Who are you going to call?

…Ghost busters!

 

building-joy-planning-plans

 

Social media can be rife with misinformation, such as when the information presented is well intentioned, but of a national scope. National studies are not local studies, and blanket statements presented as fact are potentially misleading. Real estate agents are professionals who are involved in selling houses on a daily basis and know their markets — as well as what drives interest with the buyers and sellers they are working with. Their job is difficult; often rewarding, and they make lasting relationships with the people they have worked with. Most agents are “people persons” who thrive on human interactions, and on being able to make a difference in the lives they touch.  Agents do know what their buyers are willing to pay for certain features in certain markets and price ranges, but often do not approach the valuation process in the manner that appraisers do.

 

Take this ad for example. The agent had a great talking point related to how various remodeling projects can add to the appeal of a property and perhaps the eventual sales price, but the talking points were incorrectly presented. There are a few issues with this ad, one is that there are very specific percentages expressed, and another that there is no source citation for these percentages. The main issue however is, if a real estate agent is the right individual to state what adds value on a home appraisal?

 

odd question

 

While advertising is critical in today’s market, advertising specific percentages or numbers about specific remodeling projects gleaned from national sources, can be misleading. Stating that these features add value to an appraisal, and that the reader should ask a real estate agent about what adds value to an appraisal, is illogical. Instead, simply go to a source, such as your local appraiser and get an appraisal completed.

 

For the percentages above, we have no idea where this hypothetical property is located; what price range or market segment it is in, or what the source for information is. In addition, the numbers are so precise that they are not logical. If one were to replace a garage door for $3,000, would it truly add a return of 98.3% or $2,949?  Would that manufactured stone you put on the house, that some buyers will like and others hate, truly add 97.1% return? Do buyers even look at a property and say that they will pay $50.47 more per square foot than another house that was 95-sqft smaller? These types of advertisements are catchy, but they could also be misleading.  In addition, the ad clearly points the reader to contact a real estate agent to tell you how much value a renovation adds to a home appraisal. This too is illogical, since an agent is not an appraiser and the job functions are not the same.

 

A professional appraiser, who knows the local 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. There is significant training and experience required to become a certified appraiser.  Real estate agents have a lot of specific training and education as well, but their roles are different and agents work on helping buyers and sellers achieve their goals of purchasing/selling real property. They are often functioning in multiple roles, such as acting as mediator, stager, chauffeur, diplomat and therapist. While they deal with sales prices, and know what buyers are willing to pay for properties, their view on the properties is much more “larger picture” than an appraiser specific, researched and analyzed determination.

 

When considering buying or selling a property, the agent is the first to call. When considering a remodel or addition and the effect on the value on the property, the appraiser is the first to call.

Pre-listing appraisals

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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.

 

National data, does not local data make

 

Marketing is a great idea. Agents and appraisers alike need to be in the public eye as individuals on a regular basis, otherwise we are easily forgotten. Cautious marketing however; could be a better idea. We really do not want to impart information that could lead our audience astray, even if it does spark conversation and gets our name out to those whom we wish to reach.

 

This morning I read a post on social media, citing a 2017 Zillow study about the effects of paint color on property sales prices. The post provided exact prices where a color increased the “value” of a property based on this study.  However, and this is a very big however, the source does not cite how exactly this study was conducted; whether it encompasses houses in the entire country; every price range conceivable; any variables related to overall condition of each property, or how these numbers were extracted with confidence from the market.  While we want to provide meaningful content, we have to be careful about painting a picture of what something may, or may not be.  A study that encompasses an entire nation would unlikely accurately encompass a smaller market segment in a smaller local community. Even though most people reading the post would understand that the data provided was national in scope, some might not.  Perhaps a link to the article would be a wise approach, in particular if the information is offering advice on increases in sales price based on some improvement or another.

 

For instance, if we have two identical houses with identical remodeling in the $200,000 price range in Chelsea, will the house with a blue front door truly sell for $1,514 more than the house with the brown front door?  What happens if this house is in the $1,000,000 price range in Ann Arbor?  Will it truly sell for that same $1,514 premium?  What about a 1900’s Farm House with a blue dining room, compared to a 1950’s contemporary; will they see the same effect?  See the problem?

 

caution

 

Searching for the source of this information, I believe it is the Zillow article linked below. The methodology is discussed in that article, but it does not account for location, price ranges, sizes, or condition and quality of the properties, and focuses on colors only. Although it states that the properties had similarity, this is based on photographs, not detail, and photographs do not always portray properties accurately. My question is whether you can pair identical or virtually identical properties with the one variable being a colored wall or door, and extract this type of precise sales price difference? Do homeowners typically paint walls white as addressed below, or when painting interior walls, is the trend towards some type of color? If homeowners/investors are not using white as the current trend, are we even comparing new paint to new paint? In my opinion, so much of the differences come down to the overall condition and levels of upgrades of the properties involved, not as much the paint colors. So much of what we see is local, not national, which is important to remember.

 

Is using this type of marketing tool wise given the precise numbers expressed, or is it better to simply say that currently, the color blue is popular for front doors, bathrooms and dining rooms, and point to the recent study?  Is it also possible that in our local community, the color choices may not be popular?

“Methodology

The Zillow Paint Colors Analysis measured how different paint colors in various room types may affect the sale price of a home compared to its Zestimate. We analyzed more than 135,000 photos from listings around that country that sold between January 2010 and May 2018 to identify which paint colors were associated with a home selling for more or less than its Zestimate when compared to similar homes with white walls. The analysis controlled for other wall colors within each room type, square footage, home age, and ZIP code Zillow Home Value Index in the listing month. Price effects for different room-color combinations are estimates of the average premium or discount but may not reflect a causal difference in value compared to white walls.”

Found https://www.zillow.com/research/paint-colors-help-sell-20240/

Appraisers try to measure market reaction to various elements of comparison, but a paint color choice would rarely result in any effect on the opinion of value, unless the paint color was so bold that it was a detractor from the value of the property. Even so, this type of subtle and easily cured element, would be exceedingly difficult to measure with any type of precision. It would be very dependent on the market segment and market activity.  Most appraisers would factor in the cost to cure plus a small entrepreneurial profit for the buyer’s time and efforts involved in the cure.  Or they would consider it under the overall condition of the property.  It also depends on inventory and how the rest of the home shows, as there may be no penalty or benefit from it. If it was just one room, and the market was undersupplied, it might have no effect on the marketability of the house, but if there was ample supply and houses were taking 6-months to sell, and the house needed paint throughout, then there would be a different situation. It is unlikely an appraiser is going to measure to this granular a level, just as it is unlikely that a buyer is going to pay a precise $1,514 extra for that blue front door. At least in our local market.

 

If you need an opinion of value for your property in Washtenaw County, please contact me through email at rachmass@comcast.net.

 

Changes over time

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

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

 

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

 

saline snip

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

 

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

 

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

 

Ann Arbor market snapshot by price

 

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

 

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

 

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

9.18.18 price snapshot

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

September Washtenaw County Snapshot

Snapshot of the market for 9/1/18

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

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

9.1.18 snapshot

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

 

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

 

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

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

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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 🙂

here

 

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

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.

View of Office Building

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!