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Real Estate Statistics and Trends: Propped Up By the Stilts of Concessions

Much is written about the statistical trend lines that show the housing markets may have bottomed out and turned upward, at least from the macro view of the national data.

From what I am seeing when individual markets in my Region are examined, and then individual transactions are verified and analysed; is that the Tax Credits combined with Seller Assisted Concessions or Fees Paid, have propped up the markets.

None of the nationial data, nor writers, has access to the local data sources to be able to analyze individual transactions. Therefore there is no one at fault, no error or mistakes by the real estate writers.

That does not change the fact that in a declining or down or busted real estate market, terms and concessions are propping up both sales volumes and prices.

One example of a sale that I verified in a new home tract was priced at $225,000.  The Builder Bought Down the Interest Rate so the buyer could quality, at a Cost of $10,000.

The Builder {seller} paid all the Closing Costs of the Buyer, all fees and escrow and the down payment on a FHA loan; at a cost of $10,000.

The Builder {seller} gave the Buyer a Credit of $10,000 that could be used to either Upgrade or add Extras to the home or property.

The Net Sales Price, after Consessions from the Seller, was $195,000.

Is this a Market Value price? We do not know yet, not until we compare the net after Concessions with a normal sale.

They had sold another home, same floor plan to a buyer with 20% down, who was more interested in Value than Concessions; at $189,000.

Therefore, the Cash Equivalent Sales Price of the $225,000 Sale, is $189,000.

But, the $225,000 is what gets reported into the databases, and used by analysts.

The Definition of Market Value required for lending, is in terms of Cash to the Seller, Net of Concessions.

So, the point is, that the statistics may show an uptick thanks to the Federal and State Tax Credits, combined with Sellers helping Buyers out by throwing in Concessions of one kind or another.

Sadly, the licensed professional appraiser who is engaged to measure Market Value as defined, often does not even know that the Definition itself is a Test to be applied first to the Subject Sale Transaction, and also to every Comparable relied upon.

Tens of thousands of appraisers know how to fill out reports that look good on the surface. There are many Forms programs that will help the appraier keep Red Flags out of the report in terms of Words or Net and Gross Adjustments. So, reports can be written that look good but be empty of any real data, information or analysis.

The Uniform Standards of Professional Appraisal Practice Certifications that the appraiser makes, includes condiering all the data and includes using good appraisal procedures, which includes verifying the Transactional aspect of their Subject Sale and every Comparable relied upon.

Further, the certifiction of the use of good appraisal procedures, includes having market derived Adjustments, including those for Motivations, Terms, Conditions, Concessions.

In fact, the Order of Adjustments starts with this Line Item, followed by the Time or Market Conditions Adjustment, then the Locational and Physical Adjustments.

There are problems as to why Adjustments are not Market Derived. Time, it takes time and skills to verify them and/or measure them.

Time translates to money. The appraiser is not allowed adequate Time nor Fee to do all that they Certify compliance with. As a result, most production reports are simply fakes that look good on the surface.

Thing are, however, just the way the powers want them.  God forbid that every appraiser became aware and congruent, educated and skilled.  If that were to happen, the statistics would take on a whole new curve in a very dynamic way.

What we have going on are a lot of people being helped into homes, who have limited equity, in soft markets that are Propped up by Concessions.

When they run into financial difficulities and/or come to a realization that they paid too much and have no equity; a whole new wave of foreclosures will begin.

The Mountain was high on the road up, the Valley will be wide on the ride across with bumps and blips caused by the Propped Up Prices we are reading today.

Disclosure: None