One of our new RAC members, Rachel Massey, SRA, is a prolific writer of appraisal-related topics. She loves appraising and is passionate about appraisal education. The following is something she shared with our members, that had appeared on WorkingRE. We thought it was something we should share with you.
By Rachel Massey, SRA
The appraisal was good. In fact, it was really good. The logic was sound and the comparables used and analyzed were the best available. It was a complex property and the appraiser did a terrific job considering the likely buyer and what their alternatives would have been. Unfortunately, there was a problem.
The problem was that the report was bad. In fact, the report was really bad. None of the appraiser’s logic and analysis came through in writing. The complex property appraisal looked like a jumble of disconnected sales that had nothing to do with each other, let alone the subject property.
The disconnect was simple. The thought process that was involved in developing the appraisal did not make it from the appraiser’s head to the reader. While all the steps in the appraisal process had been followed and a logical result occurred, communicating the result, the last leg of the process, was weak. It was weak because the appraiser was unable to adequately communicate what was going on.
The house was unusual for the market. The market was rural and there were few comparable properties to choose from. There were sales in the area but the sales were just that, sales. The best sales were distant, older, and looked dissimilar with the exception of a couple key features. The key features in this instance were acreage properties with large pond sites, far from any town and close to areas with recreation land.
Start at Beginning
When you begin a report, think about the intended users, as well as the reviewers who will be viewing the report and step back to see if it contains sufficient information for them to be able to understand what the complexities of the situation are. Where do you start? Start at the beginning by describing what the problems are. Why is the property complex? How is it unusual? How many sales are there in the competitive market over the past year? How about two years? What is the competitive market? What would drive the buyer to consider this property and what would their alternatives logically be?
Had the appraiser laid out the problems unique to this property at the start of the narrative, the logic would follow that the client should not expect a pretty report. If the property was rural and unique and the market from which the likely buyer would consider properties broad, then say it. Spell it out so that the client knows what to expect. If the typical buyer for this property would only consider acreage properties with large pond sites, and eclectic style houses that were secluded from all neighbors, then perhaps the market includes properties thirty miles apart.
Convince the client that this is the case. If the typical buyer is a horse enthusiast who wants to be able to take their horse out for trail riding, then the likelihood is that they want to be within a short ride of the horse trails. Talk about it. These are very real considerations for many buyers and may be the overarching drivers as to which properties get considered.
Even on complex properties, there are usually sales that can be located, and those sales are either superior, inferior, or equal to the subject property. If the appraiser steps back and looks at the bigger picture of these sales and logically details why one is better than the subject and one not as good, without any adjustment at all, the appraiser can lay out a logical value range. Watch almost any house hunting show on television and you will see this is very much what buyers do. If buyers do this and appraisers try to reflect the actions of the market, this kind of logic can help present an answer to a difficult appraisal assignment. Even with very imperfect sales data, we can still tell the story of what makes the property unusual and how the sales we choose compete and rank in comparison. From a logical standpoint, simple bracketing with inferior and superior properties can help convince our client that the property is worth more than X and less than Z, with the telling of the “why” being up to us.
Remember that no matter how good the appraisal is in our heads, if we don’t communicate it in the report, our client may well think we have presented nothing more than a jumble of sales. It is up to us to tie everything together into a cogent and compelling story and convince our client that our value opinion is sound. After all, that is what they are paying us for.
KVUE has been investigating the issue and found that while the sky seems to be the limit for home prices in the city; salaries can’t keep up and it’s pushing people out of town.
According to federal housing data housing prices have risen faster in Austin than anywhere else in the country.
But the real issue isn’t just a need for housing. Instead, the salaries that most people in Austin receive is not enough to keep up with the price hikes.
Over the last 26 years in the city, family incomes rose 97 percent. At the same time, median home prices rose 290 percent.
Put another way, a family making $50,000 in Austin would have seen their income rise to $98,500. However, a home that cost $100,000 then would now cost $390,000.
Read the full article at KVUE News
Mobility Magazine of the Worldwide ERC, October 2016
By H. John Neff, SRA
The City of St. Louis and the four surrounding counties of St. Charles, Jefferson, St. Louis and Franklin comprise approximately 75 percent of the entire metropolitan statistical area’s 2.8 million population total and more than 90 percent of the Missouri market area’s population. St. Louis County dominates, with more than 1 million residents and 90 municipalities. Area commerce is led by health and education, trade and transportation, manufacturing, financial services, leisure and hospitality. Professional services account for the majority of employment opportunities in the area. As of May 2016, the unemployment rate was 4.5 percent. Efforts to provide opportunities for technology, bioscience, manufacturing, defense and financial services growth are ongoing in the community.
There’s good news for the St. Louis Housing Market. Late last year Realtor.com predicted St. Louis will be the second hottest major real estate market in 2016, with an estimated 8.6 percent increase in sales activity and a 10 percent increase in the median sale price. Through the first three months of 2016 Multiple Listing Service (MLS) statistics indicate sales activity was up 8.6 percent, but ended up 6 percent overall through the end of June. The average home sale price is up only 4.5 percent year-to-date based on the first six months of 2016 compared to the first 6 months of the prior year, and median home prices are up 6 percent for June 2016 as compared to June 2015.
While the housing market is trending upwards in many locations and price ranges, at least some of good new depends on which side of the transaction you’re on. Low interest rates continue to keep buyers in the market, but the inventory according to both real estate agents and MLS statistics is well below demand. It’s a seller’s market, especially in active areas such as St. Peters, Webster Groves, Manchester, and Brentwood, where there is a less than 1.5-month inventory as compared to the overall market, which has a 2.9 months’ supply. South St. Louis City neighborhood leads the area in sales activity in 2016 with 1,103 transactions, followed by Mehlville (504), Wentzville (401), Kirkwood (375) and Webster Groves (366). Multiple offers within hours, full price contracts and escalator clauses are the norm in several markets. There were 14.7 percent fewer listings available in the second quarter of 2016 compared to the same quarter in 2015, yet sales activity was 4.3 percent higher in the quarter as compared to the same quarter in 2015. New home construction is steady to up slightly from the previous two years. It took roughly 6 to 8 years for the market to absorb the post-crash inventory of existing lots before raw land was developed for new subdivisions.
St. Louis rarely experiences meteoric increases or declines in residential home prices compared to many other major home markets around the country. Home values experienced a steady rise from the mid-1990s through 2007, when the average sale price of a single family residence peaked at $190,729. For the two years following the market crash, the average home price declined 18.6 percent to $160,756 by year-end 2009. Most every location and price range was adversely impacted by the decline in activity and market value. Tightened lending guidelines made it extremely difficult for entry-level home buyers to qualify for loans, thus preventing the next level of move-up buyers from ascending the home-value ladder. The St. Louis Area had one of the highest foreclosure rates in the county, due primarily to home flipping and fraud activity.
Areas where average sale prices were lower to begin with for most all city and county locations saw the highest-percentage decreases, again reflecting the adverse impact on entry-level buyers. For example, the average sale price for a home in either the Hazelwood or Kirkwood School District in 2007 was $129,950 and $337,349, respectively. In 2010 the average sale prices were $88,127 and $286,303, respectively. The 32 percent decline in Hazelwood was more than twice as great as Kirkwood’s at 15 percent.
Home values saw their first increase since the crash in 2010, but values slipped again slightly in 2011. Since 2011, when the average sale price was $158,675, average sale prices have increased each year through year-end 2015 to $197,288, a 24.3 percent increase. The average sale price of home soared by 15.2 percent from the first to the second quarter of 2016 ($182,100 to $209,700).
Most, but not all St. Louis-area markets have rebounded from several years of moderate sales activity and unstable values; but unfortunately, even though sales related to foreclosures and bank-owned properties are well below post-market crash levels, pockets remain in which these types of transactions continue to drive the market. Much of the increased demand for South St. Louis City homes is attributed to Generation X and Millennial buyers seeking affordable housing and conveniences. The number of transaction in this location was double that of the next-closest area. Sales activity for expensive homes, those over $750,000, is relatively slow. Barring any significant economic, social, or political changes, all indications are that the positive housing trend should continue.
H John Neff, SRA, is president of Mueller & Neff Real Estate Appraisers & Consultants, Inc., in St. Louis and a member of RAC (Relocation Appraisers and Consultants). He is a Certified General Appraiser in Missouri. He can be reached at +1 314 849 1444 or email@example.com.
Mobility Magazine of Worldwide ERC, August 2016
By Tom Reynolds CRP, SRPA, Louise Jeffers, SRA and John Ciminera, SRA
The Delaware Market is located just south of metropolitan Philadelphia and west of the Delaware River. Delaware is known as “the First State,” because it was the first to ratify the U.S. Constitution in 1787. The State of Delaware is the corporate home or place of incorporation for more companies than any other state in the country. The U.S. Office of Management and Budget officially defines the region as the Philadelphia-Camden-Wilmington Metropolitan Statistical Area, and it is the seventh largest metropolitan area in the U.S., with a population of approximately 6 million as of the 2015 U.S. Census Bureau Estimate.
Industries with the largest increase in jobs in Delaware over the last year, according to the U.S. Bureau of Labor Statistics, were education and health services, followed by government. The largest job growth percentage was seen in professional and business services, and the poorest growth was in chemical and pharmaceutical research-and-development science-industry jobs. Historically, DuPont Co. was one of the state’s largest employers but the company’s recent merger with Dow Chemical brought substantial layoffs. This is having an impact on the New Castle County economy and the buyers’ consumer confidence.
The Delaware unemployment rate was 4.2 percent as of April, while the national average was 5.0 percent. The Delaware unemployment rate is down 0.7 percentage points from the previous year, a slight improvement. Economically, the area is known for its relative stability, average-to-low unemployment rates, and affordable cost of living.
The Delaware real estate market is presently experiencing the same real estate market conditions that are being felt nationwide. Residential inventory levels have started to decline, and new construction has improved slightly. Foreclosures do not constitute much of the market today. Many homeowners are concerned about employment stability and consumer confidence in the economy in all price ranges. Job losses and declining consumer confidence over the last five years have contributed to a general contraction in the Delaware real estate market.
While the national housing inventory hit a new low in January of 2013, market activity has gradually improved since then, and inventory levels started to decline. The last 12 months, the average sale price of homes and the number of closed sales has increased slightly. The inventory levels range from four to eight months’ supply, depending on the specific location and price range. The average days on market for New Castle County have held steady, with a comfortable 63 DOM, and Kent and Sussex Counties have had 90 DOM for the last 12 months. The suburban counties just north of Delaware in Pennsylvania (Delaware and Chester) have all experienced more market activity and a lower inventory of homes for sale. These counties in Pennsylvania draw some families who work in Delaware but prefer a short commute in order to have better schools.
Consumer confidence and job security remain low. The historically low mortgage rates, however, have created a market favorable to buyers with good jobs and good credit.
A slight oversupply in the marketplace, low consumer confidence, and low interest rates are expected to continue through the rest of 2016. Employment remains the key factor affecting the local housing market. This will be remembered as a year that marked the beginning of the changes for the State of Delaware that came along with the newly merged DowDuPont and the new Chemours Company, spun off from DuPont in 2015.
The residential real estate market will start to improve as economic indicators for both the regional and national economies demonstrate positive improvement. It is anticipated that for the next year the State of Delaware will remain a buyer’s market.
R.Tom Reynolds, SRPA, CRP, is with Reynolds Appraisal Company, and is the 2016 President of RAC (Relocation Appraisers and Consultants). He can be reached at +1 302 575-0955, or TomReynolds@RAC.net. Other local members of RAC who assisted are Louise Jeffers, SRA is with Reape Jeffers & Assoc. She can be reached at 610-527-7540, or LJeffers@ReapeJeffers.com. John Ciminara, SRA, He can be reached at 610-891-0673, or JBCiminera@comcast.net .
RAC president Jonathan Miller spoke with RAC member Thomas E. Allen, SCRP from Oklahoma this morning (who is also first vice president and a former president of RAC). Tom mentioned that he attended the The Appraisal Foundation Advisory Council (TAFAC) meetings last Thursday/Friday in Washington DC and was elected to represent TAFAC on The Appraisal Foundation Board of Trustees next year.
Tom recalled that:
without RAC, this would never have happened. RAC has presented so many opportunities for me.
Congratulations to Tom for this achievement and for his leadership in RAC and the appraisal profession!
The Appraisal Foundation Advisory Council (TAFAC) is composed of 60 non-profit organizations and government agencies. TAFAC member organizations represent various professions and occupations with an interest in valuation including appraisers, home builders, real estate brokers, financial institution regulators, federal land acquisition agencies, the secondary mortgage market and the private mortgage insurance industry.
Wall Street Journal August 11, 2016 For Ceilings, What a Difference a Foot Makes
Buyers of luxury condos will pay a premium for ceilings that are even just a foot higher than the standard, but tall rooms pose challenges
While ceilings are rising throughout new luxury towers, the tallest ceilings are typically found in the highest, most expensive apartments, says Michael Hobbs, the owner of PahRoo Appraisal & Consultancy in Chicago.
High ceilings are often found in apartments that offer other luxury amenities, such as tall windows and concierge service, which bolster their value, says New York appraiser Jonathan Miller—but not in every case.
Mobility Magazine of Worldwide ERC, June 2016
By Kevin P. Maloney
The northeastern Illinois market is made up of Cook County, which contains the city of Chicago, and five surrounding “collar counties” of Lake, McHenry, DuPage, Kane and Will. The city of Chicago, with a population of around 2.7 million, is the area’s primary economic engine. This report focuses on Cook and DuPage counties, as they are the most populous counties and see the greatest amount of relocation activity. These two counties contain more than 6 million residents and account for around 80 percent of the population in the northeastern Illinois market.
Housing prices in the northeastern Illinois market increased from 1997 through 2007. Some areas saw market peaks in 2007, while others continued to see appreciation through the third quarter of 2008. The Great Recession hit in earnest in September 2008 and brought value declines to all markets. However, the magnitude of the decline varied significantly. The greatest percentage losses were typically seen in communities that entered the recession with a median home value that was below average for the region. Some communities began to see values move upward in 2012. However the most severely impacted areas did not see an upward trend in value until early 2014.
The rate of recovery in Cook County for detached home values varies dramatically from one area to another. High-demand areas in the city of Chicago have seen the strongest recovery. For example, the Lincoln Park neighborhood had a median detached home value of $1,425,000 in 2007. The median value in this neighborhood dropped 11 percent by 2011. However, by 2015 the median value was more than 11 percent above the prior peak in 2007. Median detached home values above the prior peak in 2007 can also be seen in other areas of the city of Chicago, such as West Town and Lincoln Square. These locations all have strong transportation links to the central business district, and residents have rising levels of disposable income. The availability of vacant land in the high-demand areas of the city of Chicago has kept additions to the detached home supply at a relatively low level, and most building is on an infill basis. The city of Chicago is seeing the greatest competition from new construction in the upper end of the market (homes priced above $1.5 million).
None of the suburban areas of Cook County have seen median home values push back up to the prior peak levels. The highest-demand areas in suburban Cook County typically remain approximately 8 percent down from the peak. The worst-hit communities often still have median home values down more than 40 percent from the peak. An example of a community that continues to be profoundly impacted by the great recession is the town of Cicero, which had a median detached home value for the year of 2015 that was 45 percent below the median value in 2007.
The DuPage County market shows the same broader pattern as Cook. Communities that entered the recession with high median home values typically saw a lower percentage drop during the recession. For example, the city of Naperville had a median detached home value of $452,000 in 2007. The median value fell 16 percent below the 2007 number by 2011 but recovered to only 9 percent below the prior peak by 2015. The village of Hanover Park, on the other hand, had a median home value of $238,000 in 2007. The median value was 46 percent below the peak by 2011 and by 2015 the median value remained 27 percent below that of 2007.
The condominium market in DuPage and Cook counties has seen appreciation flatten over the past year. Condominium construction remains limited throughout the entire market area. A large number of rental units are being built in the city of Chicago, and these units may ultimately be converted to condominiums. However, any major addition to supply will be at least three years down the road. The limited levels of new supply in most market segments should keep values stable to moderately increasing over the next 12 months. Higher-priced attached properties face the greatest downside risk, as much of the impending supply is focused at the upper end of the market.
In Cook County, distressed sales (short sales, foreclosures, and bank-owned properties) made up 42 percent of the total sales volume reported in the MLS for the year 2011. Distressed sales in Cook County for 2015 fell to 22 percent of the total sales volume. In DuPage County, 34 percent of the total sales volume consisted of distressed transactions in 2011. The number slipped to 15 percent for 2015. While the numbers above clearly show that the Chicago region is heading in the right direction, the number of distressed sales still remains drastically higher than normal.
The hope is that the dynamic growth seen in some areas of the region will exert a positive secondary impact on communities that continue to struggle. While major political and economic challenges still occur, the city of Chicago clearly remains the Midwest’s cultural and economic hub.
Kevin P. Maloney is a certified general appraiser with Maloney Appraisal, Inc., in Chicago and is a member of RAC (Relocation Appraisers & Consultants). He can be reached at +1 773 281 6013 or firstname.lastname@example.org.
Another company has decided to move its corporate headquarters to Fort Worth to take advantage of the Lone Star state’s business friendly environment and the city’s longtime history in the aerospace industry.
The move is historic for Burbank, California-based C&S Propeller — an FAA and EASA certified repair station for propeller and airplane maintenance — which has been in California for nearly five decades.
See the full story in the Dallas Business Journal.
By Ernie Durbin, SRA, CRP, RAC Member
Wikipedia describes the metaphor “the elephant in the room” as, “an obvious truth that is either being ignored or going unaddressed. The idiomatic expression also applies to an obvious problem or risk no one wants to discuss.”
Somehow, recent events in the valuation space have deflected attention away from the elephant in the room, customary and reasonable fees. Real estate appraisers are resilient folks. They can adapt to change as well as any other professional. But like everyone else, they don’t want to do more work for less pay. Most of the issues facing the valuation space today point to one simple problem- customary and reasonable fees. It’s time to address this obvious problem and the risks that it poses to our industry.
Enjoy the full article here.