- Miller Samuel Real Estate Appraisers & Consultants - https://www.millersamuel.com -

June 15, 2018

Like Housing, Raccoons Can Reach Their Peak In Full View of Spectators

Over the past 15 years, housing has become a full-fledged spectator sport, especially when prices are climbing. Hence, this raccoon-climbing-a-building [1] analogy:

But I digress…

“Dovetail” – Elliman Report: May 2018 Manhattan, Brooklyn & Queens Rentals

I am the author of the expanding Elliman Report [2] series since 1994, Douglas Elliman [3] published our May 2018 rental research, and there was a noticeable change in pattern. As we know from the Q1 2018 Manhattan SalesReport [4], there was a 24.6% year over year drop in sales. It was attributed to the growing sense of uncertainty, new federal tax law, rising rates and a confusing economic policy landscape. The sales market has remained the weakest segment of the market in general with more oversupply and aspiration pricing in the mix than other segments. After several years of softening rental market conditions due to similar reasons, larger rentals are being snapped up as more buyers press the pause button.

Bloomberg went all 3-bedroom on the report with a video [5], chart [6] and an article that was the number 1 read story on the Bloomberg Terminals [7] worldwide (350K± subscribers). Of course, there was a lot of other great coverage [8] on the report results through other outlets.


[9]

[9]

I Repeat: There Is No National Housing Market For Consumers

This feedback was sent to me from a broker friend who works in a high-cost housing market that is currently moving very slowly since the beginning of 2018.

A seller sent these links to articles, insists the market is strong and his house not being marketed enough. Aaaarrrrgggghhhh.

(here are 2 of them)

US house prices are going to rise at twice the speed of inflation and pay: Reuters poll [CNBC [10]]

Home prices won’t slow down, stumping the experts and shutting out buyers [Marketwatch [11]]

In this market, home sellers rely on national news to tell a stronger story and buyers rely on local news to tell a weaker story. In reality, local is all that matters. National report results don’t apply to your local market, and if they seem to correlate, that’s a coincidence.

Flattening Yield Curveball

Some analysts [12] have been saying the flattening yield curve [13] is not something to worry about – when short-term rates are the similar to long-term rates. But I still find it compelling now that we are seeing the fed aggressively raise rates [13] – mortgage rates are now climbing, restraining housing sales levels. A flattening yield curve may suggest a recession ahead. So why is the fed being so aggressive [14] in raising rates?

And what about Wile E. Coyote [15]?

Here’s a great explainer from FT. The video might go behind their paywall at some point:

[16]

Zombie Homes on Long Island, The Apocolypse Decade

This is an old term from the foreclosure crisis a decade ago, but it still exists today. Nothing too deep in this Marketplace article and video [17] but it does remind us that this is still a problem.


Plaques (Like Celebrities), Don’t Raise Home Values (Even the Blue Kind)

There was a good read in Mansion Global [18] that addressed the fantasy many homeowners seem to have about plaques on their homes. We have one on our home and I know better (left). The blue plaques found around London essentially tag notable people who occupied the house for varying lengths of time. Like recent celebrity houses, the fact that a famous person wrote a famous poem, had dinner or went to the bathroom in the residence doesn’t impart value to the house. It may shorten marketing time because of the additional visibility, but for every example of some premium, there are the same or more examples of no impact or even a below-market sale.






This Week In Aspirational Pricing: A $760,000 Parking Space

In 2007, I analyzed Manhattan parking spaces that made page one of the NY Times [19] (oh, and my wife broke her leg that day). The takeaway was that parking spaces sold for about the same price per square foot as a typical apartment in the same building. Typical parking spaces run about 150 square feet in size.

This US$760,000 Hong Kong parking space sale [20] (a flip) was a little more than $5,000 per square foot in a luxury project. The average residential sale is US$3,182 per square foot. Based on what we see for Hong Kong housing prices, that price really doesn’t sound so crazy.

In the greater reality, it sounds absolutely nuts. Without the context of an HK$100M condo nearby, we are talking about this:


St. Louis Fed: The Housing Supply Puzzle

There’s a great 3 part series on the great housing supply shortage. It’s really worth a read. While its no secret that shortage pertains to existing homes, not new homes, there’s a bunch of great context presented.

The Housing Supply Puzzle, Divergent Markets: Part 1 [21], Part 2 [22], Part 3 [23]

[24]

Upcoming Speaking Events

[25]

June 19, 2018: I have the honor of speaking at the 8th Annual OCAP Real Estate Appraisal Seminar at The Fawcett Center of the Ohio State University (despite being a Michigan State Alumni).

It is great to see how our appraisal industry has broken through years of leadership apathy to raise our voices in the changes that we face. OCAP is one of at least 27 state coalitions that are making a difference.

Appraiserville

Get Rich Quick? No, Go Out of Business

Hello,
I saw that you registered on our site so I wanted to send you a quick email with some info on our program!
We would just ask you to go out to a property, take at least 4 exterior photos of the home and answer a short yes/no questionnaire, about 15 questions. It’s not a BPO and we don’t ask for any values or comps. I’ve attached the questionnaire and a set of sample photos.
We pay $25 per completed order and pay out once a month, the checks get processed on the 5th business day of the month and pay out for all of the previous months orders.
Turnaround time for orders is 2 business days. You would pick an address you would like to work out of and would also choose your own radius in miles (10 miles minimum) you would be willing to travel from that address. You would get an alert that there is an order available and can pick and choose the orders you would like to complete for us.
Please let me know if you are interested or have any more questions. Thanks!

Fannie Mae Has A Landing Page for Appraisers

They are now working to better communicate with our industry. We now have a landing page [26] on the Fannie Mae site.

Bookmark it.

Also, the page contains a link to their new selling guide [27]. This is where you can find their appraisal policy. Back in the day, I used to maintain their three-ring binders with periodic updates via US mail.

Ranting: When VA Appraisers Screw Up

My best friend from high school happens to be a very good appraiser. One of his strengths is that he is extremely meticulous in his approach to valuation which doesn’t align with the general AMC universe emphasis on cost and speed without emphasis on quality. He once took apart his mid-70s Pontiac Trans-Am to the individual bolt level. Yes, down to the bolts. My memory of this is that he only had about dozen bolts left when he put the car back together but he denies this. 😉


In this AMC low fee world and a family to support his skills don’t match the new reality so he flips foreclosed properties and does well at it. His home flipping business really leverages his local market expertise.

In one particular case, he reached out to me because he was very upset. He needed a sounding board.

He was selling a house and a VA appraiser low balled it. As a seller, my friend really has no recourse other than to report this person to the state or move on to the next deal. He can’t go to the bank and of course, the buyer would be happy to pay less. This appraisal cost my friend about $20K for no reason whatsoever. He even sent the appraiser something like 17 legitimate comps out of desperation and the appraiser hung up on him. This was a unique property that was renovated and compared with wrecks that were “plussed up” without support because they were of similar configuration – this guy couldn’t think out of the box. I get the insulation from influence part, but do we have to insist on saving our ass because it’s easier? How about getting it right?

I’m not going to share all the photos and comps and appraisals he gave me to show his value logic value but I’ve shared his letter – if you know my friend who wears his heart on his sleeve – is a good read.

When I met the appraiser at the property, he said he had seen my work before, and said I was very thorough. When it is my money on the line, I tend to overdo it. I apologize to the readers up front, as there is probably way more information here than is needed, but I saw many inaccuracies in this report. With all due respect, the appraiser did not have much to choose from in the way of suitable comparables within the subject’s immediate neighborhood. He said this lender would not allow detached homes to be used as comparables. I can understand having guidelines asking to refrain from detached homes, but the vast majority of the homes in the neighborhood are detached, so it would make sense to include a few detached homes and make adjustments for the detached versus semi-detached configuration. The appraiser did not bracket the sales price, and the comparables have artificially pulled the value down. Comp 4 sold for less than 59% of the subject’s contract price. I was going to save this comparable for a later discussion, but let’s just get it out of the way now.

Com 4 – Why he chose this comparable stumps me. It exhibits a lack of knowledge of the Hagerstown market, although I believe he knows the area better than what is represented in this report. Ridge Road is noted as being 0.62 miles from the subject, but that is as the crow flies. Google maps have the distance as 1.6 miles going south or 1.9 miles going north. It is in an industrial area on the other side of the railroad tracks, in a far inferior neighborhood. I know it well, as I purchased a house a little over a year ago at auction for $19,000 and was happy to sell it at wholesale to an investor/ landlord friend. Most of the street is tenant occupied, and there is little pride of ownership in the neighborhood. Furthermore, this comparable is adjacent to a busy road with a transformer station on the other side, with another busy road south of it, and railroad tracks and industrial facilities along that road. I took pictures of the homes across the street to compare with homes on the subject street. I spoke at length with the listing agent and found that it had been a rental for 15 years, and had to be fixed up just to get it to sell. It was a bare minimum updating, and I got access to inspect personally, with pictures attached. The kitchen was the bare minimum, with only a stove and refrigerator and minimal cabinets. No CAC. A gravel path for off-street parking, no pavement. No garage, No finished Attic. No finished basement. Some peeling paint, remnants of graffiti. Please take a look at the photos to compare to subject and neighborhood.

Comp 1 – 521 Guilford Avenue is indicated in the MLS sheet as a renovated duplex, and is the most logical comparable, as it is located in the same neighborhood and one block away on the same street. I had viewed the listing pictures previously when I was evaluating my property at 629 Guilford. To confirm what I had interpreted, I knocked on the door of 521 on June 4. I met the owner, and we talked about the property for a little bit. She invited me in and showed me the “renovated” home. She believes that this was the seller’s very first flip, and he did not know what he was doing. The first floor is lower end LVT vinyl tiles, glued to wavy floors. She reported that all of the floors are not level, and it feels like the whole house is sagging. The ceiling has staple tiles, not drywall or plaster. There are some plaster or drywall walls, but many of the walls are a very thin ¼” paneling which has been painted. It showed well in the MLS pictures, but the walls are very flimsy. The kitchen looks very nice, with nicer granite counters than my brand new faux granite Formica counters. She said that the cabinets look nice, but were very non-functional. The drawers were very narrow, and you could not put a silverware tray in them. She said the dishwasher hose broke away because they used the wrong clamp and it dumped dirty water all over the kitchen floor within the first week. She also said the appliances were not new but did work. There is no half bath on this floor. The rooms are much smaller, due to a foyer partition in the living room. There is a paneling covered HVAC ductwork intruding into the middle dining room. The ductwork was not done properly so all of the air from the air conditioning goes directly to the middle room and does not get distributed through the house. The HVA C system is reported to be new.

Keep in mind that 629 Guilford has beautifully refinished wood floors, refinished by a professional floor craftsman. He indicated that these floors looked great, and he said he had not seen any better railing and Balusters with this age home. He refinished all the treads with stain. The 521 comparable that we’re examining had been painted over, including the wood treads on the stairs, which are already wearing off and scuffing.

Heading up the painted stairs, we get to the second floor which has lower end carpet throughout the second floor. The subject property has parquet floors which have been refinished in the hallway, wood floors in the laundry room, and carpet of a medium grade with good padding in the two bedrooms. The two bedrooms are significantly smaller, due to the makeshift closet configuration in these rooms. The middle bedroom has a closet which is not deep enough to hold clothes on hangers. The closet was made out of paneling and has an outlet inside the closet. The owner reports that the closet had a clothes rod installed when she first viewed the property, but it had been taken down when she purchased the property. She later discovered that it was because the closet was not deep enough to actually hold clothes hangers. This bedroom does not have the built-in shelves that the subject property has. The front bedroom also has a makeshift closet and the shelf hangers had pulled out of the wall. They were screwed directly into ¼ inch paneling, and would not hold anything. The bathroom is a different configuration than the subject property. It has a nice double vanity with a new fiberglass tub and shower unit. Looking closer, she discovered after she purchased the house that the plumbing was not done correctly and she can pull the spigot away from the tube, as they used flexible piping and did not secure the spigot. I am thinking that water is running behind the tub when the shower is used. The outlet for the bathroom is at the other end of the sink, and cannot be accessed easily, as it is behind the door. The light switch for the bathroom is actually outside the bathroom door in the hallway. There is a new resilient floor. The laundry room is in the same location as the subject property, although it is not as large due to the unusual configuration of the bathroom. The commode area extends into the laundry room.

Heading upstairs to the third floor which is also finished but as a narrower roofline with essentially seven feet wide area with at least 5 feet in height. There is no closet in the room. Furthermore, the way the stairway configuration is set up, you cannot get any reasonably sized pieces of furniture into this area. The only real furniture she could bring up was a large bean bag that would make it past the stairway railing. The subject property has a different railing, as I could see furniture access problems. My contractor set two by two pickets from the floor to the ceiling which can be removed as needed with a couple of screws per picket. This provided the safety of a railing, with the ability to remove them completely for furniture egress.

The basement is accessed with a cheap, sticking door (no knob) and stairs down to the unfinished cellar. Unfinished is being kind, as the exposed stone walls provided a very low ceiling, which is less than 6 feet high in some sections. I presume it is a dirt floor which has been covered with black plastic. The HVA C system is in the basement, as are the water heater and electric panel. There is no walk-up exit from the basement to the exterior. I would not have included this as a basement. The stone foundation is likely responsible for the sagging of the structure above The entrance to the property has been redone with 5/4 nosed decking boards, which the owner complains are kind of wonky and crooked, and she is not sure how long it will last. This porch is significantly smaller than the subject’s porch. I did notice that there are some retaining walls on the front. I thought these were 4 x4 landscaping posts, but it is actually 54 nosed deck boards screwed to the outside of some small posts. It should not be long before these are pushed away from the posts, as they are on the outside of the post. These walls really have no ability to retain any kind of pressure. I believe is only a matter of time before the boards are pushed away from what they’ve been screwed into. I believe it looks nice for the time being. There is a very narrow walkway between the next house, as opposed to the subject’s shared driveway providing space and sound buffering. There is an alley access for this comp property with 2 off street parking spaces. They’re not as convenient as the subject, as there is a little bit of a yard unit between the parking and the house. There is a concrete patio and the two balconies. Only one was mentioned on the subject property. The owner also reported that the property needs a new roof. This problem was overlooked, and she has one bid at $13,000, which I believe is high.

In short, comparing the condition, amenities, quality of construction components and workmanship, size of rooms, and parking options to the subject property leaves a lot of room for upward adjustment. I believe that the only superior features that this property has over [the subject] is granite kitchen counters and a nicer bathroom vanity. Virtually everything else is equal or significantly inferior.

Comp 2 – Rougher neighborhood, commercial and multifamily across the street, billboards adjacent to the property, busier road, one way, 2.5 stories plus basement. Ony 6 pics in the listing. Called owner. See exterior pics.

Comp 3 – I appraised this house for the purchaser’s lender. It was updated, but not nearly to the extent of the subject property. Contracted a year ago, why use it? Not even in the subject’s neighborhood. Compare views of multifamily buildings, run down, no landscaping in sight. See attached pics and compare with the subject street.

Comp 4 already discussed.

Comp 5 – Under contract for the 4th time. I talked with the listing agent at length but could not get access. The first contract fell through for home inspection issues. 2nd backed out because purchaser did not want stairs? 3rd fell through because purchasers wife never liked it, and they were able to get out after the purchasers’ credit check failed (intentionally?). 4th is still moving forward. This was priced low to move it, recognizing that it is located on a very busy road and backing to a strip mall. See pictures to get the full effect. This is not just a busy road, it is the main thoroughfare through this side of town with a median strip and 2 lanes of traffic each way. Fire, ambulance, trucks, etc. Behind is a struggling strip mall.

I am running out of time to get data back for the value dispute. I have provided 17 suitable comparables in a grid. My adjustments are different than the appraiser’s adjustments. $25 / ft for GLA is way too low, but it does make a pretty appraisal. This area seldom has comparables that fit within the net and gross adjustment guidelines, unless you avoid making adjustments. That is the easy way out. I have not had time to cross-check features and condition, and the adjustments are rough. I wanted to get something out.

I am always available to discuss the subject and any of the comparables with anyone involved in this transaction.



The VA appraiser did not really understand the comps he relied on and that’s unfortunate.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes [28]. And be sure to share with a friend or colleague if you enjoy them because:

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc. [29]
Real Estate Appraisers & Consultants
Matrix Blog [30] @jonathanmiller

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