Sunday , 29 November 2020

You Cannot Predict the Future, But You Can Stay on Top of Your Market

Dustin Harris
Dustin Harris, The Appraiser Coach

We do not have much data from sales during COVID-19 yet. Are there other ways to determine how the pandemic will affect the nation’s real estate markets? And sometimes, change happens so fast, we have to react equally as fast.

How about the listings in your market? Is their absolute number up or down? How about listing prices – are those numbers up or down? There could be any number of reasons why listing prices are changing. We get to figure out why and then report that rationale to our clients.

Pending contracts are another important source of change data. Compared with one year ago (or whatever), are the absolute numbers of pending contracts up or down? Why? Are contract prices up or down? Why? Contract and sales prices change for various reasons. Our challenge, the hard work we do, is to analyze the market, determine why, and then report that rationale to the client.

There are two other indices it makes sense to monitor closely. The first is the number of days on market. Assuming listing prices do not change significantly, then an increase in days on market indicates the market itself is slowing. Again, our responsibility is to determine why, then report this rationale to the client. The other index is the ratio of listing price to selling price. A significant decrease in this ratio is probably not short-term. It too indicates a softening of the market. One of the reasons we are relevant is because an AVM cannot discover the rationale behind these changes and then explain them to the client. Only an appraiser can do that.

While we cannot predict the future with any accuracy or reliability, we can use the past and the present to project it. If the pending contracts show upward pressure on sales prices, then we can recognize that trend pressure as we conclude values. It is true we depend on historical data to form value opinions. However, these historical data can be seen as ancient artifacts. They paint a picture of what happened. In addition to looking at these, we must also pay attention to what is happening, as well as to what looks like is going to happen. In this way, we are listening to and interpreting the entire market, not merely one segment of it, which is old.

In these times of change, real estate appraisers are not only important, they are extremely relevant. Because market conditions are changing so quickly, the lenders depend on us to be their eyes and ears in the market. They have always done this. However, this is especially important to them now because of the heightened risk of making mortgage loans in a decidedly uncertain market. It is true there are a number of lending organizations trying to minimize the influence of the appraiser on the mortgage loan continuum. However, this has always been true. This is likely to continue. Therefore, it is up to us to demonstrate our relevance, our credibility, our reliability, and our objectivity every day.

In order to remain relevant, credible, reliable, and objective, it’s necessary that we become much more familiar with the use and interpretation of statistics. We don’t need to gather the statistics; the local MLS system will do this for us. However, we do need to know what to seek from the system, as well as interpret the output of those searches. Then we need to interpret those searches objectively. In other words, we’re going to tell the client the truth, not merely what the client wants to hear.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 531 Do We Have To Wait To Know How The Pandemic Will Affect Our Market.

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About Dustin Harris

Dustin Harris
Dustin Harris is a successful, self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He also owns and operates The Appraiser Coach where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. His free podcast can be listened to on iTunes and Stitcher. He and his wife reside in Idaho with their four children. He loves playing in the outdoors and watching movies indoors.

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