The “Property Prices Reach All Time High” Hype

Dave Towne

Dave Towne

Certified Residential RE Appraiser at Towne Appraisals
AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003.
Dave Towne on e-AppraisersDirectory.com
Dave Towne

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The Property Prices Reach All Time High Hype

“Property Prices Reach an All-Time High”

Oh really? The subject line is a press release headline put out by a national sales organization.

Do you buy into the hype, or do you actually do local comparable property market research to verify trends?

I just completed an appraisal on a property I appraised 2 years ago. I did a 5 year market study on comparables then, and found the market for that type of property had been DECLINING at that time. I did another 5 year market study on this same property this time around. And guess what? The property values for this type of property are STILL DECLINING.

For this particular one, the land held the highest component of overall value. In fact, the land value was 90% of the overall value. The lender actually called me today and understands, from reading the report, why my OMV is significantly lower than the contract sale price.

It’s paramount that we appraisers take the time to actually do proper market studies, based around characteristics of the appraised property, and not just accept what others say about “all” properties in an area. It means you cannot assume what transpires for “all” actually relates to the appraised property. The two may not correlate, and in fact, may be quite different. This is one jaundiced issue I have with some ‘regression’ programs being touted as the be-all, end-all answer to appraisal adjustments.

Another point of contention with me, and lots of other appraisers, is the extremely poorly designed Market Conditions Addendum, MC Form, as backing for trends. The columns do not properly correlate with one another. So if they don’t correlate, how can an assumption be made that the checkbox we mark is actually accurate for a specific trend? If we weight the cruddy MC Form highly in our reported analysis, couldn’t it be said that the decision we make based on inaccurate information is actually NOT CREDIBLE?

For most lending assignments, the MC Form must be included in reports, but it DOES NOT have to be relied on for trend info you report regarding your appraised property. I say so on the MC Form. But I also include a separate, personally developed and generated comparable trend chart & graph in every report, to which I place ultimate weight on my analysis decisions.

So, be careful about the ‘hype’ you see!

Image credit flickr - FaceMePLS
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on e-AppraisersDirectory.com

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2 Responses

  1. Koma says:

    This is because we are the only ones held ACCOUNTABLE!

    Koma

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  2. Dave, I have never relied on only one source for market trend information. Similarly, I am not foolish enough to rely on subjectively applied statistical data WHEN or IF all other evidence including unscientific empirical data is telling me something else.

    Nationally reported trends and State ‘overall’ trends have little direct correlation to what is happening to real estate in Torrance or Compton or San Bernardino, California.

    My distrust of the so called ‘regression based’ software being touted as reliable or “accepted by all lenders” is more skeptical than your own. The blogs have been full of discussions on their shortcomings by people with far more knowledge than I have. Bottom line is that the sample sizes used most often are typically too small to produce meaningful or credible results as they are applied (imho). I’ve yet to see one produce CREDIBLE results for GLA adjustments in any markets I work in. (SHAME on those naughty buyers for thinking GBA has either more of less value than the commercial regression software statistics show! How DARE they?)

    I take such articles as no more than reminders to recheck my data carefully and to be able to explain contrary local data in light of widely published articles that might become a concern among intended users. National Increases in median values are better than deceases in median values, but they do not tell what’s happening in Utica, NY or Havre de Grace, MD.

    I was an agent for 6 years before becoming an appraiser 30 years ago. I didn’t know appraisal principles but I could sure tell you when prices were rising or in a slump.

    Some of the ‘old’ skills still work. 1. How long are properties taking to sell the first time around for listings? For over 40+ years in my market areas it should be between 30 to 90 days normally-minor variances occur. 2. How many listings are there of the most commonly sought property types? This includes awareness of the presence and impact of REOs, short sales and foreclosures 3. Are MOST asking prices higher than last month for similar property; or the same? 4. Are the list to sale price ratios narrowing or widening? 5. Are concessions present or not?

    Answer the above questions, coupled with knowledge of local norms and you will never be wrong about trends. You may not be able to “prove it” but you can certainly explain it credibly.

    What no one is telling us or able to accurately predict is at what point this upward pressure will taper off due to the ongoing decline in EFFECTIVE demand versus apparent demand. Purportedly only 30% can afford or qualify for the median house these days; with 20% down and a 3.95+-% 1st TD.

    I’d love to see the talking heads publish a study on the percentage trend of buyers for lower than median homes contrasted with percentages for above median housing to see either is rising, falling or remaining the same. While they are at it, opine as to what point it will be when rising prices outstrip ability to qualify (honestly) at the lower end.

    Im no economist. Heck I don’t even have a college degree, but I bet it will be about, or shortly after the same time as when GSE Lenders (FNMA) start offering 3% conventional loan down payments; promoting low interest-high LTV ARMs, lowering FICOs, increasing allowable debt to income ratios and permitting stated income loans again.

    Gosh! That’s about NOW. Any bets the Fed will NOT significantly raise interest rates in September?

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