_Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Todd notices that there is a real lack of understanding about time adjustments by appraisers. …Jonathan Miller_
During the five years I’ve worked in an assessor’s office, single family houses in my town (whose prices are right around the median for Westchester County) have increased about 60% in value, although they actually topped out in 2005 and have remained stable since then. Or have they?
In the county as a whole, the median selling price is virtually unchanged through the third quarter in 2006 as compared with 2005, right around $716,000, according to WCBR Sales Statistics the mean selling price is actually up about 3%, from a little under $900,000 in 2005 to a little over $900,000 this year. Same is true for mean list price, which is up slightly. The only downward indicator, in terms of pricing at least, is in the median list price, which is down a whopping one percent. Not much of a correction based on these numbers, and certainly no bubble bursting!
And yet most brokers and builders, as well as appraisers I talk to tell a different story, saying prices are lower this year. If that’s the case, why are the (statistical) selling and asking prices telling us prices are stable?
What has changed dramatically is the VOLUME of sales, as well as that of listings. In terms of those numbers, sales are definitely down and listings are up. But the shift in inventory has been going on for more than a year already with little or no impact on price levels.
I’m no statistician but I have a theory and maybe it explains what’s going on here. No matter whether it’s a buyers market or one favoring sellers, the more desirable property of those available for sale is always going to be the one with the more desirable location, in better condition, with more amenities, etc. I’ve heard it referred to in terms of choice, as primary and secondary. Everybody wants to buy the “primary” house but in a hot market they can’t afford the house they really want so they settle for the “secondary” choice, the one that needs work, has the less desirable location, whatever.
Perhaps what’s happening in 2006 is this – although the selling prices are the same this year, since there are more houses to choose from the buyers are getting their “primary” choice for the same price as was being paid for the “secondary” choice in recent years. The trend in selling prices may say “things are stable”. You’re paying the same for a house this year as you did last year. But just maybe, you’re getting a better house for your money.
Does a scenario such as I’ve described above warrant negative time adjustments? Strange as it may seem, when prices were going up I rarely saw an appraisal with positive time adjustments. Maybe it’s just because most appraisals I see are done for people trying to lower their assessments but I have a feeling that the same appraisers who didn’t recognize increasing values will have no such trouble documenting their decline.