If you ever get the chance to visit Pymatuning Lake in PA, which is on the boarder of Ohio and Pennsylvania, make sure to go over to the Linesville Spillway. It is an amazing site. Hundreds of Carp congregate in the spillway, battling for food. Throw a little bread in, and it’s a feeding frenzy! There are so many Carp, packed so closely together, that at times geese and ducks can walk over them like a road.
I took the following video about 11 years ago. The little guy that says “daddy” is our youngest son. This video brought back some nice memories for my wife and me. (Warning – This video is a little loud. You may want to turn the volume down a little to play this video.)
According to the park manager Pete Houghton, who was mentioned in an article, “Where the Ducks Walk on the Fish”, this attraction draws over 300,000 visitors a year. So many visitors have stopped by over the years, that they renovated the area to make it more visitor friendly, with better parking and a nicer observation area. It is free to visit. That makes for a fun place to go on a budget.
While watching this, I have always wondered how healthy this situation is. Some environmentalists believe that feeding the fish here, negatively impacts the local ecosystem by “causing the carp population to grow continually”, states an on-line article entitled, “Ducks Walk on Fish At The Oddest Attraction in Pennsylvania”. That article noted that on average, 2.4 pounds of bread are fed to the carp by each visitor. That is a lot of bread! This is not the only place people are shelling out a lot of bread!
TODAY’S HOME BUYERS ARE LIKE THE CARP
This fish phenomenon reminds me of the housing market today. There is a lot of demand out there, with very little inventory. As soon as homes hit the market, they often sell in days, with numerous offers that usually bid the list price up. Sometimes, the prices are bid up so high that they are out of the realm of what is supportable. Within the past couple of weeks, I have appraised several properties for purchases, where my opinion of the market value of these homes was significantly below the contract price. It is notable that in all these cases, I did find comparable sales that clearly supported a much lower price than some of the prices these homes have been bid up to. Furthermore, I was not able to find a single comparable home selling anywhere in these neighborhoods, that offered support for what some of these homes were under contract.
There is a sense of despair out there right now. This year, it appears that buyer panic is even worse than last year. It may be due to inventory levels continuing to drop. There is just not much out there to buy. It could be that interest rates are now creeping up, which has some buyers panicked that they their buying power is shrinking. Or perhaps it is a situation in which people have been working from home for the past year, and are desperate for more house space, and even more yard space. In reality, it is probably a combination of all of these things, which is contributing to buyer’s being willing to spend far more than the market value of a home. Right now, paying skyrocketing prices may be the only way to obtain some of these homes right now.
Does this seem healthy to you? Just like the carp in the spillway, in my opinion, this setting is not only unhealthy, but also unsustainable. People who are willing to spend tens of thousands more than the market will really support, seem to be speculating that things will continue as they are. I do not know what the future holds in terms of housing. None of us does. But I am convinced that this mania is going to come to an end not too far down the road. I am already seeing some neighborhoods that are softening, and others in which overall sales prices are in decline. Though home prices in most neighborhoods are appreciating, and many rapidly. Especially in homes priced under $400K. I’m not saying that we’ve turned a corner and things are now on their way down. But buyers should think seriously about how much they are willing to spend right now.
THERE’S A LOT OF CARPING GOING ON
When an appraiser’s opinion of value is below the contract price, that’s when the carping begins. The number of professional reconsiderations of value coming in are increasing. I’m grateful that nearly half of my work these days is not for lending purposes. The problem with most of these requests for reconsiderations of value, is that the listing agent or seller almost never provides me, or other appraisers I have visited with about this situation, with any data that helps their case.
Usually, the information further supports my opinion of value, when I take a closer look. In many cases, one of the sales that they say supports a higher opinion of value, is one that I have already used in my report. Or, in some instances, it may be a sale that I didn’t include in the main Sales Comparison Grid, but commented on in my report about why I didn’t use it. Of course, most people don not read the appraisal report. They just look at the number.
My advice to agents and sellers is to really analyze the properties that they are using to develop their asking price. Often, when a careful analysis of the data is made, instead of just glancing at the price a home sold for, it may become more obvious that a sale may be superior, or inferior, in comparison to the property one is trying to price. While most people are not appraisers, often taking a little more time to analyze things can be helpful. I do realize that some homes are listed at a particular price because the homeowner wants to list their home for a certain amount, despite the agent trying to reason with them that their potential asking price is not supported by the market.
Agents are in a tough situation right now, as are appraisers. Homeowners are getting the idea that they can get whatever they want to for their home, which is not always true. Good agents know this. Good agents also know what truly comparable homes are selling for. However, they are stuck in the middle, trying to please their clients, and at the same time navigate multiple bids and everything that goes with that. So, my aim in this article is not to place blame on anyone. This post is just a friendly reminder that if the appraised value is less than the contract price, that does not mean that the appraiser doesn’t know the market, or that they don’t know what they are doing. It is likely that the market data just doesn’t support the price.
Here’s a good example. I recently appraised a ranch style dwelling based upon prints, as it was not built yet. I had new construction sales that were very comparable. I also developed the replacement value, and I had comparable land sales from the neighborhood. My opinion of the market value of the home was very similar to its reproduction cost. And yet, my opinion of the market value of the home was lower than the home was under contract to be built for.
Yesterday, the lender sent me some sales that the loan office obtained from the builder, that were supposed to support a higher opinion of value. They were new ranch style homes, like the home I appraised. However, they were larger than the home I appraised, in terms of gross living area. They also had basements. The property I appraised did not have a basement, and neither did the sales that I used in my report.
When adjustments were made, not one of the sales provided to me, supported the contract price. It would not have been difficult for the parties involved in sending me those sales, to see that these alternative sales were not really comparable. But they didn’t. So, I had to point this out.
This is not a balanced market. It is not a healthy market. It is a market that is suffering from duress, which is creating a very heated environment, that is not sustainable. Until things become more balanced, I expect to see more of this in the months to come. So, buyers, hang in there and shop carefully. 2021 is off to a wild start.
I recommend taking a break from it all and getting outside. If you are within a reasonable driving distance to the Pymatuning Reservoir, go check out the fish at the spillway, and enjoy being outside away from the hustle and bustle of this housing market!
To end this week’s post, I leave you with a funny fishing video. The boating and fishing season is upon us. Enjoy!
Have a great weekend everyone! Be safe out there!
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If you are interested in stats, and nothing but the stats, for neighborhoods in Northeast Ohio, check out my other podcast. In it, I provide short episodes that provide you with stats on median sales prices, marketing times, housing inventory and other related stats, on specific neighborhoods in Northeast Ohio. You can find me on Apple Podcast, Spotify, Google Play Music, Breaker, Overcast, Pocket Casts, Radio Public or you can listen right here at the Cleveland Appraisal Blog.
I am a member of the National Association of Appraisers. If you’re an appraiser, and you’re looking to join an appraisal organization, please check them out. The NAA is made up of fantastic appraisers from across the country who are working hard to keep their fellow appraisers up to date on what’s happening.
Here are some links to other articles I’ve enjoyed recently! I hope you will also…
Don’t Stand Too Close To The Housing Market Eruption – Housing Notes by Jonathan Miller
5 Things Agents MUST Provide The Appraiser In Today’s Hot Market – Birmingham Appraisal Blog
Important Issues In Appraisal Today – The Appraiser Coach (Podcast)
Thoughts on Sales and Financing Concessions – Tim Andersen is The Appraiser’s Advocate (Podcast)
How to Fight Real Estate Agents’ Appraiser Blacklisting – APPRAISAL TODAY
Skyrocketing prices aren’t happening everywhere – Sacramento Appraisal Blog
This Is How Much of Your Income Should Go Toward Housing, According to the 28/36 Rule – Jonathan Berr of NextAdvisor
8 Reasons Why Buying a House In 2021 Is Harder Than Last Year – Farnoosh Torabi of NextAdvisor