Taos Real Estate

Posted by Jim Kimmons, Broker/Owner • February 21, 2009 • Printer-friendly

Ed Adams, a prominent appraiser in the Taos real estate market was kind enough to share his opinions with me concerning the new Fannie Mae and Freddie Mac guidelines and procedures for appraisals. As most loans end up with involvement by these two government entities, buyers and sellers of Taos real estate need to be aware of these new requirements.

There are a number of changes, but Fannie Mae's Form 1004MC and Freddie Mac's similar Form 71 both require calculation of an area's absorption rate, and a comparison of that rate by time period. This gives a picture of inventory, how much is out there, whether it's increasing or decreasing, and other trends. Here's Fannie Mae's absorption example:

Step 1: Calculate the absorption rate. If there were 60 sales during a 6 month period (e.g., “Prior 7 – 12 Months” column), the absorption rate is 10 sales per month (60/6).
Step 2: Calculate the months of housing supply. If there are 240 active listings, there is a 24-month supply of homes on the market (240 active sales/10 sales per month). This may support the appraiser’s conclusion that there is an over-supply of homes on the market. Anomalies in the data such as seasonal markets, new construction, or other factors must be addressed in the form.

I took the Form 71 Ed sent me and completed it for the entire Taos real estate market. It looks at three time periods; previous three months, four to six months, and seven to twelve months back. Even taking into account the seasonality of the last three months with the holidays, it isn't the prettiest of pictures for the Taos real estate market as a whole. The absorption rate is trending down, with inventory increases. We can hope that this will turn soon, as we're entering the best part of the year for real estate.

Ed was careful to explain that these absorption numbers would be done on comparable properties in their specific area of the Taos real estate MLS, not the entire market. So, it could present a better or a worse picture in a subject property's area of the MLS. Why is this a concern? Whether seller or buyer, if you can agree on a price, but you can't get the loan because the lender's loan-to-value ratio requirement can't be met, then you're back to square one.

Two other factors are analyzed in the form. Days on Market trends, and "sale-to-list" ratios. The amount of the average or median discount at which properties sell compared to the prices at which they were listed is reported.

The Taos real estate market has a great many vacation homes placed on the market by sellers who don't necessarily NEED to sell. There is a tendency to list at prices higher than the comparable sales suggest are plausible. This increases days on market, and can result in wider discounts between list and final selling prices. Both of these factors are negative for lenders, especially if they are increasing.

If you are a seller, ask your real estate broker to run the absorption numbers for your home's MLS area. If they don't know how, point them to this post and the Fannie Mae example. It's hard enough these days to locate a buyer and get a deal negotiated. It's a real shame to lose them in the financing stage.

Fannie Mae Guidelines

Freddie Mac Information