Price per Square Foot Is not an Indicator of Value

There are examples throughout the country where the value of a property is referenced by price per square foot. Human beings often want a simple concept that is easy to convey and understand. This simple unit of measure takes the sale price of the house and divides it by the square footage of the house to derive at a simple unit measure of assumed value. Even if this was a trusted metric, unfortunately, the square footage might not even be right as there is no universal standard that determines this to make it reliable. Many trusted real estate websites and even real estate professionals refer to this metric when selling or attempting to use a valuation model to determine estimated value or list price. Let me tell you why this is not a good unit of measure to value your property.

First you need to understand that in order for this to make sense, all factors for marketability must be equal across the board. Its like saying that the value of a car is equal to the price per horse power regardless of the brand, style, age and condition. That makes about as much sense as determining value as a cost per square foot. Just like there are multiple factors that make up a car besides the horsepower, there are many factors that make up the value of a property that can include the quality of construction, condition, how many bedrooms and bathrooms or even the size of the lot. When you break down a sale price or assumed value based only on the gross living area of a property, you eliminate the other factors that all contribute to the value of the property.

Let’s look at a hypothetical example which happens quite often in Westmoreland County and use a 2,000 sf 2 story home built in the early 2000’s using average quality components and workmanship. These homes have 4 bedrooms and 2 1/2 bathrooms above grade with a finished family room and full bathroom in the basement.

Example 1- Located in Murrysville and is located in an established residential plan with a lot size of approximately 1/2 acre. The home has been well maintained and has a fully remodeled kitchen and bathrooms. This home also has a 2 car integral garage.

Example 1- sold for $350,000 which calculates to $175.00 per square foot.

Example 2- Located in Washington Township which is just north of Murrysville but is serviced by a different school district. This house is located in a more residential rural area and sits on 5 acres of property. This home is exactly the same as example one except this home did not have any remodeling and it has a 3 car detached garage that was built 5 years ago. Its been well maintained but most items have not been replaced.

 Example 2- sold for $400,000 which calculates for $200.00 per square foot.

So which one is right- $175.00 or $200.00? Actually, neither. As you can see by these examples, while the houses may be the same in square footage, there are many determining factors that contribute to the value of a property. The higher price per square foot for the second example can be attributed to the lot size and newly built 3 car garage but these are factors that have nothing to do with the square footage of the house.

Our job as an appraiser is to determine those factors that contribute to the marketability of a property. These can include location, quality, condition, utility, lot size and additional amenities such as pools, outbuildings, etc. We use multiple methods to determine how these impact the determinations of both buyers and sellers and apply them accordingly. I can emphatically say that we never calculate value using the price per square foot “method” because we don’t have such a method. The only way price per square foot should be applied is when determining the cost to build a structure.

Do you know the size of your home?

Fannie Mae started requiring appraisers starting on April 1, 2022 to measure all single family homes and condominiums using the ANSI Z765-2021 standards. According to FNME, this policy was instituted in order to standardize the method used to measure, calculate and report the GLA (gross living area) and non-GLA areas within the appraisal. It should be noted that this standard only applies to those homes being appraised for loans being underwritten by FNME and only for those properties that are considered single family or condominiums. Other forms of property types and appraisals for private purposes, in house lending and those insured by FHA, USDA and VA have not yet adopted these standards.

In order to create less confusion and advertise the correct square footage, prior to listing your home, have an expert measure your home. There has never been a greater need for accurate reporting of the gross living area than today. Many other market areas in other locations around the country tend to sell properties and make offers based on the price per square foot. Unfortunately, we live in an area where most owners and agents don’t know the size of a home. This should soon be changing as measuring standards apply to all locations.

While appraisers are now required to use these standards, there are other real estate sectors in which there is no reporting standard. This includes real estate agents, county assessors, MLS systems, online public records and other sites that are often relied upon by the public for a resource of property information such as Zillow. In fact, our local MLS system doesn’t even require the GLA field to be filled by the agent. When they do opt to include a number for GLA, they can site 3 different sources for obtaining that GLA and these sources do not have to be verified for accuracy.

Since these standards have been instituted, there is going to be a period of time needed for adjustment. Why? Because when you look at your appraisal, you will find that the GLA reported might be considerably different from what you thought, from what you were told by your agent, from the assessment records or even possibly prior appraisals performed on that same property prior to the standard. Many times the assessment record is wrong and most real estate agents in our area have not been instructed on how to accurately measure a home for the purpose of calculating the GLA.

We have trained professionals here in the office that would be able to assist you so that you can accurately advertise the size of your home.  We offer two services, Basic Home Measurements and Detailed Floor Plans, that will allow you to know the accurate gross living area of your home which could help sell your home.

Once you have these tools in hand, it will give you the edge to help expedite the sale of your home and give your potential buyers an accurate measurement and/or floor plan of your home.

Experience Matters

When making a decision to contract just about anyone to perform a service, one of the most important qualifiers for most is the experience one brings to the table. You really don’t want someone building your deck who has never built one before or replacing your transmission if they have never worked on cars. It works the same with performing real estate appraisals.

I’ve gone back through my files and found that since starting my business in 2009, I have performed over 6,200 valuations for all kinds of clients: lenders, lawyers, accountants, home owners, estates, real estate agents, etc. Add to that the reports I completed during my training process and then as a certified appraiser in a different office for over 8 years.

So if you need an appraisal performed on a piece of residential real estate, what should you look for that will help you to know that the appraiser has the experience necessary to produce a credible assignment result giving you a valuation that is something that can be deemed reliable?

1. How long have they been appraising?

While it is true that newly certified appraisers do have experience performing appraisals because the profession still is constructed as an apprenticeship program, it takes a good 3 - 5 years to feel fully confident in your ability to perform appraisals on all types of properties. The more unique the property, the more experience necessary to produce a credible report.

2. How many assignments have they performed in your market area?

Time appraising is one factor. Experience in your market is a whole different ball game. I have been performing appraisals in the southwest Pennsylvania areas of Westmoreland, Armstrong, Indiana, Butler, Allegheny and Cambria Counties for years. However, I have never performed an appraisal in Greene County. My experience as an appraiser in some areas does not make me an expert in others.

3. Does the appraiser have experience appraising the type of property you need appraised?

Standard “cookie cutter” properties are those properties that are homogenous to the market area. Think about an established residential plan that has over 200 homes in which there is a steady sales activity. These are typically easy to appraise and does not take a significant amount of additional research or analysis. What about a home that was built on a slab in an area where 99% of the homes have a basement? Or a condo in a plan that is the only condominium plan in the entire county and you are lucky if one sells per year such as in Armstrong County? How about a 1 bedroom home where less than 2% of the homes in the county are 1 bedroom homes? These more unique properties take additional effort, time and expertise to be able to know how to extract what factors have the highest marketable indicators and contributory value in the market. Additionally, the report writing takes longer in order to make sure that your intended user understands the analysis and conclusions contained in your report.

When you are in need of a residential real estate appraisal, it is important to know that you can confidently rely on the conclusions. It doesn’t mean you will always agree with the value, but if you choose wisely, you can be sure to rely on the report as a good representation of that properties estimated market value. At Town & Country Residential Appraisals, we can give you that type of confidence for all types of residential properties in the counties we cover. We have the experience that matters!

Murrysville 2022 Quarter 1

It was bound to happen. The signs are pointing to a cooling off from the height of increases we experienced in 2021. While there is still a short supply, this supply is starting to increase. As of this writing on May 23, 2022 there were 84 sales in Murrysville since the first of the year and currently there are 24 active listings, 43 properties with contingent contracts and 17 properties under contract.

2022 Quarter 1 Sales

According to the data, the first quarter of sales in 2022 for Murrysville has shown a decrease in the predominant sale prices of 2.5% per month based on simple regression. This is different from the first quarter of 2021 which was experiencing an increase of 5.6% per month.

2021 Quarter 1 Sales

I don’t have the ability to forecast what will happen in the future and we are entering the cyclical time of year when sales typically are at their strongest. However, the start of this year is possibly showing that prices are starting to correct from the highs and increases posted by 2021 and the balance is starting to tip in favor of more of a balance.

Murrysville Year 2021 in Review

Last year, I relocated my business to Murrysville. It has been a pleasure to provide residential valuation services in an area that has so much to offer. As many have heard, read or experienced, the real estate market in the year 2021 was crazy. Houses would go up for sale and within a very short period of time, sometimes hours, multiple offers were received. Buyers were getting very aggressive with their offers, electing to forego all inspections, include escalation clauses and even include things such as free pizza dinners on Fridays for a year or Super Bowl tickets.

I decided to run the numbers on Murrysville as a whole and found that in the year 2021 there were a total of 267 recorded sales using a search of our local multiple listing service. These numbers do not include foreclosures or short sales. As an appraiser, we analyze what is going on in the market area. When doing this, we have to look at both the long term and short term activity in order to be able to recognize when there are changes happening in the market and how to best determine how this impacts value.

Murrysville Year 2021 Real Estate Sales Statistics

If you look at the general statistics of the area as a whole using simple regression, this shows that the year in review experienced a rising predominant sales price of about 1.3% per month.

Murrysville, 2021 Qtr 1

The moment you break down the sales prices into quarters, there are some very interesting results. The first quarter of the year had 59 sales which was the least number of transactions per quarter but was the only quarter that experienced an increase in predominant sales prices. Seasonally, the first and fourth quarters typically are the times of year with the least number of transactions, however, there were not the significant differences that we would typically find between the quarters. Quarter 2 had 78 sales, quarter 3 had 63 sales and the last quarter had 65 sales. More surprising is that the remaining 3 quarters experienced declines in the predominant sales prices.

Murrysville, 2021 Qtr 2

Murrysville, 2021 Qtr 3

Murrysville, 2021 Qtr 4

It is important to know that when determining the impact of what is going on in the market, statistics need to be analyzed specific to the area and specific to the time frame being impacted. Quarter 1 experienced a very significant increase in sales prices, quarter 2 was basically flat, quarter 3 had a reverse reaction by a notable decline with another decline in the 4th quarter but not as significant as the previous quarter.

The good news is that the declines of the last 2 quarters did not erase the overall trend of an increase from the beginning of the year. However, the last 2 quarters show that there could be a definite trend that is showing a cooling off and decline in the predominant sales prices.

I'll Tell You What I Want.... What I Really, Really Want

If you found yourself singing to the title of this blog, then you understand why I titled it the way I did. If not, then you might be a bit younger than me.

The path to becoming a certified appraiser involves a Supervisory Appraiser being a mentor that educates and oversees an individual who is an Appraiser Trainee for a period of time to ensure that they become a qualified Certified Residential Appraiser. If you need more specific information regarding the specific requirements, check with your state licensing boards for those qualifications.

As an established residential appraisal office for almost 13 years, I have taken on the responsibility to mentor the next generation of real estate appraisers several times. It is often difficult to find a mentor that is willing to take on a trainee, however, I find deep fulfillment passing along my passion and knowledge to someone who has a sincere desire to become a certified appraiser. Some of those candidates are successful appraisers today.

Recently, I have been seeking to add to my team someone who has a sincere desire to become a residential certified appraiser. Over the past two years, I have hired 2 individuals at separate times with no lasting success. Both were released from employment within a short period of time for various reasons of which I will not get into for privacy purposes. Lets just say they didn’t cut the mustard.

What is it that made those who I have let go not be qualified to continue and what is it that made those who are successful today get to where they are? What is it that I really, really want?

1. Be proactive- There are prerequisite educational classes that need to be taken which include proctored exams before you can obtain your trainee license. Having your education and exams completed will only make you more appealing to a supervisor. The trainee license is necessary to allow you to work for a supervisor and start accruing field hours towards your certification. Knowing that you are not expecting the supervisor to front the money for your classes because they are completed will make you a more viable candidate for this position.

2. Be teachable- Understand that there is a lot you don’t know. Even if you have some real estate experience, the discipline of appraising is very unique to the real estate industry. A trainee has to log on-the-job-training field hours with a supervisor for a very good reason- you need to learn by doing and there are so many aspects that it takes years to accumulate the knowledge you need.

3. Think long term- This is not a sprint, its a marathon. Once you obtain your certification you will still have a lot of learning to do. Plan on it taking a good 5 years before you feel fully confident enough to face most scenarios (after 20 years I still consult more seasoned appraisers for those rare complicated cases). Also, the trainee compensation will typically be a much smaller percentage than your potential as a certified appraiser but it is temporary.

4. Put your mentors needs above your own- When you find a quality mentor, maintain an understanding that they are, in essence, doing you a favor. As of the writing of this blog, you cannot become a certified appraiser without them. They are giving you the opportunity to have a long term fulfilling career and give you an income while doing it. It is an apprenticeship type position and while you are definitely adding value to the supervisor at some point along the way, that value needs to be apparent to them so that it is a mutually fulfilling symbiotic give and take relationship.

There are some things in life that are worth putting in extra effort in the short term for the long term benefit. Becoming an appraiser is one of those opportunities. To make yourself more appealing to the potential supervisor appraisers that you seek out for a possible mentorship, keep these principles in mind and you might find that you will have an easier time making it happen. I know that if someone came to me with their classes complete, with a teachable spirit, willing to make real concessions for the benefit of receiving not only my knowledge but a paycheck, and be willing to do whatever it takes to plug into my office as a valuable member of the team, it would be difficult for me to tell them no.

FHA/VA/USDA Common Repairs

No one likes to prolong the arduous process for obtaining a home loan any longer than it needs to be. There are a number of things at stake such as rate locks, dates for closing, costs incurred during the process, etc. As an appraiser qualified and approved to complete appraisal assignments for loans that are insured by FHA, USDA and the VA, there are a number of repairs that come up regularly that definitely prolong the process and cost the borrower additional fees.  When a loan is insured by these entities, they require an added layer within our scope of work to include being aware of any items within the property that affect what we term the 3 S’s: safety, soundness and security.

Safety: those items that are deemed to be a safety risk

Soundness: the integrity of the structural improvements

Security: those marketable factors that would be necessary to secure financing; does the property have typical features for the market area that deem it a marketable property

When an appraiser is at the property for these types of loans, these are the components that become part of the observation process. Finding repairs will prolong the process by making the borrower/owner complete the repairs as a condition of the loan funding and requiring the appraiser to schedule an additional appointment to determine if all repairs were complete, which costs the borrower an additional fee.

For the purpose of this brief article, I will only note those items that affect the safety and soundness of the property. Here are some of the common items that I encounter:

-          Electrical safety issues that include: missing electrical outlet/switch covers; exposed wires that are not capped and enclosed in a secured junction box; covers not installed on electrical panels; main electrical panels still serviced by Federal Pacific Stab-lok breakers; frayed exterior insulation on the main incoming wire; missing weather cap on the upper portion of the main incoming wire; missing GFCI outlets on circuits near water sources such as the laundry room, bathroom or kitchen; missing weather covers on exterior outlets

-          Settlement issues that are noted by significant gaps in the mortar missing between the foundation blocks or stone; cracks that are seen going through the block and not through the mortar; shifted blocks; bowing walls in the basement

-          Water issues that are noted as standing water in the basement; discoloration that appears to be possible mold; leaking pipes; missing gutters; ponding water on the exterior near the foundation; missing gutters

-          Houses that are built prior to 1978 that have cracked, peeling, bubbling or flaked paint anywhere on the interior or exterior and on any of the property improvements (including fences, sheds, garages, barns, etc) as there is the risk of possible lead based paint issues

-          Any house (regardless of the year constructed) that has wood exterior surfaces with missing, cracked, peeling, bubbling or flaked paint as this surface needs to be protected from deterioration by being exposed to the elements

-          Missing handrails/railings on stairways and porches that present a safety hazard; while there are no specific height limitations or requirements, typically any stairway with more than 3 risers should have a handrail and those openings with more than a 30” height should have railings that are at least 36” high; while these are general guidelines, it is best to check with the local codes to ensure that any local requirements are being met

-          Doors that open over the top of stairways need to be reversed so that they open opposite the direction of the stairway

-          Doors between the garage and any living area of the home need to be a fire rated door

This list is not all encompassing but is a compilation of the most common problems found that need to be addressed as a part of the loan process. Having this information and addressing the issues prior to the appraiser appointment will only serve to save the homeowner time and money for an additional inspection by the appraiser to determine that all the repairs were made in a professional and workmanlike manner.

What slows down the appraisal process?

AMC’s - “Appraisal Management Company”

These organizations have come into existence in an attempt to fulfill government regulations to ensure that banks could not commit mortgage fraud like the practices seen prior to 2008. In an ideal world these would be middle men who ensure that banks can’t pressure appraisers with a predetermined value and would ensure that banks have a steady rotation of high quality appraisers. However, many times the real effect has become that AMC’s

1. Apply pressure on behalf of the bank in ways that an appraiser can not file a suit against the bank with the FDIC and other regultory agencies.

2. Farm out appraisals for weeks (and months in some cases we’ve seen) to find the cheapest appraiser, regardless of competency, location, or experience, so that they can’t keep the difference.

3. Apply ridiculous stipulations to appraisers to justify that they are worth their charges. For more read here: http://appraisersblogs.com/amcs-add-weeks-2-appraisal-process

   Perhaps one of the worst: “Is the property a working farm?” Recently we got the revision request of a 5,445 square foot lot. The AMC slowed the process down by 24 hours because they needed us to comment if the lot, in the middle of a town, with dimensions of 105’ x 140’ x 71’ x 152’, was an income producing farm.
   

Undisclosed Information / Miscommunication

There are a lot of people in the mortgage process, and a lot of information to change hands. Thankfully in the modern world, documents can be sent immediately. However, if the appraisal is 99% done when a vital piece of information is delivered… the appraiser may need to start over from scratch. Of course other members of the process may pass this off as “The appraisal is taking a long time,” to save face instead of, “We forgot to tell the appraiser there are only 5 acres with the property being sold instead of the 105 acres in the public record…” If you are a part of a transaction that needs an appraiser, disclose everything you know. It will save you time and headaches later.

Repairs

One thing that could speed up your closing by a week is having all necessary repairs (depending on the financing being obtained) completed BEFORE the appraiser arrives the first time. If there are any needed repairs (for FHA/USDA/VA - chipping and peeling paint for example), if these are not completed at the time of the initial inspection then the appraiser will have to return to the property after the report is completed to ensure that the repairs meet the financing standards.

Save yourself a week of time and a re-inspection fee, and find out what needs to be done prior to the appraiser arriving.

Banks

Banks have a lot of people and a lot of assets and sometimes your $50,000 loan gets lost in the multi-million dollar cracks.

1. Wrong product orders. Many times the lender knows nothing about the property being appraised other than what they are told. This can lead to Manufactured Homes being ordered as single family homes, multi family dwellings being ordered and SFR, or commercial dwellings being ordered as residential… We’ve had all three, this month.

2. Slow turn around. Ultimately the underwriter of the bank makes the calls on a loan based on the inspection of the appraiser. As such, the appraiser often must contact the lender to obtain guidance on how to proceed. Again, with lots of loans being juggled, we’ve waited in excess of 2 weeks for answers to simple questions (and sadly sometimes, the answer doesn’t address the questions asked).
   

Heavy Market Volume Seasons

Some seasons (Spring and Summer) see higher volumes of appraisals needed. Sadly, there aren’t migrant appraisers who can move into town for only this time of year. That means that turn times will lengthen. The alternative is to trust less qualified individuals to value your single largest investment. Fannie Mae is currently trying to push through “No Appraisal Loans” or “Property Inspection Waivers” or “A really fast way to end up underwater on your home loan…” Don’t get duped, get a professional opinion.

Complexity

Complex properties take time. If it were as simple as putting numbers in a formula, then Zillow would trust their own algorithms when they buy properties… but they don’t. The process of “problem identification,” appraiser speak for “What are all of the things that I need to consider in the valuation of this property,” can take hours alone, then there is data gathering, data confirmation, data analysis, and report writing. As complexity increases, so does time.

"Editing" and Proof Reading

Today we go over some of the most common errors in listings that we think might have a negative impact on the length of time on market, and final offering price. In real estate “Fluffing” has become normal, but with the ability to “digitally stage” homes in the MLS, it will become more and more difficult for buyers to know what options they really have in front of them without physically visiting the property. The difference between the “digitally staged house” and “reality” my lead to more than a few frustrated buyers as they feel their time is wasted.

Location, Location, Location - Double check where the MLS places your property.

These are the expired and withdrawn listings in the last 3 years that were accidentally placed outside of the state of PA (our MLS coverage area). 529 listings placed in error. This may not be the only reason they didn’t sell, but anyone who did a geographical search for the actual areas these homes are in would have never known that these houses came on the market. If you’re wondering why 55 are all located in the same place in Kansas, there is a fun story about hate mail about that: https://splinternews.com/how-an-internet-mapping-glitch-turned-a-random-kansas-f-1793856052

There are currently 23 active listings outside of the state of PA. I’m sure the sellers would be thrilled. Though, that property in Washington County, just outside of Manchester England does has a certain appeal…

This is another instance - however, while the agent placed the property geographically correctly, they have listed the home in the wrong market area, instead of Washington Twp, this is placed in Murrysville. Individuals looking for properties in the Kiski Area School District may exclude this property by accident - and likewise - those looking for properties in the Franklin Regional School District which services 100% of Murrysville will also skip this property. The marketability difference of these school districts is the subject of another blog post.

Double check that bedroom/bathroom count.

When someone wants a 3 bedroom home and goes and sees that your listing actually only has 2 bedrooms, and a hole in the wall in the basement, you’ve hurt yourself double - 1. You’ve come off as unprofessional, 2. Your two-bedroom buyers may never see that home in their search. There is a difference between “fluffing” (presenting all of the benefits and possibilities of a property) and “misrepresenting and misleading.

This property has a bedroom on the first floor, with the only (tiny) stairway to the second floor, which is a small cape cod style room that could be used as a captive bedroom. However, this listing says 3, with the possibility of up to 5… Dividing the upstairs room into two bedrooms would result in 2 rooms, a captive bedroom and a captive, captive bedroom. The other space upstairs that is mentioned is a TINY unfinished attic space with bare timbers. Finishing this would result in a closet sized space, which if we followed the listings advice would be a captive, captive, captive bedroom.

Finally, the possible lower level bedroom that is claimed, is unfinished, damp basement space, with solid glass block windows… the perfect place to keep someone… captive.

Digital Staging

The West Penn Multi List has recently approved digital staging of properties, with the need to disclose that this has been done. They have expressed that no changes to the structure can be made in the pictures, only the addition of furniture and similar items… but what if these things are added strategically to hide major defects? It is the opinion of Town and Country that if digitally staged pictures are allowed, that the unaltered photos must also be included. To do otherwise would be an invitation to unethical behavior and a dereliction of the responsibilities of their board.

Market Data Analysis: Weird Influences

This home is 20 minutes from our office. No problems… right? One of the most difficult things to determine the impact on marketability of is odd influences. The home above looks like a typical home in much of the greater Pittsburgh area - an older structure, with need of some repairs and a sloped yard. That’s relatively easy to find comparables for.

Ok, now we have an issue. Those are high tension power lines very close to the right side of the home. We’re going to need to determine the influence on value of that, but that’s not the only home in the area with that influence… this will be fine. We can take homes that are built near power lines and similar homes that are not and compare the market reaction to determine the impact (paired sales analysis).

Wait…. they built the house between high tension powerlines, not next to. Now we have extra questions that we have to answer, 1) Can this structure legally be rebuilt if destroyed? 2) Do you get super powers if you live there long enough? 3) We would need to call real estate professionals for their opinion of what impact this could have (ie. What percent of the buyer pool would never consider this home? Of those remaining, what kind of discount would they expect?) We’re also very likely looking at a cash buyer only, as no lender would want to write a note on this.

It’s also built next to an overpass? Ok… again we can extract that from other sales, however, now we have multiple external influences that are interacting with each other. Do they compound, and create an negative influence higher than their sum… or is there a limit at which the negative appeal levels out.

OK… Again, not the only house in the area across from a storage facility, but all at once. I think we have a one of a kind. NOTE: Lenders don’t like “one of a kind.”

The view across the street… a substation and another overpass (easy to miss through all the transmission lines).

When a home has an odd influence on value, there are ways to extract the impact on value - paired sales and depreciated cost approach being most common. However, when these elements begin to “interact” or stack up in a single property or when data is sparse an appraiser may need to rely on the “survey method” and discuss the influence with market participants (brokers, agents, appraisers) to get expert opinions to base their judgement on. Town and Country has a list of brokers and agents with decades of experience that we call on a regular basis for assistance… because sometimes its weird out there.

National vs Local Trends: "Reversion to the Mean"

Above: 1970-2019 National median home price % increase VS. home construction % increase

There is lots of talk of national home prices increasing since 2008 and having stalled in 2018-2019 and what the possible causes could be, but what does that have to do with our local market. For years the national trend has been increasing at around 3% per year, however, very few areas in western Pennsylvania have seen this kind of return. The bad news is that western PA tends to lag the national trend. The good news is that this means that housing market crashes are far less severe in western PA due to a principle called “mean reversion.”

Perhaps the greatest lesson we can take away from national home prices is that when home prices suddenly appreciate away from their normal growth curve (see the black line above) they tend to then crash back through that curve, or “revert to the mean.” (for a very in depth look at this, and the many factors that are at work in real estate). Further, we can take a look at the relationship of building cost to the median home price - factors that certainly should affect one another. As seen above around 1990 and 2006 there were two hard reversions towards not only the mean, but also towards the building cost curve. Lets take a closer look at the time frame from 1990 forward.

As seen here, after the flattening of the curve in 1990 there was a 10 year period where the two moved in concert. However, in 2000 the median home price begins to accelerate rapidly, ending in a reversion below its mean in 2006-2009. For the next 2 years the two again move in concert, until approximately 2012 where median home prices again break to the upside, now seeming to make a top in 2018-2019.

What will the next 2 years look like in the national market? (See the green and red lines above).

1. IF the mean line of the last 10 years is in fact the new normal, there could be a flattening of growth similar to that of 1990, with little appreciation, and perhaps some regional loses in areas that experienced the greatest growth.

2. IF the mean line of the last 10 years is not the new normal, there could be a hard reversion closer to that of builder growth levels. This could indicate a decline more on the order of 2008.

What does that mean for western PA?

Sadly data becomes more limited and unreliable further back in time in the West Penn Multi List which covers much of western PA.

A few take aways from this data

1. Median home prices per quarter are very seasonal.

2. The housing crisis of 2006-2010” nationally was far shorter in this region. While 10-12 months nationally in length, that number is nearly halved to 6 in western PA.

3. The housing crisis was not nearly as deep for our region.

4. Median home price increases are out pacing building costs.

If a reversion to the mean occurs (is occurring nationally), western PA will like experience some pull back in home prices, however, not nearly as deep as the national trend. If national home prices only flatten, this will likely have little effect on the region as a whole, with the exception of areas that have experienced high growth.

Here is someone in 2006 seeing the “reversion to the mean” coming: https://seekingalpha.com/article/18667-housing-what-does-return-to-mean-really-mean

Fluffing, decreases home values

Why are real estate agents among the top 10 most hated professions? Why is “fluffing” a property ok, but “lying” about a property is an ethics violation… and more importantly, where is the line. We’ve seen 1 bedroom homes “fluffed” into 4 bedrooms, and 0 bath homes “fluffed” into 1 bath homes - BY BROKERS?! Where is the standard?

Most home buyers have encountered a “lying listing” — the house for sale that doesn’t even remotely resemble its colorful description in the Multiple Listing Service or classified ad. Jon Boyd, past president of the National Association of Exclusive Buyer Agents, joined forces with NAEBA members worldwide to compile a translation guide of listing agent euphemisms.

They include:

• Grandma’s house: Realtors interpret this to mean a) the house hasn’t been updated since Grandma moved in or b) it still smells like Grandma.

• Great potential: The operative word here is “potential.” The “potential” in one case pointed to the fact that there was a large crack through the center of the foundation caused by an earthquake.

• Light and bright: Bring your sunglasses because everything in this baby will be white: walls, cabinets, tile. Where have you seen this before? Oh yeah, the hospital.

• Meticulously maintained: It could mean the owners never bothered to update the property. Maintenance is admirable for plumbing and HVAC, not so much for cabinets, carpets and windows.

• Mile to the beach as the seagull flies: And you’ll wish you had wings. Those straight-line calculations can mean some pesky traffic lies between you and the lifeguard shack.

• Needs TLC: You may freely substitute “OMG” for “TLC” here. Boyd says the phrase “TLC” often means the house has been abused and requires more than mere redecorating. “The average home buyer who sees HGTV a couple times before they go looking is not sensitive to that,” he says.

• Newer furnace and AC: “Newer” has a certain “truthiness” to it. In one case, both units were 25 years old. When the listing agent was asked why she made such an audacious claim, she replied, “Because each one of them had received a new part within the last year.”

• Retro decor: It’s ’60s flashback time. Can you dig the original paisley vinyl floors and avocado appliances, man? Groovy!

• This house just had a total facelift: Loosely translated, it means the seller painted everything. But paint, like a facelift, can only hide so much.

• This house will go fast: Might have been believable in the first 30 days on the market, but not anymore. One home with this description had been on the market 247 days.

• Turnkey: Meaning they don’t want to have to haul away all that orange-and-brown-plaid-polyester-covered furniture.

• Very bright, sunny home: Often true because there’s not a tree in sight.

• Water view: Of course, you’ll need to stand on the upper deck railing and crane your neck. With binoculars. On an extremely clear day.

But to the original claim that fluffing decreases home values, lets explore how. Lets say we have a home that will need extensive renovation, and is beyond a “handy man’s” skills. What happens if we “Fluff” the property to a home with great “potential?”

1. We list the home, include pictures of all of the home’s positive qualities (lots of exterior pictures of the lot, what little interior pictures we can manage). The seller needs an amount higher than the market value, so we attempt to push the upper end of the limit.

2. Due to the listing, investors pass over the property because it is out of the lower price range that they need in order to make profit. The buyers who do see the property, and visit, quickly realize that the listing sheet is a lie. They leave, justifiably frustrated, asking “What idiot listed that house?!”

3. The property sits, the price decreases, until it finally gets to the level that an investor will consider. However, by this point, an informed investor looks at the long marketing time and makes a lower than typical offer.

Agents, your job is to present your properties in the best light possible - that doesn’t mean to turn off all the lights and keep people in the dark.

How to spot a bad appraiser.

Wouldn’t it be nice if “bad guys” all had mustaches like they did in the old black and white movies?

They ask you at the inspection “So, how much do you need this to come in at?”

That’s a step towards mortgage insurance fraud and a lost license. An appraiser’s data, reasoning and final opinion should be credible, reliable, independent, impartial and objective. The financial collapse of 2008 was a prime example of what happens when various parts of the real estate machine stop functioning objectively and begin to “make deals work.” We occasionally still hear reports of agents and lenders telling homeowners to try to influence the appraiser’s opinion. Make no mistake - these individuals are trying to shift the liability for mortgage fraud from themselves to another party.

The overall health of the real estate market relies upon all parties acting in an ethical fashion, and as a consumer, you have a part to play in that. If you ever experience this from an agent, feel free to call the Pennsylvania Association of Realtors and report an ethics violation by clicking here. If you ever experience this from a loan officer, feel free to report this behavior to the CFPB here. If you feel that an appraiser has artificially inflated a market value opinion, report this behavior to the PA Appraiser Board here.

They hide material defects in their reports.

After nearly 20 years of appraising, we’ve seen some weird things. Wells in living rooms, septic tanks in basements, bomb shelters, and we could go on. An appraiser who runs across one of these items knows that they are in for a long couple of days. Wouldn’t it be nice if they just… left it out of the report? No, that’s fraud.

Appraisers appear before the state board annually who attempt to hide material defects. Perhaps it was because they were lazy and didn’t want to deal with it, or they wanted the deal to go through and knew that the high tension power lines overhead would be an issue. Whatever the reason, these add up to fraud and can have serious penalties.

There are two ways to take a picture of the front of the home above… one hides the defects, and one shows that the property is built between powerlines, next to a highway overpass and across from a storage facility.

They always come in at exactly the contract price.

If agents have done their job, then the contract price should be close to the market value. In an ideal world, both agents fight for the interest of their client (whether the buyer or the seller) and this results in a market value sale. However, the agent has a financial incentive to see the price be as high as possible… because that’s where their commission comes from. We know that most agents don’t allow this to affect them consciously, however, the statistics show that it does have an effect across the country. If an appraiser only even “makes the deal work” then they are not doing their job to protect the interest of their client, who is most often the lender.

They offer to talk to you about everything.

This one is hard to understand. Uniform Standards of Professional Appraisal Practice (USPAP) requires that appraisers maintain confidentiality with their clients, and their client is the entity who contracts them to perform the appraisal. In mortgage transactions, this is almost always the bank OR another third party, and almost never the homeowner or buyer. This means that an appraiser following the standards of the profession can not talk to you… even if you paid your bank for the report.

We know that this is frustrating, however, it is the rule that governs the profession. Sadly, to get your questions answered you can not go directly to the appraiser, but rather must go to your lender. If an appraiser says, “I wish I could talk to you, however, you are not my client,” they’re not giving you the run-around, they’re doing their job right.

They “just make it work.”

This is code in the industry that usually means, “We don’t care about a credible report, just put something together that allows us to close this loan!” We’ve addressed above how this can happen in the value or in material defects, but sometimes it has to do with the whole process.

What happens when a property is truly a white elephant? Strange from top to bottom. The appraiser has 0 comparable properties after going back 10 years. The property is so unique that the appraiser fears there isn’t a market for the property (making even the cost approach to value non-credible). Hard work and a lot of research will sometimes reveal credible data with which to make adjustments, but sometimes, there just isn’t data.

Good appraisers at this point turn the assignment down and walk away. Bad appraisers stick their finger in the air and make something up.

Allocation and Land Values

Allocation is a tool used by some appraisers in some areas in order to determine land value. Its often used when no other tools are available. These tools include:

1. Vacant land sales - this analysis is preferred as it gives an up to date look at what vacant land is commanding on the open market. The subject site is considered vacant (without any improvements) and then compared to sales of vacant land in the recent past.

2. Extraction - in this analysis the appraiser calculates the cost to build the structure new, depreciates the improvements to their current condition, and then subtracts this from a sale of the property. According to the model, this should leave the remaining value of the land.

3. Allocation - in this method a percentage is determined from sales in the market area which defines the percent of the value that is the land and the percent that is the improvements. To determine land value, we multiply this factor with the value to determine the land value. This is widely held to be the least accurate as it assumes that an equal factor can be applied over wide areas. While this may be the case in some, very uniform developments in which both the lot sizes and improvements match closely, anywhere else, this becomes increasingly useless.

Why does this matter? Currently in the push towards appraisers not actually visiting properties, there are banks (1st National Bank, for example) that REQUIRE this to be THE method used to determine land value. Lets take a look at how poor of a tool this can be.

This property recently sold for $72,000, with .1515 acres. The county has the following assessment: Land: $4,030; Improvements: $14,840, TOTAL: $18,870. This would mean that land contributes 21.36% of the total value to the property, or ($72,000x.21.36) $15,376.79. Then again, if we apply the Common Level Ratio (the tool that counties use to calculate the fair market value of a property) of 6.94, the county believes the property is worth $130,957.80, or off by 54.98%. Sooo… there’s that.

What does vacant land sales tell us? Well, in the last 10 years there have been 6 vacant parcels sold in the entire school district, so we need to be careful how much weight we place on this method, but it does have some data to show us.

Of the four sales, 3 were considered most comparable to the subject. One is an outlier, but we’ll come back to this. Applying a calculation based on these sales sees an approximate land price of $3926.98 or 392% lower than the allocation method.

From the pictures and county records, the extraction method shows an approximate land price of $4,589 (off by 335%). So, what do we trust? Three prices indicated for the vacant land, and two are within 14.4% of each other, and the other method is sitting 300+% away.

Lets consider the market factors:

1. There have been 6 land sales in the prior 10 years, but there have been 21 offerings that never saw a sale. There is “plenty” of land to be had, but no one to buy it.

2. In the past 10 years there have been 0 new constructions sold on the market in this area of New Kensington/Arnold SD.

3. The appraiser drives through the area with some regularity and knows of no new construction of SFR in that time.

4. The only vacant land sale in the same area as this home was the outlier we talked about earlier. However, this is in a portion of Arnold that has home values below $10,000. That piece of property, being .06 acres sold for $500. This area is located directly adjacent to an industrial area.

So, there is no demand, there is no new construction, and there is a low price industrial area within the market that suppresses overall prices.

Perhaps allocation works in some markets:

1. Markets where the assessor had access to accurate land sales at the time of assessment.

2. Areas where mass new construction immediately follows land purchase.

But in areas where there hasn’t been vacant property changing hands regularly in 30+ years and no demand for new construction, the tool is rusty. You’re more likely to hurt yourself then get the job done right.

APPRAISERS: Stand up to clients who insist you use bad tools.

You... might not be closing.

Jeff Foxworthy mastered the “You might be a redneck…” joke format, and has used it for decades. Today we take some inspiration from his format and apply it with some levity to the real estate market.

If your buyer is using FHA/USDA financing and your house is shedding paint faster than a Husky in Houston… You might not be closing. FHA/USDA/VA have strict rules on peeling paint - even if you have a newer home. If exterior wood surfaces should have covering to protect them, they’ll need to be scraped and painted to pass these minimum standards.

If your buyer is financing their loan, but the foundation is shakier than Evander Holyfield getting an ear exam from Mike Tyson…. You might not be closing. Banks want to know that the collateral (your home) will have at least 30 years of life left.

If your home has unfinished construction/remodeling that even the Clampetts would turn up their noses… you might not be closing. We get it, your home is going to be amazing… once it has a floor and working plumbing. Appraisers are skilled in the art of seeing what isn’t there yet (we have to do it all the time for new construction loans) but many lenders get worried about lending 100% of the money on 50% of a house.

If you priced your 1 bedroom shack based on the mansion down the street because “location, location, location,” … you might not be closing. Location is important, but so is looking at a home like a buyer.

If you did all of the work yourself… without pulling any permits… you might not be closing. If construction has been performed that requires permits by your local municipality, many lenders will have a lot of extra questions.

If you dug for oil but hit the septic tank… you might not be closing. Active environmental hazards need to be addressed before the lender will write a loan.

Get an appraisal BEFORE your subdivision.

I’m a fan of thought experiments (as anyone who reads this page regularly already knows). A thought experiment is a process by which one weighs the information that one has and considers the consequences. Doing this allows the experimenter the ability to make better choices and consider the underlying truths of a situation. Today we’ll apply this to the common practice of subdividing land and discover why it may be helpful (from a value perspective) to have an appraisal beforehand.

Imagine a 50-acre farm, with multiple farm buildings and a farmhouse at its center. The property has rolling hills and is generally a lovely place. However, the landowner, upon their death leaves the land to two sons. Both sons have no interest in keeping the whole farm, however, the younger one does want the house. A neighboring farmer has expressed interest in the property for the purposes of the land only. Perfect! There are buyers for the whole property, all that needs to be done is a subdivision, but where do we draw the lines?

1. The farmer only wants the land. He doesn’t want the two barns on the property, because he has his own buildings and doesn’t want the liability.

2. The younger brother only wants the house and no buildings.

3. The older brother wants the value of both to be as high as possible in order to maximize his inheritance.

Immediately we know that there is going to have to be a compromise. If the farmer has his way, he will own a doughnut-shaped property with the house and buildings in the center owned by the younger brother. Assuming that the house and buildings can sit on only 5 acres, this will leave 45 acres worth of buildings sitting on a 5-acre parcel. Think of it another way: If I have 50 acres of land, and buildings for storing the equipment needed to farm, store, tend, etc that land… what am I going to do with those massive buildings once I no longer need all of that equipment? If the subdivision happens in this way, the “functional utility” (or usefulness) of the barns drops dramatically. In terms of the appraisal problem here:

1. The farmer and the younger brother do not have the “Highest and Best Use” of the property in mind. They want the property cheep, and for their own purposes.

2. Only the older brother in this instance has the highest and best use in mind. In order to maximize the property’s value, it might be necessary to subdivide the property in accordance with the brother’s wish, to preserve the value of the barns and other buildings. It might also be necessary to wait and sell to another party that wants the whole property as is.

Luckily for us, in rural western PA, we have the case study of what happens when this type of situation occurs.

What you see here is a 48.66-acre farm that was subdivided, with a 5-acre parcel removed from the middle. All of the farm’s improvements are on the 5-acre parcel, and there is little room for a hobby sized vegetable garden on the remaining land, much less a farm that would need two large barns with areas for livestock plus other buildings. When this subdivision was made, the usefulness of the outbuildings on the 5 acres of land went to nearly 0. Unless the highest and best use of a commercial venue (rustic farm weddings perhaps) is envisioned, it’s hard to imagine the typical buyer seeing these buildings as anything more than a liability.

How could this be corrected?

1. The owner of the home could seek to sell the buildings to the farmer of the other land.

2. The owner of the home could purchase the farmland back, thus restoring the utility of the outbuildings of their site.

If you find yourself in need of a subdivision, a surveyor can give you the options as to where property lines could be placed. You do need to consult with a valuation expert to determine the highest and best use of the property, the potential buyer pool of the property and what characteristics (site size, improvements, etc) that they expect. Once you have all this information, you will be best prepared to create a subdivision that not only serves the needs of each parcel being created, but gives you the highest and best use resulting in optimum value.

To demonstrate an example where there is plenty of information, go to: https://en.wikipedia.org/wiki/Klondike_Big_Inch_Land_Promotion

This was one of the strangest “subdivisions” of all time. In 1955 Quaker oats bought 19.11 acres of Yukon territory, and printed 21 million deeds of 1 square inch of land to give away with their oatmeal. They paid $1,000 for the whole 19.11 acres - but how much were 21 million square inches worth separately? Well, in as much as the entire parcel was reclaimed by Canada for failure to pay $37.20 in back taxes, its fair to say that it was probably made worthless. To put it another way, poor planning of a subdivision destroyed 100% of the value of the land.

NEVER refinance your home this way!

In the lending/appraisal world there is something called a “Drive-by” or “exterior only” appraisal. These are performed on a 2055 FNMA form and have a scope of work that is limited to an inspection “from the street” only. According to the scope of work, the appraiser then assumes that the interior is consistent with the exterior of the home (in condition and quality).

There are times where these are needed - pre-foreclosure is the most common need. The bank can’t gain access to the home, but needs to know the value of the home to make financial decisions.

“REFINANCE, much less a FULL REFINANCE should NEVER be performed based on an exterior-only report. You are asking to go under water if you allow your bank to do this to save $100.”

We can not say this strongly enough. Please, ask your bank what kind of appraisal they are ordering, and demand a full appraisal to save yourself thousands. We ran across a case recently that illustrates the dangers of using the wrong type of appraisal:

1. In 2016 we performed an exterior-only appraisal for a lender. The home had been fully updated on the exterior. We were asked to not contact the homeowner in the engagement letter. Therefore we complied with the required scope of work and appraised the home under the hypothetical condition that the interior matched the exterior. The final opinion of value was $105,000.

2. The bank then made a loan on the property based on a 90% loan to value ratio: $94,500.

3. Now in 2019, we were asked to perform a full appraisal on the home. The exterior is still in very good shape… but stepping through the front door is a journey back in time. Well maintained, but nothing updated since the 1970s. The value of the home now: $85,000. After three years of mortgage payments, the homeowner is now $3,000 in the hole.

How did this happen, did we perform a bad report? We immediately double-checked our work and found that the report was a credible appraisal of what we were asked to appraise. However, the lender should NEVER have been allowed to write that loan based on that appraisal (that’s a FNMA, federal lending regulations issue).

We close this blog with a warning from the past about the cost of liberty. We might insert the phrase “financial liberty,” here to emphasize our point. The borrower must educate themselves about the loan process in order to not be taken advantage of by those whose financial interest is not concerned in the slightest with their own. We write these blogs for anyone involved in real estate in hopes that a more educated populace with lead to a more financially free populace.

What is a "Comp?"

Imagine home valuation in this neighborhood. Every house identical… except for the ones next to the industrial site.

As a VA Panel appraiser, we have access to something called “Tidewater” on VA orders. This allows us to reach out to the lender and ask for what the agent used to assist their client in pricing/making an offer on the home in question (most lenders discourage this in any other transaction). This means that over the years we have received properties from real estate agents on properties where we had a question as to the rationale used to develop a contract price.

Sometimes the properties we get are great comparables, already in our search or overlooked somehow, and immediately included in the report. Sometimes they aren’t “comps” at all. So what is a “Comp?”

A “Comparable Property” is: “Able to be compared to the subject property”

1. A property that the buyer pool would likely also have considered in their search

   • For standard homes, comps are all similar in nearly every area (location, condition, size, lot size, etc) and this makes the analysis far simpler.

   • For unique homes, comps may only be very similar in one area, and a wide group of comps is used to bracket all of the various features (if the home is a 3,000 sqft 1 bedroom home, you may have a 3000 sqft 2 bedroom, and a 1500 sqft 1 bedroom as comps to bracket both features because the subject is very unique in this combination of features).

2. A recent sale. Most lenders have a default desire for sales within 90 days. However, in rural areas, this is likely to be impossible. Sometimes the most recent comparable property sold 2 years ago. In which case more recent sales that are less comparable will be included and adjusted, but the dated comparable will also be included to help develop the opinion of value.

A “Comparable Property” isn’t:

1. A listing. Listings can be helpful for agents in pricing a property, but they only tell half the story. They tell, “How much do sellers want,” but not the other half of the story, “how much are buyers willing to pay.” Listings may give some information, but sometimes they are deceptive. Over the course of the past 3 years as Indiana County sale prices declined, for 2 years listing prices were increasing.

2. Always a sale that is close in price to the subject contract. Sometimes we get a list of properties that are right at/near the contract price… but they’re all in superior condition, size, acreage, etc. That means that they support a lower value for the subject. Because, no two homes are the same, true comparables are a little better and a little worse than the subject in various factors.

3. An average of local sales. We had this provided once, and in the agent’s defense, it was a very hard market to appraise in. Taking an average of the local market and giving it with a list of local sales to the appraiser is not “comps.”

If you’re going to provide comparables to an appraiser make sure they are comparable.

For more quidance on comparable selection:

http://www.workingre.com/three-dangerous-ways-choose-comps/

https://sacramentoappraisalblog.com/2014/10/30/how-to-pull-comps-like-an-appraiser/

https://birminghamappraisalblog.com/appraisal/what-does-the-appraiser-do-when-there-are-no-comps/

"Latent Fire Hazard"- Federal Pacific Stab lok Breakers

If this looks familiar, contact an electrician today.

Sadly, after 4 decades of warnings, proof that Federal Pacific falsified their testing data for UL, and testing that shows 1 in 3 Stab-Lok breakers are defective, we still find homes that are serviced by these breakers. Between 1950 and 1980 Federal Pacific sold millions of these breakers that were installed nationwide. Sadly, the USCPSC found that it would be too costly to recall these breakers in 1983. An estimated 2,800 fires, 13 deaths and $40,000,000 in property damage are caused per year.

In our years of appraising, we have asked many firemen and electricians about these breakers. Most firemen use a series of expletives in regards to them, followed by “replace them immediately.” Electricians have a similar reaction. Theoretically, if an electrician were to certify that the panel is safe, it would not need to be replaced, however, in nearly 20 years we have never met an electrician willing to take on that risk.

This is not a risk that anyone is willing to certify as “safe” and not one that homeowners should live with. For your safety and the safety of your household, have these panels replaced immediately.

For more information:

https://www.homeinspector.org/HomeInspectionNews/despite-previous-safety-concerns-this-circuit-breaker-is-still-in-homes.5-9-2018.2154/Details/Story

https://blog.societyinsurance.com/why-you-should-replace-federal-pacific-stab-lok-panels/

http://www.startribune.com/fpe-stab-lok-electric-panels-don-t-need-to-be-inspected-they-need-to-be-replaced/131912743/?refresh=true

How much is an acre worth?

We get this question a lot: How much is an acre of land worth in [Location], and like so many things in real estate, it depends. For purposes of this blog lets perform a thought experiment with the following property.

Here we see a 67-acre parcel of land in Athlone, Ireland, but for our purposes, lets set that aside. This single parcel has 1) Road frontage on what appears to be a major roadway, 2) River frontage in the top right, 3) What appears to be agricultural land in much of the center, 4) and lets assume for this case that the dark area in the upper left is an industrial site.

So, what is an acre of land worth in this parcel? Clearly there could be many answers, but this begins to get our mind to ask the right questions.

What is the Highest and Best Use - There are 4 tests that a property should pass in order to determine the market value of that property.

Physically Possible - What can physically be done with the property? Obviously placing a Boat Marina on the road frontage area is not physically possible, but perhaps it is on the river.

Legally Permissible - If I build a home on the riverfront, only to find out that the law prohibits building in that area due to flooding, then I will have wasted a great deal of time and money.

Financial Feasible - Perhaps its possible and permissible to build a home on the riverfront, but the soil there requires such extreme needs in terms of foundational work that the resulting home that one would build would cost too much for anyone in the market to purchase.

Most Profitable - If given a choice between equally possible, permissible and feasible plans, which would create the greatest value? For example, should the 67 acres be one single-family dwelling lot or 67 1-acre lots for a subdivision? Lot values for the second will very likely be much higher than the first, and this may be the better case.

All of these factors will affect the buyer pool, which will ultimately set the market value. Individuals looking for hunting land pay less than farmers looking for cleared land, and these pay less than land developers. Why? Because there is more profit to be had as we go up through those buyers’ interests.

Within those four questions, the following items are given consideration

What are the External Factors - is the site located next to an industrial site, near a nuclear power plant, near a paper mill - then expect that the land will demand a lower price.

What are the Internal Factors - is the property cleared and level, or a cliffside of giant boulders?

Land valuation may seem simple, until all of the factors that affect the market value of land are considered. Here is a graph of vacant land sales in Armstrong County and an analysis of 3 primary factors.

Above we see three types of vacant land transfers graphed on a price/acre per acre basis. Orange - vacant land that transferred with Oil, Gas and Mineral rights. Grey - vacant land that was suitable building sites. Blue - Vacant land that was not a suitable building site at the time of transfer (either the property was heavily wooded, the topography would prohibit it, etc). Here are some takeaways:

1. We see the law of diminishing returns at work in all three: The more of something that you have, the less each additional piece is worth.

2. The vacant land with OGM rights intact is very similar to the shape of the graph of those without OGM rights. The difference can in fact help in the process of extracting the value of the right to extract oil, gas, and minerals from a property (which is very different from the valuation of the oil, gas and minerals themselves). Appraisers do not value OGM rights in appraisals for lending purposes. This is because banks do not place a lien against those rights typically. In other words, if the land is purchased as well as the OGM rights, the OGM rights can be sold off separately from the land itself.

3. Buildable lots have a more steep decline. Most buildable lots in Armstrong county are of the 5-10 acre variety, and very few are buying 100 acre lots to build their new home. As a result, there is a higher demand for lower acreage building lots, and therefore a higher price per acre.

So, how much is an acre worth? It depends, on a lot.