Housing Archives - annarborappraisal

Vernon Downs

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

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

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

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

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

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

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

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

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

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

Rent versus buy?

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

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

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

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

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

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

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

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

When it is slow…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Resources

Toastmasters https://www.toastmasters.org/

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

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

The boomerang

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

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

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

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

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

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

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

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

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

Affordability in Chelsea Fairways

Affordability and rising prices

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

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

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

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

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

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

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

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

Historic interest rates found through the following website:

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

What is a comparable sale?

You have been working with your buyer now for five months. They have written six offers and have lost out on each in a bidding war. A new house comes on the market which meets their needs, and frankly, they are tired of making offers and losing out on the deal. This time they decide to come in with an offer substantially above asking price in order to beat out the myriad other offers they expect are coming. The strategy works and they win the deal. Trouble is, they still have to obtain financing. The offer does include a three percent concession for closing costs, which the seller was happy to agree to considering they accepted an offer that was twelve percent higher than asking price. They were particularly happy as the only other offer they received was slightly less than asking. This happens. The seller’s agent is not under any obligation to say how many offers were received nor what the offer prices were. The weary buyer offered in good faith to secure the property. They simply did not want to lose out on yet another property.

Along comes the appraiser for the buyer’s mortgage lender. The appraiser studies the market, notices that the market has started to cool, and that instead of houses receiving ten or more offers at a time, now they are receiving only one or two, if any. Houses are starting to remain on the market a bit longer than they were. The sales the appraiser analyzes are good comparable properties, but they all sold slightly lower than the asking price for the property, and 12-14% lower than the agreed upon sales price. After analyzing the market and the sales, the appraised value falls short of the sales price by 12%, in line with the asking price. The question is, do you try to renegotiate the contract immediately, or do you take the route of requesting a reconsideration of value claiming the appraisal was inaccurate and submit several sales that you say are better than those included in the report?

How are they better? Is it just that they sold higher than any of the sales the appraiser used, or are they actually comparable properties? Are they already addressed in the appraisal report? Sometimes there is a narrative section which addresses sales that were considered and were not included in the comparable sales grid for one reason or another. If you have the opportunity, read the appraisal report in its entirety first, as you may find the report had a compelling discussion related to why the sales included were the best available and how the value was arrived at.

A comparable property is one that is a substitute for another property. It is uncommon to have properties that are directly comparable since every house has something unique about it. A car analogy might help you in choosing comparable properties for your market analysis, or to provide appraisers on your sales when you meet them at the property (and no, we do not mind having sales offered as long as there is no expectation that we are going to use them, just consider them).

Most people will want to buy as much as they can for as little as possible. If you have a budget for a new car of $25,000, it is unlikely you would be out looking at BMW’s or Mercedes, whereas if you have a budget of $60,000 and want a German car, you are unlikely to be looking at VW Bugs. Is the VW Bug comparable with a BMW 5-Series? Not likely. Are they both German Cars? Of course. Would the buyer of a VW Bug choose a BMW 5-Series if they were the same price? Most likely. Would the buyer of the BMW 5-Series buy the VW Bug if they were the same price? Highly unlikely. You get the picture.

This is the same idea with comparable properties. While a buyer of a good basic 1,500 square foot tract house would likely jump at the chance to buy a 2,500 square foot semi-custom house if they were the same price, in equal locations, the converse would not be the case. The reason for these basic terms is that we have all seen agents provide appraisers “comparable” properties that are anything but. To be comparable, the likely buyers of one would have to consider the other, so it is not only that the buyer for the subject will consider a far superior property, but the buyer of that far superior property would want to be reasonably considering the subject.

What does this mean when you provide sales to an appraiser? First, look for what the typical buyer for your property would truly look at as a substitution. When you do that, look at those sales in the same vein, as whether your property would be a reasonable substitution. Sometimes there is nothing even approaching comparable to your property. In this instance, look to what else has sold that has some element of comparison, such as location, or quality and size, and then try to find something that is obviously not as good as your property as well as something that is better. In that manner, at least you will know that the property should be worth more than something and less than something. Appraisers will do this on those unique circumstances when there is truly no comparable property to chose from.

This bit of wisdom will help you choose the comparable properties for your market analysis, and give you a good basis of comparable properties for the appraiser should you wish to share them.

Saline MI market trends

While the market appears to be moving at breakneck speed in parts of the country, even in some of the most popular markets, it is not exactly so. Changes occur constantly, with submarkets having different appeal at different times.

The data below is that of my community, Saline MI, just south of Ann Arbor. Although the data presented does not break out submarkets within Saline, what it does is break out by price range. I could have expanded the price range above the $501,000 mark, but chose to keep it at this level for simplicities sake. The way the data reads is as follows:

The chart shows the number of total active listings, then those under contract, one years’ worth of sales, and supply compared to the past year. Finally, it shows the Contract-to-listing ratio (CTLR) of percent of properties on the market that are under contract. This is relevant as it gives an overall pulse of what is happening in the market, with 20% or less being a buyers’ market based on my experience, and over 35% a seller’s market. I have run these in price ranges as shown below, and have been tracking occasionally to see any changes. This particular grouping is interesting because what we are seeing is the early spring market, the height of the market, the early fall market, and now the late fall market. I will keep running these types of studies throughout the year to see if we have changes that start to happen, but what I am seeing from this is the expected slow-down as we head into winter.

Comparing March to June, the rate of absorption overall has increased and inventory in general has increased. The price range between $201,000 and $300,000 showed a slight slow down in absorption, while anything over $301,000 showed an increase in activity.

Compare early fall to late fall and the market again is changing, with the CTLR dropping and showing more balance. The greatest absorption has generally been in the $401,000-$500,000 range based on this information, with the exception of the current activity in the under $200,000 range. In both of these cases, over $501,000 is much lighter absorption in general.

We have gone from 34.58% CTLR in March, to 41.29% in June, then 29.35% in September and 28.88% as of today. That is for the entire Saline market, with different price ranges showing different absorption rates depending on when the data was run.

What does this all mean? Long and short is that it shows how the markets change as far as activity based on the time of year, as well as in what particular price ranges the market is hottest at each one of these periods. It shows that although the market may be “hot” in one segment, another may be quite cool. Of course, this is by price range as opposed to an actual submarket, but the logic behind it remains the same.

Hope everyone finds this interesting. If you have any questions about appraisals in the Washtenaw County market and beyond, please let me know. Feel free to visit my website at https://annarborappraisals.com for the types of services provided and the coverage area.

Data culled from the Ann Arbor Area Board of Realtors MLS

Bromley Park updated

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. There are 266 homesites within this detached single-family development.

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

In 2015, dues were $425 for the year.

On 1/13/14 I ran statistics related to changes in the market from 2011 through 2013 in Bromley itself, showing a decline in short sales and foreclosure properties and an increase in arm’s length sales, as well as an increase in sales overall. Sales prices also showed as on the increase, rising from a median price of $135,500 to $169,500 over that three-year period. That information is found on an earlier blog post found here.

So how is this development faring in todays’ market? Recent sales are higher than the previous peak around 2005 (or statistics do not go back adequately that far and I ran 12-years’ worth of sales). The low part of the market in this development is between late 2009 and late 2012, and prices reached previous peaks around 2015-16, rising since then as shown by this chart.

Over the past two years, the increase has been strong as well, rising from an average sales price of $229,315 to an average of $254,167 from one year to the next (10.84% increase). The median price has increased from $225,000 to $250,000 (11.11%) with the same information, with similar average and median gross living area.

Currently there are three houses offered for sale in the development with a median asking price of $279,900 and an additional one house under contract, which has an asking price of $244,900. The gross living area for the house under contract is 1,795 sqft, which is in line with the median and average sizes of the sales in the 2-year study. The median size of the active properties is higher, at 2,156 sqft, which may account for the higher asking prices. With only one out of four houses under contract, the market shows 25% absorption, which is not robust and could indicate a shift, in particular as the one listing under contract points to a lower price than average and medians.

As there were 12 sales in the past 12-months, the current inventory indicates a 3-month supply. These factors point to a stable market, to possible pressure downward due to the one pending sale. This means, that although the trend lines show increasing, the market could be changing. Looking deeper into the sales that sold last year and the current contracted property, shows similar style houses in the same price range overall, indicating stable. An appraiser would not be faulted for calling the market either stable or increasing based on all of this information.

For any questions related to this, or other information on this website, please contact me at rachmass@comcast.net

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.

Pre-listing appraisals

There is a lot of negative commentary in social media and in the press related to what appraisals are and what appraisers do. Much of it seems to stem from a misunderstanding of the appraisal process. I just saw a YouTube video an agent put together disparaging appraisals from the pre-listing perspective, and instead advocating for the use of agent’s market analysis. Both appraisal and CMAs are valid, as they have different functions, and it makes no sense to disparage one to try and sell the other.

In order to help dispel some myths that cause this type of misunderstanding, consider what an appraisal is, and what a CMA is, and how both are useful in the prelisting process.

From the Uniform Standards of Professional Appraisal Practice (USPAP) definitions section:

APPRAISAL: (noun) the act or process of developing an opinion of value; an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.

Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).

REPORT: any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client or a party authorized by the client upon completion of an assignment.

APPRAISER: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.

Comment: Such expectation occurs when individuals, either by choice or by requirement placed upon them or upon the service they provide by law, regulation, or agreement with the client or intended users, represent that they comply.

Looking at these definitions, an appraisal relates to the development of the opinion of value, while the report is the communication of that opinion. Most of what the public sees is the report, not the act of development.

The definition of appraiser is particularly important as this is one who is expected to perform competently, independently, impartially and objectively. Why would there be any objection at all to someone who is performing this work in such a manner as the definition of an appraiser implies? The appraisal report should, by its very definition, end up being an unbiased opinion. I will add that the opinion is based on factual data that is observed, analyzed, and reported in a competent manner. Because of that, it is very important that data that is provided to the MLS and public records be reported accurately, as both agents and appraisers will need to rely on what is reported to a large extent.

A competitive market analysis (CMA) is the REALTORs study of the market and the subject properties position in the market. Most agents use similar data sources that the appraisers use, but tend to focus more on the active properties as compared to the sold properties in establishing an asking price. This makes sense because the buyer is not going to have the opportunity to buy one of the comparable sales that are used in an appraisal report, since they already sold. They could buy one of the active alternatives. In that manner, this is a logical approach. One concern with it however, is that the appraisal will need to at least meet the sales price once the property goes to contract, therefore studying the past sales is paramount as well.

Ideally both appraisals and CMAs consider both the past and the present, as well as the current market tone and activity. Appraisers look to most probable sales price, while agents will try and focus on the highest possible price for their client. Often sellers will have two or more CMAs for their property completed as part of the various listing presentations, as agents vie for a listing. Sometimes the agent’s CMAs are not close together at all, and the owner needs an independent opinion, which is where many appraisals for pre-listing information come into play. Sometimes sellers are simply more comfortable hiring an appraiser to provide them an opinion outside of the listing process, to ensure they do not significantly overprice their property. This too makes sense. Spending a little bit of money prior to listing, could save substantial time and heartache if the property does not sell and is marketed an extended time. Or it could do the same if it does sell, but cannot be supported by closed sales in the market. Many sellers look at the appraisal report as an ounce of protection being worth more than a pound of cure.

Both appraisals and CMAs have a place in the process of listing a property for sale. Homeowners should carefully review an appraiser’s experience, qualifications and knowledge of the market, as well as that of any agent they hire. After all, both appraisers and agents will work a market extensively, whereas a seller (or buyer) will only occasionally participate in the real estate market.