RISMEDIA, June 25, 2009-Using foreclosed and distressed sales as comparables with appraisals on single-family homes without adequately reflecting the differences in the condition of the respective properties is needlessly driving down home values, according to the National Association of Home Builders (NAHB).
“Any home buyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained. So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables,” said NAHB President Joe Robson, a home builder from Tulsa, Okla.
According to the NAHB, appraisers are often only required to conduct exterior inspections of properties that are being used as comparables because they are normally unable to enter these homes and examine their interiors. Too often, properties that have been subject to foreclosure or distressed sales have issues related to deferred maintenance or internal damage that an external inspection simply cannot reveal.
“While most appraisers do a fine job, there needs to be proper regulatory guidelines for those who use distressed or foreclosed properties as comparables when determining home values,” said Robson. “It is essential that appraisers have the proper experience and guidance to accurately assess values in distressed markets.”
In neighborhoods where comps include a large number of short sales or foreclosures, appraisers should have the option of expanding the geographic area or extending the time frame for eligible sales to get a more representative basket of the value of homes sold in the area, Robson added.
Currently, improper or insufficient adjustments to the comparable values of foreclosed and/or distressed homes often results in the undervaluation of new sales transactions.
“This practice must be corrected because it contributes to the continuing downward spiral in home prices, forestalling the economic recovery,” said Robson.
For more information, visit www.nahb.org.
RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.
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Monday, June 29, 2009
Friday, June 26, 2009
Have We Reached Bottom? 10 Factors to Consider
RISMEDIA, June 24, 2009-Historically, the value of real estate goes through cycles. Many factors affect the value of homes including the laws of “supply and demand.” From the Appraisal Institute, here’s a quick reference guide to some of the factors involved and advice on how to spot a turning point in the market:
1. A spike in local sales activity. A spike refers to a significant rise in the number of home sales (or values) in a local market area, which generally is measured month to month. A spike does not necessarily mean continued growth, i.e. it could be a one month phenomenon.
2. Higher asking and selling prices vs. appraisal value opinions for residential properties. Appraisers study the markets; they do not make the markets. When the data shows higher sale prices in comparable properties market value opinions will increase proportionally. Appraisers seek evidence of value but do not create the value. In time periods with low activity, evidence of any kind is difficult to find.
3. More activity at open houses. Open houses with five to eight attendees is considered average, so a dozen or more people attending an open house means buyer interest is picking up. Also, the mood of the attendees is important. Are they optimist and upbeat? Buyers interest alone does not always translate to effective purchasing power. If the number of buyers in the market increases but they do not have requisite down payments, the sales may still not occur.
4. Shorter marketing times. In some markets, houses have been up for sale for more than a year. In most balanced residential markets, properties that are priced competitively will typically sell in less than six months. If the Days On Market (DOM) is shortening, many practitioners will read an improvement in the market.
5. Reduced number of foreclosures and short sales. A reduction in these transactions commonly signals a more balanced market. If lenders are reluctant to foreclose because of an oversupply of inventory, they may choose to wait to repossess the properties, which could allow a spike in the number of foreclosures later despite a better market condition.
6. Stabilized employment. Stable or increasing employment rates provide the necessary confidence for potential buyers to invest in a home. Since most buyers rely on borrowed funds to make real estate purchases and borrowing money usually requires a source of repayment and that usually means jobs, an increase in this basic need, will enable more real estate sales.
7. Fewer buyer incentives and seller concessions. Seller-paid incentives or concessions are a sign of seller motivation. If there are fewer builders offering “free” upgrades and fewer sellers sweetening the deal with big screen TVs, it may be a sign of lessening supply and therefore a better market.
8. New construction starts. Most builders are quite attune to their markets and will not build new homes without a corresponding contract for sale or a perceived increase in demand. An increase in the number of building permits usually indicates higher demand and higher prices. If residential properties are selling for 25% less than they cost to build, only a few new homes will be built. It would be prudent to buy an existing home rather than build a new one for a much higher price.
9. “Move-up” buyers entering the market. More buyers willing to move to a larger or superior quality home indicates a healthy market. The lack of buyers at the lower end of the price range will have a chain reaction throughout the market. If a buyer for a high priced home has a lower priced home to sell first, the sale of the higher priced home may have to occur before the higher priced one can sell.
10. Apartments advertising renter specials - fewer renters in the market may indicate more people are moving into owner occupied homes or it could indicate a reduction in population. Lower population will cause an oversupply of housing which will oftentimes permeate throughout several markets.
1. A spike in local sales activity. A spike refers to a significant rise in the number of home sales (or values) in a local market area, which generally is measured month to month. A spike does not necessarily mean continued growth, i.e. it could be a one month phenomenon.
2. Higher asking and selling prices vs. appraisal value opinions for residential properties. Appraisers study the markets; they do not make the markets. When the data shows higher sale prices in comparable properties market value opinions will increase proportionally. Appraisers seek evidence of value but do not create the value. In time periods with low activity, evidence of any kind is difficult to find.
3. More activity at open houses. Open houses with five to eight attendees is considered average, so a dozen or more people attending an open house means buyer interest is picking up. Also, the mood of the attendees is important. Are they optimist and upbeat? Buyers interest alone does not always translate to effective purchasing power. If the number of buyers in the market increases but they do not have requisite down payments, the sales may still not occur.
4. Shorter marketing times. In some markets, houses have been up for sale for more than a year. In most balanced residential markets, properties that are priced competitively will typically sell in less than six months. If the Days On Market (DOM) is shortening, many practitioners will read an improvement in the market.
5. Reduced number of foreclosures and short sales. A reduction in these transactions commonly signals a more balanced market. If lenders are reluctant to foreclose because of an oversupply of inventory, they may choose to wait to repossess the properties, which could allow a spike in the number of foreclosures later despite a better market condition.
6. Stabilized employment. Stable or increasing employment rates provide the necessary confidence for potential buyers to invest in a home. Since most buyers rely on borrowed funds to make real estate purchases and borrowing money usually requires a source of repayment and that usually means jobs, an increase in this basic need, will enable more real estate sales.
7. Fewer buyer incentives and seller concessions. Seller-paid incentives or concessions are a sign of seller motivation. If there are fewer builders offering “free” upgrades and fewer sellers sweetening the deal with big screen TVs, it may be a sign of lessening supply and therefore a better market.
8. New construction starts. Most builders are quite attune to their markets and will not build new homes without a corresponding contract for sale or a perceived increase in demand. An increase in the number of building permits usually indicates higher demand and higher prices. If residential properties are selling for 25% less than they cost to build, only a few new homes will be built. It would be prudent to buy an existing home rather than build a new one for a much higher price.
9. “Move-up” buyers entering the market. More buyers willing to move to a larger or superior quality home indicates a healthy market. The lack of buyers at the lower end of the price range will have a chain reaction throughout the market. If a buyer for a high priced home has a lower priced home to sell first, the sale of the higher priced home may have to occur before the higher priced one can sell.
10. Apartments advertising renter specials - fewer renters in the market may indicate more people are moving into owner occupied homes or it could indicate a reduction in population. Lower population will cause an oversupply of housing which will oftentimes permeate throughout several markets.
Wednesday, June 3, 2009
Which States Will be Early Risers?
Bill Dedman, Investigative reporter, NEW YORK—
If you want to be in the right place when the recovery starts, that place may be in Colorado, Idaho, Oregon, Texas or Washington.
The recession didn't start at the same time in every state, and it won't end at the same time either. A new forecast from Moody's Economy.com predicts that jobs growth will return first in those five states, starting in the last quarter of this year. Four of those states benefit from strong high-tech industries, and the fifth, Texas, has a strong base of energy industries.
A second wave of jobs growth, in the first quarter of 2010, is predicted in seven states: Alabama, Georgia, Nebraska, New Mexico, North Carolina, North Dakota and South Dakota. Read on at... http://www.msnbc.msn.com/id/30991972/
If you want to be in the right place when the recovery starts, that place may be in Colorado, Idaho, Oregon, Texas or Washington.
The recession didn't start at the same time in every state, and it won't end at the same time either. A new forecast from Moody's Economy.com predicts that jobs growth will return first in those five states, starting in the last quarter of this year. Four of those states benefit from strong high-tech industries, and the fifth, Texas, has a strong base of energy industries.
A second wave of jobs growth, in the first quarter of 2010, is predicted in seven states: Alabama, Georgia, Nebraska, New Mexico, North Carolina, North Dakota and South Dakota. Read on at... http://www.msnbc.msn.com/id/30991972/
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