Housing Market
This year the housing market was different than what was forecasted. A review of Rein’s monthly market reports show that inventory has steadily declined since the beginning of the year which started at the lowest point since 2013. Sales have remained strong throughout the year with the best months being February and May while July had a large drop year-over-year. The drop in July was not in Hampton Roads alone, in fact the Hampton Roads market has followed the national market with low inventory and low sales in July. Redfin is attributing the July sales to a month of fewer business days due to five full weekends and a national holiday. New construction has continued to be strong since May with double digit growth and the median sale price has remained relatively stable since April which had a 4% increase year-to-year. The mild winter may have helped the spring market and May had the lowest state unemployment rate since 2008.
Interest Rates
Although the Federal Reserve threatened to raise mortgage rates this year, we have actually seen a decline of approximately 0.5% since January with rates below 4%. Many of the foreign economies are experiencing slow growth which is keeping our rates low. If China, Japan, and Europe’s economies turnaround, our rates may rise a noticeable level but until that happens, economists don’t expect to see a significant change. We may continue to see rates near 4% for a while.
Homebuyer Shift
While the market has remained strong and rates low, the homebuyer market has seen a change in homebuyers. According to NAR, in this past year, 17% of homebuyers were single women, which was twice the rate of single men. Many female buyers of single family homes are in their 40’s or older and are divorced or widowed. The report also showed that single millennial women are buying condominiums.
MLS Tools
This July REIN implemented single sign-on technology to allow easy access to all the necessary transaction tools. You no longer have to recall numerous websites and passwords to process a single transaction. This should speed up and simplify the transaction process. In October zipLogix Products were replaced by Instanet Solutions to also simplify the transaction process.
Matrix is now the sole MLS system. This decision was made by the product vendor who is no longer going to support the technology behind Fusion. The REIN staff was busy working with the vendor to create reports and functional processes to make the transition seamless while offering all the tools that we need to run our businesses. Change can be painful for some, but in a world of changing technology and data access it is important that we stay up-to-date to effectively service our clients.
Since this year’s market has been so strong it is believed that it will remain strong into next year. Rates may increase to 4.5% but this should not have an impact on the market. It will still be difficult for first time home buyers to qualify for a mortgage. If inventories increase, appreciation should slow down and keep prices at an affordable level, allowing many first time home buyers to qualify for a loan.
What You Must Know About Home Appraisals
Understanding how appraisals work will help you achieve a quick and profitable refinance or sale. Read
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Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®
I recently sent a survey out to the Real Estate Agents in my database. This survey asked for the top 3 challenges they are facing in the current market. Of the responses 60% were concerned with low appraisal values and the number of REO properties in the market. As an appraiser, I would say about 1% of my reports in the past 3 years have included a distressed sale when the purpose was to find market value. The survey results concern me if other appraisers in the area are using REO properties as comparable sales when maybe they shouldn't be. The main effect that REO properties are having on the market is they are bringing the average and median sale prices down so agents and appraisers may need to take a time adjustment if the market is showing a declining trend. I think this is the biggest factor being missed when setting a list price or a counter offer.
I was recently reading the Appraisal Institute's opinion on the use of distressed sales as comparables. The article can be found here.
Some important points include:
"Appraisers cannot categorically discount foreclosures and short sales as potential comps in the sales comparison approach. However, due to differences between their conditions of sale and the conditions outlined in the market value definition they might not be usable as comps."
"If the foreclosed property was sold without a typical marketing program, or if it had become stigmatized as a foreclosure, it might need to be adjusted if used as a comp. Further, some foreclosed properties are in inferior condition, so adjustments for physical condition may be needed."
I did need to use an REO and a short sale in a waterfront property I recently appraised. I took adjustments for these properties based on market reaction to these sales since they do have a stigma in this area. The underwriter could not understand why I was taking adjustments and said they had never seen it before. Hopefully I was able to educate the underwriter in this case!
"When it is necessary to use a distressed sale as a comp, the appraiser must carefully analyze the current local market to determine if an adjustment for conditions of sale is needed. If no adjustment is warranted, the lack of adjustment should be explained."
"When the sales comparison approach is necessary, but there are virtually no current sales in the market area to analyze as comps, the appraiser must:
1. Expand the geographic area for comp search, then adjust for location as appropriate, and/or 2. Use less recent sales, then adjust for market conditions as appropriate."
1. Expand the geographic area for comp search, then adjust for location as appropriate, and/or
2. Use less recent sales, then adjust for market conditions as appropriate."
The points found in this guide note are ones that I follow with every report I complete. If you have concerns with a report that has been completed inappropriately ask for a review appraisal or question the lender about the use of comps. They may not do anything about it, but you won't know unless you ask.
I recently completed an appraisal request by a client. Shortly after it was submitted to the lender I received a call from the lender stating that an appraisal was completed on the same property one month earlier for $85,000 more than my appraisal. The lender then asked if I could review the previous appraisal to see if I could use any of the sales the other appraiser used and determine why our values were so different. Included in the email with the previous report was a specific dollar amount that the loan officer was looking for. This request had USPAP violations written all over it.
1. As soon as the lender asked me to review the previous appraisal he was actually requesting a new assignment which would be an appraisal review. Although the lender does not see it this way and was not willing to pay the additional fee for a review.
2. The desired amount in the email is a violation of USPAP ETHICS RULE.
a. The Conduct section states;
An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.
An appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions.
b. The Management section states:
It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following:
1. The reporting of a predetermined result (e.g., opinion of value);
2. A direction in assignment results that favors the cause of the client;
3. The amount of a value opinion;
4. The attainment of a stipulated result; or
5. The occurrence of a subsequent event directly related to the appraiser’s opinions and specific to the assignment’s purpose.
The bottom line to this scenario was that I suggested the lender have the original appraisal reviewed. I do not believe that the most comparable sales were used in the report and the report contained numerous errors. I was not willing to change my report based on another appraiser’s opinions. It was obvious to me why there was a discrepancy in the values. It all comes back to the sales used. Based on this, don’t think I low ball values because I don’t. I believe in giving the most supportable market value possible. In this case the appraiser chose to use sales with a superior location and not adjust properly according to the market.
Current market value is what most homeowners, real estate agents, and financial institutions are looking for when they request an appraisal. The most common definition of market value is:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests(arm’s length transaction); a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."
So by definition, market value is set by the buyer and the seller agreeing on a price, not the appraiser, homeowner or Realtor. If we look back just a few years ago when the market was booming, buyers were submitting contracts for greater than the list price. The buyer set the market. It is happening in this market as well. The buyers have a lot of inventory to choose from and all types. The buyer is deciding what price they want to pay for a particular property. The trick to selling a home quickly is to find the most probable price the home will sell for based on the current competition and the most recent sales.
If a market has numerous short sales, foreclosures, estate sales, or motivated sellers, the buyer may see a stigma to these properties and are expecting a ‘deal’. They are typically going to offer a low price for the property. It is up to the motivation of the seller to agree to the price. If the house isn’t selling then typically the seller gives into the buyer. The buyer is still setting market price.
When market value is requested for an appraisal assignment, the appraiser uses recent sales from the market that are the most comparable to the subject. These sale prices were determined by the buyer at the time of the sale.