declining market
324) Declining Markets
05/22/08
Dear H2,
I have recently (last several weeks) received about 6 phone calls from real estate brokers who were concerned that a lender (or several) indicated that Fannie Mae recently placed our MSA on a "declining market" status. I have searched the Fannie websites to no avail. Do you know if there is a location (URL) that indicates what areas have been classified as declining markets?
Thank you
Otis
Dear Otis,
As far as I know Fannie Mae has not made their MSA list available to the public. I know of no other single site that provides this information. If you discover one, please let me know as others are asking the same question. Since the market in most of the country is declining I think you should start with the assumption that your market area is also declining unless you have evidence that it is not.
H2
I have recently (last several weeks) received about 6 phone calls from real estate brokers who were concerned that a lender (or several) indicated that Fannie Mae recently placed our MSA on a "declining market" status. I have searched the Fannie websites to no avail. Do you know if there is a location (URL) that indicates what areas have been classified as declining markets?
Thank you
Otis
Dear Otis,
As far as I know Fannie Mae has not made their MSA list available to the public. I know of no other single site that provides this information. If you discover one, please let me know as others are asking the same question. Since the market in most of the country is declining I think you should start with the assumption that your market area is also declining unless you have evidence that it is not.
H2
300) Declining Market Adjustments
04/16/08
Greetings Henry!
Some of the real estate companies are promoting new techniques to get properties priced correctly so they sell quickly. That is, not using the CMA approach of last sale and adjusting to the subject property; rather, just using the last sale and pegging the sale price under the last sale.
I am curious to know what the appraisers are doing with these markets, and if there is a formula in use for this, e.g., a 5% "haircut" from last sale? I am in the North Jersey area, not in Florida or Nevada where I think things are even worse.
Thanks,
Carolyn Galant carolyngalant@att.net
Dear Carolyn,
In a declining market, there is a lot to be said for using comparable sales with selling dates as near as possible to the effective date of the appraisal.
I have problems with what you are reporting. First, it is the use of just one sale. This is always a dangerous practice. The other error is to make a time adjustment beyond what is indicated by the data in the market, based on an unsupported assumption that a trend will continue. To directly answer your question, there is no acceptable formula to do this that I am aware of.
H2
Some of the real estate companies are promoting new techniques to get properties priced correctly so they sell quickly. That is, not using the CMA approach of last sale and adjusting to the subject property; rather, just using the last sale and pegging the sale price under the last sale.
I am curious to know what the appraisers are doing with these markets, and if there is a formula in use for this, e.g., a 5% "haircut" from last sale? I am in the North Jersey area, not in Florida or Nevada where I think things are even worse.
Thanks,
Carolyn Galant carolyngalant@att.net
Dear Carolyn,
In a declining market, there is a lot to be said for using comparable sales with selling dates as near as possible to the effective date of the appraisal.
I have problems with what you are reporting. First, it is the use of just one sale. This is always a dangerous practice. The other error is to make a time adjustment beyond what is indicated by the data in the market, based on an unsupported assumption that a trend will continue. To directly answer your question, there is no acceptable formula to do this that I am aware of.
H2
284) Declining Market
03/28/08
Hi Henry:
I recently completed an appraisal for a client and checked the "declining" box for property values. I did a CMA for the subject's neighborhood from Feb 06 to Feb 07 and then compared that data to Feb 07 to Feb 08. The data revealed that the average sales price and median sales price "declined" in the current year compared to the prior year. Price per square foot average also declined, and days on market increased compared to the prior year.
The lender called and ranted at me, because I checked the "declining" box -- saying this killed the deal. The lender says Fannie Mae has not dubbed this area as declining, yet my MLS statistics shows that it is. The lender stated that "she doesn't care about MLS statistics, only what Fannie Mae says." Got any advice?
Darren djhayden2@msn.com
P.S. Keep up the great work as always. I enjoy everything you put out!
Dear Darren,
Fannie Mae is making it very clear that since almost all real estate today (with the exception of a few markets) is declining, they expect appraisers to so indicate in their appraisals. If the market you are in is an exception, they expect you to substantiate your opinion. Tell your lender that reporting a property in a declining market does not kill sales to Fannie Mae. Something else may have done so.
Check out the article on page 25 of Real Estate Valuation Magazine Online regarding "Appraising in a Declining Market." You might also suggest that your lender-client read it.
H2
I recently completed an appraisal for a client and checked the "declining" box for property values. I did a CMA for the subject's neighborhood from Feb 06 to Feb 07 and then compared that data to Feb 07 to Feb 08. The data revealed that the average sales price and median sales price "declined" in the current year compared to the prior year. Price per square foot average also declined, and days on market increased compared to the prior year.
The lender called and ranted at me, because I checked the "declining" box -- saying this killed the deal. The lender says Fannie Mae has not dubbed this area as declining, yet my MLS statistics shows that it is. The lender stated that "she doesn't care about MLS statistics, only what Fannie Mae says." Got any advice?
Darren djhayden2@msn.com
P.S. Keep up the great work as always. I enjoy everything you put out!
Dear Darren,
Fannie Mae is making it very clear that since almost all real estate today (with the exception of a few markets) is declining, they expect appraisers to so indicate in their appraisals. If the market you are in is an exception, they expect you to substantiate your opinion. Tell your lender that reporting a property in a declining market does not kill sales to Fannie Mae. Something else may have done so.
Check out the article on page 25 of Real Estate Valuation Magazine Online regarding "Appraising in a Declining Market." You might also suggest that your lender-client read it.
H2
269) Declining Markets
03/13/08
Dear Henry,
On the URAR Form 1004 where it has checkbox under "housing trends" for increasing, stable, or decreasing... what are their guidelines/cutoff percentages?
Our market showed a -2% decline in average home prices from 2006 to 2007. However, to me that is not a significant increase or decrease, so I would check stable. Where I'm going with this, is what exactly IS a 'stable' market? Don't you always have some fluctuation one way or the other? And if so, at what point is it significant enough to check "increasing" or "decreasing"? If there was always a stable market, there would be no appreciation.
Thanks for any coments!
Kent Davis kent.davis@juno.com
Dear Kent,
I believe that a stable market is one where there is NO up or down trend. If the market is going down 2%, then it is a declining market. However, you should explain in the comments that the rate of decline in your area is only 2%.
For details about Fannie Mae's requirements for reporting a declining market, check out our reprint of our article "What Fannie Mae Wants" on page 25 of the current online issue of Real Estate Valuation Magazine.
H2
On the URAR Form 1004 where it has checkbox under "housing trends" for increasing, stable, or decreasing... what are their guidelines/cutoff percentages?
Our market showed a -2% decline in average home prices from 2006 to 2007. However, to me that is not a significant increase or decrease, so I would check stable. Where I'm going with this, is what exactly IS a 'stable' market? Don't you always have some fluctuation one way or the other? And if so, at what point is it significant enough to check "increasing" or "decreasing"? If there was always a stable market, there would be no appreciation.
Thanks for any coments!
Kent Davis kent.davis@juno.com
Dear Kent,
I believe that a stable market is one where there is NO up or down trend. If the market is going down 2%, then it is a declining market. However, you should explain in the comments that the rate of decline in your area is only 2%.
For details about Fannie Mae's requirements for reporting a declining market, check out our reprint of our article "What Fannie Mae Wants" on page 25 of the current online issue of Real Estate Valuation Magazine.
H2
266) Declining Market Appraisals
03/10/08
Hi Henry,
Thanks for your dedication; hope you can help with these questions ....
How does displaying and adjusting listings and pending sales provide additional support for a value conclusion in a declining price market ? Why not just ask for 5 recent comparable sales? Are we seeking the current most probable sale price for the subject property under current market conditions? I beleive that is the condensed verison of the current definition of market value. Also, aren't most or all markets currently experiencing declines in price? Is this not a given? I say let the appraisal report speak for itself, that's why we are writing it.
Regards,
Todd handsome2100@hotmail.com
Dear Todd,
Appraising in a declining market is full of problems. I agree that many markets are declining but I know there are still many where the actual sales are similar to ones in the past.
One problem is that the definition of market value on the URAR calls for the value of the property "on the date of the appraisal" and yet what the lender really wants to know is what it will sell for some time in the future.
It is up to them, not you, to take the value as of the date of the appraisal, consider what you report about the trends in the market area, and then make their own projections as to what the future will bring.
Maybe this will change, but right now this is the rule: if you are doing an appraisal on the URAR, use the definitions it contains.
H2
Thanks for your dedication; hope you can help with these questions ....
How does displaying and adjusting listings and pending sales provide additional support for a value conclusion in a declining price market ? Why not just ask for 5 recent comparable sales? Are we seeking the current most probable sale price for the subject property under current market conditions? I beleive that is the condensed verison of the current definition of market value. Also, aren't most or all markets currently experiencing declines in price? Is this not a given? I say let the appraisal report speak for itself, that's why we are writing it.
Regards,
Todd handsome2100@hotmail.com
Dear Todd,
Appraising in a declining market is full of problems. I agree that many markets are declining but I know there are still many where the actual sales are similar to ones in the past.
One problem is that the definition of market value on the URAR calls for the value of the property "on the date of the appraisal" and yet what the lender really wants to know is what it will sell for some time in the future.
It is up to them, not you, to take the value as of the date of the appraisal, consider what you report about the trends in the market area, and then make their own projections as to what the future will bring.
Maybe this will change, but right now this is the rule: if you are doing an appraisal on the URAR, use the definitions it contains.
H2
261) Declining Markets
03/05/08
Dear H2,
The market for some areas has become soft or for a better word, it is "declining". Some areas have become stable. How would I best address the issue without making a blanket statement regarding the subject property's indicated market value?
Travis Williams valueman@pacbell.net
Dear Travis,
The market is either increasing, is steady or is declining. You don't have to use these words, but the word "soft" sounds like a Realtor word rather than an appraisal term. The best way to address the problem it to accurately report what is happening in the market area of the subject property. Click on the keyword bar at the top left of the website, and look for the "declining markets" keyword for more Q&As on this subject.
H2
The market for some areas has become soft or for a better word, it is "declining". Some areas have become stable. How would I best address the issue without making a blanket statement regarding the subject property's indicated market value?
Travis Williams valueman@pacbell.net
Dear Travis,
The market is either increasing, is steady or is declining. You don't have to use these words, but the word "soft" sounds like a Realtor word rather than an appraisal term. The best way to address the problem it to accurately report what is happening in the market area of the subject property. Click on the keyword bar at the top left of the website, and look for the "declining markets" keyword for more Q&As on this subject.
H2
251) Declining Market
02/26/08
Dear Henry,
It seems that there are many grey areas when discussing a declining market. To conclude that a market is declining, I was told to use annual percentages. I was also told that you take the average marketing time and check for that specific time period. What time frame would you suggest using as our basis for trend analysis?
Ben bbrenna07@yahoo.co.uk
Dear Ben,
There are no published guidelines to use when answering this question. In this fast moving period, I would suggest one to three months. However, if you know the market in your area has been declining for a longer period of time, you should use that period of time instead.
H2
It seems that there are many grey areas when discussing a declining market. To conclude that a market is declining, I was told to use annual percentages. I was also told that you take the average marketing time and check for that specific time period. What time frame would you suggest using as our basis for trend analysis?
Ben bbrenna07@yahoo.co.uk
Dear Ben,
There are no published guidelines to use when answering this question. In this fast moving period, I would suggest one to three months. However, if you know the market in your area has been declining for a longer period of time, you should use that period of time instead.
H2
241) Investor Sales
02/12/08
Good afternoon Mr. Harrison,
I have a condo subdivision that has several sales in it. However the owners on all of them appear to be investors from down south as they all own many at a time. I am appraising a unit in this development but I do not think that it is right to use any of these sales as they are not arms length transactions and the contracts may have been signed a year or so ago. Also I have pulled listings in other developments which are much lower than the sales in my area. Please let me know what you think?
mary taylor mh_taylor@bellsouth.net
Dear Mary,
There is nothing to prevent you from using sales to investors if you believe they are the best sales available. It is usually better to also get some non-investor sales if they are available. It sounds like you are in a declining market and need to be making some time adjustments.
H2
I have a condo subdivision that has several sales in it. However the owners on all of them appear to be investors from down south as they all own many at a time. I am appraising a unit in this development but I do not think that it is right to use any of these sales as they are not arms length transactions and the contracts may have been signed a year or so ago. Also I have pulled listings in other developments which are much lower than the sales in my area. Please let me know what you think?
mary taylor mh_taylor@bellsouth.net
Dear Mary,
There is nothing to prevent you from using sales to investors if you believe they are the best sales available. It is usually better to also get some non-investor sales if they are available. It sounds like you are in a declining market and need to be making some time adjustments.
H2
217) Listings & Unclosed Sales
01/21/08
Dear Henry,
I continue to be amazed at the number of (experienced) appraisers who rely solely on closed or historic sales data without any analysis or consideration of the current listings or pending sales. Without analyzing ALL the data, inclusive of the listings and pendings, how does the appraiser have any idea as to increasing or declining market trends?
It seems if sole reliance is placed on historic closed sales, your indicated value is only as reliable as the date of the most current closed sale. However, in my Central Florida market, I'm seeing a significant decrease in the number of closed sales despite a vast increase of listings over the past 24 months (oversupply). I've been documenting declining price/value trends based on extended marketing times and reductions in asking prices of the current listings.
Based on the principle of substitution, if a suitable alternative substitute can be purchased for less than the last historic closed sale, do you think that is valid market data in support of declining value trends and market condition/time adjustments?
Joyce J. Potts, SRA OrlandoAppraiser@aol.com
Dear Joyce,
I agree that listings and unclosed sales should be considered -- especially in a declining market. However, they are no substitute for closed sales as you never know how much a listing price will have to be reduced to produce a sale or if a unclosed sale will ever really close.
H2
I continue to be amazed at the number of (experienced) appraisers who rely solely on closed or historic sales data without any analysis or consideration of the current listings or pending sales. Without analyzing ALL the data, inclusive of the listings and pendings, how does the appraiser have any idea as to increasing or declining market trends?
It seems if sole reliance is placed on historic closed sales, your indicated value is only as reliable as the date of the most current closed sale. However, in my Central Florida market, I'm seeing a significant decrease in the number of closed sales despite a vast increase of listings over the past 24 months (oversupply). I've been documenting declining price/value trends based on extended marketing times and reductions in asking prices of the current listings.
Based on the principle of substitution, if a suitable alternative substitute can be purchased for less than the last historic closed sale, do you think that is valid market data in support of declining value trends and market condition/time adjustments?
Joyce J. Potts, SRA OrlandoAppraiser@aol.com
Dear Joyce,
I agree that listings and unclosed sales should be considered -- especially in a declining market. However, they are no substitute for closed sales as you never know how much a listing price will have to be reduced to produce a sale or if a unclosed sale will ever really close.
H2
209) Declining Market
01/13/08
Dear Mr. Harrison,
Due to the changing market, I am now checking the declining market box because we are in a declining market -- which everybody knows -- but loans are being declined due to this information and the appraisers are getting yelled at. Some appraisers locally just don't check off the declining box and mark the stable box but explain the surrounding foreclosures, REO's and other market conditions. What is the right thing to do??
I would appreciate a quick response.
Betty Fernandez areaappraisals@verizon.net
Dear Betty,
If the subject property is in a market area where the values are declining you have no choice. You must indicate this in your appraisal. Not to do so is a violation of the USPAP.
For more information on Fannie Mae's guidelines for reporting your findings in a declining market, see our current article in Real Estate Valuation Magazine on page 19.
H2
Due to the changing market, I am now checking the declining market box because we are in a declining market -- which everybody knows -- but loans are being declined due to this information and the appraisers are getting yelled at. Some appraisers locally just don't check off the declining box and mark the stable box but explain the surrounding foreclosures, REO's and other market conditions. What is the right thing to do??
I would appreciate a quick response.
Betty Fernandez areaappraisals@verizon.net
Dear Betty,
If the subject property is in a market area where the values are declining you have no choice. You must indicate this in your appraisal. Not to do so is a violation of the USPAP.
For more information on Fannie Mae's guidelines for reporting your findings in a declining market, see our current article in Real Estate Valuation Magazine on page 19.
H2
172) Declining Market
12/03/07
Hi Henry:
Just wondering about the housing trends info in this market. How would checking the Declining market, or oversupply boxes affect the transaction...in other words, when I check those boxes does it kill the loan? Would Fannie Mae purchase the loan?
Glenn Rains grains1@sbcglobal.net
Dear Glenn,
An appraiser must alway check whatever boxes best describe the property and the market. You should never consider what effect that will have on the proposed mortgage. To do so would be a violation of the USPAP.
For more information on Fannie Mae's new guidelines for appraising in a declining market, see our feature article in the current (Fall 2007) issue of Real Estate Valuation Magazine Online at www.revmag.com
H2
Just wondering about the housing trends info in this market. How would checking the Declining market, or oversupply boxes affect the transaction...in other words, when I check those boxes does it kill the loan? Would Fannie Mae purchase the loan?
Glenn Rains grains1@sbcglobal.net
Dear Glenn,
An appraiser must alway check whatever boxes best describe the property and the market. You should never consider what effect that will have on the proposed mortgage. To do so would be a violation of the USPAP.
For more information on Fannie Mae's new guidelines for appraising in a declining market, see our feature article in the current (Fall 2007) issue of Real Estate Valuation Magazine Online at www.revmag.com
H2
156) Appraising in a Declining Market
11/17/07
Dear Henry,
Do you have any publications or know of any courses on appraising in a declining market? What is the best way to determine a declining market? Is a market automatically considered declining if it is driven by foreclosure sales? What is the best way to determine a time adjustment in a declining market, when so many sales may be REO properties?
Any advice would be greatly appreciated. thanks!
Shelley shelleyc04@comcast.net
Dear Shelly,
The Fall 2007 issue of Real Estate Valuation Magazine Online, which we also publish, has a lead article on this subject. Click the link for immediate access: http://www.revmag.com/fall2007/19.html
To sign up for a free subscription to REV, go to the main page, and enter your contact email: www.revmag.com
H2
Do you have any publications or know of any courses on appraising in a declining market? What is the best way to determine a declining market? Is a market automatically considered declining if it is driven by foreclosure sales? What is the best way to determine a time adjustment in a declining market, when so many sales may be REO properties?
Any advice would be greatly appreciated. thanks!
Shelley shelleyc04@comcast.net
Dear Shelly,
The Fall 2007 issue of Real Estate Valuation Magazine Online, which we also publish, has a lead article on this subject. Click the link for immediate access: http://www.revmag.com/fall2007/19.html
To sign up for a free subscription to REV, go to the main page, and enter your contact email: www.revmag.com
H2
94) Reporting a Declining Market
05/24/07
Dear Henry,
When reviewing appraisals I sense that many appraisers simply check 'Stable' rather than 'Declining' (and 'In Balance' rather than 'Oversupply') to keep brokers and underwriters happy.
The best measure is to compare 6-month or 1-year periods for the MLS average sale price per sq-ft of GLA of the subject's specific housing group (bracket its age and size, same neighborhood). Compare the average sale price now. Then compare the number of sales in the past 12 months to the number of current listings for the same group. Then just report the facts!
craig Farr arizonavaluation@onebox.com
Dear Craig,
In many parts of the country it would certainly not be correct to say that the market is stable. Doing this to keep clients happy is a violation of the USPAP.
Using the local MLS as you describe to support and illustrate what you report is one method that works. It also helps that you are presenting facts rather than opinions in this situation.
H2
When reviewing appraisals I sense that many appraisers simply check 'Stable' rather than 'Declining' (and 'In Balance' rather than 'Oversupply') to keep brokers and underwriters happy.
The best measure is to compare 6-month or 1-year periods for the MLS average sale price per sq-ft of GLA of the subject's specific housing group (bracket its age and size, same neighborhood). Compare the average sale price now. Then compare the number of sales in the past 12 months to the number of current listings for the same group. Then just report the facts!
craig Farr arizonavaluation@onebox.com
Dear Craig,
In many parts of the country it would certainly not be correct to say that the market is stable. Doing this to keep clients happy is a violation of the USPAP.
Using the local MLS as you describe to support and illustrate what you report is one method that works. It also helps that you are presenting facts rather than opinions in this situation.
H2
85) Appraising In A Declining Market
05/04/07
Dear H2,
How do I address a declining market in my appraisal reports. I have spoken with a few appraisers and they have different opinions. I have also heard that a lot of clients are being lost because we check off decling in the grid. This is one argument I have heard. At the time of appraisal the market was "stable" so you can still mark stable. I feel that if the market has declined in the past few months you need to address this. How would I address this and word it in my reports?
Mary califrs2003@yahoo.com
Dear Mary,
I don't know where you are from, but in most parts of the United States the market is declining.
It is sad that your clients leave you when you give them bad news they already know. I think in most parts of the country you open yourself up to a lot of trouble if you check the stable box and fail to make appropriate adjustments for the market decline.
I am planning to write an article or editorial on this subject in the next issue of Real Estate Valuation Magazine Online. [www.revmag.com]
H2
How do I address a declining market in my appraisal reports. I have spoken with a few appraisers and they have different opinions. I have also heard that a lot of clients are being lost because we check off decling in the grid. This is one argument I have heard. At the time of appraisal the market was "stable" so you can still mark stable. I feel that if the market has declined in the past few months you need to address this. How would I address this and word it in my reports?
Mary califrs2003@yahoo.com
Dear Mary,
I don't know where you are from, but in most parts of the United States the market is declining.
It is sad that your clients leave you when you give them bad news they already know. I think in most parts of the country you open yourself up to a lot of trouble if you check the stable box and fail to make appropriate adjustments for the market decline.
I am planning to write an article or editorial on this subject in the next issue of Real Estate Valuation Magazine Online. [www.revmag.com]
H2