Best Time to Sell Your House in Chicago

Chicago is one of America’s favorite cities for a reason. Not only do we have the best food in the country, but we also have some of the best sports teams as well—let’s not forget the 2016 World Series! Additionally, the overall character of Chicago can’t be matched, and we love to call it our home. Given that it’s the third largest city in the United States population wise, quite a few others are thinking the same thing. Recently, though, the population of the city has been trending downwards.


If you’re planning on selling your home, this may seem slightly concerning. But with the right tools and some planning, you can still sell successfully in a buyer’s market. Here’s how to find the best time to sell and some pointers to help.


For selling quickly

The quicker you sell your home, the better off you are. Stale listings, or houses that have been on the market so long that they begin to lose value, are a real thing. Given that Chicago has lost a lot of residents, some neighborhoods have more homes up for sale than people who are looking for one. The best time to sell your house in Chicago quickly is in June, when homes sell about 8 days faster than the yearly average.


For selling for more money

A buyer’s market can mean homes selling for less than normal, so picking the right time to sell is crucial. Also being the best time to sell quickly, June is the best time if you want to sell your home for more money. In this month, homes tend to sell for around 8% more than the yearly average.

Although homes tend to sell faster and for more money during summer, smart sellers will start preparing for their home sale months in advance. This winter is a great time to start those home improvement projects that will give you more bang for your buck when it comes time to sell. The sooner you start thinking about these things, the better off you’ll be.


Now what? 

Regardless of when you sell, you should always be smart about the process. Start by hiring an experienced real estate agent, study the market and population trends, and always get a reliable appraisal on the value of your home.


Listing your home for an appropriate amount helps to ensure not only that your home sells quicker, but that it’s sold for the highest value possible. Homes that are overpriced can and will scare off potential buyers, and under priced homes will obviously sell for less. Rowe Appraisal Group in Chicago will provide an accurate price evaluation based off of the market, the shape of your home, and plenty of other factors. Request an appraisal today!



*This was a guest post provided by Homelight.com

How a real estate appraiser uses InfoSparks to analyze the market

During a conversation with a real estate agent, I was asked how we support time adjustments when a market is hot and prices are increasing.  I started to explain how we use InfoSparks how it is a valuable tool for me as an appraiser. It allows me to look at different segments of the market very quickly and then use that information in my reports by depicting the trends graphically with charts.  While there are many different ways we can use this tool as an appraiser, there are four main ways I use it on every appraisal we do.  I go into more detail in the video above.

Median sale price change - This give great support for time adjustments or lack thereof.  This is crucial in increasing markets with low supply. Have you ever had an appraisal come in below contract price and there were no time adjustments?  If you were selling in a hot market with low supply, increasing median sale prices, and multiple offers, my guess is that the appraiser could have used this tool to support time adjustments to account for the increasing market.

Market time - This will show how quickly homes are selling and which direction the trend is going.  This can be helpful in explaining a Comp that may be an outlier. Maybe the average Market time for the market is 90-120 days and this home sold in 1 day.  Maybe it was under priced?

Supply of Inventory - This is also a big one.  This can be a really good indicator of which way the market will be headed.  For example, inventory levels under 3 months is often indicative of a shortage and indicates prices could be going higher.

Type of Sale - This can show the amount of distressed sales in relation to traditional sales.  Using REO/Short sales as Comps when they make up less than 10% of the is typically not the best choice.  But during the crash, there were certain neighborhoods that were predominantly distressed sales and this had a big impact on the market.  This allowed me to illustrate this to the reader of my reports.

If you are interested in learning more, I go into more detail in the video above.

Appraiser Helping Real Estate Agents Facebook Group!

I have created a Facebook group for local Realtors who have appraisal questions.  I will be sharing some great information that will help you understand things from an appraisers perspective and some tips to help you in your business.  You are encouraged to jump in and ask any questions you have. We are here to help!  Just click below and then click the "Join Group" button.

Zillow – Still Not Good Enough

Glenview homeowner sues Zillow over 'sloppy' estimate

In 2014, I wrote a blog post about Zillow and I decided it’s time to turn my attention back to this again. Today, Zillow is still very much in the news and a big player in the world of home values. 

​What caught my eye in 2014 was a blog post written by another appraiser in Philadelphia (Michael Coyle of The Coyle Group) who had compared 20 of his company’s appraisal values to Zillow’s value estimate (with similar results to mine). This inspired me to do my own study and the results were pretty surprising (click here for more info on my study). Which brings me to an interesting article on ChicagoBusiness.com that popped into my feed today: According to the Crain’s article, a homeowner has decided to sue Zillow “alleging that the real estate site's relatively modest estimate of her home's value has created a "roadblock" to selling at what she thinks it's worth.” This homeowner’s main issue is that the Zestimate for her home is lower than the amount she has listed the home for and it’s causing prospective buyers to balk.  Click below to go directly to the article.

The Accuracy of Zillow's Zestimate in Chicago

You can read the article for more info about the suit, but I wanted to point out one of the most important facts pointed out in the article that was taken directly from a page on Zillow. It has a chart illustrating its accuracy, or lack thereof.  In Chicago, it's Zestimate is within 5% of the sale price 47.4% of the time (or in other words, it is off by over 5% more than half of the time).

Click the image above to go to the page that further explains their Zestimates

The median sale price in the city of Chicago in the last 12 months is $277,000.  Let's say a homeowner wants to sell their home without a real estate agent in an effort to avoid paying commissions. They look up their home on Zillow and decide on a list price based on Zillow's Zestimate.  If Zillow's estimate is off by 5% (or greater), that would result in a $13,850 difference!  And that's giving Zillow the benefit of the doubt by only applying 5%. On my prior study, there was an average difference of over 20%.  

Key Takeaway

Homeowners - Please don't rely on Zillow to provide you with an accurate value of your home. Call a local real estate agent, or even better yet, an appraiser to help you determine an accurate value for your home. This will allow you to sell it in an appropriate amount of time at the highest possible price without leaving thousands of dollars on the table.

Bonus Takeaway  - It's interesting that its off by 5% or greater over half the time. Why not just hire a real estate agent and pay the 5-6% commisions? In addition to a more accurate list price, they can provide marketing, staging, profession pictures, advice, etc that can also result on you selling your home for more money that you would on your own.​

Why is an appraisal necessary?

Most appraisals are completed as part of the mortgage lending process, with the lender being the entity to request the appraisal. If you think of it this way, a bank has most of the money on the line. Before lending it to a borrower, they want to know whether that the property is worth the amount of money being borrowed to purchase it. The banks want to be sure that if for some reason the borrower stops making payments on the mortgage and stop paying off the loan, the bank can repossess the house and sell it in order to recoup the money lent in the first place. If an appraisal comes back to lender for far under the contract price, that would raise some concerns that the borrower is attempting to borrow more than the property is actually worth. Along with checking a borrower's credit score, debt-to-income ratio, etc., the appraisal helps the lender assess risk. This is known as the loan-to-value ratio. If a borrower is fronting 50% of the cost of the home for example, that means less risk for the bank. But if the borrower has a very small down payment and is borrowing 90% to 100% of the cost of the property then that is much more risky for the bank.

Other common reasons for an appraisal:

    • Estate Appraisal (Also known as a “Date of Death Appraisal”): When an estate transfers ownership because of a death or inheritance, in most cases a real estate appraisal is needed for tax purposes and often to determine a listing price for the home. (click here to read more)
    • Divorce Appraisal: For many couples, the marital residence is the largest asset obtained during the marriage and an accurate appraisal is extremely important (click here to read more)
    • Financial and Estate Planning: Financial and Estate Planners are often relied upon by their clients to provide sound, well-informed advice and the value of the real estate assets are often needed to develop the best and most effective strategies for their clients (click here to read more)
    • PMI Removal: If you purchased your home with conventional financing and put less than 20% down, it’s likely you’re paying PMI. If your property value has appreciated, providing your lender with an appraisal can help remove this additional cost (click to read more).
    • Tax Assessment Appeals: Most real estate and property taxes are based upon the value of the property. When the taxing agency values your property at a higher rate than the actual value, you are paying too much in taxes (click here to read more).
    • Pre-listing, Pre-Purchase, FSBO’s: When trying to establish a fair list price is often difficult to sift through all of the market data to determine a true value for your home. Itt’s common for homeowners and realtors to rely on appraisers for assistance when establishing a list price for the sale of their home (click here to read more).

A few words from our clients

Paul Rowe is a consummate professional. In appraisal work there are hard facts and there is nuance. Paul does not ignore factors that are outside of the facts that could influence the value of a piece of property - such as litigation regarding the property, conditions of the immediate neighborhood that might not be affecting other similar properties a few blocks away. Paul digs in, does his due diligence and is able to come up with a number that not only can be relied upon but can stand up in court (and has). Absolutely one the top appraisers in the Chicago metropolitan area.

Erica Minchella
Attorney

Use Rowe Appraisal if you are looking for a knowledgeable and helpful company.

Jamie Bernhardt
Real Estate Agent

Call us today for a free consultation.

Realtor Tip: Multiple Offers? Tell the Appraiser!

This blog post goes out to all the Realtors who have had a deal fall through because the appraised value was below the contract price.  Some of you may even had multiple offers with most of them were even above the appraised value.  If this has happened to you, first and foremost: I feel your pain!  You are thinking to yourself, “If I have 4 different buyers willing to pay $400,000, how could the appraiser say that it is only worth $390,000?”   Well, there is nothing wrong with that logic.  But keep in mind that as appraisers we are tasked with giving our “opinion of value” and that value MUST be supported by facts and market data.  We can’t just say that we THINK it is worth $400,000.  We have to prove our case supported by facts and market data (aka Comparable sales, listings, and market trends).

Now, I know what you’re thinking, “Aren’t four separate signed contracts considered facts and/or market data?”.  Absolutely they are! It is a fact that 4 different buyers are willing to pay $X and this is certainly considered to be data from the market.  A good appraiser will take those facts into consideration in his/her analysis.


Why should an appraiser want to know this information?

How can you prevent this from happening again?  Tell the appraiser.  Bring him copies of the offers to the inspection.  Email him the offers. Why?  Here are couple of main reasons. 

  1. Is the contract price above list price? Multiple offers could help explain this. We are required to analyze the sales contract and listing history for the subject property. In most cases our clients require a comment/explanation when a contract price is higher than the most recent list price. Knowing that there are multiple offers indicates a strong demand for the property at that specific price point. If a home was only listed on the MLS for 5 days and has multiple offers, it most likely indicates that the list price is at or below market value. Or it could signal that inventory levels are low and buyers have very few alternatives. Or maybe both.
  2. Multiple Offers will alert a good appraiser to dig deeper.  If I am analyzing comparable sales and they are indicating a value below the contract price, maybe I need to call the agents on the listings and see if I am missing something (perhaps one or more of the comparables were distressed or estate or relocation sales and sold below market value). Maybe I need to look deeper at the current market conditions. Are inventory levels low? (Typically below 3 months would raise a red flag.) Maybe I need to look further into the median sales prices and see if the trend is showing significant price appreciation. In an increasing market, the appraiser should adjust comparables that sold several months ago upwards to bring that sale price to today’s market conditions. However, this needs to be supported by market data. (Infosparks can be a great tool for this if used correctly. Stay tuned for an upcoming post/video showing how it works and how you can use it in your practice.)

It's not a magic bullet, but it could make the all the difference.

I also want to be clear that I’m not telling you that if you have multiple offers you are guaranteed the appraisal will support your contract price.  However, this information can be a significant piece of the appraisal puzzle.  Because an appraiser must provide support for their value opinions, it’s critical that they seek out and receive as much information as possible.  That’s where you, as real estate agents, come in.  In my practice, I make it a point to ask if there were multiple offers.  But even if the appraiser who is appraising your listing doesn’t ask, I highly recommend you make them aware that there have been multiple offers.  To take it one step further, I strongly suggest you provide the copies of the contracts so the appraiser can keep them in their Work File as further support for the value conclusion.  Anyone can say they had multiple offers but we can put much more weight on those offers when we know for certain they exist.  

Remember, appraisers can’t just go out on a limb and appraise a property at the highest possible price.  Our definition of market value tells us we must appraise it at the most probable price (here is a previous post which goes into more detail - Market Value: Probable vs. Possible). When we are finished adjusting our comparable sales, we typically end up with a range of values.  The dispersion of that range can vary (typically less than 10%), but let’s just say for this example we started with a contract price of $400,000.  The range of adjusted comparable sales prices is $380,000 - $405,000.  If the appraiser was handed four signed contracts with contract prices of $390,000, $395,000, $400,000, and $405,000, it may give them that extra support they need to reconcile their final opinion of value at the upper end of the range.  After all, we are supposed to be determining the most probable price for which a property will sell.  To take it even one step further, if the appraiser analyzes the market and determines that there is a shortage of inventory and prices are increasing, they may be even more inclined to be more aggressive with their opinion of value.

​But without actual support and evidence, the appraiser can’t go out on a limb alone. Information about multiple offers may not make a huge difference in the appraised value, but it could make enough of a difference to get your deal closed!  Providing information about multiple offers to the appraiser is not just a service to him or her but also a service to your client!  For more information see my post on Tips for Real Estate Agents to Avoid a Bad Appraisal.


APPRAISER / REALTOR FACEBOOK GROUP

I have created a Facebook group for local Realtors who have appraisal questions.  I will be sharing some great information that will help you understand things from an appraisers perspective and some tips to help you in your business.  You are encouraged to jump in and ask any questions you have. Just click below and then click the "Join Group" button.

Appraiser vs. Home Inspector – What’s the Diff?

Often before a property is purchased using a loan from a mortgage company, it must be appraised and inspected. Many homeowners confuse the appraisal inspection and the home inspection and ask me what the difference is. Here are some of the main ways that appraisals and home inspections are different and also overlap.

Different End Goals: Value vs. Condition

The main thing to know is a real estate appraiser’s focus is on determining the value of the home and those factors that will influence that value. A Home Inspector’s main objective is determining the condition. The Home Inspector is tasked with determining the condition of the property in terms of structural soundness and quality/safety of electrical and plumbing systems. The Home Inspector has an obligation to be accurate in their assessment of a home’s condition but they also act as advocates for the buyer. Their job is to point out any deficiencies with the house such as outdated/unsafe wiring or obvious problems with the foundation so that their client (the buyer) can make an informed decision about whether to purchase the house, negotiate a lower contract price, or just walk away all together. See the graphic below for many of the items a home inspector will be looking at (Source: www.gqre.com).

While an appraiser’s inspection of the property may take into consideration many of the things a Home Inspector looks at, his/her ultimate goal is to provide an opinion of value. The appraiser’s job is to provide their client (the lender) an accurate, well-supported, unbiased opinion of value. This usually includes commentary on the condition of the property since that is tied to value. For example, a 1960’s ranch home in original condition will most likely have a lower value than a 1960’s ranch home in the same neighborhood that has an updated kitchen and bathrooms. The appraiser’s job is to give the bank their opinion of market value (I go into this in more detail on a prior post - Market Value: Probable vs. Possible) which helps them determine if the mortgage be a good, sound investment for the bank.

Appraisal Inspection vs. Home Inspection

So how will you tell the Appraiser and the Home Inspector apart when they come to your home? Probably they’ll introduce themselves as either the Appraiser or the Home Inspector. Just kidding!

The appraiser’s site visit will usually take around 30 minutes and they will measure your house and look at all of the rooms including the basement. They will be noting the quality and condition of the finishes, the layout, bed and bath count, etc. They will take pictures of each room to include in the appraisal report. In some cases, like for an FHA loan, the appraiser may inspect crawl spaces and attics or test the basic appliances. But he’s probably not going to crawl under the house to inspect the foundation or get on your roof and walk around looking for leaks.

Appraisers try to look at the property through the eyes of the most probable buyer for that particular property – not only which features and attributes they find desirable, but also to what extent would the typical buyers be “inspecting” the home? A more simplified way to look at it is to ask yourself: “If I were looking to purchase this house, what are the things I would look at and what things would I hire someone with professional experience to check?” You may open a cabinet or two, look at the ceilings for leaks, take a look at the mechanicals to see if they are newer or may need replaced soon. But in my experience, very few buyers will be going into crawl spaces and bringing their ladders to get on the roof. They are mainly interested in the functionality of the house such as how many bedroom and bathrooms, whether they like the layout of the floorplan, etc.  Here is a great video from a Portland appraiser, Gary Kristensen, that shows you what you can expect when an appraiser visits.

A Home Inspector will really get into the bones of the home. They will get on the roof, get into the crawl space, and analyze the structural integrity. A good Home Inspector will be able to find possible issues that the Appraiser may not such as termites, faulty electrical wiring, plumbing that is not up to code, structural issues, leaky roof, mold, etc. Now that I’ve scared you with all the things that could be wrong with a house you’re looking to purchase (!), I highly recommend that if you are buying a home you hire a licensed Home Inspector to complete a full home inspection because they will be able to tell you things about the home that the typical appraiser is not going to. If you don’t know a good home inspector in Chicagoland, we recommend Inspectrum. Click here for their website and contact info.


If you have any questions, please don't hesitate to call us at (847) 863-5776. We specialize in appraisals for estates, divorce, pre-listings, bankruptcy, etc.

Chicago Housing Styles

 

Chicago style bungalowReal estate agents and appraisers alike often struggle to define the architectural style for unusual or unique properties. Have you ever gotten a new listing, took one look and started scratching your head and asking yourself how you are going to describe this to prospective clients?

Even more basic properties can present a conundrum when they nod to more than one typical style. The web offers some great resources to both educate yourself on architectural styles and help make a decision once you start completing the listing form on the MLS. The National Association of Realtor’s website offers a good starting point (http://realtormag.realtor.org/home-and-design/guide-residential-styles).    This article covers common styles across the country but since many architectural designs end up including a number of different styles, it’s good to know your Craftsman from your Colonial. Sometimes it’s just a little bit of detail that turns a standard Cape Cod into a Tudor.

Chicago housing styles via Big Shoulders Realty

Chicago housing styles via Big Shoulders Realty

Fortunately, Chicago definitely has some set, easily identifiable housing types.  Big Shoulders Realty, a boutique brokerage firm in Chicago, has an excellent page on their website that provides brief histories and descriptions of housing styles common to Chicago that can be helpful when describing a property on MLS (click on the image above to go to the page).  Then click on the housing style and you are taken to a page that also shows you actual houses in Chicago that are of that style.  It really is the best resource online I have found for the Chicago market (it should be called “Chicago Housing Styles for Dummies”).

But what do you do when you have a more recently constructed property? How do you avoid using the catch-alls “Traditional” and “Contemporary”?  Really, I’m asking.  Feel free to comment below!  General consensus has it that “contemporary” means “of this time” or moment. Something funky, modern-looking or new could fall under that category. For a property where “traditional” seems like the only option, maybe pull out the most prominent feature, like a turret or full front porch or examine the roof line for any elements that point in one stylistic direction or the other.

Rowe Appraisal Group specializes in “non-lender” appraisals and we complete pre-listings appraisals for real estate agents and homeowners all the time.  Don’t hesitate to reach out to us if you ever have any questions.  You can reach us at (847) 863-5776 or email us at roweappraisalgroup@gmail.com.

Property Questionnaire for Real Estate Agents

A couple of days ago I was sitting down to start writing a blog post on how to streamline the initial appraisal process, specifically gathering information on the subject property prior to doing the inspection. Over the weekend I listened to an episode of the podcast “Voice of Appraisal” where Phil Crawford mentioned an improvement worksheet that the Ohio Coalition of Appraisal Professionals (OCAP) has distributed to local area realtors. I recently contacted him and Steve Papin, the president of OCAP, who was kind enough to send me a copy. Here is the PDF (Property Questionnaire), or you can email me and I can send you the Word Doc that is formatted properly).

The main purpose of the questionnaire is to gather information that might otherwise be difficult to obtain. As you can see, the form provides the listing agent an opportunity to list all recent updates and any other details they would want an appraiser to know. Instead of springing all these questions on the agent at the time of the  inspection, by emailing a copy in advance they can have the time to do any necessary research and talk to their clients about the property before you even go there. And since it’s fairly often that a property is on a lock-box, you may not even meet the Realtor. Finally, at the end of the day you’ll have a document that can easily be saved to your work file.

In doing more research on these types of questionnaires, I saw that Ryan Lundquist of Sacramento Appraisal Blog, has also shared a “cheat sheet” that you can download here. This morning I was all set to wrap up my blog post by outlining even more benefits to these forms when I saw that Tom Horn, appraiser and author of the Birmingham Appraisal Blog, posted his own version of the “Property Questionnaire” here. So, clearly something is in the air folks! Tom’s blog post, as always, is top notch and has lots of good tips and suggestions for agents and homeowners alike.

I will most likely be creating my own form based on these three examples to include a section for any other additional features that the agent feels adds value to the property, or specific neighborhood info that the agent thinks is important. I suggest you do the same. Choose your own adventure or tailor one of these questionnaires to fit the Real Estate Agents in your own market! Once I’ve gotten mine whipped into shape, I’ll post it to my blog.

The Housing Value of Every County in the U.S.

The Housing Value of Every County in the U.S.

I recently came across this map posted on Twitter by Max Galka of Metrocosm.com.  It shows a map of the U.S. with the land area of each of the individual counties being substituted by the total market value of the housing.  Keep in mind that this is the sum of the values for each county, which is going to be skewed by population; nevertheless, this GIF is way too cool not to share.  


I found this map is really hypnotic.  Several times while typing this post I have found myself zoned out just staring at it.  Anyone else?

Also, I would love to see this type of map that separates out all of the Chicago neighborhoods and suburbs.  My guess would be the North Shore, downtown and Lincoln Park in Chicago, and the Hinsdale/Oakbrook area would be the largest.



Appraisal Industry: The Tide May Be Shifting

Appraisal IndustryWith all of the changes happening in the appraisal industry right now, I thought I would share this article I did for Working RE a little less than a year ago that detailed my personal journey. In the article I made reference to some of the positives in the appraisal industry:

Excerpt from the Working RE article titled Taking Success into My Own Hands:

There is a lot of negativity in the appraisal industry and without question, certain things need to change. However, there are also a lot of positives appraisers can focus on to improve their business.

The Appraiser Movement

Today, with the help of technology and social media, I feel the momentum may be shifting in the appraiser’s favor.  The title of the article was “Taking Success into my Own Hands”.  Now, I think there is a new appraiser movement that is taking success into our own hands.  There are new internet shows like Phil Crawford’s “Voice of Appraisal” and Dustin Harris’s “The Appraiser Coach Podcast” that are helping get the word out for on behalf of the residential appraiser.  There are public Facebook groups and private members only groups like “Appraiser Insider” that has not only helped my business, but completely transformed it.  You also have bloggers like Gary KristensenLori NobleTom HornBill CobbRyan Lundquist, and many more¹ who are helping educating real estate agents, homeowners, attorneys, and calling out injustices in the industry.

Just as recently as a month ago, after an AMC tried to demand the entire work file be submitted with their appraisal reports, the bloggers, appraisal shows, and Facebook groups got the word out and due to public backlash, essentially shut that down and within a week the company published a revision to the new requirement.  We also recently saw the first “administrative fee” of $5000 to a company for not paying “Customary and Reasonable Fees” in Louisiana³.  Individual state Coalitions like Illinois’ own ICAP, headed by current president Rick Hiton, are really making some positive headway with state legislators.  Multiple state coalitions are even getting together to discuss ideas and plans for the betterment of the appraisal industry.  Yes, the appraisal industry appears to finally becoming more united.

With what appears could be an appraiser shortage on the horizon, we are going to need some changes to the requirements to becoming an appraiser or  change how trainees can be used and thus facilitate more appraisers coming into the industry.  To that point, I recently received an email from a major national bank who refined its expectations regarding the involvement of appraiser trainees.  They no longer require supervisory appraisers to be physically present with trainee appraisers at all subject property inspections and driving comparable sales.  This will allow us to not only train the next generation of appraisers, but make it financially feasible to do so.  We have seen a lot of “monkey see monkey do” in negative ways with banks and AMC’s in the past, but this is one trend that I would love to see catch on.

I don’t pretend to know where the appraisal profession will be in 5 years with UAD concerns, appraiser shortages, AVM’s, reasonable and customary fees, etc.  There are many more battles that will need to be fought.  But again, a year later, with more public voices out there speaking on behalf of the real estate appraiser, I still think there is still reason for optimism.

Update On My Journey

Like many appraisers right now with rates near all time lows, I have never been busier.   My average fees have never been higher.  I have been able to increase my standard fee over 20% and was even contacted by one client to let me know they were increasing the standard fee without me asking.  I have also been able to leverage my website into more and more non lender work.  This allows my business to be more diversified and not have to worry about interest rates spiking or a major change in order volume from my best clients.  People will never stop getting divorced and never stop dying (divorce and estate appraisals).  Both are a major source of non-lender appraisal work. Working with clients for “pre-listing” or “pre-purchase appraisals” is one of my favorite types of assignments as it allows me to interact more with the client and really explain the appraisal process and how my opinion of value was determined.

I am continuing to reach out to other appraisers in my area and the Appraiser Insider group to discuss strategies and industry topics.  I just finished the second part of a 4-day “Green and Sustainable Buildings” appraisal course from the Appraisal Institute in Palm Desert, CA (the class is actually free as it is being sponsored by Build it Green²).  While currently there isn’t a big demand for valuing solar and other green residential homes in Chicago, I feel there may be in the near future and want to make sure I at least have a basic understanding.

If you have any thoughts or anecdotal evidence of where you may think the industry may be headed, please feel free to post a comment below to continue the discussion.

 

¹ Mike Turner, Michael Coyle, Jonathon Montgomery, Jeff Hamric

² These FREE classes will be offered again in Laguna in September.  Appraisers who complete the courses will have them name listed on the Appraisal Institutes Green Registry.

³ I was just forwarded an email from Pierce Blitch, III, IFAS from Georgia indicating that they too have completed a Fee Survey for Reasonable and Customary.  It appears their bill has passed both houses and was signed by the Governor.  More evidence that change is on its way!

Market Value: Probable Vs. Possible

Market Value DefinitionThe CU (Collateral Underwriter) is obviously a hot topic right now and there are many excellent blog posts written by fellow appraisers that point of many of its flaws (see the bottom of the page for links to those posts).  On a recent positive note, Fannie Mae recently sent a letter to its lender clients that included the statement, “Before asking the appraiser to consider any alternative sales, it is imperative that the lender analyze the relevance of the sale and determine if the use of such a sale would result in any material change to the appraisal report.  If the lender determines that there would be no material change, then they should not ask the appraiser to make revisions.”

But what I want to touch on in this post is that the existence of the CU will more than likely change the approach of many appraisers (in a good way).  Why would this change an appraiser’s approach?  One of the answers lies in the definition of market value as defined by Fannie Mae.  Sometimes as appraisers, we may need to be reminded of one of the most important parts of this definition.  Fannie Mae’s definition is as follows:

Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

  • buyer and seller are typically motivated;
  • both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
  • a reasonable time is allowed for exposure in the open market;
  • payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
  • the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The key part of this definition that I am focusing on is “the most probable price”.  Not the highest possible price, the most probable.

As was recently pointed out on the Voice of Appraisal with Phil Crawford recently, “Possibilities and probabilities are two totally different things”.  Prior to the HVCC, it was not uncommon for appraisers to be asked by loan officers, “What is the highest value you can appraise this property for?”.  The HVCC eliminated much of that by adding a layer of protection (and in-consequently taking a chainsaw to our standard fees).  However, there were still appraisers that would search the neighborhood and cherry pick a few of the highest sales in an effort to support the purchase price.  However with the CU, if only the 3 comparable sales with the highest sales prices are used, the CU will most likely bring that to the attention of the lender, who could in turn bring it to the attention of the appraiser.  If you are appraising a home that has 10 similar sales in the neighborhood and you use the three highest, the appraiser better have support and be prepared to explain why their value is at the upper end of the range.  That is not to say that in certain circumstances it should not be at the upper end of the range (superior condition, superior quality of construction, larger lot size, superior view, larger GLA, etc).  But if the subject is in the middle of the range when compared to the comparable sales in terms of many of the factors that affect value (GLA, condition, quality of construction, bed and bath count, view, location, basement area and finished basement area, lot size, etc), then the final opinion of value should not be at the extreme high or low end of the range.  Again, our job is to determine the most PROBABLE price the property would sell for, not the highest POSSIBLE price.  This should also help keep artificially inflated appraisals out of the refinance and home equity markets.

How this plays out over the long term remains to be seen.  I know most appraisers have much bigger concerns with CU and how it will impact our profession in the short and long term, as do I.  It’s just that these issues have have all been written about by other appraisers.  I just thought I would suggest a revisiting of the definition of market value.  The “most probable and not highest possible” portion of the definition is also something that appraisers can point out to educate your clients and even real estate agents when your opinion of value is below a contract price.

Links to additional articles on the CU:

 

Rowe Appraisal Group specializes in real estate appraisals for divorce, estates, pre-listings and more throughout the Chicagoland area.  If you have any real estate appraisal questions, please feel free to call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

Paired Sales in the Chicago Condo Real Estate Market

Chicago Condo Garden

With all of the discussion regarding the CU (Collateral Underwriter) and using regression analysis to support adjustments, I thought I would share a recent, good old fashioned Paired Sales Analysis (Matched Pairs) to determine an adjustment for a Garden unit vs. a high first floor unit.  The idea behind paired sales is to find 2 or more sales that sold around the same time, in the same location, that are the same with the exception of one feature.  The difference between to the two sales price should give you a supportable adjustment.  The best thing about condo conversions in Chicago, is that when they are converted from apartments, the building and units are often rehabbed and resold around the same time.  Even better, they are often rehabbed by the developer with similar finishes in each of the units.  When the garden unit has the same floor plan as the units above it, it creates a perfect data set to extract a matched paired sales adjustment.  You have similar location (same address), they typically sell with a few months of each other, and are similar in bed and bath count, GLA, etc.

I was appraising a garden unit in on the northwest side of Chicago.  While I was able to find other recent sales of garden units for comparable sales, I needed to use a non garden unit to bracket a particular feature.  After pulling 3 recent garden unit sales, I found out when the buildings were converted and look up the sales prices of each of the units at that time.  Here is the data below:


Chicago real estate apprasier

As you can see above, I have four different paired sales to analyze.  One building actually provided two sets as the two units both sold again recently within 2 months of each other.  The percentage difference ranged from 9.2% – 15.3%.  After average all four percentages, I was able to come up with a 12.5% adjustment for the difference between a garden unit and the unit above it.  When the CU comes back and I am asked why I gave such a large (or small, who knows with CU) adjustment for floor level, I can cut and paste this into the addendum.  Or better yet, just put in into the report in the first place and hopefully avoid the hassle.

While this ended up working out really nice and neat for this appraisal, my fellow appraisers will attest to the fact that finding good paired sales in all circumstances in just a pipe dream.  I just thought I would share one example in which it worked out really well.  I have been testing many of the recent regression tools available for appraisers and have found a couple to be really promising.  Once I learn all of the nuances and techniques, I believe they will be extremely helpful in many situations.  But those of you who have tested them know, they often give some crazy results and other methods will still be necessary.  My favorite so far is PAIRS, by Gandysoft.  Please leave a comment and let me know which software you are finding to be the most useful so far.

Rowe Appraisal Group specializes in real estate appraisals for divorce, estates (date of death), pre-listings and more throughout the Chicagoland area.  If you have any home appraisal related questions, please call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

Best Time to Buy or Sell Chicago Real Estate

 

I recently read an excellent blog post by Gary Kristensen (click here to read).  I thought I would similarly take a look at the Chicago market and try to graphically depict the best time to buy or sell in the Chicago real estate market.  As we all know real estate is seasonal in most markets with the school year being a big factor, but more so in Chicago due to the blustery winter months.

I exported every monthly data point from the S&P/Case Shiller Home Price Index dating back to 1986 (that’s 336 total data points and 28 monthly data points which should be a large enough of a sample to account for any outliers).  I then averaged each month and charted the results…..

 

Chicago Case-Shiller Chart

 

 

As you can see, it appears as if the worst times to sell would be January through April (all below the yearly average).  Also, keep in mind that these are closed sales which most likely went under contract 1-3 months prior.  So while August appears to the best, those homes most likely went under contract in July and originally listed for sale in April or May (assuming a 60-90 day marketing time).

As Gary astutely points out in his post, most people who are selling a home are also buying a home.  Therefore, in these cases, trying to time the market isn’t necessary.  For those who are only selling, it looks like listing in May or June would be best (assuming we add 60 day marketing time and 2 months to close).  I have also heard an interesting thought from one Realtor who said he loves to list a home and have an open house the Sunday in February after the Superbowl.  He said he does this to get ahead of the market and also he gets a tremendous amount of traffic.  He thinks it is because many women who want to get a head start looking at homes are finally able to get their husbands out of the house on a Sunday. This is clearly anecdotal evidence (and kind of funny), but an interesting approach nonetheless.

Oddly, December had the second highest average that I could not account for.  I showed this to a few other real estate appraisers.  They weren’t sure either and thought this could be corporate transfers coming in prior to years end for write offs to people trying to close before the snow comes.  If you have some thoughts are what is causing this spike, please add them to the comments below.  Also, when is your favorite month to sell.

 

Rowe Appraisal Group specializes in appraisals for divorce, estates (date of death), pre-listings and more throughout the Chicagoland area.  If you have any questions, please call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

 

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Top Factors Affecting Your Chicago Real Estate Value

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I often get asked while completing appraisal inspections, “Do you count X when you do appraisals?”.  The short answer is that we try to consider everything that a typical buyer for that property would consider.  Below are some of the top factors affecting home values from a Chicago real estate appraiser’s perspective.

 

Location or Neighborhood

In Chicago, the neighborhood you live in can have a drastic effect on your properties value.  Your home’s proximity to public transportation (CTA or Metra stations) as well as restaurants, shopping, grocery stores, quality schools, parks, etc all affect value. Conversely, having a location with noise pollution can have an adverse effect on your home’s value (directly across from train tracks, on a busy street, next to a gas station, etc.)Es war einmal in Deutschland 2017 movie download

 

Gross Living Area (GLA)

GLA is defined as all liveable space that is 100% above grade (Gary Kristensen has a great article and video that goes into further depth). The amount of value per square foot is determined on a case by case basis depending on many factors.

 

Condition or Effective age

The effective age of the home is determined by the amount of updating or overall condition. For example a home built in 1955 could have a 10 year effective age if the home has recently had a significant amount of renovations completed. Keep in mind that just because you spend $25,000 on a new kitchen that does not necessarily increase your home’s value by exactly that amount.

 

Quality of Construction

This refers to the materials used to build the home and the overall quality of finishes on both the interior and exterior. For example, an all brick home compared to a home with aluminum siding or stucco, granite countertops compared to laminate countertops, hardwood flooring compared to carpeting, solid core 6-panel interior doors compared to hollow core flat panel doors, etc.

 

Lot size

A larger lot can add significant value. This is especially true when looking at possible “tear downs” in Chicago because the size of the new construction home is typically limited by the zoning department to a percentage of the size of the lot. A 30’ x 125’ lot compared to a 25’ x 125’ lot can have a significantly higher value in areas where there is a demand for buildable lots like Lincoln Park, Old Town, Gold Coast, etc. As you get further out on the northwest side and there is not as much demand for new construction, a larger lot could mean room for a side driveway.

 

Bed and bath count

Generally speaking, more is better. However, in many neighborhoods there is no discernable difference in value between a 4 bedroom and 5 bedroom home. The law of diminishing returns typically will apply. For example, the difference in value between adding a full bath to a 1 bath home is typically greater than adding a 4th bath to a 3 bath home.

 

View

This can be best demonstrated by condos in Chicago high rise buildings. Two units that sold at the same time, with the same floor plan, located on the same floor, but with different exposures will likely have different values. The one that faces west and only has a city view vs. the other unit that faces east and has a view of Lake Michigan can have as much as a 10-15% difference in value.

 

Additional features

These are things like fireplaces, decks, porches, patios, garages, landscaping, layout (open floor plan vs. closed/boxy layout), etc.  Jeff Hamric discusses floor plans with functional obsolescence here.

 

While these are the top features that influence value, there are many other things real estate appraisers consider. If you have any questions on how any of these items may specifically affect your situation, please feel free to post a comment below or call me at (847) 863-5776.

Lincoln Park Single Family Housing Market

Lincoln Park Single Family Housing (5)I recently analyzed the Lincoln Park Condo market to get to see where condo prices might be heading.  This time I will be looking at the Lincoln Park detached single family market in Chicago.  I again compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, the overall detached single family market is up 15.4% year-over-year and the upward trend appears to be continuing with the most recent data showing a median sale price of $1,500,000.

 

 

Months supply of inventory – Supply of inventory is around 5 months and has remained around this level for some time now up.  Anything between 3-6 months is considered to be a balanced market.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 21% year-over-year).  This is also a healthy number and is a sign of a strong market.  For a little perspective, that number peaked at an average of around 221 days on market back in 2010.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has remained stable year-over-year at around 95%.

 

Distressed Sales – As you can see below,  the number of REO (foreclosures) and Short Sales are almost non existent in Lincoln Park and have not been a factor for quite a while.

 

 

 

As noted in the previous post, these are “rear view mirror” statistics.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

After noting the current median sales price of $1,509,000, I compared that data point to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $2,195,000.  That number is significantly higher than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 95% (see chart above).  Even after the 5% is removed from the pending sale to anticipate the final sales price, there is still a projected significant increase in median sales prices for those homes currently under contract vs. the current 12 month median sales price. Due to their only being approximately 41 units in the pending/under contract data, I expanded the data to include all active listings as well.  That included 148 homes and brought up the median list price to $2,095,000.   It is more than likely that there is a larger mix of larger, newer construction homes in the pending/listing data that could be inflating the projected overall increase, but based on that data combined with other market factors analyzed, the single family market appears to be strong and should remain so over the next few months.

In summary, the overall detached single family market has been strong over the last 12 months and the Lincoln Park neighborhood is not showing any signs of slowing.   It will be interesting to see what happens over the next several month.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 

Chicago (Lincoln Park) Condo Market

Lincoln Park Condo MarketBased on recent speculation in the national news about a cooling housing market, I recently analyzed the Park Ridge market to get to see where prices might be heading.  This time I will be looking at the Lincoln Park neighborhood in Chicago.  I wanted to compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, while the overall condo market is up 5.6% year-over-year, the upward trend appears to be flattening out and the market appears to be stabilizing.

 

 

Months supply of inventory – Supply is down to 2.9 months of inventory but is slowing creeping back up.  (down 6.8% year-over-year)  Whenever supply is below 3 months of inventory we consider the market to be under supplied.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 27% year-over-year) but this indicator is also flattening out with the last 4 months having an average market time of 57 days.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has only increased about 0.6% year-over-year and has leveled off at a strong  98%.  (This can sometimes be skewed as many condos are listed with parking “not included” and then the final sales price includes a $10,000-$25,000 deeded parking space.

 

Distressed Sales – As you can see below the number of REO (foreclosures) and Short Sales haven’t been a big factor in Lincoln Park over the last few years but still show a positive sign as they are down 49% and 64% year-over-year.

 

 

 

Overall, while the market has had a good year, these statistics are considered to be in the “rear view mirror”.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

I decided to use 2 bedroom/2 bath units in an attempt to break out the extreme high end and low end of the market and compare apples to apples.  After noting the current median sales price of $408,000, I compared those two data points to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $394,000.  That is approximately 3% lower than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 98% (see chart above).  Therefore, once the 2% is removed from the pending sale to anticipate the final sales price, there is still a projected decrease in median sales price of 5-6% for those units currently under contract vs. the current 12 month median sales price. Due to their only being approximately 50 units in the pending/under contract data, I expanded the data to include all active listings as well.  That brought up the median list price to $400,000 (2% higher than the “under contracts”).  But keep in mind, these listings could still experience a lowered list price as they are still not under contract, which could account for the 2% bump.

In summary, while the overall market has been strong over the last 12 months, the Lincoln Park condo market in Chicago does appear to be slowing.  However, with such a low supply of inventory on the market, things could turn back up.  Also keep in mind that we will soon be heading into the seasonally slower fall and winter months.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 

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