The Real Estate Market
Well, the first quarter is behind us and the results are in. Let’s look at what happened.
We’ve got good news and not so good news. Let me explain. First, the not so good news. Average residential prices at the end of the first quarter dropped 5% from $155,000 to $148,000 or about 5%. Now that’s not what we were hoping for. Of course, we know that prices in the first quarter are lower than at any time during the year so a lower price is understandable. However, when put in context, the metrics suggest a dip beyond normalcy—see 2007 to 2012 below:
Now, let’s look at the next 5 years:
Do you see what’s happening—prices at the end of the first quarter were about 91% – 107% of prices at end of year. That means that the price at the end of year could be forecasted to be $135,000- $159,000 if the 1st quarter portends end of the year pricing. So the bottom line is that the trend upward trend since 2013 has been interrupted. Hopefully this doesn’t signal a trend for pricing.
The good news is activity. If we looked at residential closed transaction activity, there’s no doubt that things are more certain— it’s up up and away. Activity increased from 416 units to 461 units or a 15.6% increase. In fact, if we looked at the height of the market (2007) we’d see that the number of residential units sold was 382 as compared to today where sales levels were 481. That’s almost a 26% increase in units! I suppose that’s why everyone is saying things are better.
To support the belief that things are better I found that pending sales increased from 500 units to 548 units or 9.6%. Pending sales are a harbinger of things to come. Another interesting statistic is that new listings decreased from 957 units to 740 units. This is a sign that people no longer feel compelled to sell.
So, if I had to characterize what’s happening I’d say things are good—getting better and that we have some ways to go on prices returning to the good old days but it’s enough to put a smile on your face.
Appraisers – What it Takes
It happens all the time. You’re borrowing money, you have an estate to settle, you’re dissolving your partnership, your accountant needs a value placed on your assets or you find it necessary for some reason to determine the value of your real estate. So what do you do? The obvious answer is to find an appraiser. But who?
You may go to the yellow pages, speak to your accountant or banker or you may know of someone. But what assurance do you have that the person is qualified and that you won’t get a bad (highly inaccurate) appraisal. Over the years there has been many economic issues which have been traced to bad appraisals.
These appraisals were preformed by appraisers who would estimate a value based on your needs, charge you based on the value they derived or advocate your interests.
This is not only unethical but today is illegal. Appraisers should be neutral, never advocate a position and be qualified to estimate value. To protect the public, appraisers are now tightly regulated.
In 1989, the U.S. Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which authorized The Appraisal Foundation (Foundation) as the source of appraisal standards and appraiser qualifications.
The Appraisal Standards Board (ASB) sets the minimum standards, known as the Uniform Standards of Professional Appraisal Practice (USPAP).
The Appraiser Qualifications Board (AQB) establishes minimum qualifications, known as the Real Property Appraiser Qualification Criteria.
The State Board of Certified Real Estate Appraisers regulates the certification of real estate appraisers and assessors in the Commonwealth of Pennsylvania. Upon application, the Board denies, approves, issues, revokes, suspends and renews certificates of appraisers and assessors. In addition to passing upon the qualifications and fitness of applicants for certification, the Board establishes standards of professional appraisal practice and conducts hearings on complaints.
Pennsylvania State Board of Certified Real Estate Appraisers has three levels of real property appraisal classifications i.e. Licensed Appraiser Trainee, Certified Residential Appraiser and a Certified General Appraiser. The most important of which is the Certified Residential Appraiser and the Certified General Appraiser.
Certified Residential Appraiser has to have at least 200 hours of appraisal education and training, including 15 hours of ethics and standards of practice; 2,500 hours (including 1,500 hours non-residential) of appraisal experience across at least 30 months; and passing the Level B licensing examination. Additional requirements include an College-level Associate degree or higher.
Certified General Appraiser has to have at least 300 hours of appraisal education and training, including 15 hours of ethics and standards of practice; 3,000 hours (including 1,500 hours non-residential) of appraisal experience across at least 30 months; and passing the Level C certification examination. In addition, applicants must have a Bachelors degree or higher.
In Pennsylvania, a state certified residential appraiser can perform appraisals of 1-4 family residential property and vacant land for 1-4 family development. A state certified general appraiser can appraise any and all types of property, provided they have the competency to perform a property appraisal of the type assigned But the requirements don’t end there. In addition, real estate appraisers are required to complete 28 hours of state-approved continuing education every 2 years, including 7 hours covering USPAP and 2 hours on the Real Estate Appraisers Certification Act or Assessors Certification Act.
The bottom line is that it’s time consuming to get a license and certified appraisers are very sensitive to violating any of the rules that govern them (USPAP). This is why they often fiercely defend their estimate of value and never want to do anything which would jeopardize their license. It also explains why there is a diminishing number of appraisers.
But why is there a disparity between appraisals? The simple answer is because opinions can vary. After all, an appraisal is an opinion based on the appraisers findings, methods of valuation, knowledge to competently perform the assignment, time spent, geographic competence and the appraiser’s experience. So, it’s understandable that one appraiser’s opinion can vary from another. But who’s right—appraiser A or appraiser B.? The truth is I don’t know, for a estimate of value is not a fact to be found but a judgment based on all those items mentioned and it’s validity is measured by these factors not the ultimate sales price as often is believed to be the benchmark.
Appraiser and consultant
In today’s environment it’s very important to have access to an experienced consultant and whether its an appraisal assignment, a contemplated purchase, a property tax matter or a valuation issue, I think I can be of help.
Since 1970, I have trained and developed sales teams, appraised residential and commercial properties, provided consulting service, shaped the pricing structure of homesites and housing, developed property, tailored sales strategies, taught real estate and appraisal courses, molded marketing initiatives, managed communities and a building company. I have been involved in virtually every aspect of the real estate industry including, selling, managing, training, planning, development, financing, appraising, consulting and building. I’m confident that if you have a real estate challenge I can help.