Forum Replies Created
-
AuthorPosts
-
BugsParticipant
Of course, if the market does return to trend those worker ants may well get their chance at owning a home.
BugsParticipantThere was an article in the Union-Trib today talking about poverty in Escondido. One of the things it mentioned was the increasing incidence of immigrant families doubling up in apartments because of the rents.
On the other hand, there are two sides to this coin.
My brother-in-law the construction superintendent says that most of the labor in the new subdivisions are non-English speakers. The developers commonly use workers with questionable status as a means of controlling labor costs. So maybe this low-cost labor has helped keep prices lower on new construction than it would have been otherwise. Don’t laugh, I’m being serious!!
BugsParticipantIn regards to appraisals hitting sale prices, let me first acknowledge that there are some appraisers who wouldn’t know how to appraise a property if they weren’t given a target value to hit. What can I say? Every occupation has it’s idiots and it’s those idiots who make life miserable for everyone else who’s trying to do the right thing. I can’t tell you how frustrating it is to have to come in after one of these guys and clean up their mess.
But there are legitimate reasons for appraisals coinciding with sale prices, too.
Any sales comparison analysis will result in a range of reasonable value indicators – sometimes very narrow and sometimes a little wider, depending on the quality and quantity of applicable data. As a result, Appraisals are almost always rounded to the nearest $1,000 or $5,000 (or even higher increments for the mega-houses) because to communicate it as an exact number implies an unrealistic level of accuracy. While it might be more honest for appraisers to communicate their opinions as a value range rather than a pinpoint number, most clients and users of appraisals are more comfortable with the single number. It’s easier for them to work with a single number than have to get into judgement calls of their own.
Most appraisers adhere to the theory that a sale resulting from adequate exposure in the market will generally be indicative of the market value, unless there’s some wrinkle to it. If a sale price falls within that reasonable range it’s customary to assume that the “tie goes to the runner”. For most homes this range is less than 3% of the total, so we’re not talking about situational ethics or anything like that.
It would be foolish and impractical for an appraiser to just pick an arbitrary number other than the sale price in such a case. I mean, for an $800,000 sale would it make any sense to conclude to a $795,000 value even though the $800k was also within the range? That kind of stubborness would do nothing but create problems for the lender’s underwriting even though that number is also reasonable.
A large percentage of appraisals used by lenders do come in at value, but that’s not the same thing as saying all appraisals will come in at a sale price, because they don’t. There are some deals that fall out of escrow, especially now. There are some deals that get shopped around to several lenders before they find one dumb enough or lazy enough to accept a faulty appraisal. It’s VERY common for loan originators to shop appraisers until they find one that’s cooperative and for there to be multiple appraisals performed on a single property until one of them comes in at the desired number.
As these lenders start taking losses, they are tightening down on their underwriting and that includes greater scrutiny of the appraisals they’re using. Unfortunately, they don’t get into this mode until after they’ve already made too many risky loans. It’s very frustrating for us.
BugsParticipantI like the idea that more people have easier access to the raw data. I wouldn’t get too wound up in the conclusions Zillow draws, especially when you consider how the inclusion of outliers and non-market transactions can corrupt the data pools being used. But if you use a little judgement on which data is valid you can do your own analyses.
I think the easiest way for people to use that data is to print it out and start driving by these sales. In a given neighborhood it won’t take but half a dozen or so to give you a baseline to start forming your own opinions. I am 100% in favor of data availability.
The automated valuation models that Zillow is following are already being used by lenders to make some of their decisions, particularly for their low risk loan underwriting and automated appraisal review functions. As with any type of analysis, the quality of the result depends in large degree to the quantity and quality of the data being used. As those information systems get ahold of better quality data their accuracy rates are going to increase as well. Most appraisers figure it to be a matter of time before AVMs are used more commonly than live appraisals, and that a reduced number of appraisers will be employed doing primarily the most difficult and technical of assignments.
AVMs do have the one stumbling block that going to hold them back for a while – at this point they can only attempt to mimic the subjective judgements that people use to make some of these decisions. It’s not uncommon for a buyer to be unable to articulate exactly what it is about a certain property that is calling their name when they see it. The machine’s got a ways to go before they can capture that pixie dust in an algorithm.
BugsParticipantJust as with the ride up, I think the ride down has the potential to take on a life of its own. That’s why the highs and lows don’t just return to trend, they overshoot.
BugsParticipantI was standing in a subdivision sales office yesterday confirming the details of a pending sale. The sales agent was on the phone with their office. He made several references to “replacing cans” in the conversation. I was trying to tune him out because I don’t want to eavesdrop but the phrase caught my attention because I couldn’t place it as a construction term. Finally I gave up and started listening in (guilty) for content long enough to figure out they were talking about cancellations. Duh.
That subdivision has 37 units and about half of them are already completed, so I’d say that for them to have more than a couple cancellations to deal with at any one time is indicative of a problem for them.
BugsParticipantI would think they would just re-list it. I’m not sure there are any advantages to an auction, but then again marketing foreclosures is way outside my narrow field of understanding.
BugsParticipantI don’t know why the bank would foreclose if they had a short sale in the works. The short sale anywhere near the original sale price would seem to me to have been the better alternative for the bank unless they actually thought it was worth a lot more. Now they have holding costs and a timeline to get rid of this property.
The assignment I did during which I saw this then-active listing was 3 months ago and I haven’t been back there since. I don’t know anything about the other properties you’re talking about. It was just a coincidence I happened to have analyzed this listing. Sorry.
BugsParticipantIf memory serves, I remember seeing this property a few months back while reviewing an appraisal of another house in that neighborhood. It was an active listing at the time, and I used it to impeach an appraisal of another tract home nearby that had been overappraised for $900k. Small world.
I see no indication in the public records of any sale between 2004 and the recent foreclosure. The bank currently owns the property. There was a listing prior to the foreclosure that said the owners were RE agents and the price might be subject to lender approval of a short sale. Obviously that didn’t work out for them.
There was a slightly larger model on that same street that just sold in 04/2006 for $730,000, so I imagine that would be one of the operative sales in that neighborhood right now, and I’m pretty sure there are others. So far, this foreclosure hasn’t yet been resold, or at least there’s no indication of that in the public records or the MLS. this latest trasnactions wasn’t a market sale so I highly doubt it will have any affect on pricing there. The expired listing only demonstrates that the market didn’t accept it as a short sale at $749k. For all I know it might be a mover at $725k. Or not. I imagine the bank will relist it pretty soon, so I guess we’ll see.
BugsParticipantHere’s a little tidbit you might find interesting. Fully 30% of all appraisals I complete return a lower value opinion than as envisioned by the borrowers. Would you care to guess how often it prevents them from completing their transaction? I’ll give you a hint, it’s nowhere close to 30%. Many people will do whatever they have to do in order to close their sales, even in the face of a preponderance of information to the contrary. They’ll come up with extra cash to bridge the gap, they’ll shop lenders for more permissive financing terms, they’ll shop for appraisers until they find one who will rubber stamp the deal, and in general they’ll go to whatever lengths they deem necessary to achieve their goals regardless of how many times they hear the word “no”.
If you’re saying the people should be better informed before they make these decisions, I agree. If you’re saying people should heed the advice provided to them by the professionals, I agree. The question here is whether it is incumbent on the government or the different professions to embark on such an educational endeavor, and if they did would any of the information atually sink in. Heck – people play the lottery even though they know their chances of winning are small, what makes you think they’d allow professional counsel to override their own hunches and the advice of their buddies? It just wouldn’t happen, and no amount of “it SHOULD be” is going to change that.
BugsParticipantAs we were saying before, the rental market can be even more volatile than the sales market and even minor changes in inventory can result in a significant changes in rental rates.
I wonder if an increasing rental market can condition potential buyers to reconcile themselves with paying a larger percentage of their income on housing on a permanent basis. Like Hawaii, where people will get 2nd jobs just to make ends meet rather than leave town.
If so, that would help reconcile the disparity between rents and sale prices, thereby reducing the degree of correction needed.
BugsParticipantI drive by and look at listings all the time, and the 30% seems way high to me. On the other hand, if you believe in the estimates of investor activity in our market, the 30% would dovetail in with those figures.
BugsParticipantI can’t speak for how realty agents look at it, but I can tell you that appraisers are trained to look at their assignments strictly in terms of property characteristics. We’re not supposed to be interested in the leather whips and chains these property owners keep in their bedrooms or whether we like the color of their carpets or whether the house is a mess when we look at it – those are all personal characteristics that are basically supposed to be invisible to us as we do our thing. Whether I like the property owner or hate them, my professional opinion is supposed to remain unaffected because I’m not appraising the individual, I’m appraising the property. In fact, I try very hard to not have any kind of relationship with the property owners beyond that which is necessary to do my job.
So if you want to look at paired transactions to see if there’s a loss in there, or you want to talk about data and trends, that’s one thing. Putting an individual’s name to it and personalizing it is unnecessary and uncalled for. Everyone here knows what it means when a person is taking a loss. Singling that individual out for additional attention doesn’t add anything good to the analysis and it doesn’t help us to better understand the situation. IMO.
PS, you can correct me if I’m mistaken, but I remember a couple months back when there was a certain amount of discomfort and dismay when one poster looked up another poster’s listing in the MLS and then made comments about the individual as well as their personal decisions. That’s an example of what we’re talking about here. It added absolutely nothing good to the discussion and only served to create a problem. A problem I hope to not have to see again.
I’ll be completely candid about this – I’m hoping to influence your opinion on this subject.
BugsParticipantSpeaking hypothetically, as if this were an either/or choice…
I’m pretty sure most realty agents would gladly trade a 30% reduction in the average commission in exchange for a 30% increase in the number of sales. A reduction in volume is felt more heavily by more agents than would be a reduction in price.
Of course, if there is a meltdown it won’t be an either/or, it’ll be both.
-
AuthorPosts