Dooley Real Estate

Trends in Today's Market
And what 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 clients.

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.