Amelia Island, Tale of a House Sale

Housing market hurdles include artificially low appraisals, tight credit, and potential shadow market.

Ocean Cay, an Amelia Island Community Steps to the Beach
Ocean Cay, Steps From Beach, Amelia Island

As someone who frequently bikes and walks the beach (and local neighborhoods adjacent to the beach), plenty of real estate for sale signs are noticed, planted in front lawns along the way.

Passing through familiar communities routinely, it’s easy to observe, over time, homes for sale that languish on the market.

Of course, the last few years have been one of the most difficult environments in generations for those trying to sell a home (and with tight credit, for buyers, who need financing). Still, some homes are selling, while others sit on the market.

One day along the regular route something’s missing — the for sale sign that sat for a couple of years on a lawn in the Ocean Cay neighborhood. Located adjacent to South Fletcher Avenue, Ocean Cay is one of Amelia Island’s communities offering residents easy access to the beach — just a short walk along sidewalks.

Looking back, times sure have changed. A home in this neighborhood would have sold in less than a week several years back when demand was hot for homes walkable to the beach on this northeast Florida barrier island.

Did the property owner finally withdraw it from the market due to seller’s fatigue? Or did the home actually sell? Researching further, here’s the listing history:

The home was placed on the market in August 2009 at a listing price of $379,000. Two years later, it sold for $269,900 — $109K less than original listing price (perhaps the owner’s hopeful expectations). In between, the listing history indicates many downward price adjustments. Those who have experienced the selling process with a home on the market even for several months, know it can be a tiring and stressful journey.

Was the property initially listed at a “self-directed” price (i.e. a price set by the homeowner, often too optimistic), rather than the fair market value estimate (based on comparable sales, an estimate prepared by a local Realtor® who knows the neighborhood)?

We note that determining fair market value has gotten tricky these last few years, and often “recent” comps are not available in a slow moving market. Did the original listing price reflect the market value at that time? Was the two-year long downward pricing in sync with the overall declining market over the two-year period?

If you’re a property owner, Zillow has become one of the most popular websites providing what they call “Zestimates” (see disclaimer at end of article). Some homeowners may be shell-shocked to realize how much their home’s value has eroded from peak market prices.

Homeowners’ property tax bill valuations are a more vague indicator of a property’s true value. Property valuations by government officials usually vary from what the market will bear in a real world home sales transaction.

In the aftermath of the housing bubble and inflated values, new appraisal regulations are in place, resulting in a new crop of appraisal management companies (AMCs) on the national scene. Sales contracts can and do fall apart after the contract is signed when the bank ordered appraisal comes in lower than the agreed upon sale price. Even more unfortunate, the appraisal may be artificially low – based on poor quality or faulty comps.

Complaints are rampant in the housing industry regarding the quality of appraisals these days, including inaccuracies, not comparing “apple to apple,” inexperienced appraisers and some appraising properties in locations they are not familiar with (in an industry where “location, location, location” is the rule). A local real estate professional’s market value estimate can differ greatly from a certified appraisal report by a third party, required by banks if the sale is being financed. It’s the appraisal ordered by the financial institution that matters in the end, and becomes a deal breaker.

On top of the low appraisal problems, it remains tough for buyers to get financing, another housing hurdle. Then there’s the matter of how big the “shadow inventory” really is, impacting how long — in years — it will take for the housing market to stabilize to a more normal, balanced environment. As defined by Standard & Poors, “shadow inventory” is described as “as a collection of properties in 90-day delinquency or worse, foreclosure and REO.”

The woeful tales of house sales are all too common these past few years.

It also appears that property values may fall further here in the local area, dragged down by foreclosures. Nassau County, Florida’s comptroller and clerk of courts, John Crawford, has reportedly stated, “We’re fixing to get inundated (with foreclosures). We’ve always felt immune in Nassau County.” Read recent column by Steve Nicklas (“John Crawford’s Message of Austerity, Nassau County”).

Also read Wall Street Journal article reporting survey results of 100 economists projecting home prices nationally to drop 2.5% this year and rise only 1.1% annually through 2015, “Home Forecast Calls for Pain — Prices to Stumble Through 2015, Economists Say, Weighing Down Recovery,” by Nick Timiraos, 9/21/11. ___________

Disclaimer: More about Zillow “Zestimates”: According to the Zillow website, their new 2011 algorithm has improved the reliablity of home values as follows: “These Zestimates from the new algorithm differ from the previous ones in two important ways. First, there are a lot more them: a total of 97 million Zestimates to be precise… Secondly, these new Zestimates are more accurate than the older ones. For the three-month period ending March 31, 2011, our national median error was 8.5 percent. The median error of our previous algorithm over the same time period was 12.7 percent, meaning that the new Zestimates are 33 percent more accurate than the older ones.”

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By The Editor

Observations of island life, news & opinion by Wendy Lawson. With background that began at a newspaper, she later spent 14 years in the financial services and real estate industries (managing editor at an equity research publishing firm). She's enjoyed the laid-back Amelia Island lifestyle since 1993.