Blogsberger's Box

I found a well done site with tools and data for those interested in San Jose real estate:  http://www.neighborcity.com/CA/San-Jose/

I'm completing the biannual Appraisal Institute "Business Practices & Ethics" course.  One of the introductory sections covers mission statements.

Here's my cut at Boxberger Appraisals' - let me know what you think.

Mission Statement:

Here's the latest stats from our MLS for zip code 95132 - showing median prices (stabilizing the past couple months) and total sold (stable year-over-year since last year):

It's only been a few weeks since my observation that prices appeared to be stabilizing in some markets.

Today's San Jose and San Francisco papers trumpet the same news:

San Jose Mercury News - front page headline "Home sales firming up" - they quote Matthew Anderson of Foresight Analytics.

San Francisco Chronicle - bottom of the front page, headline "Median home prices inch higher" - they quote MDA DataQuick.

Stay tuned - if there's no more macroeconomic shocks to the system, we could be at the bottom of the cycle on single family home prices.

Commercial Real Estate is another story - I don't expect good news or price stability until 2010 as the shorter term loans on those properties reset in the coming months.

I've been reading "This is True" for a looong time - Randy Cassingham has been collecting and commenting on the humorous and absurd, and emailing them out over the internet, probably before there was a 'world wide web'  (and that dates me as well - Mosaic was the first browser I used - in 1993).

This weekend, in addition to the usual humor, he had a note on his first hard disk drive crash in 25 years -  my record has been a lot worse - but luckily backups have saved me each time.  So, in addition to plugging "This is True", I'm also recommending Mozy as a great backup solution - I replied to Randy:

A recent article in the San Jose Business Journal pointed to the increased competition among investors for homes in the more moderately priced homes in Silicon Valley -- a sign the bottom may be near in price levels, as supply and demand come in to balance.

My own experience in the mid range neighborhoods confirms this -- although the price stabilization appears to be only a few months old, and further macroeconomic problems may make this only a temporary plateau.

Stay tuned...

A writer to the Castro Valley Press asked about the need for, and cost of an appraisal of inherited property.  The columnist (a broker) opined that a BPO (broker price opinion) was sufficient, and less expensive.

This looks like a case of the least costly service not being the most cost efficient - especially if the BPO is not allowed, and the inheritor later has to order a retrospective appraisal several years later -- a more expensive service than the contemporaneous appraisal would have been initially.

I wrote:

"Phil,

As an appraiser, I certainly have a vested interest, but I would point you and the writer to the recent notice of change in IRS requirements for substantiating donated property - and believe similar requirements will be imposed on inherited property.

Refer to the IRS posting on the matter from last October:
  http://www.irs.gov/irb/2008-40_IRB/ar13.html#d0e6724

Which explicitly requires a USPAP compliant appraisal - something a broker price opinion does not provide.

As you know, BPOs can be looked to as 'loss-leaders' to open a door to future business for the broker, making impartiality more difficult.

Also, if the IRS requirements do call for a USPAP compliant appraisal when the property is ultimately sold, and the inheritor didn't get the appraisal at the time of inheritance, a 'retrospective appraisal' can be much more costly.

As you point out, if the cost of the appraisal is only a few percent of the property's value, it can more than pay for itself in tax benefits at the time of sale."

Best Regards,

Matt Boxberger
www.boxbergerappraisals.com

A recent post on the Cupertino Housing Blog called out the upcoming Home Valuation Code of Conduct (scheduled for May 2009) as a way to address the "murky and subjective world of the appraisal industry".  I generally agree, and see an even more effective tool to weed out the bad apples in the requirements to track the appraisers and originators on all loans that Freddy and Fannie purchase beginning in 2010 -- they'll be able to track back who was involved in bad and faudulent loans, and hopefully take action against them.

The memo from FHFA states "James B. Lockhart, Director of the Federal Housing Finance Agency, announced today that, effective with mortgage applications taken on or after Jan. 1, 2010, Freddie Mac and Fannie Mae are required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser."

I've been interested in statistics for a long time, and there's plenty of opportunities to use (or misuse) it in appraisal work.  So, when I saw a topic come up on an appraisers' social networking site, I was happy to add my "2 cents worth".  I presume he was working with Excel's statistics features, as I frequently use it to do graphs from MLS data myself.

=== The author wrote ===

"What does anyone know about these numbers (R Square, P-values and t-
Stat) in regards to linear regression? When doing a linear regression
are there acceptable values attached to these that would lend greater
significance / credibility in any given analysis? In addition, in
doing a "linear" regression is it incorrect or misleading to use a
trend graph that is polynomial?"

====  I replied ===

'"There are three kinds of lies: lies, damned lies, and statistics." Mark Twain (from Disraeli)

Statistics is an art - given a limited amount of data , we try to figure out what the reality and relationships were between the factors we're analyzing. (Or, if you have other intentions in mind, refer to a nice little book from about 50 years ago, amazingly still in print)

I'd advise not to use or refer to the P-values and t-stats unless you're doing a very formal analysis and can defend them well.

As Gary Grantham noted, the R-squared results tells how correlated the variables are -- i.e. how well they predict the relationship you're graphing.

Based on the reality of our business (lots of unknown variables in every real estate transaction) I'd advise to use the lowest order polynomial curve possible when creating your graphs in Excel.

The order of the curve is based on how many degrees of freedom (number of unspecified parameters, or independent variables) you've controlled for in fitting the points.

If you're graphing the price change in $/SF over time, and your price per SF is also adjusted for lot size, condition, location, buyer and seller motivations etc., etc., then you could use an n-1 order curve for your n-points, so the curve goes through every point, since you really do KNOW that the only variable left is the date of sale...

I think you see my point.

If you're graphing 5 year price trends, and you know from the broader market data that there's likely been a single 'hump' as prices rose through 2006, and have fallen since, then the 'art' of applying the statistics would say you use a 2nd order curve to capture the 1 hump for your neighborhood data, but don't get too fancy and say that the data 'prove' there have been 4 swings in the market because your 5th degree polynomial curve fit through your 100 sales "proves" it. :)

Best Regards,

Matt Boxberger'