Welcome to the first issue of Appraisal Insights! We’ve launched this newsletter to share customer stories and illustrate the power of real estate appraisals to provide valuable property and market insights.
Recent appraisals that we’ve written include:
- A 30 unit apartment building in Somerville, MA
- A shopping plaza in East Windsor, CT
- A large church in Newton, MA
- An old wharf building overlooking Boston Harbor with street level commercial and apartments above
- A 42 acre potential subdivision parcel in Hanover, MA
Many Massachusetts residents are wondering how a new casino will affect property values. On August 24th, MGM Springfield Casino opened its doors with a parade down Main Street. The $960 million casino has already changed the face of the downtown. Its buildings include a hotel, restaurants, sports bar, and movie theater. Here is a photo of one building. The building to the left is Red Rose Pizzeria, the iconic restaurant that has long served downtown Springfield.
The Vacant Colonial
by Jim Daly
The Vacant Colonial
The inspection of the bank-owned house was going well until I almost took a swim in the basement. I had already measured the rectangular Colonial style home and made a sketch. I took all my pictures. Now to the basement. I bounded down and stopped at the last step. A foot of water stretched across the finished basement. It was completely flooded.
As most appraisers and realtors know, it doesn’t take long for a recently vacated home to go downhill. Cabinet doors come off their hinges. Utility companies disconnect their services. Boilers shut down. Sideways rain finds its way through old roofs. The weather fluctuates from autumnal warmth to extreme cold. Pipes freeze. Disintegration begins.
Appraising an REO, or Real Estate Owned, property is challenging because you’re looking at a neglected property. You have to gauge how far the neglect has gone. Is there mold? Does the heating system work? Has copper piping been stolen? Have critters invaded the attic? In one home, I was warned by a fleeing tenant not to turn on the whole house fan so mouse droppings wouldn’t be scattered through the vents into the bedrooms.
REO means a property is owned or controlled by the bank that holds the mortgage on it. Banks usually hire a realtor or management company to secure the home, empty its contents, and get it ready to sell. The most likely buyers are investors who plan to fix up the home and flip it for a profit. The appraiser’s job is to estimate the market value so that the bank doesn’t give away any equity or value a property might have acquired.
According to World Property Journal, an online publication, there were 676,535 U.S. foreclosure filings in 2017, which represents 0.51 percent of all housing units. This represents less than a quarter of the foreclosures that occurred in 2010, when the country was in the throes of the economic downtown known as the Great Recession.
In most Massachusetts markets, there is an overall scarcity in housing inventory, which means that once a home is foreclosed upon and restored, it can be sold as a functioning property within months. The problem is that wheels of foreclosure turn slowly. Right now in the U.S., it takes a bank an average of 1,027 days to foreclose on a property from start to finish. This is a 28 percent increase from a year ago. The worst offenders in Q4 2017: Indiana (2,370 days); Nevada (1,933 days); Florida (1,493 days); New Jersey (1,298 days); and Georgia (1,263 days). Few improvements are made to properties about to be foreclosed upon. Three to seven years is a long time for a property to sit idle.
The Colonial with the flooded basement is less than 20 years old. It’s in subdivision in a town next to Springfield. It has four bedrooms, 2½ baths, and 3,000 square feet of gross living area. There wasn’t much wrong that a good cleaning, new carpeting, and a fresh coat of paint wouldn’t fix. The problem was trying to figure out the impact of the flood on value. So, in a Sales Comparison analysis, I used three recent sales – homes similar in age but requiring significant repair – to approximate a local investor’s mindset. Based on the opinion of value in my report, the bank now has the property listed for sale at auction. The minimum bid is for $231,000 – $185,000 less than the property foreclosed for back in April. Stay tuned for a follow up to this property in a future issue.