1/11 and 4/1/14 in the one area. The data is in two graphs, one related to the number of sales and the other to median sales price. These two graphs compare arm’s length transactions to REO transactions in both categories.

This data includes everything in the MLS so there are duplicate listings. This occurs when agents have listings in both Realcomp and the A2BR MLS. Since this data is run on the median price as opposed to average price, it should be very similar on that graph, even with duplicates. Only the Great Lakes Repository was omitted from the search results since there are not very many of those and they tend to be triplicates as opposed to duplicates.

These sales are run on a yearly basis, but one month at a time, so that each segment includes one years’ worth of data. Doing so eliminates the seasonality that is common in Michigan and should correspond with the Board statistics (if they were to go by school district or area as opposed to the entire MLS).

Total number of sales/arm’s length compared to REO

Here is a snapshot of the number of arm’s length sales compared to the number of REO sales. At first there were more REO sales and now there are far more arm’s length sales. This means the distress sales have largely made their way through the market at this point, leaving far fewer available. This is a good thing and helps stabilize the market.

Median price comparison

The graph above is the median sales price comparison between arm’s length and REO. In the past five months, there has been stability to a slight decline in arm’s length sale prices, and stability in the REO market for the past three months. With this data, you can see the ebb and flow as to prices rising, declining, rising and then stabilizing to dipping just slightly in the past couple months. This could be related to the very difficult weather our area has experienced this winter.

Comparing the most recent year-to-year results in the arm’s length category there is an increase in median price of 9.41%. Comparing the same with REO sales, the increase is 49.88% for median price. Clearly, the largest increase in this market has been with the foreclosed properties, increasing as these numbers dwindle.

I find that tracking the contract-to-listing ratio a great predictor of activity. This is simply the total number of contracted listings compared to the total number of listings, and it relates to general activity levels. In the arm’s length category as of 4/3/14, it was 33.33%, which is reasonably robust, but certainly not off the charts. At this level, it is what I would consider “in balance” to slightly favoring sellers, due mainly to lack of inventory.

Inventory is low with 46 offerings not under contract (4/3/14) compared to 237 sales the year before. That equates to less than two and a half months inventory based on the previous year’s sales. Perhaps the price increases have put a damper on interest in some of these sales, and the lessening of the REO inventory means there are fewer good deals to swoop up (less than 1.5 months inventory of REOs).

Based on the data, my opinion is this market as a whole is stable in price, undersupplied, and may be feeling the effects of the price increases last year starting to put a damper on current price trends. This is the entire area market, and every submarket is unique. That means you could be looking at a market that is in an upward trajectory, or even one that is starting a downward track, and as such should always try to whittle down to the market in which your property actually competes. The data above is purposely broad.

As always, I hope that you have found my musings useful. Just remember it is the educated opinion of one appraiser. I am always available to help Realtors, attorneys and property owners alike.

Rachel Massey www.annarborappraisal.com

What is a bifurcated market?

What is a bifurcated market?

I am sure you have all heard the term bifurcated before; the question is what does it mean?

Basically a bifurcation of the market relates to two different market segments that may have the appearance of being the same, but in essence are not; two different branches as it were. In order to show this in action, I have taken the Ann Arbor Board of Realtors MLS and examined one area that is fairly homogeneous (Lincoln School District) and separated the foreclosed (REO) properties from the arm’s length sales. I have then presented them as graphs, with a little bit of analysis underneath so you can see what appraisers deal with on a daily basis.

This first graph includes the number of sales over time for both foreclosed properties and arm’s length sales. In all instances the data is run on annualized monthly data runs, which include one years’ worth of sales at a time, run by month (eliminates seasonality). Clearly, the number of foreclosed properties has been declining at the same time the number of arm’s length sales has been increasing. What do you expect to see when this happens?

Hint, price increases!

Look at the data above; price increases all around after a period of stability. Price increases are happening in the REO sector at a quicker rate than with the arm’s length segment. The arm’s length segment shows price stability over the past five months whereas the REO market still shows an increase. This is bifurcation.

Observe the difference in median sales price between the arm’s length sales and the REO sales. Generally, there is a $20,000 gap or more in price between the arm’s length and distress sales. If there were an adequate number of arm’s length sales available, would there be any reason to consider a foreclosed property in comparison to an owner occupied house in good condition? The only time this might come into play is when there is some feature that the appraiser is trying to analyze that requires using distress sales. You will often see that happen when the subject property is larger than everything else is (or smaller) and the appraiser attempts to “bracket” the size.

If you consider all the REO sales over time, the prices have increased in median price 25.48% over this two plus year period. If you analyze arm’s length sales, prices have increased 15.38% for the same period (10.78% of it in the previous year). While prices have obviously improved, the difference is not as great as the news media has indicated lately. By comparing an entire market there is a false sense of greater improvement, simply due to fewer distress sales showing on the market. Which way of looking at the market do you consider to be more realistic?

As always, if you have valuation needs in Washtenaw County, think of Rachel Massey first!

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

Ann Arbor snapshot

So many ways to measure

Markets are rarely identical and what happens as a nation isn’t necessarily what happens in a county, or what happens in an area, or even a submarket.

We hear a lot about the improving market conditions that are occurring nationally, but as in all things real estate, the market really is fundamentally local. I live and work in the Ann Arbor market. Not all markets within this area are moving in the same direction, or at the same pace. Even within Ann Arbor there are differences, and the data below represents current information comparing the Ann Arbor school district as a whole to one area within Ann Arbor, area 82, which encompasses a wide market but is the west side of town as well as into the western suburbs and rural area within the Ann Arbor school district.

How can you go about measuring the market? There are a number of different ways, 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.

Number of sales

We are seeing an increasing number of sales in both the entire market and area 82. For instance, the one year period of 2011 showed 805 arm’s length sales, and in 2012 there were 939 sales, 2013 had 1,054 sales for the year. Clearly the numbers of sales are increasing. In area 82 our market jumped from 210 sales in 2011 to 260 in 2012 and 299 in 2012. Based on this information the expectation is around 88 sales per month for the entire market and 25 per month for area 82. As there are 139 available properties in the MLS for the entire school district today (2/9/14) and 36 in area 82, there is about a 1.6-month supply for the overall market and 1.45-month supply for area 82. Looks like an undersupply of properties, doesn’t it?

Days on market

The chart above shows the differences in days on the market in both the wider Ann Arbor market and area 82. Area 82 consistently has had quicker absorption than Ann Arbor as a whole, but take a look at how the market dipped in both segments to a low point in June/July 2013 and has been increasing steadily since that time. My take on this is that as inventory has increased (as evidenced by the number of sales above) that there are more options and therefore houses are not selling quite as quickly as they were at the peak in 2013. At this time days on market is still very short with the most recent reading showing 43 as a whole and 35 in area 82. Surprisingly close to the expected absorption rate addressed in the graph above.

There are more graphs and charts that I will examine, but I am going to save that for the next blog post, so as to keep you interested and coming back J. These other indicators include the list price to sales price ratios, median price over time, and median price per square foot. They also include my favorite, the contract-to-listing ratio which some of you are aware of from previous blog posts.

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.

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

Rachel Massey, SRA, AI-RRS 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.