Released: September 16, 2006

Valuation gets tough when home sales slide

Source: By Kenneth R. Harney, Syndicated Columnist [Washington Post] (Free Registration)

In cooling real estate markets, it’s one of the hottest questions: How do you value a specific piece of property when local home sales are down 20 percent to 40 percent from last year, inventories of unsold homes have ballooned by 200 percent or more, and all the trend lines are pointing negative?

It can be tough. Traditionally, real estate appraisers focused heavily on sales of similar properties - “comparables” that sold in recent months - to make their valuations. But that doesn’t work well in markets that had been superheated - prices rising at 1 percent to 2 percent a month - but are now stalled out or falling.

It also doesn’t work well in markets where recent closed sales prices often were inflated by incentives provided by sellers to buyers - contributions to closing costs, for example, “buydowns” of mortgage interest rates and other sweeteners not always on the public record.

“It’s getting pretty dicey out there,” said John D. Bredemeyer, a residential appraiser and spokesman for the Chicago-based Appraisal Institute, the largest professional group for the industry.

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