Determining the decline in values is a difficult task for all those working in the real estate industry today.
There are reported statistics and opinions that can vary significantly and make the job of appraisers, real estate agents and lenders difficult. The general public need as accurate an assessment as possible in this key area because of the importance of consumer confidence which must be based on logical and supportable data.
I comment in every appraisal about the decline in the market in Southeast Michigan because in almost every appraisal I do I can not justify calling the market stable or increasing relative to property values. I just completed an appraisal on a very nice home in Flint Township and stated a market decline of 6% over the last year.
The market can be looked at as a hole or can be segmented. I call this a market dichotomy. Distress sales like foreclosed properties are a sub set of the current market and well maintained owner occupied homes are another sub set. The appraisal of a well maintained owner occupied home should focus on that sub set and reflect the impact of the foreclosures along with any other significant external influence impacting the property.
Please comment pro or con on the statements below. If you are an appraiser and like it I, you have my permission to use it without modification or reference to me. If you modify it and send it back to me and I like it, I would like to do the same and use your comment.
Comments on Market:
The South East Michigan market has seen declining value in many areas over the last year, however, each appraisal assignment must be taken as a separate analysis given the neighborhood influences and specific characteristics for the subject property. The subject market was rated as declining based on reported sale prices for owner occupied homes.
Sales and listings of foreclosed properties have contributed to the degree of decline in the market, however foreclosed properties and other distress sales are a separate market with a higher loss in value over previous years. These properties are damaged goods that require a separate analysis from a properties like the subject that are in above average condition, are owner occupied, and would be marketed differently.
The foreclosure market presents a dichotomy in the market; owner occupied homes do not compete directly with foreclosed properties. Characteristics of current foreclosed properties typically include poorer quality and condition of the properties, a stigma attached to a foreclosure which creates an expectation of a bargain price for the buyer, and the lack of a sellers' disclosure statement. Foreclosed properties receive vastly inferior marketing because REO managers and real estate agents are unable or unwilling to devote the time and expense to properly market each property.
The other point I want to make is that all markets cycle and at some point in this market we are going to level off, if we haven't already. I would prefer to put stable or increasing in the current market value section of the appraisal for a number of reasons. Why? The market is being restricted to some degree and values are being limited because of this reporting issue. Except for FHA and VA loans the Lender will typically need an additional 5% down from the buyer if the market is rated as declining. Many loans will be DOA when the report shows a declining market. An appraiser may loose a client that goes shopping for a "stable market" appraiser. It is sad when an appraiser looses business for being accurate and honest but good appraisers do the reports correctly inspite of the financial and emotional ramifications; God bless them.
I hope to write the addendum that supports a stable market conclusion and post that on my blog before too long. The increasing market value addendum may not be far behind that.
When the market values start t increase the reports will rely more on competing listings than they do now. If the market is going up the economic principals of competition, substitution and opportunity cost will be better represented in the active listings because those are the choices the current buyer has. The buyer obviously can't go back and buy the comparable sales used in the report, and those sales may reflect a past value more than the current value. It is the same with any commodity. We can't pay for gas what we paid 3 to 6 months ago, we have to fill up with the price at the pump before we run out of gas, right?
Subscribe to CommentsComment