Tom Horn

I just wanted to share with everyone the snow we had in the Birmingham, Alabama area on Christmas Day.  It may not sound very exciting to many people but this is the first snow we have had on Christmas day in around 45 years!  It was enjoyed by all.  Hope you enjoy.

To some, the phrase 'Shadow Inventory' conjures up dark images and impending doom, kind of like the Darth Vader character from Star Wars. You may not have heard of shadow inventory as it is not mentioned too much in the mainstream media. I've seen several definitions of shadow inventory, however it typically includes all the homes which are currently in foreclosure or those homes that are delinquent and will probably go into foreclosure, and which have not yet been put on the market for sale.Shadow Inventory can be as scary as Darth Vader.

In a recent article on their website the Wall Street Journal stated that it would take 103 months, or almost 9 years, to sell off shadow inventory. This is based on the rate at which banks are liquidating the inventory they currently have. Of course if the banks are able to streamline the process, and shorten the time to sell their REO (real estate owned) properties, this time period could be shortened.

You may ask, "What does this have to do with me? It can effect the value of your home because as these foreclosed houses enter the market, at their reduced prices, your homes value could also be reduced. As appraisers we measure value by comparing the home we are appraising to other similar recently sold homes. As more and more of these homes sell they will start to "make the market" and cannot be ignored. This has been happening already but could increase as this additional wave of foreclosures hit the market. Foreclosures could increase in the future.

As an appraiser one question I get a lot is "how can you use a foreclosure as a comparable?". Many times there are no better sales to use. In addition to closed sales we also look at active listings, and if the only homes listed for sale are foreclosures, and they are comparable in condition and physical characteristics, then a typical buyer would consider buying the foreclosure and it has to be analyzed. As appraisers we read and interpret the market and are subject to its various fluctuations.

The government is currently pushing its Home Affordable Modification Program (HAMP), which could help more people stay in their homes and reduce the shadow inventory. If it is successful it would go a long way in reducing the Wall Street Journals recent prediction. We can only hope the force will be with us.

I recently did an inspection for an appraisal on an FHA refinance loan. It was an older home that had been undergoing some updates and renovations. One of the biggest problems I see on older homes, and one which this home had, is peeling and chipping paint. This is not an issue with conventional loans (unless it is a specific investor requirement), however it can be a deal breaker with FHA loans. If it doesn’t kill the deal it can at least delay the closing.

Peeling and chipping paint is a health risk and falls under the “Safety, Security, and Soundness” realm, which is why it is an FHA requirement for this condition to be corrected. According to the U.S. Department of Housing and Urban Department (HUD) the general requirements are as follows:

“For all properties built before January 1, 1978, the appraiser must inspect ALL interior and exterior surfaces, such as walls, stairs, deck, porch, railing, eaves, windows, doors, fences, detached garages and other outbuildings and appurtenant structures for defective paint surfaces (i.e. chipping, peeling or flaking paint) and report defective conditions in the appraisal report.”

The appraisal would have to be done “subject to” the peeling paint being corrected. It is important to know why the January 1, 1978 date is crucial. Prior to this time paint was made with lead in it; and lead is toxic if it is ingested. Because of this it must be removed per FHA guidelines. To find out the exact procedure to use you can go to the HUD website at HUD.gov, but the short version is this: The paint must be properly removed from the surface AND totally cleaned up with no signs of it left on the ground. The bare surface must then be repainted with a non lead based paint. If this can be done before the appraisal inspection, it can save a lot of time and cost since the appraiser will not have to go back to the property to verify it has been done. You can save yourself from a big headache by doing a little bit of pre appraisal inspection homework.

Mr. Horn provides real estate appraisal services in the Birmingham, Alabama metro area where he concentrates on residential properties, which includes single family homes, 2-4 family homes, lake homes, condos, vacant land, and manufactured homes. You can learn more about him by visiting his website at www.Appraisal-source.com, or his blog at www.BirminghamAppraisalBlog.com.

I know that some of you will say "Why should I get an appraisal when I am an agent and can do my own market analysis?", but there are benefits to the appraisal. My main concern here is with the homeowner who want you to over price their home. When you know that they are asking you to do this, you need to suggest they get an appraisal by an unbiased third party, that way when the home is under contract and the appraisal is the last thing to do before the deal is closed, you don't get the phone call about the home not appraising for contract price and the sale falling through.Agent-Sell your over priced listings quicker with and appraisal.

Lets face it 90% of the time, price is the number one thing that is keeping a house from selling. I know that is true in my own market here in Alabaster, Alabama. If it is priced correctly, especially in the current market, it should sell, barring any problems with condition, etc. By pricing the home correctly marketing costs will not be wasted and the homeowner can move on to their new home and not be held prisoner by "the home that will not sell". By shifting the pricing to the appraiser, the homeowner will not have any animosity towards you.

The appraisal will determine the market value based on nearby similar sales. In today's market it is important to also look at competitive listings. These are homes that will be in direct competition with your clients home. Why price a home $5,000-$10,000 higher than what they could buy elsewhere. They may not like it at first but they will thank you when they sell their home in a reasonable time for a fair price. If you have a listing in Shelby or Jefferson County, Alabama, that is overpriced please call me at (205) 243-9304 to order your appraisal today.

The following data reflects market trends within the Old Cahaba subdivision, located in Helena, Alabama. This is a large development that is located on the Cahaba River. It offers a clubhouse and pool to residents. There are several styles of homes available, with some built on slab foundations and others having basements. Each type of home has its own supply and demand characteristics. I say this to let you know that the data I am providing pertains to 1 and 2 story slab homes, built within the last 10 years. Generally speaking they have 3 to 4 bedrooms and 2 bathrooms with an attached 2 car garage.

The data reflects an overall downward trend from March of 2006 to February of 2010 with slight variations in between, however it appears the price drop bottomed out around 7/2009. Prices appear to have started climbing during the 4th quarter of 2009, and continue to do so however they are still not at the level they were in 4th quarter of 2006. The average sales price has slowly gone down since 2006 with the largest drop in 2009. The days on market has fluctuated over the 4 year period with a slight downward trend. The number of sales has dropped off during the four year period. Finally, the median sold price which typically gives a better picture of the trend because it is not influenced by highs and lows as the average is, has also decreased.

Sold records in Old Cahaba from 1/2006 to 12/2006 revealed the following:

Average Sales Price: $198,800
Median Sold Price: $192,500
Average Days on Market: 90
Number Of Sales: 80

Sold records in Old Cahaba from 1/2007 to 12/2007 revealed the following:

Average Sales Price: $198,916
Median Sold Price: $190,975
Average Days on Market: 120
Number of Sales: 65

Sold records in Old Cahaba from 1/2008 to 12/2008 revealed the following:

Average Sales Price: $194,599
Median Sold Price: $188,450
Average Days on Market: 69
Number of Sales: 65

Sold records in Old Cahaba from 1/2009 to 12/2009 revealed the following:

Average Sales Price: $179,524
Median Sold Price: $167,100
Average Days on Market: 97
Number Of Sales: 33