Appraisers' Free Forum

benluby wrote:Neighborhood by neighborhood. We've got neighborhoods that are in decline, yet you go over two subdivisions, and they are booming. The ones that I see that are declining are the ones that were primarily subprimes, and smothered by foreclosures, which drive the entire neighborhood into the dirt.

How do you conclude prices are declining?

Edd Gillespie wrote:

benluby wrote:Neighborhood by neighborhood. We've got neighborhoods that are in decline, yet you go over two subdivisions, and they are booming. The ones that I see that are declining are the ones that were primarily subprimes, and smothered by foreclosures, which drive the entire neighborhood into the dirt.

How do you conclude prices are declining?

Gotta do some extra research on every appraisal, basically, Edd. Fortunately, I've done work in all the S/D's in my counties, and keep a pretty good eye on the market and have some good data to back it up. But trying to apply macro to micro sections screws the final analysis up, and it does require an addendum explaining the final conclusion.

bellboy wrote:Gotta do some extra research on every appraisal, basically, Edd. Fortunately, I've done work in all the S/D's in my counties, and keep a pretty good eye on the market and have some good data to back it up. But trying to apply macro to micro sections screws the final analysis up, and it does require an addendum explaining the final conclusion.

OK. Now can you fill in the gaps with some for-instance? You provided no information on that post and crippled your expert credentials. It has been said that real estate value is controlled by location, location, location, and it has been said that SF is king. I have no idea if either one of those are true, but there you are But, I want to know how you figure out micro data that overrides macro data? Of course it is discovered in research and anlayisis, but what data do you rely on to override the overwhelming amount of data that OFHEO is able to report? What do you think it takes to override the macro data? Where do you get your information to decide an area does or does not correlate? I'm looking for some specifics here. I'm cross examining you and you are not coming across as a credible witness.

If you are flying by the seat of your pants at least be honest with yourself.

bkirksey wrote:Yeah I have been marking declining for my entire market area since 1Q 2006. But then again I'm in Detroit...anyone care to argue that :)

And I keep getting reviews there where the appraisal marks the market "stable". Yeah, right! You and I both know that it has been in the tank for a long time, at least since mid 2005. Ann Arbor went from an increasing market to stable in 2004 and declining in early 2006. Detroit got hit harder much faster. It is a hugely sad state of affairs.

Edd Gillespie wrote:

bellboy wrote:Gotta do some extra research on every appraisal, basically, Edd. Fortunately, I've done work in all the S/D's in my counties, and keep a pretty good eye on the market and have some good data to back it up. But trying to apply macro to micro sections screws the final analysis up, and it does require an addendum explaining the final conclusion.

OK. Now can you fill in the gaps with some for-instance? You provided no information on that post and crippled your expert credentials. It has been said that real estate value is controlled by location, location, location, and it has been said that SF is king. I have no idea if either one of those are true, but there you are But, I want to know how you figure out micro data that overrides macro data? Of course it is discovered in research and anlayisis, but what data do you rely on to override the overwhelming amount of data that OFHEO is able to report? What do you think it takes to override the macro data? Where do you get your information to decide an area does or does not correlate? I'm looking for some specifics here. I'm cross examining you and you are not coming across as a credible witness.

If you are flying by the seat of your pants at least be honest with yourself.

Not flying by the seat of my pants, Edd. Didn't know that examples of terminology and such would be required.
This is a basic example, minus spit and polish. I'm not at the office, so I am typing this from memory.

Although the subject market is showing an overall decline of 2% in values according to available market data sources, the subject property subdivision consists of approximately two hundred and fifty homes, and the subject neighborhood has displayed an increase in values of 3% over the previous six month period based on neighborhood data available in FMLS and MLS data sources and evaluation of available data sources. There are currently 20 properties listed in the subject neighborhood, with four pending sales and seven closed sales within previous 12 month period, with prices ranging from $156,000 to $297,500, and average days on market in subject neighborhood of 90 to 135 days.

Hope this is a general example of what you are looking for. But the information is not pulled out of body cavities with no verification. I provide the example for criticism and an opportunity to tweak or completely revamp it. How would you approach it, Edd, or anyone?

One last thing, in regards to the OFHEO data. It's overwhelming. Your words.
Lets use Google Earth as an analogy. You can take a shot of the entire United States, or all of Georgia, or Colorado.
Overwhelming image. I am, to paraphrase, taking that Google Earth and zooming still further in. I don't care about the entire state, or country, it can skew statistics and figures.
One neighborhood may have thirty foreclosures, and that can throw an entire neighborhood out of whack.
If you ignore the macro, you can be off in your data, but it is not the be all to end all. The market is tanking is a comment I hear. WHAT market?
Texas is showing an overall 6.3% increase, but you'd have to be blind or fools to think that meant every property in Texas was bringing an additional 6.3%.
One neighborhood may show a 10% increase, another may have a 2% loss. If one doesn't apply themselves to digging beyond the mainstream data, why even bother appraising? An AVM can pull that information.
Look at the forest, yes, but you better stop and look at the trees to get the real, micro picture.
Otherwise, it could be surprising what is and isn't really accurate.

Thanks for posting the example and if anybody blasts you for your methods, I'll deal with them. Bring 'em on. I think you are saying you are looking at average sales prices in the neighborhood (whatever that may be) over a period of time and using that in comparison to MSA data from OFHEO. I'm reading between the lines of your method and seeing we may be speaking to some extent of apples and oranges. I think the same disconnect may be taking place in my office discussions about the subject. Thanks for kicking it out in th open. I was hoping you would. And you go get a mentor folks just go get one. See you when you come back with something of substance to contribute.

The OFHEO data is developed from isolating re-sales and re-fis and your data includes all sales (I assume sorted for size, age or something relevant to the objective). The OFHEO analysis results in comments about price of re-sales and value of re-fis compared to monthly and annually, while the average price has nothing to do with appreciation. The two methods do not measure the same data. Which is more relevant to market analysis for SFR appraisal?

We have previously discussed the difficulty in defining a neighborhood, and that definitely will effect the outcome in this discussion, but assuming we can get past that (which perhaps we should not), then how should the market be analyzed, by average sale prices or by re-sales/re-fis. The prevalent SFR mortgage SOW, severely limited as it is by fee and turn time, cannot support much specific in-depth analysis, and even if in-depth analysis can be justified, if the market area being studied is too small, neither the average sales price or re-sale/re-fi method can yield much in the way of reliable trend info.

So, if we can successfully negotiate all of the land mines in this discussion (which we probably won't), I will ask you this; Does the average sales prices of SFRs in specified narrow geographical area give you reliable information to know if your market prices are stable, declining or increasing?

Yes, Edd, if I have a large enough neighborhood. Obviously, if it is a two street community, which we have some of, I expand my search parameters to see if I can come up with better data, and I keep all my data to compile with other information previously done. The initial set up is painstaking, but after that, it is simply inputting the new information to keep it current.
The answer is, it depends. The overall market, if defined as the entire county, I will use the government numbers, as they are more accurate for a macro view. But neighborhoods?
As I've already said, that really fluctuates. I'm finishing one up right now with 20 sales in the previous 12 month period. Five are foreclosures, eight are arms length, and seven are short sales.
Obviously, the prices are showing a decline, as the foreclosures and short sales are having a definite impact.
However, less than a mile away, a similar community has no foreclosures and three sales in the previous twelve months.
There is no 'one size fits all' solution to this, as you know. You throw five different communities in, you can come up with five different overall views.
This is a conversation laden with land mines.
What one person does, another may not. Which way is right? I believe I submit credible results. I am also always open to improvement, so I can get better at what I do.
I compare average sales prices over the previous three, six, nine and twelve month period, and then the previous 24 months. It gives a good indicator of if the market is increasing, decreasing, or stable.
Could you clarify your mentor comment? It isn't very clear, considering the rest of your post.

I can see the practical application of what you are doing if you have been able to divide your market area into a hand-full of neighborhoods I really don't think it is workable for an appraiser in a market where there are multitude of neighborhoods. Surely that can't be done on a case by case basis unless you are working the same neighborhood repetitively.

The mentor comment is not intended for you. It is a warning to those who are inclined to answer questions with, "Ask your mentor." Obviously they have nothing of substance to offer the discussion.

Okay. I appreciate the clarification. I do work a lot of my S/D's on a regular basis. I know the market very well, and keep up on the trends. That is also why I clarified that smaller neighborhoods need a broader overlook than the snapshot of a little S/D.

benluby wrote:Okay. I appreciate the clarification. I do work a lot of my S/D's on a regular basis. I know the market very well, and keep up on the trends. That is also why I clarified that smaller neighborhoods need a broader overlook than the snapshot of a little S/D.

My guess is that San Diego is a MSA or perhaps several of them. Do you consider OFHEO results at all in our analyses. Does it have any relevance? How do you reconcile re-sale/re-fi results with average sales price results?

benluby wrote:One last thing, in regards to the OFHEO data. It's overwhelming. Your words.

Right words, wrong emphasis. You sound like a candidate for president.

The amount of data they can access and process is overwhelming for an individual appraiser to sort throughand it is overwhelming when compared to individual neighorhoods. However, I am told overwhelming in the context of numbers is a good thing.

I misunderstood the context in which you meant that, Edd. Nothing more. I stand corrected.

benluby wrote:I misunderstood the context in which you meant that, Edd. Nothing more. I stand corrected.

Never mind. Let's not loose track of the objective.

How do you reconcile re-sale/re-fi results with average sales price results?

Where'd everybody go. Here we have various sources of data and research regarding market trends and I am asking what weight is appropriately given to each. Maybe it doesn't matter. Or does it? If MLS data says it is going down, NAR says it is going up and OFHEO says it is stable, just take our pick based on how you feel about it?