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Old 07-09-2011, 11:19 AM
lfurr lfurr is offline
Join Date: Feb 2008
State: Pennsylvania
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Default Underwriter's View

So, I was in a continuing education class a few months back, and during lunch they had an underwriter (in the business for a long time) join us for some Q & A. Someone asked him what he felt the most important thing was for sales comparables. He answered "distance". I said "what if they're a completely different style of home?" He said, "that's fine".

So, my question is, how often do you use, for example, a ranch as a sales comparable to a 2-story? I have always tried to avoid something like that at all costs if possible, but apparently it doesn't matter to this underwriter as long as it is close by. Generally speaking (if you can ever do that with appraising), would a rancher (similar in GLA, age, etc.) 1 mile away be your choice over a 2-story (similar in GLA, age, etc.) 2 miles away?
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Old 07-09-2011, 11:29 AM
J Grant's Avatar
J Grant J Grant is offline
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State: Florida
Professional Status: Certified Residential Appraiser
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We don't choose sales to please an underwriter is the first rule. Underwriters like comps that fall within established guidelines, under a mile, 3-6 months old, same style, etc . And often times those are the best comps. But sometimes those are not the best comps. Then you have to explain why you chose comps outside guidelines, which is a valuabe skill for an appraiser to develop.

The standard overall for choosing comps is principle of substitution...if the subject were not available, what would a buyer for subject house choose as a substitute? A ranch or 2 story similar area similar sf it is entirely possible a buyer may choose either one. Call area realtors to confirm and chat with them. Get to know your neighborhoods and what buyers want . The other standard for picking comps, is that we are supposed to whenever possible bracket sales for major features of subject that contribute to value. For example, if your subject is 2400 sf and all the other sales same subdivision etc are good sales but max is 2000 sf, for a fourth comp you may have to go beyond area, go back in time, a diff house style etc and find a sold comp similar as you can find, that has 2400 sf and greater. Same for water view, pool, or to bracket an adverse condition such as backing a major road.
Old 07-09-2011, 11:34 AM
J Grant's Avatar
J Grant J Grant is offline
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So, my question is, how often do you use, for example, a ranch as a sales comparable to a 2-story? I have always tried to avoid something like that at all costs if possible, but apparently it doesn't

There is no "rule" that a ranch vs a 2 story home, with other similar features located in same subdivision or market area, can't both be used as comps in a report, aka , if the subject is a ranch,that some 2 story comps can't be used .

It is important to use like sales whenever possible, but ranch vs 2 story is not always a deal breaker with buyers so it should not be to appraisers, either. It is important to bracket your subject, and if your subject is a ranch, at least one of the sales and better yet at least 2 should be ranches, nice if all three or all four are ranches, but if you only have 2 good ranch sales in subject area and the subject immediate area is very relevant to value and appeal, you might be better off using 2 story homes for your third and fourth comp rather than going outside of the area for other ranch house sales. There is no rule about this either, every appraisal and every subject is different, so while you are devloping your knowledge as an appraiser, talk to as many realtors and buyers and builders as you can to get a depth of experience in diff areas and buyer preferences etc.

Last edited by J Grant : 07-09-2011 at 11:48 AM.
Old 07-09-2011, 11:36 AM
panappr panappr is offline
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I think what the underwriter is suggesting is that the neighborhood can and does establish its own market pricing first and other variables are secondary. Since you're probably using 6-8 comps these days anyway, why not throw one 2-story into the mix, I always do, especially if it's on the same block. They'd probably pick it up on an AVM and MAKE you use it anyway.
If you can count your money, you don't have a billion dollars.
Old 07-09-2011, 11:48 AM
Denis DeSaix Denis DeSaix is offline
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I'm thinking that what the UW is calling "distance", we'd probably call "location" or "neighborhood".

Going further away from the subject risks entering into a different type of location/neighborhood. For most situations (at least in my markets), staying close to the subject is a better choice than going far in terms of analyzing comparable sales. Obviously there are times when that isn't possible or might not be appropriate (the unique property situation).

When I did a lot of review work, in the situation where an appraiser felt it was necessary to go what appeared to be a farther than expected for comparables, the reports I considered deficient were the ones where:
A. The report did not adequately explain why the comparables were distant from the subject.
B. The report did not make any attempt to demonstrate that the area where the distant comps were located are similar (or different) to the area where the subject is located.
I would expect that when an appraiser felt it was the best option to go some distance from the subject to obtain a sale to use as a comparable, the appraiser would do some analysis to ensure that the location-differences (distance) between the subject and that property were analyzed to see if any adjustment is warranted. I would also expect the appraiser to provide a summary of that analysis so I (the reader) can understand how/why a location (distance) adjustment is warranted or not warranted.

Had the UW, when asked the question, said
"The biggest deal we see is when the appraisal is not clear why it went further for its comparable selection when closer sales are available, and did not provide any analysis for location adjustments (if warranted)."
that answer would make perfect sense.
Old 07-09-2011, 12:10 PM
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PropertyEconomics PropertyEconomics is offline
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I also think the underwriter is providing an insight as to a red flag they look for. Going further distance with no explanation, as Denis suggests, really causes them concern over the quality of the data and the analysis. And yes, it does make perfect sense.

Underwriters have a very difficult job I believe. They must read an appraisal and understand it when most are not written well nor explained thoroughly enough for them to understand. That coupled with, sad to say, appraiser attitudes of "how dare you question me" leads to a difficult relationship to begin with.

Appraisers simply need to be more descriptive and explain more what they did and why they did it .. if this were to happen I believe many issues would be resolved or never surface in the first place.
Foxtrot, Uniform, Charlie, Kilo Cancer ... In memory of our friend Bill Waite!
Old 07-09-2011, 12:45 PM
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Pittsburgh Pete Pittsburgh Pete is offline
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The UW is harkening back to that old real estate bromide that the three main determinants of value are "location, location, and location."
All our knowledge brings us nearer to our ignorance--T.S. Eliot
Old 07-09-2011, 12:56 PM
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Terrel L. Shields Terrel L. Shields is offline
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I think what the underwriter is suggesting is that the neighborhood can and does establish its own market pricing first and other variables are secondary.
As a rural appraiser what you call "neighborhood" I might call market area...and in the case of rural property, the "market area" can be a huge chunk of turf.

The question seems to to me to be what is the demographic of the buyer? Arthritic folk may have a basement for a fraidy hole in tornado alley but they don't like stairs per se. They prefer that rancher. Young couples might prefer the stylish 2 story and it likely has more SF thus accommodates their growing(?) family??

A single person might prefer a home close to work. A person raised on a farm may feel confined in a city environ and prefer the rural areas or larger lots of suburbia. Young couples in "starter" homes end up in Same Old Villa Subdivision, etc.

But UWs are generally trained in analyzing "standards" and "norms" thus the problem. I remember years ago valuing a new home in a small community. Largest house in the school district and new...I went out of the SD for comps..obviously. UW had a fit. I said "Listen, there are no NEW homes of that size period. Do you want to use 30 year old remodeled homes or what?" Turned out to be what...I blew up and told them to stuff it. So they got another appraiser to search for a "closer" comp. So he got a 25 year old contemporary on 40 acres... The 2 story on 5 acres is supposed to be comped to a rock and glass home with a basement? The UW called me to tell me that I 'missed' that sale. I replied. The house was sold by my COUSIN and his wife is an employee of your bank I see almost on a daily basis...that house is no more a COMP than the space shuttle. It was still 10 miles away but by paved road it was far further than the comps I used...

UWs simply are not good as appraisers. They need to look at a report and leave the appraising to someone who has some &^%$ sense.

I think there is a way too much emphasis on being in the same "neighborhood" as if various subdivisions are isolated from all other subdivisions. In our area, I would aver that 90% of the differences in pricing can trace to the building and the builder rather than any differences due to being in a different area. A builder who builds in several subdivisions tends to sell houses for much the same price regardless where he is and the sensible builder builds a house appropriate for the lot and the subdivision rules. They are not going to built a 4,000 SF McMansion on a 80'x100' lot nor a 1,049 SF house on a $500,000 lakefront lot.
"Bigamy is having one wife too many. Monogamy is much the same." Oscar Wilde
Old 07-09-2011, 01:36 PM
leelansford leelansford is offline
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Think in terms of identifying the most reasonable market substitutes for the subject and all will be well.
Lee Lansford, IFA
"My opinions & my opinions only!"
Old 07-09-2011, 02:25 PM
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Mile High Trout Mile High Trout is offline
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You were allowed to speak with an underwriter? That does not happen anymore.
This forum is packed full of hopeless corporatist drones.
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