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Explanation of the statistical approach to establishing a value for residential real estate by Larry D. McGee, The Berkshire Group, Denver, Colorado 303-513-1436

Explanation of the statistical approach to establishing a value for residential real estate by Larry D. McGee, The Berkshire Group, Denver, Colorado 303-513-1436

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    Appraisal Institute Presentation Appraisal Institute Presentation Presentation Transcript

    • Appraisal Institute Presentation September 19, 2009 Breckenridge, Colorado
      • Objectives
      • Explanation of Various Residential RE Statistical Models
      • Relating sub-markets to the whole
      • HVCC information from NAR
      • Introduction to absorption rate pricing
    • Statistical Models-CS
      • Case-Shiller – based on paired residential re- sales in 20 MSA’s - including Denver
      • sold to Fiserv (S&P) which uses the data to develop indices to support sales of options + tradable futures on ChiMerEx
      • is applicable only to residential resale’s
      • data is gathered from recorded information
      • calculated monthly using a 3 month rolling average and published with a 2 month lag
    • Statistical Models-O
      • FHFA (OFHEO)
      • Released Quarterly
      • Data from FNMA and FREDDIE, includes refinances
      • Is a modified version of the WRS approach developed by CS
      • Excludes sales made with jumbo, FHA, and VA financing and multi-family sales
    • Statistical Model-Z
      • Uses the proprietary algorithm “Zestimate” for any given county using recorded data
      • Refreshed daily
      • Demonstrates the Median Price
      • Offers a median MSA value by intuiting a value for each individual property and applying that to all residential properties in a given county
      • It is a SWAG developed from a WAG
    • Statistical Model-M
      • Denver Local MLS Data from Metrolist Inc.
      • Reflects true sale price, is not an index
      • Is not weighted or seasonally adjusted
      • Excludes most new homes sold
      • Excludes private sales
      • Does not include refinance information
      • Suspect because of entry methods
    • Case-Shiller vs. Denver Actual
    • Case-Shiller vs. OFHEO
    • Case-Shiller-OFHEO vs. Actual
    • Case-Shiller Comparison
    • Zillow – Denver vs. United States
    • Denver Average Residential Sold Price
    • Denver Median Residential Sold Price
    • Denver Market Activity-MLS
    • Average Days on Market for Metro Denver Residential
    • Average Days on Market for Metro Denver Condo
    • Residential Price Change Analysis
    • Condo Price Change Analysis
    • Seasonal Influx Index-Residential
    • Seasonal Influx Index-Condo
    • Total Combined Number of Homes for Sale by Year-MLS
    • Total Combined Number of Homes Sold by Year-MLS
    • Total Homes sold in Metro Denver as reported by Metrolist
      • 2003 – 47,966
      • 2004 – 54,012
      • 2005 – 53,005
      • 2006 – 50,244
      • 2007 – 49,789
      • 2008 – 47,837
      • y-t-d 2009 – 27,708
      • 2009 - 40,200 - Projected year end
      • Excludes new homes sold onsite and private sales
    • Sold Price-Metro vs. HR
    • Sold Price-Metro vs. GVR
    • Sold Price-Metro vs. Wash Park
    • DOM for Metro vs. HR
    • DOM for Metro vs GVR
    • DOM for Metro vs Wash Park
    • HVCC Impact on the Housing Sales Market
      • No Empirical Data
      • NAR has developed Anecdotal Data
      • Random Sample of 40,000 REALTORS
      • 3,600 responses generated.
      • The HVCC appears to negatively affect the processing time of a real estate closing
      • Lost sales were reported by 37% of REALTORS reporting
    • Additional Time
      • 76% of REALTORS reported additional time is needed to obtain an appraisal.
    • Appraiser Fees
      • Reduced fees reported by ½ of Appraiser respondents.
    • Increased Costs to Consumers
      • Percentage of Cost Increases
    • Unfamiliar Geographic Area
      • 71% of Realtors reported an increase in out of area appraisers accepting assignments
    • Denver Absorption Rate
    • Absorption Rate Pricing
      • AR is the current inventory divided by
      • last months closed sales X 12 divided by 52
      • inventory _____________
      • lms x 12 / 52
    • AR Example
      • 21,000 (current inventory)
      • _____________
      • (sales) 3000 X 12 / 52
      • Absorption Rate is 30.33 weeks or
      • 7.58 months (buyers market)
    • What does it mean?
      • A balanced sub-market is a 6 months supply
      • Less than 6 months, a sense of urgency develops with buyers, prices go up:
              • Sellers Market
      • More than 6 months, a sense of urgency develops with sellers, prices go down:
      • Buyers Market
    • Wrapping Up
      • The various market statistical models trend with relative consistency in spite of different approaches
      • Markets are very local, comparables must be geographically and temporally close
      • HVCC is negatively affecting the market
      • AP Pricing is leading REALTORS toward a better pricing model