There has been a long time ongoing discussion about whether appraisal is an art or a science. I think most people assume that it is a science, but is it? Think about what a residential appraiser does. He (or she) is asked to find the value of a home.

To begin to find the value, an appraiser will gather up samples of sales of homes that are similar to the “subject property”, nearby and selling within a recent time period. In this market appraisers are looking only at sales for the last six months. The sale must be a normal sale, without any undue pressure (like impending foreclosure). The records of recent sales are “science” with hard numbers. But then the appraiser takes the scientific data and applies a subjective view. He must evaluate quality of the design, functional obsolescence, desirability of the area, style, décor, and more intangible qualities that make one home sell for more than another. That is where it becomes an art. Just picking which of the homes are most similar, is an art. There may be 20 homes that sold within the last 6 months within ½ mile of the subject, the appraiser may only use 3-6 of them. How does he pick which is most similar? It is important to remember, that the appraiser does not get inside the homes he is using as comparisons. It is very subjective.

But actually we need to go back further for the real first step in establishing value. It is necessary first to figure out who is asking and why are they asking. Why, you ask? Well, first because the appraiser has a fiduciary duty to their client, i.e. the one who pays for the appraisal. That doesn’t seem to make much sense now in the year of the foreclosure, but that is how it works.

There are several reasons why this is true. Value is an elusive thing. There are a number of ways to look at the value of a home. How much will the home sell for today? How much will the home sell for, given 4-6 months of excellent marketing? How much will it cost to replace it if it burns to the ground? How much is it worth to an investor? How much is it worth to a bank if it forecloses? All of these are part of the definition of value and they all paint a different picture. So the client gets to tell the appraiser how and why they want a definition of value.

Imagine a situation where there is a divorce. It could be a husband who has to pay his ex-wife half of the value of the house. If the court orders the appraisal and wants fair market value, the value may be different than if the husband orders it, simply to strengthen his case. The husband could ask the appraiser to look for low value comps. If the wife ordered it she could ask the appraiser for the highest reasonable price.

I took a state certified course in the early 90’s and this is how the instructor put it. It was legal for the appraiser to look out for the interest of the one who hired him. I think the recent mortgage meltdown may change how the end result is supposed to be determined, but the fact that there are subjective choices the appraiser is required to make, means that the answer is, in my opinion not very scientific.

So its important to understand how the process works, so that when a seller offers a home that is priced drastically below appraised value, you actually are entitled to roll your eyes.

Dan Connolly

Virginia Highland Celebrates 25 years of Summerfest

It was a sweltering summer day but the crowds came out all the same to enjoy the art, music, food and people watching, in one of Atlanta’s favorite summer festivals. The event started Saturday June 6 with an 8:00 am 5K race, and the temperature was nearly 95 degree by the time they hit the finish line about an hour later.

There was a “tot trot” for the kids to show off their running skills, a parade, a kid’s fest with clowns and fun for the kids, a rock climbing wall and more. The music kicked off at 10:30 in the morning and wrapped up with Atlanta native Shawn Mullins who played till about 9:00 pm. Sunday was another day with another great lineup of local talent and more of the steamy heat!

The festival was located on Virginia Avenue between North Highland and Inman Middle School and there was no charge for admission. Virginia Highland has a wide variety of specialty shops and restaurants who were all doing bang up business.

An award winning group of art and craft exhibits, great food vendors, two music stages and shady tree lined streets made for a really enjoyable Summer weekend!

We have all been hearing about the doom and gloom of the real estate market, so I thought I would do some research and see how bad it actually is for Virginia Highland. These numbers are for single family detached homes only, i.e. no condos or lofts or attached town homes.

Just for those of you who like to get straight to the point: Yes, the market is down in terms of overall volume but the average prices are up and the average days on the market is down !

I will start with 2006. In the year 2006 there were 191 properties listed in the First Multiple Listing Service in Virginia Highland. These are properties that actually had a list date between Jan 1 2006 and Jan 1 2007. Obviously there were some homes on the market on Dec 31 2005 that were in the mix, so understand that when looking at these numbers. During 2006 there were 151 closings in Virginia Highlands. During the same time period, 11 properties were withdrawn (some of these were re-listed with different agents and some sold For Sale by Owner.) and 29 properties expired (also some of these re-listed with other agents or sold privately). So the ratio of listed property to sold and closed property for 2006 was 1.26 properties listed for each property sold.

In 2007 there were 240 properties listed in Virginia Highland between Jan 1 2007 and Jan 1 2008. In the same time period there were 85 properties closed, 52 properties were withdrawn and 44 properties expired. The ratio of properties listed to properties sold was 2.85 properties listed for each one sold.

So the market is definitely down. We sold 55% of the number of homes in Virginia Highland in 2007 that we did in 2006.

There were some other interesting observations I made. The average sold price went up. The average days on the market went down. The maximum sold price went down by almost 200K. Expireds were up by 50%. In 2007 35% of the homes that were listed, were sold. While in 2006, 79% of the homes that were listed were able to close.