Chicago Inventory in the 3rd Quarter of 2020 – The Year of Covid19

 

INVENTORY IN 2020 – THE YEAR OF COVID19

We are now a little bit beyond 6 months since the onset of the COVID19 Global Pandemic and everybody has an opinion on where real estate markets are heading.  There have been many articles and opinions on the impact on the housing market, and the short-term trends are now shaping a long-term perspective. 

Some trends are obvious.  During the 2020 pandemic, America’s workforce has learned how to get the job done remotely and some may never return to an office environment like they used to. But it has been a struggle to find additional space to work at home, not to mention school-aged children attempting to participate in distance learning.  Multiple family members trying to get work and schoolwork done in the same domicile is shaping the way we look at our future housing needs. Small spaces area out, will the demand for McMansions return?  One thing for certain is homes with multiple office spaces are in demand.

Those who live in high-density housing are searching for more spacious properties to distance themselves from their neighbors. This includes those in apartments moving to entry level housing; and those in higher density condominiums (especially high rises and elevator buildings) into larger townhomes and detached homes. 

The newfound ability to work at home, combined with a presidential election, protests and urban unrest, some homeowners are seeking quieter exurban destinations.  (For those wondering what an “exurb” is, it is an area outside the typically denser inner suburban area of a metropolitan area, which has an economic and commuting connection to the metro area, with low housing density and low growth.)

While I do not have a strong opinion, I can share my fact-based observations.  The facts are the raw statistics that are observed at the end of our third quarter of 2020.

The first graph shows the Chicagoland data, this includes all detached homes in our region in the Multiple Listing Service.  It shows a significant drop from the 3^rd quarter of 2019 to the 3^rd quarter of 2020, a -48.5% drop.  This drop in supply may be a result of two factors – one, fewer people marketing their home during the pandemic and secondly, these homes are currently under contract late into the typical selling season (traditionally the Spring market).

The next graph specifically shows attached housing within the City of Chicago.  Attached housing includes condominiums, PUD/Townhomes, Co-Ops and Duplex residences in the Multiple Listing Service.

 This data shows a significant increase from the 3^rd quarter of 2019 to the 3^rd quarter of 2020, a +36.2% increase.  This increase supports the fact that people are trying to sell their high-density homes.

 

The next graph shows Chicagoland data for the Months Supply of Inventory, which is the relationship between the number of active listings currently on the market against those properties that have gone under contract and sold in the past year. This graph shows the detached homes in our region in the Multiple Listing Service.  It shows a significant drop from the 3^rd quarter of 2019 to the 3^rd quarter of 2020, a -53.1% drop. 

 

The final graph shows attached housing in the City of Chicago, and a +41.5% increase in inventory.

 

To summarize, there appears to be a direct relationship to housing types in the Chicago Marketplace.  The detached housing throughout northeastern Illinois is extremely undersupplied, showing record lows for available listings leading to extremely undersupplied inventory levels. The attached housing market in the City of Chicago is showing significantly increasing supply of listings.

    

A.L. Wagner Appraisal Group is a Chicago-area real estate appraisal and consulting firm established in 1970. The firm specializes in residential real estate valuation, relocation appraisals, residential consulting and market studies serving a diverse base of clients including lenders, law firms, government agencies, corporations, relocation companies and other professionals for over 50 years.  Third generation appraiser Chip Wagner leads the company and has been appraising since 1986.  Chip has earned the SRA designation from the Appraisal Institute, the ASA designation from the American Society of Appraisers, the SCRP designation from Worldwide ERC® and is a member of the Relocation Appraisers and Consultants.  Chip is frequently quoted in the press, has authored many articles for national magazines, is a contributing author to the Worldwide ERC® Summary Appraisal Report and the Relocation Appraisal Guide, and is frequent instructor for many organizations.

Contact Chip at Chip@WagnerAppraisal.com or 630/416-6556.

 

 

First Impressions

I am often asked by homeowners getting ready to put their home on the market, "What can I do to help sell my home?"

Preparing for the real estate appraiser can be intimidating, whether your motive is refinancing, or to help facilitate the sales process. Appraisers are trained to overlook the personal property inside a home, but a well-kept and clean home at the time of the appraisal inspection will give the impression to the appraiser that the home has been well cared for.

Just like the importance of the real estate mantra “Location, Location, Location” – I like to advise homeowners the importance of staging the home and its first impression, or its “appearance.” An appraiser acts as a “surrogate buyer” – trying to anticipate how the majority of the buyers will act and react to a property and its features.

The “appearance” includes the first impressions a buyer will have and can be broken down into three steps. These include: 

• the first impression from the curb;
• the impression outside at the front door;
• the impression when you step inside the front door.

How does the home look from the street when they drive up? A well-manicured, clutter-free yard is imperative. This is called curb appeal. Cars should be garaged or removed from the site.

Next, what are the impressions when walking up to the front door? Make sure the trim around the garage door, windows and front door is clean or freshly painted. The front landscaping should be free of weeds or debris, with fresh mulch. Make sure there are no sinking or severely cracked walks. If there is a screen/storm door, it should function correctly and be very clean. Freshly sealcoat that asphalt driveway.

Finally, what is the first impression inside the front door? What do you see and smell? Does the entrance to the home have personalized decorating, or is it generally neutral as you welcome somebody into your home? Neutral decorating is most important in the first floor within view from the front door.

Regardless of the type of housing, the price range, or your community, these factors are very important. If there are known issues, they may be overcome with a little work or expense.

Every home has imperfections, some, only the home inspectors will find, others will be very obvious to the appraiser and potential buyers. If you have positive initial appearance and impressions when you step into the home, it is likely that a minor problem elsewhere may be overlooked. But if you have problems or issues with those first three steps, you may lose the buyer before they step into the home.

Finally, don’t be afraid to share with the appraiser information that will help them out. Things like a Plat of Survey and a list of upgrades and improvements made since they have lived in the home, are things that are very helpful to the appraiser. If a copy can be made so that they may bring them with, it is even more helpful. Perhaps a set of blueprints or a builder’s floorplan with the layout of the home is available to share with the appraiser.

Appraisers often come from areas outside of the community they are appraising in. Whether the homeowner or the Realtor, sharing comparables (including sales, pendings and active listings) to support the value will give you piece of mind that the appraiser has the data necessary to complete the job. Often times, you or your Realtor may have information that goes beyond the simple MLS Listing Sheet as far as conditions of the sale, motivation of the sellers, or something in the home that caused obsolescence (negative impact).

Interested in getting a professional appraisal? Visit my former blog at: http://www.chipwags.blogspot.com/2011/07/should-i-get-appraisal-on-my-home.html for more details. Contact Chip Wagner at chip@wagnerappraisal.com or (630) 416-6556 for a quote.

What’s in a View?

I was recently interviewed by a reporter for the Wall Street Journal on how an appraiser values a residential property’s view.  Unfortunately, my interview did not lead to an actual quote in the article, but the topic got me thinking… what’s in a view?

The “view” is typically what can be seen from the subject property.  Sometimes an appraiser may consider the View to be more than what you can see, but also hear and smell.  The value of the view is in the eyes of the beholder.  Some place more value on it than others.  The appraiser tries to estimate the impact of a view as perceived by market participants.  The value of the view is not something we pull out of thin air, it is something that is generally based on years and years of appraising hundreds or thousands of homes.

One starting point to measure the value of a view may be in a new construction housing development.  In a new development, a developer/builder will establish a site premium for a view on the lots.  For example, in a Naperville golf course community, the developer originally gave a $50,000 premium for homes on the golf course over homes that backed up to other homes.  For years, that was a good general guideline in that neighborhood on what the value of that golf course view was worth.  Sometimes the resale market accepts that premium, rejects it, or places a greater premium on that view.  And it is important to realize that $50,000 golf view adjustment does not automatically translate into other golf course neighborhoods.

The value of the view may change over the years.  To some, that view of the golf course may be perceived as a positive view – the picturesque view with no neighbors to the rear, with perfectly manicured fairways, bunkers and maturing trees, with a passing golfer or two ever 10 minutes on a nice day.  But to others, that view could be a constant barrage of golf balls flying into your back yard where your kids are playing, occasionally even hitting your house and once or twice a summer, breaking one of your windows.  There are strangers constantly walking or riding golf carts behind you, often times cussing at their errant shots.  Depending on where on the golf course that home is situated, may influence the impact of the view.  The beauty is in the eyes of the beholder.

In the world of real estate appraisers, the view is generally called External Influences – things that affect a property that is not on the actual property itself.  If it is negative, it is called External Obsolescence which is a reduction in value caused by an undesirable factor(s) outside of the property itself.

In 2011, Fannie Mae defined the description of “View” into a few items through its implementation of the UAD – Universal Appraisal Dataset.  It defines the fields that an appraiser must enter for report submission for conventional loans.  There are three basic categories for View on an appraisal report – Neutral, Beneficial or Adverse. 

Neutral – If the view is neutral, it is generally assumed that similar housing and/or land use surrounding the property is the same.  A neutral view would be a “residential view” of like-properties in each direction – to the front, rear or sides of the subject property.

Beneficial - Parks, forest preserve, wooded, golf course, pond, lake, ocean, hillside or mountain

BUT… To some, that park may have screaming children and families on Saturday mornings playing soccer at 8 AM.

BUT… to some, that forest preserve may have creatures that may prohibit the enjoyment of the family – such as wildlife that may pose a threat to children or pets.

BUT… To some, that golf course view may be that constant barrage of golf balls flying into your yard while your kids are playing – as previously mentioned.

BUT… To some, that view of the pond may pose safety issues for those with small children or pets, and health issues such as alligators or crocodiles in Florida, or the West Nile Virus in our region caused by mosquitoes.

How much do we give that Mountain, Lake or Ocean view?  Being from Chicago, I don’t have the experience of the ocean or mountain views, but we have Lake Michigan.  High rise condominiums in the City of Chicago may have a $100,000 to $250,000+ view premium viewing a clear view of the picturesque cityscape AND Lake Michigan, versus a view in the opposite direction.  But what happens when that new condominium high rise building goes up on the next block that completely obstructs your serene views?  Gone in a flash!  With the popularity of residential condominium development in Chicago in the past 10-15 years, this has happened to many buildings.

Adverse – Many examples can be thought of, naming a few: Commercial/Retail use, House of Worship, parking lots, Industrial use, busy streets, railroad tracks, high tension wires, water towers, garbage dumps/landfills.

But let’s be careful, again, the view is in the eyes of the beholder.

Busy street in urban/city areas perhaps with higher crime rates, there may be a sense of safety with higher traffic versus quiet street.

I have done a lot of relocation appraisals for transferring homeowners who work for the railroad – they actually like to have the railroad tracks within view.

Not sure?  Some views could be both positive to some, Negative to others.  Some examples include busy streets, schools, and cemeteries.

Cemeteries are going to be nice quiet space to some market participants, while others are turned off.

A view of a school could be negative if the building/parking lot are closer to you that may create adverse appeal if it is constant cars and buses lining up. But to some, that view of the school may be a positive if there is a park-like buffer between the school building. Also, the type of school and the family profile of the buyer will impact that proximity to the school – being able to watch your first grader walk out your door to the school’s front door is very comforting to a parent.

So, we have an idea what beneficial, adverse and neutral factors are.  Now how does the appraiser measure the impact? The appraiser attempts to measure that view in terms of dollars that one is willing to pay or deduct.

In a perfect world, matched pairs can be identified.  This means two identical properties are found to have both recently sold, with the only differentiating factor is that one has a different view influence (positive or negative) and the other has a neutral view influence. In the real world, this rarely every happens, but the theory behind this simple example is what provides the basics as to how an appraiser applies all of his or her adjustments in an appraisal.  Most often, this analysis is a judgment call based on years of analysis of the professional appraiser.

Also, the magnitude of the adjustment may change as the real estate market changes… for example, if a home was worth $600,000 five years ago, and the view was a 5% premium, it would be $30,000.  The same house declines $200,000 in the real estate market five years later, and that view premium still may be looked at as a 5% premium, so it is now $20,000.   This is one way that views can change with the market.

Another way the value of the view may fluctuate may simply be timing.  The laws of Supply and Demand may influence the magnitude of the adjustment – if there are many homes competing with one another with the same view, that can minimize the impact of the view; conversely, if the view is so unique and not typically available, one may be willing to pay a higher value for that view.  How much?  That is in the eyes of the beholder!

Video Blogging

This Spring, I was invited to sit down with John D’Ambrogio – Vice President, Stragetic Development, Baird and Warner Real Estate, Chicago and be interviewed for their Chicago Relocation Blog.

John and I are longtime industry friends, having served on boards and committees in the past.  The experience of being interviewed for a Video Blog was a lot of fun.   We talked about the real estate appraisal profession, the Chicago residential real estate market, and many of the current issues surrouding real estate appraisals and appraisers.

You may view each of the blogs in a 3 part series at:
http://chicagorelocationblog.com/?p=2216
http://chicagorelocationblog.com/?p=2231
http://chicagorelocationblog.com/?p=2235

5 Questions with Chip Wagner for Valuation Review Magazine

Give us an overview of your background. How did you get your start in the appraisal industry? What positions have you held? What is your current status?

Chip Wagner:  I am a third generation real estate appraiser, literally born into the industry.  I worked for my father in grammar school earning money to purchase comic books and baseball cards.  In those days, I was a jack of all trades - emptying waste baskets, copying reports, filing appraisals, transferring comparables from active to pending to closed categories in our office’s “pre-computer” system, going on appraisal inspections with my father and holding the dumb-end of the tape measure.  My favorite was assisting appraisers by drawing floor plans and plot plans on graph paper.  Eventually I was given the challenge to write appraisals, and long before licensing, I wrote my first appraisal on an old Green Hornet form before I had a driver’s license.  Real estate appraising was my summer job throughout high school and college.

Following graduation from Bradley University in 1990, I joined my father’s real estate appraisal firm and took it over in 2000 when he retired.  My grand uncle Percy Wagner, MAI, was the national president of the former American Institute of Real Estate Appraisers in 1960.  My father Alvin Wagner Jr., SRA, RM was one of the pioneers in corporate relocation appraising.  Both my father and grand uncle were always proactively involved in the appraisal industry and encouraged me to get involved.

I earned the SRA designation from the Appraisal Institute as well as the Worldwide ERC’s SCRP designation (Senior Certified Relocation Professional).  I am one of 11 appraisers in the nation who has earned the SCRP designation.  In 2011, I was inducted into the Worldwide ERC’s distinguished “Hall of Leaders.”  I have served as president of the Relocation Appraisers and Consultants (2004) and president of the Chicagoland Corporate Relocation Council (2001). 

Since 2006 I have served as the Worldwide ERC representative to The Appraisal Foundation Advisory Council (TAFAC) and currently serve as the 2011 President of the Chicago Chapter of the Appraisal Institute.

A. L. Wagner Appraisal Group is a residential fee appraisal business with a primary emphasis on corporate relocation appraisals servicing the Chicago metropolitan area.  I was one of the authors of the newly revised Worldwide ERC Summary Appraisal Report form, and developed a 7-hour continuing education seminar on Relocation Appraising which I taught throughout the Midwest and the Northeast during 2011.

Given everything the appraisal industry has gone through where do see the profession five to ten years from now? What will be the major changes? What will stay the same?

Chip Wagner:  Since I started in this profession, I have always strived to be the best that I could be, and have been proactively involved in the industry.  I had long believed that there would be a contraction of appraisers, with the best left standing after the dust settled.  I was right about the contraction, but the best have been leaving the business either through attrition, or unable to compete with the changes that have taken place.  Factors beyond our control have driven many good people out of business, and those same factors are preventing new appraisers to be attracted to the appraisal industry.

Diversification has been the “buzz word” for many years for the residential appraiser.  Those who have diversified away from lending work are surviving today.

The bottom line is real estate continues to be a significant investment for individuals, partnerships and corporations.  The appraiser is the only unbiased party that does not have a vested interest in the transfer of property or the value of the property.

Understanding how the professional appraiser will fit into the process in five or ten years from now is not clear.  Continued government intervention and their unintended consequences are reshaping the way we do business.  Those who are technologically savvy and are analysts (not form-fillers) will survive and thrive. 

What is your biggest appraisal-related challenge today? What are you doing to overcome it?

Chip Wagner:  For me, the greatest challenge I am facing today is the nuances in the marketplace.  It is more difficult than ever understanding what has happened, why it happened, and what the future trends might and/or will be.  The local markets have seen unprecedented declines in value and increases in inventory.  The distressed market competition has flooded many areas of the country, and their presence has lead to serious problems in many sub-markets across the country.  The discussion of the shadow inventory and its impact has yet to be seen.

To do my job correctly, my appraisals are taking significantly longer.  I spend an hour (or longer) per assignment, just in market analysis and comparable selection for confirmation of the data.  Understanding the terms of the sale on the comparables is critical.

Risk is obviously greater to our clients and users of appraisal services.  They are viewing our work with a microscope, leading to additional time on the back-end of the assignment, providing further clarification and sometimes even defending our work.

What has been your most unique appraisal experience? Whether it’s an experience at a property, a bizarre appraisal request or technology snafu that got you in a jam – anything that’s outside the norm.

Chip Wagner: I’ve appraised many unique residential properties, met unique people, and have had unique problems throughout my career.  It has gotten to the point after thousands and thousands of properties inspected that there are few surprises.  Historic properties, celebrity properties, and notorious properties are always a challenge yet enjoyable to do.  The ones that stand out are usually the ones where I learned something new.  But my greatest experiences as a practicing real estate appraiser are when I am instructing to fellow appraisers or clients, as I truly enjoy sharing my knowledge with others.

What advice would you give to future appraisers?

Chip Wagner:  I believe that it is more important than ever to be associated with a professional association to help you stay abreast of the rapid change our industry faces.  There are several credible ones, find the one most active in their area, one that fits their ideals and then get involved.  The appraisers that I have seen that are the most “lost” are the ones who have not invested in their future through education, diversification, and networking with peers.  Being an active member with a professional association is a good start. 

As a profession, Real Estate Appraisers must keep an open mind, be aware of the changes, and seek opportunities.  Embrace change, don’t fight it. 

Guest Blog at the "Keeping Current Matters" web-blog

After a recent Wall Street Journal article stating appraisals were holding back the real estate market, my friend Steve Harney, a real estate veteran with a national following asked me for my thoughts and invited me to write as a guest blogger for his Keeping Current Matters (KCM) blog.

The link above brings you to the KCMblog.com to viewmy thoughts.

Should I get an appraisal on my home?

Recently, I was asked this question: We are planning to put our home up for sale and are interested in getting an appraisal so we understand what our home is really worth.  Can we talk to you and understand if this is a good thing for us to do?

My Response:  I think it is a very good idea to have an appraisal from a qualified and experienced appraiser to help guide you on your pricing strategy.  Through the years, I have done many appraisals for both buyers to help establish an offering price, as well as sellers to help set their asking price.  I also often work with Realtors who are working with their clients and want an independent opinion, from a disinterested third party.

I have over 20 years of experience in residential appraising in your market area.  Because my business specializes in corporate relocation appraising, my clients hire me for my accuracy, as I am asked to predict what a home will sell for and eventually after it does sell, my accuracy is tracked.  I receive repeat business from those clients because of my accuracy.  This experience leads to accurate appraisals that homeowners, lawyers and lenders can rely on. 

My process would include viewing your property's interior/exterior, gathering information on your home's size, features and condition.  I will be asking you of any improvements that you may have done to your property since you have lived there.  You can expect that portion to take about an hour.  My final appraisal report would be a thorough analysis of your home, suggesting potential improvements that may help marketability and/or the value.  It would include analyzing the market, giving you a thorough picture of properties in your market area.  I maintain specific statistics throughout Chicagoland (found at http://www.wagnerappraisal.com/report.asp) and incorporate this data into my reports.  I am the only appraiser that I know of in this area that collects this data in-house, and trends it to help measure the changes in the local real estate market.  Others use various resources but I do this internally.  I supply closed sales in my report, as well as current listings and properties that are under contract, as they all have an impact your home's value.

My fee for this service is based on the time it takes me to complete this process (please call or e-mail for a quote), and it typically takes me 5 business days to return my report after the inspection.  An appraisal is an opinion, and the opinion is based on the experience and qualifications of the appraiser.  In my industry, you will find many different people with various levels of experience and qualifications.  They will also quote many different prices for their service.  A couple of hundred dollars may make a difference of thousands of dollars in your bank account.  Your goal is to establish a fair price to minimize your market time to a reasonable amount.  Underpricing or overpricing is not beneficial to you, especially in this market.  View My Bio for my basic qualifications and a full resume is available upon request.

Contact Chip Wagner at chip@wagnerappraisal.com or (630) 416-6556 for a quote.