I don’t make this stuff up…

I have been doing a lot of Comparative Market Analyses (CMAs) lately for people in lots of different price ranges ands certainly in differing houses and different personal situations. In almost every case I get push back on the news that I break to them about the current value of their houses. So I have to explain that I’m not just making this stuff up. I track the local market that I serve on a weekly basis, recording and charting all sales, as sell as the inventory and the days on market averages. For weekly sales I have three years worth of data on line that they can go look at. I know what houses are selling for in my market. Got to my Web site http://www.themilfordteam.com/ and chose the Real Estate Market Statistics

It seems that somehow each seller starts out thinking that, like some real estate variation on Passover, the Angel of Devaluation has magically skipped over their home and it is still worth what it was three years ago when they bought it or last had it appraised for a refi. They know that there are 3-4 foreclosed homes in their neighborhood, but that can’t be affecting their home’s value. They heard that Fred down the street sold his home for about what I’m recommending, but after all his home wasn’t as nice as theirs – they paid a lot extra for the silver foil flocked wallpaper back in 1973 and it has held up well and what about that “new” hot water heater that they put in back in 1985. And the roof has got to have another good 5-6 years left on it. And then comes the statement – “you messed up on pricing my house – it’s worth a good $30-40,000 more than you’re showing me. I won’t give it away.”

I don’t make up the data; I just record and study it to see what I can learn from it. We have a unique home value number in Michigan called the State Equalized Value or SEV. That number is assigned by the county assessors and is supposed to reflect ½ have of the value of the house. Generally, taxes are based upon that SEV number, although we also have a Taxable value number that can be lower (don’t even get me started on how we got into the mess). Please notice that I only used the term home value and not market value. In the “good ole days” (defined as pre-bubble and pre-bust), one could double the SEV and get fairly close to what the market value might be. In fact, before things got really crazy houses were generally selling for between 2 to 2.3 times SEV (higher for lakefronts and upscale homes). Well, for the last 2 years the market has trended down so much that we are now seeing sales run between 1.5 to 1.7 times the SEV for owner-occupied homes and at or below SEV for foreclosed homes and some short sales. So I keep that number in mind.

For a long time we were also seeing homes sell for between $120 to $180/Sq Ft, with smaller homes selling at the higher number (less Sq Footage to spread infrastructure costs over). Now homes are consistently selling in the range of $85 to $115/q Ft. Lakefront homes still command a slight premium, but nowhere near what they used to command. I keep these figures in mind, too.

I’m really not sure who is the worse to deal with; Bob and Sally who have owned their home for 30 years, or, Ted and Alice who bought at the peak of the market a few years back. Ted and Alice are underwater and they likely know it; but Bob and Sally haven’t kept up with the market since their last refi, which was 6-8 years ago and it was looking pretty good then. Bob and Sally bought their house for nearly $400,000 at the peak and it is now worth maybe $250-275K. Ted and Alice bought their upscale house in the mid- 70’s for $90,000 and watched it appreciate up to nearly $400,000 several years back. They’re sure it’s still worth at least $300K. After all the guy down the street sold his for more than that 3 years ago and his house wasn’t as nice as theirs.

Let’s face it, Ted and Alice are toast and are likely to just walk away or try to do a deed-in-lieu. Bob and Sally, on the other hand, are candidates for the world longest listing period, since they will fight any price reductions kicking and screaming. Eventually they will sell for far less than they could have had at the beginning of the process had they not so adamantly disagreed with what I told them. Maybe I’ll still be their listing agent, but most times not. By the time it sells they may have had 2-3 other listing agents.

I don’t make this stuff up. I’ve lived through both scenarios.