Comparing Oranges to Oranges

I get some interesting questions from time to time. While I cannot directly address the concerns some people have about home value (the instant I utter my opinion of value, even orally and/or "off the cuff", I have done a certified appraisal and am required to submit to the person receiving the opinion (even though a client relationship may not exist) a signed certification. So, I have to be careful. Still, as I said, some of these things are interesting and bear a little research.

Here is a sample, dated today:

Jim,

We just had an appraisal completed, which feel $105,000 short of the appraisal completed 11/07 KeyBank. We understand the market trend in today's economy. However we live in an area that is still maintaining a good home value- Orange Village. The appraiser used comps that are 3 bdrm 2 to 1 full baths 2 car garage and the homes are 48, 53 & 35 years old which our is 30. Also our home sits on 2.65 acres heavily wood lot and the comps are 1.65, 1.48 & .35 not on wood lots. We have put 62,000+ in home improvement in the last 2 years, Pella windows & all entry doors & sliding door, new boiler, new hot water tank, new roof, remodeled kitchen, new built in appliances, porcelain floor, 2 full baths taken down to the studs granite & silestone vanity tops porcelain tile floor and shower, all new interior doors, closet doors, all new light fixtures interior & exterior, new carpet, baseboard, interior paint through out.

With all that said he noted $15,000 in home improvements and a few windows replaced all but 5 windows have been replaced. He adjusted the replacement sq. ft @ $79. The acres he gave $5,750 for adjustment, 1 acres lot in Solon is selling for $78,000.
He appraised our property @ $291,000 which we needed $347,000. Why didn't he use comps that are apples to apples not apples to zucchini ? QuickenLoans will not order a second appraisal even through I was able to give them comps that just sold last month @ $380,000 which was built the same year close to the acreage and 4 bdrms & 3 full baths. We have lost our 4.375% rate lock and have no recourse. And our $500 lock rate deposit. What happened????? Can you shed any light on this and suggestions?

Thanks for your time.

Curious George being a monkey, I did a little look-see in the MLS and sent the following reply :

Thanks for the query.

I assume that you are referring to the home at --- Road, 44022. The Cuyahoga County Auditor shows that the home is a 2436 sf ranch, on about 2.65 acres, built about 1979 with 3 bedrooms, 2 full baths, a half bath, full basement, and a 3-car garage. The tax appraised value for 2008 was $292,400, including the tax appraised land value of $68,400.

You need to realize that the lender will be looking at the same public records information, and underwriters are currently being very conservative.

I cannot address specifics in your question since I do not appraise in Cuyahoga County and cannot claim competence in that market area. There are, however, some very general items that you might want to look at.

You imply that only three comparables were used. I am finding that I have to use from 5-9 comps on the grid, including 1 or 2 active listings to show the market trend. Because of the scarcity of sales, the first three comps may be "ugly" due to the need to keep their sales dates within 6 months; it is not always easy to "bracket" under tough market conditions.

You also need to remember that cost is not the same as value. You may want to take a look at Remodeling Magazine's Cost vs Value Report .

I performed a search of the MLS looking for sales only in Orange. In 2006, there were 33 sales with a median price of $307,000, in 2007 there were 24 sales with a median price of $348,875, in 2008 there were 27 sales with a median price of $260,000, and for the first five months of 2009, there were only 5 sales with a median price of $165,600. While the MLS does not show all the sales that have taken place, it does show the brokered sales that most likely have occurred with adequate market exposure and can be used to form a value opinion which meets the FNMA definition of "market value". The statistics show the actual trend in prices for brokered sales in the Orange market.



I would suggest that you examine the appraisal report done in November 2007. You have implied that the value opinion was $396,000, or about $162/sf. There was a home which sold at 28700 Jackson Road on 4/26/2007 for $290,000 ($120/sf). That home was a 2413 sf ranch on 2.55 acres built in 1962. While it did not have a basement, in my opinion it would be a logical candidate as a comparable sale even though it might have to be heavily adjusted for that feature. In fact, examination of the MLS sales data shows that even in 2007, with a much higher median price than now, there were very few single-story homes in Orange that sold for more than $130/sf.

You may want to write a letter to the Ohio Division of Real Estate expressing your concerns, and forward to them copies of both appraisals for their review.

Sincerely,

Without a doubt this homeowner is feeling the pain of current market conditions on his financial situation. He may be under the impression that all is well in his neighborhood, but there are very few locales where real estate prices have not dipped. I have been tracking the MLS statistical reports for the entire state since 2003 (via the updates published in Ohio Realtor) and for the first 4 months of 2009, the median sales price across the entire NEOHREX MLS area is down more than 21% from the same period in 2008. I don't think we have hit bottom yet, either. My opinion.