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ParticipantWhat’s really bad is when the MLS boards allow the listing price to be modified upwards to make it appear the contract price didn’t exceed the listing price.
ParticipantYou don’t know the half of it (and neither do I). This property was not exposed to the market for “only” 109 days. It was listed 3 times, for a total of almost 13 months before it finally sold at 10% above the listing price.
No matter how you cut it, if the property was listed between $649k – $695k for over a year, and there have never been any sales in this immediate neighborhood that exceeded $650k then I think most people would interpret the listing prices as having been more then adequately tested in the market.
I know how the appraiser did it (used outside comps from better neighborhoods) and I can guess which comps they used, but I’m amazed the lender was dumb/greedy enough to buy it. Somebody is obviously asleep over there. Either that, or they’re high.
The seller originally purchased the property in 03/2004 and refinanced into a 96% loan in 12/2004; and then they hit the property in 05/2005 for another $100k. They first listed the property in 08/2005 at basically a breakeven. They literally didn’t have any room to go any lower than the bottom of their listing range. This buyer apparently did an 80/20, and they’re maxed out too.
I wonder where the extra $100k went ($775K vs. $675k?
ParticipantThis project almost isn’t even in Garden Grove. It’s just south of where Anaheim and Stanton come together. If memory serves there used to be some apartments in this area that were basically a slum. Maybe the city redeveloped that neighborhood.
The communties in this area of the O.C. (GG, Anaheim, Santa Ana, Westminster, Stanton, etc., were all almost completely built out by the 1970s. Any new developments in town would likely be built on an infill basis. Since most lenders require at least a couple outside sales, the nearest similar subdivision of new homes could easily be 3 or 5 miles away; and it might very well not even be located in Garden Grove itself. 3 miles away could include the south end of Buena Park or the west end of he city of Orange. There’s no telling what that other project looks like, either. An appraiser probably wouldn’t have much in the way of alternatives.
These buyers probably don’t have a case. The sales from inside the project all represent arms-length transactions between the developer and their buyers. This project is (probably) not located close enough to the nearest comparable new home tract for those outside comps to be meaningful. Most buyers (and hence most sellers) would give the sales contracts inside the project more weight than the outside sales as being more indicative of their values. The sale prices probably supported each other as of the dates they were entered into.
The bottom line here is that (unlike several Piggingtonians) these folks didn’t apply their critical thinking skills when they were making their purchases and as a result they timed the market exactly wrong. They’re in the same boat as the people here in SD County who bought in 2004 and 2005. They have nobody to blame but themselves. If misery loves company these people should end up with lots of it.
ParticipantI’ll bet you won’t find it so hard to wait if the prices take another drop during Q1 2007.
ParticipantAgain, the median is a clumsy and inaccurate way to quantify the amount of increase or decrease. By using it these reporters are actually going to exacerbate the panic, which probably will lead to the overreaction the RE types so rightly fear.
I think what this big percentage of change is indicative of is the reduction of new homes being sold and the belated reporting of the trend that has been well underway county wide since the beginning of the year. The change itself isn’t accurate, except to the extent that it nudges the median closer to what has been happening all along.
ParticipantLet’s see, that’s a $52,000 reduction on a list price for a home that’s still on the market 6 months later. It doesn’t sound like Darrell found any local suckers, er, buyers for that one, either.
ParticipantHouses are not merely investment vehicles. They fulfil emotional needs and for many people contribute heavily to their personal identity. Many people consider their homes to be their most prized possession and an indication of both their financial acumen and their social status.
As an appraiser I run into this all the time. When you tell a homeowner that their home isn’t worth what they think it’s worth you’re not just commenting on the price of the home. You’re also saying that the homeowner isn’t worth as much as they think they are; that they aren’t as smart as they think they are; and that they don’t have as much social standing as they think they have.
Truly, it’s probably better for your relationships if you just keep your opinion on this to yourself unless cornered.
ParticipantOne of the things being debated in our profession right now is the appropriateness of expressing market value for a mortgage appraisal as a single number. The argument goes that if among typical buyers there would be a reasonable range of possible sale prices for a given property, wouldn’t it be more honest for appraisers to express it that way in their appraisal reports? Better that than to try and say the one number is the only right number, which obviously is not what happens out in the real world.
Then the lenders could directly exercise their own discretion instead of leaving the discretion to the appraiser and trying to influence it indirectly. If the sale price is within the range they can decide to do the loan, and if it isn’t they can increase or decrease that loan as suits their purposes. A borrower with great credit might be worth extending a slightly larger loan of 91% instead of the 90% (or whatever) normally offered. A borrower with crappy credit might only be worth an 85% loan.
Of course, none of this addresses the real reason why the two appraisals in question were so different, even when considering the 8 month interval and the declining market conditions. I’ll bet you a buck there’s something wrong with at least one of those reports, possibly both.
ParticipantThe data for most SFR appraisals will result in a range of indicated values and – except for condos – it would be exceedingly rare for 3 or 5 comps to legitimately adjust out to the same pinpoint value. If a pending saleprice is within that adjusted range most appraisers will generally pin that tail on that number. We sometimes refer to that as a “tie goes to the runner” situation wherein a contract between a willing buyer and seller is considered just as valid an indication of market value as any other piece of market data. We don’t ignore it but we also don’t let it override everything else.
You may or may not be familiar with how loans are underwritten, but if an appraisal “misses” a sale price by even $1,000 it can mess up the loan application even though the variance on a $500k loan is literally within the margin of error. Although they should, these lenders don’t use a whole lot of discretion in calling reasonable equivalencies for loan purposes. For their purposes the appraisal either comes in at the sale price or else they may decline the loan application. As a result, appraisers almost never come in short if it’s within that margin of error because we can never be so certain that our outside data will override the indication from the contract at such a small amount. An appraisal will usually either come in at the contract price or if it does come in low it’ll be clearly outside that margin of error.
You’re are right about it looking suspicious though – and it’s definitely something that always bears some scrutiny.
ParticipantIt wasn’t all that common during the last downturn because the assessments weren’t large enough to warrant chasing the 20% reduction in taxes. That was when homes were selling for 1/3 of what did at this last peak.
Roughly speaking, if a home that was purchased new in 2005 for $900k is generating about $10,080 in annual property taxes (which includes several types of assessments in addition to the base), a 20% reduction in the base tax rate would net about $1,800/year or so in tax savings between the time it was reduced and the time the market value returns to the original level. Unlike with the Proposition 13 limitations of 2% annual caps, if a County Assessor reduces a tax assessment because of market conditions they can adjust it back in however little time it takes for the market to recover. After it gets back to the original value, that’s when the 2% annual cap takes over again.
To get the reduction, the property owner would need to file the appeal. If the tax assessor disputes it the matter will go to an appeals hearing. At that point the property owner can bring the data they think supports their case and the assessor will do the same. Obviously as an appraiser I’d tell you to get an appraisal to document the comps and provide the outside opinion of value, but it’s my understanding that an appraisal is not necessary, per se.
In order to decide if it’s something you’d want to do, you’d have to consider the costs involved in getting an appraisal and perhaps hiring a consultant to argue your case for you, as well as your own time and effort. The thing to remember is that the reduction is temporary and only lasts as long as the market value of the property is below its prior assessment. As an example, a 20% reduction on the $900k home that lasts for 2 years would gross a savings of $3,600 before considering the costs to obtain that reduction. And this is assuming the market doesn’t come roaring back next year.
When homes were commonly selling for $150k-$300k the property tax savings were generally not enough to justify the appeal. But that was then and this is now.
November 21, 2006 at 12:10 PM in reply to: Any housing downturn will be limited to San Diego & Sacramento? #40437ParticipantDeja vu, man. I heard this exact same argument in the late 80s. Everyone wants to be here.
During the last bust, California was the last area to enter into decline and was almost the last area to recover. The past may not predict the future, but we won’t know for sure until the effects of the RE layoffs settle in and the ARMs reset.
ParticipantIt kind of sounds like the first deal fell through because the buyer couldn’t find a lender that would accept that appraisal.
When the market is running toward increases the “most probable price” will usually be at the upper end of the range indicated by the closed sales because of the lagtime between listing and closing. When the market transitions and then goes into decline, the leading edge of that trend would generally be toward the lower end of the range.
It’s unfortunate, but over 60% of the current residential appraisers have come into the business in the last 5 years and have never seen a declining market. Many of these folks are not prepared for what happens, and a lot of them have been listening to their mortgage broker clients and the NAR PR blitz that it’s almost over.
I was teaching an appraisal class (continuing education) a couple weeks ago where one appraiser told me that if there were buyers in the market that meant the market was stable and there is no further decline. I was about speechless.
There are a lot of appraisers who were trained to automatically appraise to the highest value the comps will support. Mortgage broker clients tend to look at appraisals as a ratification of their loan rather than a tool to underwrite it. That leads to appraisers being trained to look at comp selection in terms of what the lenders will accept as opposed to which comps are actually the most similar.
That kind of conduct is wrong, but it largely goes unnoticed when times are good. This example came to your attention primarily because the market is in decline right now. Otherwise it would probably wouldn’t have come up.
ParticipantPretty much any neighborhood with a high population density relatively low rents, and has services within walking distance is going to have a higher number of homeless and other marginal performers. More gangs, more drug addicts, more welfare recipients, more undocumented immigrants, etc..
ParticipantThe pedophiles and homeless (both groups of which are not mutually exclusive) were there before the Yuppies brought their investments..er..kids to experience the vibrant downtown scene. Father Joe and the other 20 social services providers down there would have to be relocated out of downtown before this problem shifts elsewhere.
One of the reasons the suburban lifestyle emerged back in the 1950s was because city dwellers wanted to raise their kids away from these types of environments.
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