appraisers making adjustments

It’s easy to explain what the market did, but what is it doing now? Everyone and their Mom can sound like an expert with the benefit of hindsight, but how do we see the current market? Do we give more weight to recent sales or listings? Do we have to wait for sales to close to know how the market is unfolding? Let’s consider a few thoughts below. I also have my big monthly market update at the bottom of this post for those interested. Any thoughts?

Four points to consider:

1. Sales show us the past: A sale might close escrow today, but does it really tell us about the market today? Not necessarily. A closed sale on April 12, 2016 probably got into contract in early March, so it likely tells us more about the market 30-45 days ago rather than today. The current market in April could actually be higher or lower, so it’s important to ask how value has changed if at all.
2. Pendings help us see the current market: The current market is often better seen in the pendings and listings rather than the sales. This assumes we have enough solid data of course. One of the most practical questions we can ask is whether properties are getting into contract at higher levels or not. Simply put, if pendings are higher than the most recent sales (and they’re not padded with concessions), they helps us see the current market has probably increased in value. Other questions to consider: Are properties getting into contract more quickly? Is inventory going up or down? Is the sales-to-list price ratio increasing or declining in the neighborhood? Are sellers offering incentives to buyers or not? It’s easy to be so fixated on sales that we don’t ask these questions, but the answers help us gauge current trends. Remember though, sales might tell us about the past, but we still give them strong weight because they actually closed at that level. After all, pendings might not end up selling. In that sense we have to “appraise” the pendings too. Are they reasonable? Do they reflect the market? Or are they outliers?
3. Getting bid up to “no man’s land”: Sometimes in a frenzied market, properties can easily get into contract for more than they are worth. Yes, the market has been aggressive and values have been increasing (see trends below), but sometimes properties are simply getting bid up to “no man’s land” so to speak. In other words, there just isn’t any support for a value that high based on all market data. Remember, even when housing inventory is incredibly sparse like it is right now, there still has to be support for the value. We can’t just list at an astronomical level or let offers get bid up way beyond what is reasonable and expect a magical appraisal to meet the contract price.
4. Making or not making market adjustments: If the market has changed since the sales went into contract, appraisers may need to account for that with a market conditions adjustment. If you didn’t know, appraisers can give an up or down adjustment to the comps if the market has changed since the comps went into contract. In fact, if an adjustment is not given when it should be given, the appraised value could easily reflect the market in the past rather than today. Appraisers need to consider what a real market adjustment for time might look like. For instance, last week I used a comp that was nearly one year old since recent sales were sparse, and I gave an 8% adjustment up since the neighborhood market has increased in value by that much. I could have given a small token adjustment that I just made up, but 8% was very reasonable based on more recent sales and current pendings.

Any thoughts? I’d love to hear your take below.

—————– For those interested, here is my big market update  —————–

Two ways to read the BIG POST:

1. Scan the talking points and graphs quickly.
2. Grab a cup of coffee and spend a few minutes digesting what is here.

DOWNLOAD 87 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Sacramento Market Summary: It’s been aggressive out there. This is why many real estate professionals are comparing the current market with the beginning of 2013. There are certainly similarities, though the market three years ago had very rapid appreciation and all the metrics show it was hands-down more aggressive than it is today. We can talk about the differences in the comments if you’d like. Values overall saw a healthy uptick last month, it took 12 less days to sell a house compared to the same time last year, and housing inventory is currently over 25% lower than it was last March. Sales volume was up about 4% last month compared with the same time last year, and interest rates declining has certainly helped draw more buyers out (which doesn’t help with the low inventory problem). FHA had been increasing in the Sacramento market, but in light of how aggressive the market is out there, FHA buyers have begun to get squeezed out. FHA buyers were still 23% of all sales last month, but that’s down from 25-28% for multiple months in a row. It’s worth noting bank-owned sales are up very slightly. Some REO brokers have said they are starting to see more action in their REO pipelines, though so far there really isn’t any big change as REOs were only 5% of all sales the past quarter.

SACRAMENTO COUNTY:

1. It took an average of 37 days to sell a home last month.
2. It took 9 less days to sell last month that the previous month.
3. It took 10 less days to sell this March compared to last March.
4. Sales volume was up nearly 4% this March compared to March 2015.
5. There is only 1.2 months of housing supply in Sacramento County.
6. Housing inventory is 26% lower than it was last year at the same time.
7. The median price increased by 2% last month.
8. The median price is 8.7% higher than the same time last year.
9. The avg price per sq ft increased by 2.3% last month.
10. The avg price per sq ft is 8.3% higher than the same time last year.

Some of my Favorite Graphs this Month:

SACRAMENTO REGIONAL MARKET:

1. It took 9 less days to sell last month compared to the previous month.
2. It took 9 less days to sell this March compared to last March.
3. Sales volume was 2.5% higher in March 2016 compared to last March.
4. Short sales were 3.5% and REOs were 5.2% of sales last month.
5. There is 1.5 months of housing supply in the region right now.
6. Housing inventory is 19% lower than it was last year at the same time.
7. The median price increased 3% last month from the previous month.
8. The median price is 7.2% higher than the same time last year.
9. The avg price per sq ft increased 1.6% last month.
10. The avg price per sq ft is 7.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

PLACER COUNTY:

1. It took 14 less days to sell a house last month than February.
2. It took 9 less days to sell this March compared to last March.
3. Sales volume was 11% lower in March 2016 compared to last March.
4. FHA sales were 18% of all sales last month.
5. Cash sales were 20% of all sales last month.
6. There is 1.8 months of housing supply in Placer County right now.
7. Housing inventory is 3% lower than it was last year at the same time.
8. The median price declined 2% last month (take with a grain of salt).
9. The median price is up 6.5% from March 2015.
10. Short sales were 3.2% and REOs were 2.4% of sales last month.

Some of my Favorite Placer County Graphs:

I hope this was helpful and interesting.

DOWNLOAD 87 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Any other points to add about sales vs. listings? How else would you describe the market right now? I’d love to hear your take and what you are seeing in the trenches.

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