A loan is not a right

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The United States banking industry is stuck in a cycle:

  1. Lend on very good homes, to very good creditors, for low interest rates

  2. Lend on average homes to average creditors for average interest rates

  3. Lend of bad homes to bad creditors for high interest rates

  4. Watch as the financial system collapses

  5. Rinse and repeat.

Right now we’re somewhere around stage 3, as lenders find fewer and fewer individuals of good and average credit scores with healthy assets to lend on. Unless we change our thinking in this regard, it is our fear that history will eventually repeat itself.

A part of breaking out of this cycle is to understand the idea that a loan is not a right. A right is a moral or legal entitlement to a thing. None of us have the moral or legal entitlement to someone else’s money- that is called theft. Rather, we do have the right to be viewed equally within the process of attempting to obtain a loan (this is why discrimination on the basis of race, religion, etc is illegal). However, it is important to understand that that equality of examination may still result in some not obtaining a loan.

  1. Some will not meet income guidelines

  2. Some will not meet down payment guidelines

  3. Some will not meet asset guidelines - the home will fail to qualify

We might agree that individuals in the greatest country on earth should have the ability to access the dream of owning a home. We might agree that “something” needs to be done. However, reducing the qualification of the above is a direct path to cyclical financial collapse. The issues that keep some from home ownership are far deeper than a few regulations and banking policies. They stretch back 100 years to immigration laws, red lining, the antebellum south’s policies, the great migration, and others. There are very real injustices that have affected generations. Recently, in a House committee meeting a few congress persons suggested that appraisers were to blame for the injustices in the data. This is deeply disturbing. Ryan Lundquist has written an informative article on the topic that we hope you will take time to read:

Click here to read more.

In short, appraisers have a public and fiduciary trust to report the real property conditions and market value of a property - not produce reform one property at a time. This would betray the principles of the entire profession. Loan officers/Underwriters also have a trust to write good loans. Congress too has a trust, to ensure that the playing field is level for all participants and to discipline those who tip the scales. Appraisers have been inaccurately blamed in the past (our lobby in Washington is nonexistent, so we’re an easy scapegoat) but power rests in the hands of many others to produce solutions to these looming issues.

Market Data Analysis: Location Part 2

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Today we turn our attention to high value homes and a factor that affects market value. For this we will take a birds eye view of an area. This is a look at two school districts’ sales over the past 10 years at the $400,000+ price range. If you had to draw a line dividing the two school districts, without any other help, where would you draw it?

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Zooming in on the southern end of the map we see the density remain in the south west portion, and drastically become more spread out to the east and north.

Using the above school district maps we see that the density of $400,000+ sales over ten years highly corresponds to these maps. In the same way that you might draw a line with a pen on the maps above, for ten years buyers have been drawing the line with the wallets.

But why? Franklin Regional is closer to the metro area and its amenities, but the sharp line indicates that this is not the only story. If we look at homes of $400,000+ in the Kiski School District over that same time (32 vs. the 305 in Franklin Regional), we see a median sale price of $442,500 (vs $553,827 in Franklin Regional) and a median acreage of 8.73 acres (vs 1.55 acres in Franklin Regional).

Buyers and sellers are sending a clear message - these two markets are not comparable. If you ever represent a property on the border of a school district, before you assume that you can use sales from across the border, make sure that the market data supports that assumption.

For more on this: https://www.housingwire.com/articles/49830-half-of-homebuyers-with-kids-base-purchase-on-school-district?fbclid=IwAR33nnrqBUS-MEkKBiP8nq6lvwiEnb1RGQbyHcLwjkLZKOzQm0jdfZhe-sc

2019: 2nd Third Analysis

Why a third and not a quarter?   Many of the markets that we cover in this report have limited data, which makes analysis difficult, yet we wanted to be able to provide some level of seasonal analysis. Quarter’s would be ideal, however, by extending the data to four months instead of three we gain 33% more data, and therefore more able to make reliable statements. It's odd, we know, but hopefully you find it helpful.

Why a third and not a quarter? Many of the markets that we cover in this report have limited data, which makes analysis difficult, yet we wanted to be able to provide some level of seasonal analysis. Quarter’s would be ideal, however, by extending the data to four months instead of three we gain 33% more data, and therefore more able to make reliable statements. It's odd, we know, but hopefully you find it helpful.

Before we dive into our regional analysis, we want to take a look for a moment at the national trends. While Western PA proved rather resilient to the last housing bubble (because there wasn’t a high degree of speculation, to begin with) these trends can have wide-reaching effects.

This shows the trend of the median sale price increase (orange) compared to the median increase in building costs since 1990. The past 6 quarters have shown a weakening in the housing market, and some declines. It remains to be seen whether this will be a short-lived flattening of returns (similar to the early 1990s, and displayed by the extrapolated green line above) or a pullback towards builder cost trends similar to 2008 (extrapolated by the red line above).

This shows the trend of the median sale price increase (orange) compared to the median increase in building costs since 1990. The past 6 quarters have shown a weakening in the housing market, and some declines. It remains to be seen whether this will be a short-lived flattening of returns (similar to the early 1990s, and displayed by the extrapolated green line above) or a pullback towards builder cost trends similar to 2008 (extrapolated by the red line above).

This is the trend line of the entire West Penn Multi List since 2006 (sadly the data available gets increasingly unreliable further back in time) compared to national builder trends. We see a similar divergence in the local data from the trend that is seen in the national data, and a similar pullback in 2008. The good news: if the national trend remains flat, our local market will likely see little impact. If the national trend moves downward, like in 2008, our declines will likely be far shorter and less deep (again, because prices have not been inflated by speculation).

This is the trend line of the entire West Penn Multi List since 2006 (sadly the data available gets increasingly unreliable further back in time) compared to national builder trends. We see a similar divergence in the local data from the trend that is seen in the national data, and a similar pullback in 2008. The good news: if the national trend remains flat, our local market will likely see little impact. If the national trend moves downward, like in 2008, our declines will likely be far shorter and less deep (again, because prices have not been inflated by speculation).

As the chart above shows, our real estate market is highly seasonal, with fall and winter prices falling and spring-summer months increasing. Last third, this stayed true with increasing prices, but a year over year (YOY) decline. This third showed most markets reversing the YOY trend to increase this year, and mix of trends over the term.

Allegheny East - with 1693 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of above 25%. This could indicate that over 25% of the market is currently so overpriced as to never consummate a sale.  Allegheny North - with 1761 sales, showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. Yet, the absorption rate remains firmly within the seller’s market territory.  Allegheny West/North West - with 892 sales, these regions showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. This market had shown the highest median sale price increase for the first 4 months of the year by nearly 200%. This fall may be a reaction to an over appreciation in the first four months of the year. This market had the strongest absorption rate for the term of the 8 areas studied.  Allegheny South - with 1679 sales, showed signs of increased absorption, YOY increase in the median sale price, and an increasing price over the past four months. However, the market did see increasing days on market and very weak growth of .002% for the term. Still, the absorption rate falls firmly within the seller’s market territory.  Armstrong - only experienced 157 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. Over the term, YOY market price and days on market fell. However, over the term market prices rose and absorption rates stayed in the seller’s market territory. However, with over 30% of listings expiring, this is indicative that nearly one-third of the market is so overpriced as to never attract offers.  Butler - with 974 sales, showed signs of increased absorption and declining days on market. However, home prices year over year (+.002%) and over the 4-month term (+.009%) remained nearly flat. Still, absorption rates remain in the seller’s market territory.  Indiana - only experienced 192 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. For the last 8 months, Indiana county has shown an increase in median sale prices. Could this finally be the bottom for this market that has been hammered for the past 4 years? With an expired ratio of nearly 35% for the term, there are still a large number of homes that are dramatically overpriced, however, the absorption rate is far increased (from .096 to .184) and is out of buyer’s market territory and moving nearer to seller’s market territory. If Indiana can manage a strong Fall, we may be seeing the bottom.  Westmoreland - with 1442 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of 25%. This could indicate that 25% of the market is currently so overpriced as to never consummate a sale.

Allegheny East - with 1693 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of above 25%. This could indicate that over 25% of the market is currently so overpriced as to never consummate a sale.

Allegheny North - with 1761 sales, showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. Yet, the absorption rate remains firmly within the seller’s market territory.

Allegheny West/North West - with 892 sales, these regions showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. This market had shown the highest median sale price increase for the first 4 months of the year by nearly 200%. This fall may be a reaction to an over appreciation in the first four months of the year. This market had the strongest absorption rate for the term of the 8 areas studied.

Allegheny South - with 1679 sales, showed signs of increased absorption, YOY increase in the median sale price, and an increasing price over the past four months. However, the market did see increasing days on market and very weak growth of .002% for the term. Still, the absorption rate falls firmly within the seller’s market territory.

Armstrong - only experienced 157 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. Over the term, YOY market price and days on market fell. However, over the term market prices rose and absorption rates stayed in the seller’s market territory. However, with over 30% of listings expiring, this is indicative that nearly one-third of the market is so overpriced as to never attract offers.

Butler - with 974 sales, showed signs of increased absorption and declining days on market. However, home prices year over year (+.002%) and over the 4-month term (+.009%) remained nearly flat. Still, absorption rates remain in the seller’s market territory.

Indiana - only experienced 192 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. For the last 8 months, Indiana county has shown an increase in median sale prices. Could this finally be the bottom for this market that has been hammered for the past 4 years? With an expired ratio of nearly 35% for the term, there are still a large number of homes that are dramatically overpriced, however, the absorption rate is far increased (from .096 to .184) and is out of buyer’s market territory and moving nearer to seller’s market territory. If Indiana can manage a strong Fall, we may be seeing the bottom.

Westmoreland - with 1442 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of 25%. This could indicate that 25% of the market is currently so overpriced as to never consummate a sale.

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted) Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

What analysis do you want to see included in future? Leave a comment below.

Single wide, double wide, manufactured... Oh my!

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You find your dream ranch styled home, obtain financing, make an offer, and then the appraisal comes back saying the home is a double wide?! How did no one say anything! We’ve seen this scenario where a deal is progressing and then the bank pulls back because they will not lend on a “manufactured home.” In some situations, they can be hard to spot, but it can mean the difference between being able to purchase a home or not. So today we want to equip you with some tools for the field on how to spot a manufactured home, and what issues may need to be overcome.

First lets clear up some terminology:

  1. Manufactured Home - refers to a home that is constructed to meet HUD guidelines, built off site, delivered to the property in portions and then connected. “Single-wides” and “Double-wides” and “Triple-wides” are manufactured homes.

  2. Modular Home - refers to a home that is constructed to meet building code and it is also built off site and delivered to the property in portions and then connected.

The real difference is the quality of the craftsmanship and the minimum requirements of construction. Manufactured homes are built to HUD standards and modular homes are built to IBC (International Building Code) standards.

Here are a few easy steps to determine if the property is a manufactured home:

  1. Order the county record. Most counties will note if the structure is a manufactured home and in some cases regardless of how many sections, call it a trailer.

  2. Look for the HUD Tag located on the corners of the home

  3. Look for the HUD data plate or certification, which is a piece of paper glued to some surface of the home (under the kitchen sink, in a closet and near the electrical panel are most common)

  4. Look at the bottom of the structure. If you see a steal under carriage this is a sure sign (but some manufactured homes have wood under carriages) then this is a manufactured home not a modular.

Why is this important:

  1. Manufactured homes built prior to June 30, 1976 can not obtain typical financing. This makes finding the HUD Tag and Data Plate very important. We’ve recently seen a manufactured home built in 1970 sell with conventional financing in the MLS - sadly this person (and the appraiser who signed off on it) will be in for a rude awakening when they attempt to sell.

  2. Manufactured homes have a very different marketability than modular or other stick built construction. This is represented in the fact that FNMA requires these to be performed on a different forms with different analysis.

  3. Remember, once a manufactured home, always a manufactured home- no matter the modifications. We’ve run across manufactured homes with extensive additions and/or remodeling rendering them very similar to a typical stick built structure. However, for lending purposes, it will always be treated as if it is a manufactured home, no matter the modifications.

Some common questions:

  1. What if my home sits on a permanent foundation and/or was recently converted to real estate?
    Once a manufactured home, always a manufactured home. That’s the answer, basically. Converting your home to ‘real estate’, or placing your manufactured home on a concrete block foundation, for instance, will not change the fact that it is manufactured. It will still be appraised the same way and will have the same marketability as before.

    • But what if I changed/updated/upgraded almost everything?

      If any part of the original manufactured home remains, FNMA requires that the property be analyzed as a manufactured home.

    • But it doesn’t even look like one anymore?!

      See above.

  2. My manufactured home has vinyl skirting. Will it qualify for FHA financing?
    Not without backing. FHA states that “if the perimeter enclosure is non-load bearing skirting comprised of lightweight material, there must be adequate backing (such as: concrete, masonry, or treated wood) to permanently attach and support or reinforce the skirting” This means that your vinyl skirting will need to be reinforced with backing. It’s been our experience that treated wood is the cheapest and quickest fix.

  3. I can’t find my HUD Data Plate / Compliance Certificate in my house. Is that going to be a problem when I sell? It depends. Don’t you love that answer? It really comes down to the lender. When needed, your lender will be able to guide you through this process. But to get you started, you can check out this helpful link by HUD: https://www.hud.gov/program_offices/housing/rmra/mhs/mhslabels

Whether you’re buying or selling, knowing the difference between a manufactured and modular home could mean the difference between making and breaking the sale. Make sure you advertise your home for sale correctly and make sure if you are a buyer that you do your homework to make sure the home is what the seller says it is.

Market Data Analysis: Odd Properties

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Odd balls: Geodesic domes, underground dwellings, and those homes that make you ask, “Why?” These are atypical for our market area, but they exist and they sell, so there is supply and demand and therefore a market. If there is a real estate market, then there is a market area. In the past 10 years there have been 11 sales of geodesic domes in the entire West Penn Multi List. So if someone wants a home of this style, where are they willing to consider - in other words, what are the boundaries of the market? An entire region. The more unique a property the wider the market boundaries and the need to expand.

For a less extreme look, lets consider log homes. These are not typical for the market, but certainly more common than domes. In the past 3 years there have been 11 log homes sold in Armstrong County. If a buyer is committed to this style of home, where will they consider? Given the relatively low supply, they would like consider the whole county. They might also consider looking in neighboring counties as well. They might also consider constructing their own. So, with such low supply why aren’t there log cabin sales people on every corner? Due to the equally low demand. Low supply and Low demand = stable markets.

Take away:

  1. When a property is typical for a market, your market area can be as small as a single street.

  2. However, when the property is unusual, the market area will expand quickly. Imagine for a moment being asked to sell 1600 Pennsylvania Ave NW, Washington, DC 20500. The White House. How would you determine a fair price? What would your comparables be? Aside from “priceless,” if we had to place a dollar amount, our comparable search would be global in scope, including historic homes from various countries and cultures.

When pricing a property consider the buyer motivations at work. Get in the head of the buyer pool and ask the questions they’re asking. Its the tough assignments that make you grow.

Property Inspection Waivers: Who is going to be sued?

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Fannie Mae is attempting to speed up the closing process by removing measures to ensure that properties have enough value to cover their loans… what could possibly go wrong?!

In markets where regularly see Original List to Sale Price ratios of 120%+, without an appraisal, its very possible that borrowers will be underwater once they close of there isn’t an independent, third party examining the property to determine market value. And if this is the case, who will the borrower come after when they find out 6 months later that they’re underwater?

Fannie Mae - has the backing of the government and enough money to pay for lawyers.

The bank - has no legal requirement other than the FNMA requirement.

Who is the only party in the transaction who is legally required to act and advise the best interest of the borrower? Who is the softest target to get the difference of sales price and market value from? The answer is the same: the buyer’s agent.

Appraisers nationwide realize that in years to come PIW will be a source of legal fallout, and are preparing to do retrospective valuations of properties for borrowers who were injured by the negligence of this FNMA policy. Don’t put yourself in a position that could cost you tens of thousands of dollars in years to come to speed up the closing by a few days now. ALWAYS advocate for client’s interest to know the market value of their home by an independent third party.

Hypothetical houses and hypothetical markets

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Appraisers evaluate hypothetical houses every day - let me explain. Here are some of the examples:

  1. New construction - we appraise what the home will be worth upon completion as if it was built at the time we write our report, using the data that is given to us. Without this valuable tool, banks wouldn’t be able to make informed investment decisions and homeowners would be left at the mercy of overpriced builders.

  2. Exterior-only appraisals - everyday appraisers are on the streets inspecting properties from the street, or “Drive-bys” as their called for short. These are most often used by lenders considering foreclosure. They want to know if their asset is still in good shape and worth enough to cover the remaining loan. In this instance, the appraiser assumes that the interior of the home is in similar condition/quality to the exterior. We then use public records, prior multi-list data, and other sources to determine the value of the hypothetical house that all of that information tells us.

  3. Regular appraisals - even when the appraiser has all the facts, and inspects the property themselves, there are things that the appraiser has to assume. We assume that the couch in the living room or the bedroom dresser isn’t hiding a gaping hole - we never move the furniture to check. We assume that what we see is consistent with what we can’t see.

All of these have their place, and are needed - but they also have a risk. An appraiser is always evaluating some degree of a “Hypothetical House,” the house that they can see, and assuming the rest. What if the assumption is wrong? Of the above, the most likely to be incorrect as to the real value of the “Real Home” is the drive by - the more assumptions that have to be employed, the more potential error is inserted into the system.

Appraisers play a part in the overall health of the real estate system.

  1. Real estate agents - help to inform and educate buyers and sellers

  2. Loan officers - help to ensure that the borrower is fit to secure a loan

  3. Home inspectors - help to ensure that the property is safe and secure

  4. Appraisers - help to ensure that the dwelling is fit to lien for the loan

Take any cog out of this machine, and the overall health suffers. But that is exactly what we see beginning to happen, and all in the name of making more money, faster.

The current trend is towards appraisers not inspecting the property at all. They are being given a report prepared by another party, without any necessary education on how to inspect a house. Appraisers are then expected to make value determinations based on that information. Can they produce credible results? Only as credible as the inspection, but yes. If this is the move that is coming to the real estate industry, then these inspectors need to be held to high standards. An appraiser trainee must train for a minimum of 300 hours and have 75 hours of education before they can inspect a home on their own, and only with the permission of their mentor. With this new move, a dangerous step is being taken back towards the early 2000’s where appraisers only had to inspect from the street… and this had a direct contribution to the housing collapse of 2008 (along with massive mortgage fraud on the part of the banks pushing for more money, faster… does anyone hear an echo?)

The further appraisals are removed from “Real Houses” and pushed towards valuing “Hypothetical Houses” the further we will move from actual “Real Estate Markets” and further towards “Hypothetical Real Estate Markets.” When these two collide, trillions of dollars go up in smoke in an instant.

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Over listing your home will cost you money.

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We see it everyday- a home is listed shooting for the moon, a price that will never see a contract- but who does it hurt? In the case of Indiana County, it’s hurt 50% of sellers.

Lets look at a hypothetical situation to better understand the issue:

  1. A seller sits down with an agent to list their home. During the conversation, a listing price is agreed to that is 20% above the actual market value. This could happen for a few reasons:

    1. The seller has a mortgage that is far above the current market value and they are hopeful to get a sale price that covers the mortgage

    2. The seller has an expectation that is far above market value

    3. Complexity of the property made it difficult for the agent to analyze

    4. Inexperienced agents with a focus on commission rather than educating the seller regarding market trends

    5. In the case of a For Sale By Owner, the seller may lack the experience to price their home

  2. The home is on the market, and buyers begin to search:

    1. Buyers who are in the price range to shop for the subject’s market value + 20%, look at the subject and see that it is far inferior to other properties, and walk away.

    2. Buyers who can afford the subject property at the market value may never look at it, because it is listed outside of their price range.

  3. The home sits on the market. In the case of Indiana County and portions of Armstrong County where these trends have been seen, they sit for a long time. The normal 3 - 6 month marketing time passes and then 9 months and then 10 months. (Crickets)

  4. The seller and agent get serious as the listing contract nears expiration. They begin/continue to drive the list price down. They finally get to the market value.

    1. Buyers who can afford the property finally see it within their search parameters.

    2. Buyers/Agents see the marketing time and price decrease history and assume there is something wrong with the property OR that the seller is desperate

  5. Buyers, holding all the cards in the deal, finally make an offer.

Initially listing the home well above market value, often leads to the home selling below market value. In the case of Indiana County this, among other factors, has resulted in declining home prices in rural market areas.

How to prepare a GREAT CMA

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We know that pricing properties in some markets can feel like grasping at straws. The more unique the property or the area, the more difficult this task becomes. We hope these steps that appraisers follow in the course of developing value opinions will be informative and helpful to you.

  1. Determine your market area. Location, location, location. Depending on the property that you are representing, your market area could be a single street or an entire county. Major differences in marketability can be found by moving from one neighborhood to another, so when expanding outside of the immediate area ensure that your buyer pool would truly consider these expanded properties as well.

  2. Look at the sales in the immediate market over the last 1-3 years. This will help to give an idea of what the immediate area can bear as far as values. If your price is above the 3 year high for the area, there should be a VERY good reason.

  3. Narrow in on the types of properties over 1-3 years. Now that you have a general idea of the broad market, begin to refine your search. In some markets, you will have enough sales to only consider the last 6 months. With unique properties you may need to go further back in time. Consider the main factors in the buyer pool for your property. These include:

    1. Larger than typical acreage - If your subject has a city lot, stay away from the larger parcels. Sometimes appraisers, in order to bracket other amenities and due to lack of sales, may include such a property, but this requires expertise in vacant land sales to accomplish credible adjustments.

    2. Quality of the construction - If your subject is a standard 100 year old home, stay away from the custom built house with marble floors.

    3. Condition of the property - try to stay in the general age group of your subject, and consider recent renovations that have/haven’t been performed.

    4. Lower numbers of bedrooms and baths - the buyer pool for one bedroom homes with one bathroom won’t be looking at 5 bedroom homes with 4 bathrooms, and visa versa. Homes with 1 - 2 bedrooms have a drastically different marketability from even 3 bedroom homes that should be considered.

  4. Pick your top sales. Bracket the amenities of the home you’re representing, selecting properties a little superior and inferior for each major marketable component (lot size, quality, condition, bedroom/bathroom count, etc). Look at the best sales you have over the last three years and look at the range that is indicated. Begin to “squeeze” in within that range considering which are superior and inferior to your subject, coming to a informed range that you can advise your buyer/seller with.

  5. Only after the above consider listings. Everyone wants their house to sell for more than its worth, which makes listings fundamentally flawed for value determination. Until a property is sold, a listing price is only a representation of what a seller would like to get for the property, not what a buyer was willing to pay.

What NOT to do:

  1. Don’t go 60+ miles away unless you’re representing a highly unique property.

  2. Don’t take the sales of the area, and come up with the average.

  3. Don’t compare a 2 bedroom home to only 4 bedroom homes.

  4. Don’t simply search properties higher than what the seller wants and try to “make it work”

  5. Don’t look at only listings and do the above

  6. Don’t use Zillow. Don’t EVER use Zillow. By their own admission, 50% of their Zestimates nationwide are off by more than 5%. In other words, outside of highly homogeneous recent building plans, they’re numbers are worthless.

    For example, the owner of Zillow himself sold his home for 40% less than what Zillow estimated… https://www.inman.com/2016/05/18/zillow-ceo-spencer-rascoff-sold-home-for-much-less-than-zestimate/

    1. Lets look at another example from our area:

This is 162 Glade Run Road, Kittanning PA 16201. This .624 acre property for years was “Zestimated” at $112,350. On February 28, 2019 the property sold for $8,000… an error of 93%. BUT WAIT THERE’S MORE!! Once the property transferred, Zillow adjusted the new Zestimate.

This is 162 Glade Run Road, Kittanning PA 16201. This .624 acre property for years was “Zestimated” at $112,350. On February 28, 2019 the property sold for $8,000… an error of 93%. BUT WAIT THERE’S MORE!! Once the property transferred, Zillow adjusted the new Zestimate.

Screenshot: 06/24/2019. Despite that selling price, it is still estimated to be worth $102,602. In short, Zillow can not even be trusted where there are recent sales. A drop of just 10%, when the data shows a drop of 93%.

Screenshot: 06/24/2019. Despite that selling price, it is still estimated to be worth $102,602. In short, Zillow can not even be trusted where there are recent sales. A drop of just 10%, when the data shows a drop of 93%.

Avoid these poor practices that will lead to a property expiring without a sale, drastically long marketing times or a price that won’t be supported and will “kill the deal.”

Under improvements / Over improvements

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How much is the 4th pool worth on a property? How about the 29th bathroom? How about the 20th garage? These are absurd examples of “over improvements” in almost any market (unless your market included royal mansions), and present examples of how over improvements diminish in return as the number/quality of amenities increasingly exceed what is normal for a market area.

How do you value a home with one bedroom where 4 is typical? What about a 600 sq ft ranch in a neighborhood of 5,000 sq ft contemporary homes? What about a home with only a wood stove as a heat source? These are examples of under improvements and during valuation a key factor must be considered - “What portion of the market would be willing to purchase such a home?”

Decades of data, nationwide support the fact that buyers gravitate towards what is typical, and the buyer pool diminishes as you deviate from the mean in any particular amenity. Diminished buyer pools result in diminished demand, and therefore diminished value per unit. This is a principle across many economic fields and applies to real estate as well.

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Another way of stating this is that “The more of something you have, the less each individual thing is worth,” and one of the easiest and most consistent ways of seeing this in the market is land.

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Notice that as you increase the number of acres, the return divided by the total number of acres decreases. Some properties may have a better location in Armstrong County than others, and others may have sold above/below market value, but as a general rule, the trend is clear. Other amenities will have different shaped graphs - take pools for example. In the lower end of the market, pools offer no contributory value. The buyer pool in this range may not have the resources to maintain a pool, and therefore it is seen as a negative by part of the market, positive by some, and a net neutral overall. However, in the higher end of the market, this amenity can have a return (though nearly never higher than the cost of installation). However, imagine a buyers reaction to a second pool on a half acre lot. This would be seen as a liability that needs to be fixed not as an amenity, and therefore have a negative appeal. The second pool’s value on the graph would drop below zero, and so on.

When building/remodeling a home it is vital to consider, “What is normal for my market/buyer pool?” The wider of a divergence from “normal” will result in decreasing returns and difficult sales in the future.

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