1. Welcome to AppraisersForum.com, the premiere online community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Fnma Certification #7 - Comparable Selection

Discussion in 'Fannie Mae, Freddie Mac, USPAP' started by Barbara Decker-Spence, Oct 8, 2005.

Thread Status:
Not open for further replies.
  1. Barbara Decker-Spence

    Barbara Decker-Spence Junior Member

    0
    Feb 5, 2002
    I have not seen Cert 7 discussed here. Certification 7 says: "I selected and used comparable salesthat are locationally, physically and functionally the most similar to the subject property." I see several problems with certifying this. Here's what I drafted for in our reports. Comments/analysis welcome.


    #7 of my certification page says: “I selected and used comparable sales that are locationally, physically, and functionally the most similar to the subject property.” It is important to clarify this statement so that the reader understands my scope of work in terms of comparable selection. There are typically no three comparables that are the most similar locationally, physically and functionally to the subject. One sale might be most similar locationally while another might be more similar physically and yet another might be a more recent sale, farther distant but highly relevant for its recent sale date. Instead, what I have really done is judged the comparables selected as being overall the most relevant. The choice of which sales to present is not limited to judging which are most similar in these three stated ways; making a decision solely on that basis could result in a misleading appraisal report and violate the standards with which I must professionally comply. Instead, good appraisal practice requires that I select sales that bracket or support the most relevant features of the subject. This include bracketing the indicated value with a sale that is higher and one that is lower; including at least one sale of similar size or bracketing the house size with one that is larger and one that is smaller; including at least one sale that is similar in quality or bracketing the quality with one superior in quality and one inferior and so forth. Further, because of the nature of the current market where prices have increased significantly for some period of time, I judge it very important to include recent sales. Therefore, I may exclude a sale that is more similar locationally or physically or functionally in favor of one inferior in one or more of these ways but which occurred more recently. The comparables presented are the result of this thought process and are judged to be most relevant for these reasons. It is most important that the comparables provide support for each of the adjustments made on the grid and accurately represent the relevant market. For new construction, FNMA requires that at least one of the comparables chosen be outside the subdivision. Therefore, there may be other sales within the subdivision that area locationally, physically and functionally more similar to subject that have been excluded in favor of the inclusion of at least one sale that is outside the subdivision.
     
  2. Pamela Crowley (Florida)

    Pamela Crowley (Florida) Elite Member

    3
    Jan 13, 2002
    Professional Status:
    Retired Appraiser
    State:
    Florida
  3. Barbara Decker-Spence

    Barbara Decker-Spence Junior Member

    0
    Feb 5, 2002
    Of course - freely offered to anyone who wants to use.
     
  4. joe huffman

    joe huffman Junior Member

    0
    Sep 20, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    Seems to me that your Cert #7 is a get around. You would leave two or more comps that are truely comparable for one that is higher or lower, sounds like you are working towards a direction that would favor the client. Please tell me where bracketing is a method we must use. More time comlplying with accepted methods rather than trying to find such words that allow you to skirt the issues.
     
  5. Fred

    Fred Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Retired Appraiser
    State:
    Virgin Islands
    I think the concept is the three best or most similar sales - in the aggregate.
     
  6. Barbara Decker-Spence

    Barbara Decker-Spence Junior Member

    0
    Feb 5, 2002
    Wow. I’m not sure where to start in responding to this comment. For me, this is basic appraisal 101 kind of stuff.

    My cert 7 comment is in no way a “get around”. It is an attempt to address what I think is a problem with cert 7. Here’s an example of a type we often see when we review appraisals. Let’s say you have a 2400 sf house on a block where there have been 3 sales of 3200 sf houses and none of houses any smaller in size. Do you grid 3 of those 3200 sf houses since they are the most similar locationally and then adjust them all downward a certain dollar amount for sf? If you do this, have you done and kept in your workfile paired data analysis or other accepted analysis to prove how much of an adjustment the marketplace makes for that difference in sf? And do you then include in your narrative portion of the report information telling exactly how you arrived at the amount per square foot that you used for your adjustment? Most people who use these 3 comps just pick a number to use for the sf adjustment and use that number on the grid with no support for it at all except some vague comment. All those folks have done is show what three 3200 sf houses sold for; they have now shown how the market reacts to a smaller house. I see this over and over in reports I review. Three properties that are all dissimilar in the same way from subject gridded, an adjustment made upward or downward for the areas of difference and a conclusion reached, with no support at all for that adjustments and then they say - well they were the closest sales. I see it where the 3 comparables are all adjusted upward a big amount for quality of construction and no real support given for that adjustment. That is not sound appraisal practice and suggests to a knowledgeable reader that the appraiser is trying to “hit” a number. You can’t make up adjustments; you must extract them from the market in some way. If you bracket key features when you select comparables, then you are extracting these adjustments from the market right on your report; otherwise, you need to develop and include the support for the amount of the adjustment you have made for this difference between the subject and the comps.

    In your market, are you really able to typically find 3 comparables sales that are the best locationally, physically AND functionally (AND is the key word here)? Our market does not work that way. Say we are appraising a 2 story house. The only sales in the subdivision might be two ranch style sales. We would only include one in the report, being it is the best locationally and demonstrates value in that immediate area. But it is surely not the best physically and functionally. So then we’d look for the closest recent 2 story sale in a location of similar values, etc and provide it. But, now we’ve excluded a sale that is closer “locationally” and signing the report with cert 7 becomes a problem.

    Following the bracketing approach in no way work in a direction that favors the client. What it does is work in a direction that produces a solid, supportable appraisal report with adjustments to the comparables derived from the market.

    I don’t really have the time to go through all the appraisal texts and copy and paste in material that will prove this to you. You are aware that when you are appraising new construction, FNMA requires you to use at least one sale outside the subdivision? If you do so and then sign this report, how can it be true that you are using sales that are locationally, physically and functionally the most similar?

    How can this cert 7 include no consideration of when the sale occurred? Does how recently the sale occurred matter in your market? It truly does in mine. Then, if you ignore a sale that is on the same street and happened 6 months ago in favor of one ½ mile away that occurred yesterday, you have not done what you are certifying you have done. Yet, in my market, if I ignored that sale that occurred yesterday, I would be presenting a misleading appraisal and violating USPAP.

    In effect, cert 7 is dictating what the most important elements of comparison are and is assuming that we can select comps within the parameters of the cert and still produce a credible report with an accurate opinion of value. It is the appraiser’s job to determine (for the particular market segment under consideration) which factors most influence values and to select our comparables based on that knowledge. To do otherwise is to present a misleading appraisal.

    It would take much time that I don’t have to go through the appropriate texts and manuals and copy and paste paragraphs that show that bracketing is not only an accepted appraisal technique but a preferred technique. Perhaps someone else has ready references and can post them for you. If you don’t bracket key features, then I surely hope you have lots of paired sales or other accepted analytical data in your files to support the adjustments you are making on your grid.
     
  7. Jim Onderisin

    Jim Onderisin Senior Member

    8
    Sep 15, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    Barbara: Nice wordsmithing! How many pages are your reports? I'm afraid that if I tried to clear up all the misunderstandings created by the Fannie Mae certifications and limiting conditions via scope of work statements, I might need to get a separate internet cable just to handle transmission of the report. I'd also have to warn the client in advance to schedule a forklift the day they print out the appraisal.
     
  8. CANative

    CANative Elite Member

    68
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Barbara.. lots of words for just including "and most relevant," which would be an exapnsion of the scope of work rather than modification, addition or deletion.

    IMO, you have changed the certification by stating that you have bypassed the most similar, proximate and functionally similar properties in order to use bracketing as a method.
     
  9. Barbara Decker-Spence

    Barbara Decker-Spence Junior Member

    0
    Feb 5, 2002
    That is probably the intent - unfortunately, it is not what is actually written or what we are certifying.
     
  10. Barbara Decker-Spence

    Barbara Decker-Spence Junior Member

    0
    Feb 5, 2002
    Please help me understand. How can I expand my scope of work to include the words "and most relevant," without modifying the certification. This appears to be where I am mentally "stuck" and I'd like to better understand how to accomplish that. Because, yes, adding "and most relevant" is actually what I'm trying to accomplish. Just can't figure out how to do it.

    The thing is - if I have comps that are locationally, physically AND functionally the most similar (and are recent sales), I am in appaiser's heaven. AND being the key word. In my market it doesn't happen very often. So, yes, "most relevant' is what I am trying to convey.
     
Thread Status:
Not open for further replies.

Share This Page