Nov. 25, 2008 - Don't Rely on The Appraisal as your "safety net"
Changing markets create the need to update our thinking on various segments of the home buying process. Back in March of 2006 I wrote this post on the role of the appraisal in your home purchase.
While the basic principles of where the appraisal fits in the process have not changed, the expectation of where the appraisal is going to fall, has reversed. Up market vs. Down market can affect an appraisal dramatically. That is why it is very important for you to understand how an appraiser derives a home's value.
Below is how I personally expect markets to function on a long term basis. An appraiser uses hindsightto determine the value of a property. Consequently in an up market, theoretically the appraisal should come out lower than sale price. If one values the property based on the last 3-6 sales in the last 3-6 months, clearly in an up market appreciation would be somewhat contained by the lender protecting themselves from markets advancing at too rapid a pace. We all know that is not what happened in recent history, and the Country and Banks are now suffering as a result.
But where do we go from here, and how does that affect YOU as a home buyer? Moreso than EVER in most of our lifetimes, you need to NOT depend on the appraisal as a barometer of value. In hindsight in a DOWN market, the appraiser is ALWAYS looking at higher priced sales. If the market is dropping at a faster rate than an appraiser will apply at the end of the process, the onus will be on you to know where your local market is going.
Often appraiser guidelines are national to a greater extent than they are local and micro local. The appraiser works for the bank, not for you, even though you pay the cost of the appraisal. We all know how well the appraisers covered the butts of lenders over the last few years...a great big NOT! Likewise YOU should not depend on the appraisal to cover your butt as to home price in your real estate purchase.
Understand that appraisers use hindsight...you must use all resources at your disposal to determine not only where the market IS, but where it is heading in the hyper-local market of where you are buying a home.
Earlier today I sifted through 28 short sales closed within the last 6 months and 100 Bank Owned Properties closed within the last six months.
By and large they are selling pretty close to asking prices, with those prices dropping in small intervals and frequently while the home is on market. The better and newer houses tended to sell short, while the older ones ended up in foreclosure and selling as bank owned properties.
The better values in many cases were the properties that were selling short of the original purchase financing, vs. those that were selling short of inflated appraised values at time of refinance after purchase. Those based off true market value, purchase price, were selling close to 2008 assessed values. Many were selling over asking price.
Simply being a bank owned property or a short sale did not relieve the buyer of determining current fair market value (which is pretty much at October 2005 levels per my previous post.
Yesterday I posted my stats of October YOY for King County Washington. We are pretty much AT October 2005 levels, and I think still heading down toward early 2005 levels based on volume statistics.
While the rate of decline is slowing, it is still dropping significantly YOY in October. Volume figures month to month had been stabilizing prior to the 4th quarter. As in every 4th quarter, we don't know if come Spring of 2009 we will see a 3-4 month market of higher prices and volume from March through July. I expect that to be the case, especially if asking prices are based on sold comps from 2008 when new properties come on market in early 2009.
Three bedroom townhomes in Downtown Redmond are beating the odds. When it comes to what is selling and what is not, 3 bedroom townhomes within 1/2 mile of Downtown Redmond ARE selling. Prices are not holding up at the highest price, and there has been some modest downturn in pricing in the last 4 months, but nothing dramatic. Not as low as many buyers would like them to go.
If you own a 3 bedroom townhome near downtown Redmond, you have a 90% change of selling it in less than 30 days.
That may not sound like any great shakes...but believe me it is! Not many home sellers can be confident that their property will receive an offer within 30 days these days.
A closer look at 3 bedroom townhomes near Downtown Redmond:
There are only 6 for sale and at least two of them are priced incorrectly as they are really 2 bedroom townhomes and not 3 bedroom townhomes
There are 3 currently in escrow
12 have sold in the last 6 months
So if you are priced correctly for what you are and condition is as tip-top as you can get it...you will sell. List it and it will sell is not common these days. That kind of confidence is rare. So if you have a 3 bedroom townhome near Downtown Redmond, know that your market is about as good as it gets these days.
While it may look like a 6 month supply of inventory with 12 sold and 6 for sale, likely only 2 of those are positioned to sell as to condition and price. Anything not selling is not selling for a reason that the seller can fix...and just isn't fixing. A truly motivated seller can sell if they have this product in this location. In this market...that is truly a blessing.
The only oddity is that some people seem to be paying the same price for a 1 car garage as they are for a 2 car garage. Or paying the same for a tandem garage as they would for a true 2 car garage. Using price per square foot methods does not account for garage differences. That is the only caution to buyers who use price per square foot methods. The garage is not a consideration unless you make it a consideration...and it is wise to do so.
When we look at sold prices, we don 't get the real story. Yes, sold prices are generally lower on a price per square foot basis than those that are not sold. But the real story is in what are people buying, and what are the odds of selling at all?
If you own a one bedroom condo in Downtown Kirkland, price is not the only solution to selling it.
There are currently 19 people trying to sell a one bedroom condo in Downtown Kirkland
Only two 1 bedroom condos are in escrow
Only 7 one bedroom condos have sold in the last 6 months
That means you have about a 1 in 10 to a 1 in 18 chance of selling at all.
19 condos represents about a year and a half of inventory. 2 sold means that maybe 2 of the 19 will sell and the remaining 17 people may have to do something besides selling. Rent it out. Stay in it. Let it go back to the bank. What are the options if selling is not an option?
Will price alone cause all 19 to sell? Not likely. Even if half the people take their property off the market, all of the remaining condos will not likely sell in the next few months.
What does that mean to someone who is planning to put one on market? Take the lowest possible price at which you will sell it and list it at that price. Make it look the very best at that low price even though you feel like you are "giving it away". And then...after all that...know that it still may not sell.
It is not likely if only 7-9 people have bought a 1 bedroom condo in Downtown Kirkland in the last 6 months, that 19 will sell. Yes, yours
CAN beat out the 19 already on market, but not without extreme sacrifice of some kind.
Is it price?
Is it condition?
Is it location?
Is it view?
There is no one right answer. Sometimes its price and sometimes it's view and location. That the competition is severe when you are #20 on market, is all that is a known factor.
Below is a graph I saw on Seattle Bubble that I found fascinating and am reposting here with Tim's permission.
I love this graph as it makes me want to say "Do you feel like a Boston today?" the way that Clint Eastwood in Dirty Harry said "Do you feel lucky today, punk?"
I will shortly be posting my 12 months forward predictions on Rain City Guide, and will be linking to this post. Seattle Bubble is pretty much the only source of info that I find of value as to data. My interpretation of that data is different, but the data is invaluable.
What you are seeing above is where other markets have gone as to pricing, and yes, I do feel like a Boston, so maybe that makes me a punk :) I only disagree with Seattle Bubble in that they are tracking markets from their previous peak, and I think you have to track all markets from July of 2007 forward. We are not a lagging market. There are two completely different components of the market downturn, and Seattle totally escaped the first which is showon on the graph above for those markets that turned down in 2005.
What is very important is how all of these markets react to the Mortgage Meltdown that happened simultaneously nationwide, and not how they performed from their peak of two years ago. I expect cities that turned down in 2005 to do better than Seattle in that regard, because they have bargains to sell, and we essentially do not, by relative comparison.
Below are the regular weekly stats that I compile and publish, normally on Rain City Guide. But last night I went off on a tangent, and rather than post the regular stats at the bottom of a post that was already too long, I am posting them below.
Some people have been asking, what does "Volume is Stabilizing" mean? YOY sales are still down dramatically, so how is volume "stabilizing"?
Once you give in to the concept of diminished sales on a YOY basis, knowing volume is forever changed for the near distant future, you have to track if the volume is continuing to drop OR is stabilizing at the dropped level.
The way that you do this is to compare the normal relationship of one month to another. Let's say sales in November are lower than July. Some will report that as "volume continuing to drop" and that could be erroneous, though literally correct.
Think of it like body temp. If someone's normal body temp is 96, they could have a high fever at 99. Someone else with a normal body temp of 98.6 would have a very low grade fever at 99. Same temp, different diagnosis.
If November is normally 7.5% of a year's sales and July is normally 9.5% of a year's sales, then that standard drop from July 2008 to November 2008 is not a DROP in volume relationships. It is a literal, but expected and normal drop. That is why I like to use the pie chart as to literal volume and the bar graph as to expected relationship of sales in a year's time.
You can see that the pie slices moved into a normal pattern subsequent to the immediate drop in August/September of 2007. Jan, Feb, March, etc...fanned out in it's normal cyclical pattern. That is what we mean by "volume is stabilizing".
However, I am seeing a few red flags in that regard. Residential seems to be playing out in fairly normal pattern within a normal range of variance. Condos however are a little harder to call at down to 506 from May's 544. In previous years May has sometimes exceeded June, so I'm not saying it's a problem, but it is a red flag to watch.
I base this not only on the pure numbers, but on what I am seeing in the marketplace. I was taught to watch the condos more closely than single family homes during a downturn as if condos don't move well, that affects all legs of the marketplace in lag fashion. Condos not selling well is often the first sign that the residential market will have trouble a few months ahead of that and in continued fashion. I believe that could be the case.
In smaller samplings I have seen many low priced condos going into escrow and falling out of escrow, not just once, but 3 or 4 times before a sale "sticks". That means pending sales are inflated by properties in escrow with buyers that can't secure financing.
I am also seeing many people who wish to downsize at my condo and townhome Open Houses BUT they can't buy "until their single family home sells". If the sales of lower end housing, condos and townhomes, is further curtailed, (and I believe they are and will be) this will influence the currently stabilizing volume of residential sales even further down the road.
Of course no one gives a RA about volume except for the few of us tracking the market in this manner. Me, Lawrence Yun, Jonathan Miller, etc... care about volume. Everyone else cares about price! But whether or not price will fall slightly or more dramatically is influenced by volume stabilizing or falling again. If volume stabilizes, prices may fall 15% and stop. If volume slides out again, you could see prices falling by 35% or more. So tracking volume is the order of the day.
The end of the third quarter will give us a full 12 months of changed volume statistics. So for now, suffice it to see that the current market of the next 45 days is relatively stable as to volume in the single family home markets...but the other shoe may be ready to drop as evidenced by some red flags in the condo arena.
I won't wait until the end of September...we will continue to track this month to month through the 3rd quarter. Volume down is not what we are looking for. Volume down more than seasonal variances is what we are looking for.
Jul. 10, 2008 - Pottery Barn Paint Colors That Sell
I did a search of properties that sold recently and quickly and found some interesting colors on the walls. While neutral may be what most agents say you should do, when inventory is stacking up and properties all start to look the same, sometimes the one that really stands out with color is the one chosen.
These are acutal colors on the walls of recently sold homes. Sorry I can't show you the whole photos, but I'm not allowed to repost the photos of other people's listings. These are up to the minute "SOLD" colors.
The long skinny color is right fromt he wall of a sold property. It shows a little darker in the photo than it acutally was in person, so I'm going to give a couple of examples.
The first is Semolina from the Potter Barn Collection that I've mentioned before. The second is also from Sherwin Wiliiams, but not the Pottery Barn Colors and is called Robust Orange, the last one that I have seen a couple of times is Flamme Orange
These are pretty bright colors, so get a color sample and try and area first. Use sparingly and as an accent color in combinations. Semolina was on the side wall that met the darker color. A fabulous comibination, but clearly not for everyone. Your wood tones should be warm tones to mix with these colors.
The color above is taken from an actual wall of a recently sold property. It was an accent color used in an alcove in the hallway. The walls next to it were light and soft taupe.
Pottery Barn's Pear Green is similar in tone. Stem Green which I've mentioned in an early post is a little closer and these greens look good together. But the color in person was actually a lot closer to that last green which is Benjamin Moor Malachy Green.
The above color also came from an actual wall of a sold property. It was the staircase wall going up from the first floor to the second floor. You will notice that the three patches of color I took directly from the walls of thehomes are not as even toned as the color chips. These show the variations of the color under different lighting conditions.
The right end may be similar to Benjamin Moore's "maryville brown", but really that is just the lighting affect. The second brown, Seville Brown, is much closer to the right tone, but too dark. It's hard to tell if the original color was the last, Brown Sugar, and it darkened at the bottom of the stairs, or it was Seville Brown that lightened at the top. But those second two are definitely in the right color family.
Jul. 10, 2008 - 2nd Quarter King County Volume Down
Of course we know volume is down relative to last year. That's pretty much true everywhere in the Country.
Of course the number of sales in the second quarter is more than the number of sales in the first quarter, however the % down has increased.
In the 1st Quarter of 2008 condo sales were down 38% compared to the first quarter of last year. In the 2nd Quarter of 2008 condo sales are down 47% compared to 2nd quarter last year.
In the 1st Quarter of 2008 SFH sales were down 31% compared to the 1st Quarter of 2007. In the 2nd Quarter of 2008 SFH sales were down 37% compared to the 2nd Quarter of 2007.
So volume is not continuing to be less by the same percentage, it is dropping further.
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
You can find many great Seattle real estate agents and loan officers on ActiveRain.com ARDELL DellaLoggia is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
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