Appraisal Articles 2019 Free Appraisal Articles for Appraisers and the Public

Latest News

Note about "Views" reported on this site

Feb 7, 2014

I just want readers, contributors and potential contributors to realize that the...

This Site is Monitored

Dec 28, 2013

Articles that are not deemed contributory are removed from this site promptly, so we would...

New Site Template

Nov 30, 2013

Please pardon our somewhat painful transition, we have been working with Subrion.com...

Imperfect Market Information

by Administrator on Nov 24, 2015 Market Conditions Articles 1196 Views

Appraiser's research the general or overall market, like the entire city, and then they research a submarket area which has often been delineated by brokers due to there being a similar development pattern in an area.

While there are usually similar physical and economic characteristics in a submarket property values within it can vary considerably.  If it's an area dominated by medical offices, due to its close proximity to a hospital, it is likely that the offices can vary in value significantly due to construction, in finish quality and in age.  So appraisers can for example find offices that have sold between say $ 125 per square foot (PSF) and $ 350 PSF. 

Thus there is a lot more to appraising a real property than just identifying the property type and the location.  All that identification gets you is a wide range of disparate properties. 

Even if you had a block within which every office property, assuming there were several, had the same builder, the same building improvement and the same finish you would find a significant difference in sales prices.  Why?  Because there would be differences in things like cash versus seller financing, buyer and seller motivations, differences due to date of sale, different depreciation rates and preferences within the development for things like corner versus interior locations.

An appraiser talks to owners, buyers, sellers and brokers and tries to identify the factors that contribute to value, but some property sales fall outside the expected range being either too high or too low to be easily explained.  Even a complete investigation of the sales may reveal no reasonable explanation for their sales prices.

As a real estate broker I have found that the residential real estate market has become effectively controlled by the banks using appraisals.  If the price within a tract home subdivision, where most homes have similar construction quality and similar interior finish, averages $ 110 PSF a pending sale of a property within the subdivision at $ 150 PSF is likely going to be shut down since the property won’t conform. 

Appraisers are loath to conclude property values that fall outside of the range of recent sales prices.   So if you own a home that is located in this hypothetical subdivision and it is finished with more and superior improvements you will have a great deal of difficulty getting an appraiser to conclude a value opinion above all of the other sales within the sub.  I’m not saying that some brave soul won’t do it, I’m just saying that many appraisers won’t.

It’s easier for many appraisers to call the improvements super adequate and say that it is an over-built property than to expand the range to now include this property as the highest priced.

Market are imperfect in that some buyers who want a property and are competing for it will offer a price well above what has been the typical sales price range.  The upward pressure on prices is often thwarted by financial institutions by using appraisers and their appraisal reports.  If the sales price range for a certain model of home, say a 3,300 square foot, 2-story, 5-bedroom, 3.5 bath home called the “Allure” has been selling between $ 375,000 and $ 425,000 and the home you are appraising has been contracted at $ 475,000 you immediately have an appraisal problem.

Appraisers don’t account for buyer desires or even an increase market demand that has reached a point where sales prices should react to increased demand.  Financial institutions will simply not fund the sales because the properties “won’t appraise.”  If the value doesn’t fit “in the box” the loan is going nowhere.

That’s one of the reasons that financial institutions have now elected to stay out of the vacant land markets.  Vacant residential land may be selling for $ 200,000 per acre today, but given enough demand (and the absence of available federal government lands), and price may increase to $ 300,000 per acre in a matter of weeks.  Vacant land markets have been reined in by keeping the financial institutions out of the markets.  When banks are funneling huge amounts of money into land a balloon inflates quickly. 

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/Market-Conditions-Articles/4587-Imperfect-Market-Information.html

admin

Administrator

Articles: 339 Contact author

Most Recent Articles