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A Day in the Life of Appraising Iowa-Nebraska-Florida
Market Conditions and Value Considerations
January 5th, 2020 9:32 AM
The Market and Value Considerations
I do a lot of real estate appraisals for Appraisal Management Companies as well as Real Estate Settlement for private clients. My value opinion or real estate appraisal must take into consideration all factors that affect value, not just the physical characteristics. The mortgage industry and lenders/bankers must take appropriate steps to ensure that the appraisers they use analyze not only the physical characteristics, but also the “market conditions”. This includes analyzing listings, contract sales as well as closed or settled sales, and using the most recent and similar sales available as part of the sales comparison approach, with particular attention to sales or financing concessions.
When researching comparable properties for analysis, the first step is to look at the immediate subdivision, the homes within close proximity with similar locational influence. While researching physical characteristics, such as gross living area, bedroom and bath utility, I also look at the “market conditions”.
Market Characteristics:
Demand vs Supply Ratio, for a mortgage analysis you will see this calculated on a “Market Conditions Report”
Days on market (DOM) - This is the number of days a property spends listed for sale. If properties are being snapped up quickly by eager buyers, then demand might exceed supply.
Discounting – This is the difference between the original listing price and the eventual sale price. If buyers are eager, sellers don’t need to drop their asking price much.
Online search interest (OSI) – This is the number of online searches for property divided by the number of properties available. A high number means there are more buyers than sellers in the market.
Stock on market (SOM) is the number of properties for sale. The SOM is usually quite large in an oversupplied market. However, this figure can be deceptively low for small markets and deceptively high for large markets. So a better indicator is the percentage of SOM.
Percentage of stock on market -The percentage of stock on market, or the SOM%, is the number of properties for sale relative to the number of properties in the suburb. The vast majority of property markets will have an SOM% of less than 2.5%.
For private appraisal services, I do the same analysis, however for mortgage lending purposes, I am required to report on the primary indicators of market condition for properties in the subject neighborhood by noting the trend of property values (“increasing,” “stable,” or “declining”), the supply of properties in the subject neighborhood (“shortage,” “in-balance,” or “over-supply”), and the marketing time for properties (“under three months,” “three to six months,” or “over six months”) as of the effective date of the appraisal. I also must describe the reasons when the trend of property values is declining, supply is an over-supply, or marketing time is over six months. Fortunately we have been enjoying an increasing to stable market in the areas I perform appraisals; Omaha/Council Bluffs Metropolitan, as well as St Petersburg, Madeira Beach, Seminole, Clearwater area in Florida.
Posted in:
Public Education - The Appraisal Profession
and tagged:
Physical Appraisal Characteristics VS Market Condi
Posted by Alycia Hamaker on January 5th, 2020 9:32 AM
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