Let’s talk a little local real estate with the folks from Nest Realty. I’m joined live in the studio by Jim Duncan. He blogs at RealCentralVA.com and is a regular guest on this program. Keith Davis also from Nest Realty. He blogs at DirtAroundGrounds.com Good afternoon guys.
Duncan: Hi Coy.
Davis: How are you?
Coy: Very good. Welcome to the program. So let’s get right to it, Jim, where are we? What’s the latest good news and bad news about what’s going on in the real estate market here in Central Virginia?
Duncan: It could be a great time to buy! [laughs] For some people I think it really could be a fantastic time to buy, but realistically when you look at the market you have to really dig for the positive signs that are out there. I’ve been showing a lot of houses recently and there are some, not really deals per se, but we’re seeing more and more sellers are pricing their homes to sell from day one, which is crucial. And a lot of sellers are in a position where they are negotiating and they’re being more honest with themselves and with their realtor’s. I think that’s a good thing. When you look at where we are I think that in context we are probably tracking well behind the Northern Virginia market. We always refer to them as “big brother” of where we want to be.
Coy: So they’ve already had some serious recovery? Could you argue that?
Duncan: No. Some of my friends up there who are Realtors and real estate bloggers as well or have written stories that the prices got slashed in half almost in some parts of Northern Virginia. Last was last year. This year the volume is up 40% – 45%. They had significant price cuts, people dealt with it, and now people are buying again. Not recovery per se.
Coy: But because there is volume, the prices corrected faster than they would in a smaller market where you don’t have the volume. Is that the point?
Duncan: Correct. I’m actually working on a story that I will put up next week where I think there is more to it than that especially in a small market I think there is a psychology of it as well of being in a small town makes prices in Charlottesville stickier. So I’m working through it.
Coy: Where sellers are less open to coming down on their price.
Duncan: Because they’re in neighborhoods and they know people around them whereas Northern Virginia was far more transient then it was here. I’m sort of flushing that idea out, but I think there is some merit to Charlottesville being a smaller town you know your neighbors and their friends and you are less inclined to go the short sale or the foreclosure route because you know the people around you that it’s going to impact. Whereas in Northern Virginia there was just so much more volume in building that there was less buy in into the community. I think there’s merit in that.
Coy: So we’re talking with Jim Duncan and Keith Davis from Nest Realty. So what’s the latest on the volume and sale prices?
Davis: Right now what we’re kind of seeing is a real shift. We’re looking at the prices in the city and the county are down this year. There is no doubt about it. When you’re looking at peak to where we are today tracking about 12-1/2% or 13% often in terms of median prices, the county is looking 20% off their peak, but the county peaked earlier. The city has seen a greater change this year than the county is showing. The county did not hold as strong during 2007 and 2008 as the city did. In 2009 it has taken a toll on the city prices and the numbers. Actual total volume is down roughly 30% across the board and if not a little bit more. Total volume for the overall market is about 30%, Louisa county heavily hit this year.
Coy: And that’s compared to this time last year? Is that what you’re saying?
Coy: I read a comment on a blog – it might have been on one of your pages, I read somewhere and I thought it was a valid comment. Somebody said: “We can’t continue to compare this year to last year or this year versus even two years ago because the past two years have been an anomaly. How far do we go back to have apples to apples?
Duncan: I think he’s right to a certain degree and Keith and I were debating this earlier. I think that taking these last five or seven years out of context would not be good, but we have to look at it by virtue of the fact that it is recent history, but I think that the buyers that we’re seeing today in our businesses are different. The people that I was selling to five years ago were looking at their time to sell in months sometimes.
Coy: So they were looking to flip something?
Duncan: Not flip, but they were here two years for Law School, three years for Med School. Those people come in and are able to sell in three years and sometimes make a significant profit whereas now the buyers that are coming in that I’m working with at least are looking at a four, seven, sometimes ten year time line. I’m working with for years looking for what they refer to as their dying house.
Duncan: They have kids and they want to buy that next house where they’re going to be for the next 40 or 50 years. So I think that you have a fundamental shift in the buyer psychology as well. He’s right in the respect that the last several years were like nothing we’ve seen before.
Coy: Yeah. Yeah. Very unique. So it makes it difficult to compare this year to those very unique years.
Duncan: When you look at the volume that we’ve seen. At nest we’re very data heavy and we’re frustrated with the quality of data we have. So when you look at the numbers that 500 or some were sold in June of 2006 or 2007, it’s difficult to pull out the number of those that were new construction. And we still have significant new construction.
Coy: You’d like to be able to drill down just a little bit – a few more layers to know exactly what you’re looking at.
Coy: It might help you see some trends.
Coy: So we’re talking with Keith Davis and Jim Duncan of Nest Realty. What’s the latest on the sale prices?
Davis: If we’re looking – you were saying how far back do we need to go. In the city the pricing are attracting 2004 numbers now. The county maybe not quite that far back, early 2005 numbers, but we’re still substantially looking past history to find comparable prices. I just wanted to point out one thing – Jim said that the quality of data and the amount of data, if we’re looking just at condo’s right now – to look at what a median price is today on a condo is very abstract. Back in 2005, the county sold almost 200 condo’s year to date, mid year. We’ve sold a total of 32 condos this year so the median prices are kind of irrelevant. You need to look project by project, condo by condo, size by size, and the data is just not out there to support a whole lot of information and to make judgments.
Coy: So we really don’t know if condo’s are moving or not.
Coy: So a lot of them are sitting there.
Davis: There are projects that have been built that are not fully sold out. There is one large project that’s going up right now as we speak. There are several.
Coy: Is that the Gleason?
Davis: The Gleason is under construction right now and is slated for the business commercial side. The commercial side will supposedly move in. I believe are slated for the the first quarter of next year to begin their individual shell build out.
Coy: We were talking before we went on the air and we’re talking with Keith Davis and Jim Duncan of Nest Realty. We were talking before we went on the air about how it’s hard to find another big project that’s going up around the city without looking at UVA. And the Gleason downtown right next to your office and right next to the ACAC has been going gangbusters! There’s people on that project everyday. Every time I see it I think: gosh why can’t they go over to that place on the mall and build that hotel! [laughing] Because they obviously have some financing there that wasn’t a problem. That place is going to be beautiful. It’s huge!
Davis: It’s a great project. There are 36 residential units on there. There are 36 residential units on that. The current numbers, at least what they’re showing on their website is that a lot of them have been pre-sold so it’s not a done deal for them yet, but they are moving forward, the construction is going on, it looks great, they’re on time. So that is very positive, but aside from that, there are other projects – the 550 that has been approved and is waiting. That’s down on Water Street. The WaterHouse between Water and South Street has been approved and is still pending construction. Comyn Hall is on Park Street. That was approved two years ago and has never begun the renovation process. There are other projects in the wings that would like to get their feet off the ground, but right now financing is not there and the buyers are not there.
Coy: On a related note, I was having lunch in a downtown mall today and I couldn’t help but notice all the “for rent” signs for office space and some apartments. They’re everywhere. There are so many empty places downtown right now. It may be hard to see, but behind of those empty windows is a lot of empty offices down there.
Duncan: But the mall is always busy. One of the things of our office being by the mall is that we’re there frequently and it’s always hustling and bustling and people are always out there. It’s kind of a contradictory statement.
Coy: And we can’t always say that. For the first 20 years there was no one down there and then it just clicked and I had lunch down there today. It was packed in the middle of the day. We’re talking with Jim Duncan and Keith Davis and the phone lines are open if you have any questions 977-1070. Jim, do you want to talk about this Home Valuation Code of Conduct and what does that mean?
Duncan: It is – we touched on it last time – as always I’ll have a post coming up later tonight or tomorrow with everything we’ve discussed.
Coy: And that’s at RealCentralVA.com
Duncan: Right. It is the new method by which appraisers are put at further arms length from the lenders and the challenge that has come up in many cases is that some appraisers locally and across the country are being pulled in from other markets. In Charlottesville, you might get an appraiser from Orange who really doesn’t know the area.
Coy: I heard an appraiser from Roanoke did a property assessment here in Charlottesville. What’s going on? I’ve never even heard of that. My mom was a real estate agent and an appraiser in the Northern real estate market for almost 40 years. I grew up in this business and I never heard of that. What’s going on? It’s a new law, right?
Duncan: It’s a new law. It’s a knee jerk reaction to I think what – the perception was that there was a lot of fraud and patting on the back to get things done just for the sake of getting them done during the boom time. The HVCC is a response to that. In my opinion it just goes too far because it does not have the accountability within the appraisers.
Davis: So what happened was the New York Attorney General basically felt that appraisers were forced into appraising properties at full sales price in order to make deals happen and if they didn’t do that they would be fired from the banks and never hired again for future appraisals.
Coy: Because they depend upon the bank calling them to make their living.
Davis: Exactly so what the HVCC has done is put a middle man who is a service – one of them is called Fi Serve. The banks then submit a list of acceptable appraisers to that service. The service then does all the ordering. The service takes care of timing of who gets which appraisals and the banks cannot change that list. They cannot take anyone off without showing severe fraud in terms of the way the appraiser is working. So you’ll end up with a service that is hiring from their full list of bank acceptable appraisers that are not necessarily from this area. So that’s why you could easily have a Roanoke appraiser coming to Charlottesville to do an appraisal in a $300,000 house.
Coy: And they don’t know the community. It baffles me that we’re doing this, that this got through because you end up with this appraiser trying to value a home when they don’t know anything about the area or the neighborhood. Comps aren’t necessarily always going to get you. I learned that appraising is an art and sometimes it’s not just the numbers.
Davis: I have a client who contacted me a few weeks ago who is trying to refinance her house. They said we have two appraisals from two different banks, can you take a look at them and tell me why they’re different? The two numbers were from $570,000 to $925,000. Now I’m not saying either one of those numbers was right, but clearly one of the appraisers understood the market or maybe neither understood the market, but they could not both have been accurate appraisals.
Coy: It doesn’t make any sense. Now what’s been their reaction on the part of realtor’s and lenders to this new law.
Duncan: Frustration and ignorance I think there hasn’t been enough education to everybody involved. There is not enough understanding of what the impacts are. I’ve read stories saying that lenders do not actually have to use the list that’s provided to them which is bizarre because you assume that it is. I also read saying there’s no mechanism in place to by the government to enforce these rules. So I think that the reaction has been just acceptance of where we are that we have to abide by these rules, but we are seeking to change and alter that in any way that we possibly can. As I have written numerous times, all we want are accurate appraisals. It’s not a matter of getting an appraisal to hit a number. It’s really just an accurate appraisal that reflects the value of the property based on what the buy and the seller agreed to pay.
Duncan: So it’s fascinating and it’s frustrating.
Coy: What’s always frustrated me about it is I just hate appraising for the simple fact that if you’ve got somebody who wants to buy a house for $300,000 why do I need an appraiser to come in and tell me it’s worth $300,000. It’s worth $300,000 because that guy wants to pay you $300,000.
Duncan: Hey you know it’s crazy.
Coy: The market value is just like that. It’s already been determined, you know? I guess you need a lender, a bank, once substantiation other than what somebody is offering – the buyer.
Duncan: In principle it seems like it’s reasonable, but as with everything in this market, we are working our way through the changes and the shifts and responding to them. It is the way it is, but we need to fix it.
Coy: We’re talking to Jim Duncan and Keith Davis of Nest Realty. Before we let you go here at the bottom of the hour, give us an update on this $8000 tax credit for new home buyers or for folks who haven’t owned one in the last three years.
Duncan: It is not a reason to buy, but it can be a compelling reason to at least consider buying and if you have not owned a home in the last three years or you’re a first time home buyer and you’re going to buy a home that closes November 30th, then you could get that $8000 tax credit back from the government.
Coy: Any word that they might be extending this thing?
Duncan: There are five bills floating around Congress right now that are looking to extend it until the end of next year and increase it from $8,000 to $15,000.
Coy: They ought to go with the $15,000 for the first time home buyer and $8,000 for everybody else. If they really want to help this market along, give every home buy an $8,000 tax credit, not just the first time.
Duncan: You know me Coy. I’m with Ron Paul. I just want to give everybody a million dollars so we are all equal. But I think it’s something that people need to consider in that it’s free money from the government and a lot of my buyers are very aware of it. It’s not: “I’m going to buy a house because it’s $8,000.”
Coy: But when you go shopping it factors in there.
Davis: And in part it’s driving what transactions are occurring this year. If you look within the city, 71% of the houses have sold for less than $300,000 this year. That’s an enormous number compared to year’s past. Part of it is the downward shift in price, but part of it is who are the active buyers in this market which is thankfully and this is what we’ve been asking for for two years is the entry level buyer is coming back.
Coy: And that’s going to help us in the next few cycles as the entry level buyers look to move up.
Davis: It’s necessary for that entry level seller to move to their second home.
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