Are Housing Values About To Nose-Dive Again?

You can’t throw a stick without finding someone who has an opinion on which direction housing values are headed. Up, down, or maybe we are we are about to skew of into some sort of fifth dimensional paradox?

CNBC posted this interesting article yesterday on the subject; “Housing Prices May Be Heading for a Double Dip“

It seems like a rather simple equation to me; for housing values to go up, existing home sales prices must rise. For existing home sales prices to rise, certain things are going to have to happen, not the least of which is that there will need to be higher sales prices on which to base pricing strategies. 

Here is a typical scenario that I recently dealt with here in Fredericksburg, VA. I was recently assigned a property from a REO servicer. One of our first tasks as an agent is to complete a BPO (Brokers Price Opinion) on the property. A BPO, while not an appraisal, can be described as an opinion of value, by someone other than an appraiser, based on current market data.

This particular property appeared to have been shown very little love by its last occupant. Pretty grungy, dirty, disgusting, and smelly. It needed work, to put it mildly. One of the tasks in a BPO is to provide two different opinions of value, one being a price that the property would sell for “AS IS”, and a second price, one that it would sell for “Repaired.”

So as an example, lets say that after I examine all the market data available, I price this one @ $100,000 for a quick, “AS-IS” sale, and @ $140,000 for a fixed up, “Repaired” sale. These numbers are based on comparable properties (comps) currently for sale in the community, as well as homes that have sold in the last 90-120 days. We take into account the size and condition, as well as some other factors when we come up with our opinion of value.

It is also important to note that the seller is getting more than one opinion of value, and quite often an actual appraisal, so the final list price takes into account all valuations that they receive.

So the seller, the bank, now has a decision to make. Sell it quick for $100,000, or put some money into it and sell it for $140,000. Keep in mind, the seller always sets the price; I am just using these numbers to make a point.

So if we look at it like housing prices are a sailboat on the ocean, then the bank is now the wind. Sell it low, “AS-IS”, and you now have a low comp in the neighborhood. Sell it high, “Repaired” and you now have a high comp in the neighborhood. Whatever decision the bank makes now, the next time an appraiser goes into that neighborhood to do an appraisal, that comp is out there, and will more likely than not have an effect on the appraisal of the next home.

So when we wonder where housing values are headed, which way the wind is blowing?

Kevin McGrath – Broker/Owner
RE/MAX BRAVO
10401 Courthouse Rd
Spotsylvania, VA 22553
540-891-8888
www.fredva.com
kmcgrath@remax.net
Licensed in the Commonwealth of Virginia

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