Writing to appraisers and underwriters, I am proposing a definition of a “comparable sale” in the residential sector.

First I must say that the word “comparable” in the residential real estate industry, is used by many who have no idea what it means.  All of us appraisers receive e-mails and phone calls now and then asking us why we did not use a certain “comparable” in our report.  Then, when we look at the sale that is being suggested as “comparable,” we find it is not at all similar to the subject.

My definition of a residential Comparable:

“A combination of land and house that is, compared to the subject property being analyzed, more similar in size, style, age, and location than any others in the marketing area of the subject property, and that sold more recently than others.”

So, for a sale to be a comparable, the house and land compliment should be similar to the “subject” property (the one being analyzed or appraised).  Also, for a sale to be a comparable, the property should serve the same market as the subject property.  And, for a sale to be a comparable, the house should be of similar age and style as the subject.  And, for a sale to be a comparable, the sale of the property should have been more recent than other sales that would otherwise qualify as comparable.

From time to time I receive questions asking why I did not use “this comparable” in my report.  In every case, the so called “comparable” sent was completely unlike the subject property, and, not comparable at all.

I have not been told where the people who submit this misleading information that they call comparables get them.  But, whoever is supplying it should be questioned.

So, underwriters, please don’t send trash and ask us appraisers to defend ourselves with reasons we did not put trash into our reports.

And, please memorize the definition of “comparable.”

Ralph K. Olsen

pwas.net

I did a study of several Clark County MLS districts to see what the difference is in Short Sale prices as compared to Bank Owned prices.  I also did a study of all sales that were not Bank Owned or Short Sales.

Here is what I found.

Compared to the sales of properties that were not in distress (Bank Owned or Short Sales), the Short Sales and Bank Owned sales showed the following discounts.

Short Sales                            Bank Owend

-15.23%                                   -16.10%

-12.18%                                   – 8.09%

-13.65%                                  -15.06%

-17.60%                                  -13.54%

The average for Short Sales was      -14.67%.

The average for Bank Owned was   -13.20%.

As you can see the Short Sales and the Bank Owned properties all suffer in the market.  Short Sales take a bigger hit than Bank Owned do.

In the analysis I threw out the outliers.   I only used areas where there were ample numbers to make the results statistically reliable.

Ralph Olsen

pwas.net

I have seen many examples of investors that have bought, rehabbed,  then sold a property and left tens of thousands of dollars on the table.

It appears that many do not do their homework well when analyzing the current market value of a property.  I have seen houses that were very well rehabbed that sold for less than the average house was selling for in the area.

The rehabbers need to be more attentive to what the value of properties are when they put them up for sale.

You can use www.whatsthepropertyworth.com here in Clark County.  It works very well.

Ralph K. Olsen, MAI, SRA, IFA

pwas.net

There has been a lot of talk lately about how lenders, Realtors, borrowers, etc., are not allowed to talk to an the appraiser.  This idea is misguided.

It is perfectly fine to talk with the appraiser.  And, most appraisers would welcome the input.

First, let’s look at what an appraiser is and does.

An appraiser is an investigative reporter.  The appraiser of houses specializes in residential real estate economics.  We appraisers, by law, are charged with the task of becoming familiar with the property being analyzed (subject property).  Then we conduct market research to find the data that best addresses the question, “what’s the property worth.”  Then the appraiser analyzes the data.  Then the appraiser writes a report to reveal their findings.

If you are a borrower, seller, investor, lender, Realtor, or any interested party to a transaction that requires an appraisal, there is no problem with you showing the appraiser sales data that might be useful.

I recommend, to borrowers, sellers, and investors in particular, that, if you can find good, useful data, give it to the appraiser when he/she arrives for the property inspection.  We appraisers are human.  We know that if someone provides us with data that they say is appropriate to use in the analysis of a property, we would be wise to review the data.

If the data supplied to the appraiser is junk, the appraiser will be ready to respond to questions about it, and tell why it was not useful.  If the data supplied to the appraiser is good, useful information, the appraiser will likely use it in the analysis.

The idea that two heads are most always better than one applies.  An experienced, well trained appraiser should not miss useful data while conducting their data search.  However, good data can be missed from time to time.  This is due to various search parameters that might be used or neglected while gathering data.

There are, of course, inappropriate things to say to an appraiser.  It is illegal to try to manipulate the appraiser or to coerce the appraiser into committing fraud.

A good way to find data and also estimate the current market value of a property you are interested in is to use www.whatsthepropertyworth.com here in Clark County Washington.

Ralph K. Olsen

MAI, SRA, IFA

pwas.net

I did an analysis of the MLS area 15 to see what portion of that market was distressed sales.  I also looked at listings.

There were 80 residential single family detached properties sold in this area in the last six months, through the RMLS.  Of these 16%, or 20, were bank owned.  There were 16 short sales, or 20%.

There were 164 listings, of which 53, or 32% were short sales and 12%, or 19, were bank owned.

Forty percent of the sales during the last six months, in this market area, were distressed sales.

Forty four percent of the current listings are distressed properties.

I’ll keep looking at these numbers and let you know how they change.

Ralph K. Olsen

MAI, SRA, IFA

pwas.net

I have had several conversations recently about flipping properties.  The flipping process is, basically, finding a house that can be bought at a wholesale price, then re-selling it in a short time at market value.

There have been many examples of flipping in rising markets, where the buyer is only interested in taking advantage of a rising market.  A house is purchased and sold soon thereafter for a profit.  There have been many examples of individuals and companies doing this and causing problems for subsequent buyers.  I won’t go into that.

On the other hand, in today’s down economy, flipping can be a very beneficial process.

There are lots of houses on the market (see previous posts) that are bank owned, and often times abandoned.  Many of these properties need cleaning up to make them presentable to the market.  If an investor type, who wants to flip the house, is willing to buy it, take the risk, fix the house up and put it back on the market, with the intention of making a profit on the house, what’s the problem?

In this scenario, a house is revitalized and made marketable, people are put to work and buyers have an improved pool of properties to select from.

It is interesting to note that the FHA has suspended its anti flipping rules for the rest of this year.  They too acknowledge that flipping is not necessarily a bad thing.

What do you think?  Let me know.

Ralph K. Olsen, MAI, SRA, IFA

pwas.net

By the way, here in Clark County you can use www.whatsthepropertyworth.com to estimate the value of a property you have or one you are interested in obtaining.  It is quick, easy, inexpensive and accurate.

This is an “FYI” for the appraisers who read this post.

Recently the local chapters of the National Association of Independent Fee Appraisers and the Appraisal Institute submitted letters to the Realtors Multiple Listing Service (RMLS).  In the letters it was asked that the RMLS create a 1004MC “Button” for appraisers to use when doing single family residential appraisals.

Here is how the RMLS works to accomplish such tasks.

Two years ago I volunteered to serve on the RMLS Technology Committee.   We meet monthly.  The Board of Directors (BoD) of the RMLS had decided to create several committees to do the review and planning for the implementation of various proposals to the Board.  This way the BoD could simply review the recommendations of the various committees and choose to adopt the committee’s proposals, if the BoD chose.

The various committees are populated with people who are interested in the subject matter the committees focus on.  Almost always the BoD accepts the suggestions of the committees.  This shortens the BoD annual meetings considerably.

When the Technology Committee offers its suggestions to the BoD all the items suggested have been analyzed as to priority of importance and weighted by the estimated work hours involved to complete them.  The technology committee almost always provides more work to do in a year than the RMLS programmers have time to accomplish.

The bad news is that the letters from NAIFA and AI, although appreciated by the Technology Committee, came too late in the year to act upon.  The suggestion for a 1004MC “Button” is on the list of items to review in the coming year so it might be put on the 2012 work schedule (if the BoD approves it).

The good news is that the RMLS is working this year on “Statistics Phase II.”  Included in the description of that project is:  “This phase would provide subscribers a way to search on many of the fields in Advanced Search.  It would provide the calculations necessary for appraisers to complete the 1004MC and would streamline the Annual Trend Report.”

As you can see the RMLS is working to create easier ways to analyze data in their sales and listing inventory.  They understand what it is that we appraisers need, and will continue to develop the statistics section of their website.  And, there will someday be a 1004MC “Button.”

Ralph Olsen

MAI, SRA, IFA

I have been tracking the Notices of Trustee Sales (NTS) in Clark County for the last five years.  I have presented lots of graphs about the statistics.  They are in previous posts of this blog.

The  NTS statistics are alarming, but they only tell part of the story.  Notices of Trustee Sales are recorded at the County.  I call the county and they tell me how many filings there were in a month.

REO is what the houses taken back by lenders is called.  When a house is foreclosed on and the property goes back to the bank that property is called REO by the lender.  Lenders don’t like REO.   They never intended to own the property.  They just wanted to lend money on it and get the payments until it was paid off.  After a NTS is filed and the foreclosure is completed the property becomes owned by the lender.

However, if a person who has a loan on a house finds they can not pay the loan payments, they can let the bank know and work together with the bank to sell the property.  This is how a “Short Sale” works.

As I have been presenting NTS statistics over the years, I have not included the short sale statistics.

It is interesting to note that in the five MLS areas I recently examined the number of short sale listings were on average 20% higher than the REO listings.  The statistics for each of the areas studied was +17%, +34%, +8%, +22%, and +19%.

So, if the NTS statistics are running at about 300 per month, then there are, on average, about 360 short sales entering the market per month.

That is about 660 distressed properties per month entering the market.

How long will it take these numbers to turn around?  If you know, please let me know.

Today I officially become the President of the Rose City Chapter of the National Association of Independent Fee Appraisers.

Lucky me.

And, I wish to thank all those who have given me support over the last few years.  It has been some work and lots of fun being on the Board of Directors.  I look forward to the next few years as we all ride the wave of change in the Real Estate Appraisal Industry.

This is the last of the statistics generated on January 15, 2011 about distressed properties.  I will do more research on the topic in other areas later.

This one is for Camas, Washington.

In Camas (MLS area 32) there were 247 listings.  Of these 63 or 26% were short sale listings.  And, of these 247 listings 13 or 5% were bank owned (REO).

So, there is a total of 31% of the listings in distress.  That is a much lower statistic than in Orchards or close in northeast Vancouver that were reported earlier.