formula for time adjustments

[Peter LeQuire]

Webster said, "Oh REALLY? .. Ok, wait another thirty years and then go out and try and score with a twenty something great looking chic and tell her you have an empty bank account...."


Actually, recent events (over) reported in the scandal-obsessed media imply something quite different. What's the song title? "You Got the Money, Honey, I Got the Time" If this is true, time makes absolutely no difference in the success of a geezer. There is a parallel with power, as well - Hale Boggs, Strom Thurman, et al. - making a strong case that clout is as strong a female attractant as money.

 

[cwgiant]

Wow. Alot of very good feedback. Some sort of strange but apparantly that is par for the AF course and I will leave it alone. Insight that has really made me think has been provided and is appreciated. I do see that there appears to be significant difference of opinion among a jury of my peers, the vast majority of whom seem to be smarter than the average bear. That is what concerns me most. I mean isn't that a likely way to justify the approach one takes; assuming that you have followed a course of methodology that your peers would agree with? I think paired sales analysis actually show more evidence to the user than a generic median sales analysis if you are looking for a specific adjustment to make. Ceratinly the median sale price analysis tells the bigger picture story which informs the user of current trends and is therefore appropriate. The paird sales analysis certainly take alot more work and they are affected to some degree by subjective adjustments (and generally do use the monthly adjustment approach which has been shown to me to be flawed). I have struggled recently with the issue described by Joyce regarding analyzing pairs involving listings due to no recent sale and while I certainly would not argue the logic it is frought with with it's own set of assumptions. I think that Brads comments about the AI approach are the most logical, however are going to be completely useless in most cases. Therefore I am giving greatest weight to the ideas set forth by Dennis and Joyce as they suggest methods that are applicable to solving a problem which if you provide appropriate explanations, reasoning and methodology should be acceptable. The question which Brad asks regarding the logic of the straight line linear monthly adjustment may be asked by someone who finds it equally tenuous however without a more reasonable approach I am left wondering if there is another way to handle "market condition" adjustments. I think that Brads last comment (which echoes Dennis) is where I will leave this. Analyze the market data and as always try to let the market show me what is going on and not the other way around.

 

[Jim Shoe]

Contract Dates Only

Whatever method you use, remember to use the CONTRACT dates in the analysis. The closing date of the sales used in the analysis may occur months after the 'meeting of the minds' and is irrelevant.

 

[hastalavista]

Whatever method you use, remember to use the CONTRACT dates in the analysis. The closing date of the sales used in the analysis may occur months after the 'meeting of the minds' and is irrelevant.

Jim-

Your argument is valid and with merit. However, I would say "it depends" on how the data and how it is analyzed.

For the record, unless one is talking about new construction where the contract is entered into months prior, in my market, I've seen little difference between contract dates vs. closed dates. Again, it depends on the amount of data and the types of time periods analyzed (at least, that's been my experience).

 

[Joyce Potts]

Mr. K. Byers

Jim-

Your argument is valid and with merit. However, I would say "it depends" on how the data and how it is analyzed.

For the record, unless one is talking about new construction where the contract is entered into months prior, in my market, I've seen little difference between contract dates vs. closed dates. Again, it depends on the amount of data and the types of time periods analyzed (at least, that's been my experience).

Denis,

In the Central Florida market, I find the exact opposite to be true, especially with pre-construction contracts. We're seeing a major problem when appraisers are using closed sales and not making the distinction WHEN the contract for that sale was entered into, in many cases, 6-12 months prior.

It makes sense to ask why would they closed 6-12 months later for a higher price yet knowing the values have declined? What I'm finding in many documented cases is that many borrowers were putting down substantial deposits and risked losing upwards of $25,000-$100,000 if they didn't close at the original contract price. Some closed because they didn't want to lose their deposits, others didn't. The point is, those who did provided what appear to be current closed sales, when in fact, they weren't--at least in terms of when the meeting of the minds took place, which in most cases was during a time when totally different market conditions existed.

Many were not using FAR BAR contracts, but using the developer's contracts that conveniently removed the financing contingencies normally found in FAR BAR's. In other words the financing wasn't always contingent on the outcome of the more recent appraisal. SO READ THOSE CONTRACTS PEOPLE!

To make matters worse, I've seen where the same appraiser is being used repeatedly by some developers and/or the developers' mortgage company (that many own) and despite a downturn in value trends as of the more recent appraisal date, they're using old data to support the higher values.

I know of two local Central Florida APPRAISERS/INVESTORS who walked away from a $25,000 and $120,000 deposit respectively in the identical same circumstances I describe above.

That's why I'm such an advocate of ANALYZING ALL the market data.

Analyzing, not just reporting contract dates is crucial, IMO.

And that's what my whole thread last year involving Mr. K. Byers was all about. Mr. Knowledgeable Byers, was in fact, a true story and he was an appraiser.

Call him stupid, but the fact is, it's gotten very, very complicated and ugly out there.

 

[hastalavista]

Denis,

In the Central Florida market, I find the exact opposite to be true, especially with pre-construction contracts. We're seeing a major problem when appraisers are using closed sales and not making the distinction WHEN the contract for that sale was entered into, in many cases, 6-12 months prior.

Joyce-


There was a lead article in yesterday's WSJ that talked about new construction buyers fighting with the developers over their contracts. The main players in the story were from Florida. It is interesting to read how the reaction of the buyers and the comments of the builders.

One attorney was able to get his client out of the contract with the builder because the patio size of the unit was not as represented in the marketing material; even the attorney said he was surprised the developer gave in on that one!:Eyecrazy:

But, the article did make good points about the size of the deposit being a significant factor in the fight/don't fight action. If you get a chance, you should get a copy; it sounds like it echos your first-hand observations.

And, I do agree with new construction, there has to be analysis of contract date as well as closing date. Up to now, in my market, the differences in timing (in general- on a large scale) are not significant. Property is marketed for 80-days, goes into contract and closes within 20-45 days after that; even if the market moved 2% (a 20% annualized rate) I probably wouldn't make a market time adjustment for that small of a difference because of the uncertainties of the analysis.

 

[Joyce Potts]

Denis,

Thanks for the information. To get to that article one has to sign up to the WSJ for an online subscription and I'm not interested. If anyone else can get that article, I'd appreciate your forwarding it to me.

 

[Deuce of Spades]

And, to take this one step further, let's use the example where all the recent comparable sales adjust to a $500k+/- level, but the current available comparable listings are at $470k+/-; there is no "A"(sold then) vs. "A"(listed now) to pair. Who wants to argue persuasively that it is not appropriate to consider a market time adjustment of -6% to reflect the current market environment because there are no matched set of sales?

In my opinion, you have paired (generalized) MARKET DATA and that's exactly the correct way to do it!

Joyce makes an excellent point. Using older and recent paired sales from multiple adjacent/comparable neighborhoods will give you an indication of a decline, especially when the current sales cant get a contract at a lower price. We certainly made the adjustments going the other way based off of current listings when the market was on fire. Central Fl was extremely hot, now were not.

I do like these kinds of application conversations, we all have different opinions and taught differently. It is good to get an idea of what others are doing and learning. Some mentors don't teach, this is an excellent option.

 

[Jim Shoe]

Contract Dates Only

Jim-

Your argument is valid and with merit. However, I would say "it depends" on how the data and how it is analyzed.

For the record, unless one is talking about new construction where the contract is entered into months prior, in my market, I've seen little difference between contract dates vs. closed dates. Again, it depends on the amount of data and the types of time periods analyzed (at least, that's been my experience).

I don't know how much the 'amount' or 'type' of data factors into the decision to use contract dates. I do know what FNMA requires:

XI, 406.03: Adjustments to Comparable Sales (06/30/02)

"Comparable sales must be adjusted to the subject property—except for sales and financing concessions, which are adjusted to the market at the time of sale. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. "Time" adjustments must be representative of the market and should be supported by the comparable sales whenever possible. The adjustments must reflect the time that elapsed between the contract date (or the date of the "meeting of the minds") for the comparable sale and the effective date of the appraisal for the subject property."

 

[Dennis J. Black ASA IFAS]

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The Art of War