in Today's Market
they mean when estimating market value
It is generally recognized that the most reliable
way to determine the value of one’s real estate
holdings is to commission a formal appraisal. We,
as brokers, are often asked to prepare valuation reports
or CMA’s (comparative market analyses) which,
if well done, will use similar techniques and data
to arrive at similar conclusions. The value estimated
in either an appraisal or a CMA should be understood
to be the value as of the date of the report. But
what if the market is moving rapidly in one direction
or the other?
Appraisers and brokers are dealing daily with the
question of by how much and how fast are prices dropping.
Recently, we’ve been asked to estimate the value
of houses that had been formally and carefully appraised
last year. In each case, the property had suffered
no deterioration or neglect, so the only issue was
by how much had the value slipped. It caused us to
seek out local appraisers to ask if they were adjusting
values downward and, if so, by how much?
Their answers were that local prices have dropped
by around six to seven percent in the past year. This
figure is consistent with a report published earlier
this month in RIS Media which cites a Clear Capital
(an economic consulting firm) report that nationally
real estate prices have dropped 3.2 percent in the
first half of 2011 and were estimated to drop another
2.4 percent for the second half of the year.
One of the appraisers to whom we spoke went on to
say that his data suggested that local property was
selling at prices that prevailed in 2002. Curious,
we went online to review 2002 sales, many of which
we knew well and a number of which we had sold. We
were surprised how closely those prices tracked with
what’s going on today.
So, if you’re in the market, what do the trends
mean? A rising market is much easier to deal with.
If your property is appreciating faster than the alternative
investment opportunities, you can hold on until your
target price is achieved. A rising real estate market
will tend to slow and stall before reversing, so you
can cash in most of the gains by lowering your price
quickly before the competition does.
A falling market can feel like standing on a beach
in a receding wave and feeling the sand being washed
from beneath your feet. Unlike a rising market where
the costs of carrying a property (taxes, insurance
and upkeep) will be offset to a degree by appreciation,
in a falling market these costs simply compound the
problem. What you originally paid for the property
becomes a less important number than what you’ve
borrowed against it. If you need to sell and can do
so at a price that covers your debt and, hopefully,
preserves some of the accumulated appreciation, it’s
probably a good idea to do so. We have seen too many
foreclosures, short sales and sales as much as 30
percent lower than the original purchase price to
be cavalier about the pricing advice we give to prospective
Please feel free to contact us if you’d like
a more thorough discussion of the local market or
a formal valuation report for your property.