Adjustment to Listing?

[incognito]

When the AMC or client asked you to make a listing adjustment for any particular listing, aren't they asking you to give an opinion of value for that listing?

I believe the procedure suggested in the prior posts is sound. It is important to recognize that a listing analysis is not being performed to lend support for the opinion of value. It is being used to establish an UPPER END OF THE VALUE RANGE for the subject property.
I have stated it before, and I really believe it to be true: In this declining market, if I were lending MY money, I would rather have 3 comparables, and 6 listings (adjusted, including SP/LP ratio). I do not care what the comparables indicate, IF the listings indicate a lower "upper end of the value range".

You state the SP/LP ratio adjustment is a bogus adjustment. If you are gridding the 3 lowest listings of functionally equivalent reasonable substitute comparable properties (which presumably weeds out the unrealistically high and overpriced listings), and adjust them properly, I think you derive a very sound, market based indicator. I would agree with the "bogus" results part when appraisers grid the highest listings, and ignore the lowest.

 

[Lloyd Bonafide]

On the grid, under seller concessions, I will type in "Listing (-5%)", and then make the adjustment.

These days, though, it's not always that easy to make an adjustment to a listing. Some properties may be listed way too high, and there is no way that they will sell within 10% of their list price. Other properties may be short sales or REO sales that are listed well below market, and they receive multiple offers and sell well over their list prices.

Other homes are listed at a variable range list price of say $449,000 to $489,000 - some of these will end up selling below the low end of the range, and some may sell mid-range or higher. When the market was really great 4 years ago, many properties sold at or above the high end of the range.

 

[Mztk1]

I don't make list price to sale price ratio adjustments. I'm not that good. I do make a comment as to why not that goes something like this:

"List price to sale price ratio adjustments are not made. According to the statistical "Law of Large Numbers" applying the list price ratio adjustment to an average list price of a large pool of data can converge on a reliable average sales price for that sample group; however, applying the ratio to any single datum within the pool will provide less reliable results. Therefore, the listings above are to show the upper level of the market. They are not weighted."

I will though make market condition adjustments to the listings based on their date of last price revision. For this at terms of sale I'll put, for example "$Rev: 01/01/08", and then make a market adjustment based on the rate of decline from the last revision to the effective date. I comment on this as follows:

"It has been over 45 days since comp #5 had a price revision and due to the downward trend in the market, assuming the property was priced correctly, the asking price should be reduced once more. An adjustment for the changes in market conditions are therefore applied to the sale under "$Rev:" above, based on the rate of decline discussed in the addendum, as supported by the market sales."

 

[TJSum]

Exactly Lloyd. The LP/SP adjustment contains way too many assumptions for me to feel confident using it.

When using it aren't you assumming there will be no other price reductions prior to receiving a contract offer?

Even worse, aren't you assuming it will actually receive an offer at all. How many listings expire or are withdrawn from the market.

What about under priced listings that end up selling above LP.

What about closing help? Many times that LP/SP ratio deals more with the amount of closing help than anything else. Are you ignoring the closing help on your ratio numbers? For example, lets say you LP/SP ratio typically is 97%, with closing help of 4%. So are you deducting the 3% when adjusting or are you deducting the full 7%.

What about new constrution listings, listed at base price, they could throw your pool of data way off, what about agents who change the list price after the contract is signed (see it all the time).

IMO this LP/SP ratio does not tell the entire story, not even close, and when using it you are conveying a false sense of security by "equating" then with true sales with this adjustment. Any UW with half a brain should be able to look at the listing for what it is, just a listing to show the current value ceiling based on the theory of substitution. Far more important is to choose the proper listings because they are easier to cherry pick than sales.

My prior question still stands. If you predict what a listing will sell for on your report, haven't you just done an appraisal on that listing? If not, why not?

 

[PropertyEconomics]

I never forecast sales prices .. but rather state in the reconciliation that LP/SP ratio among the majority of market sales are x% - x% and if applied the listings would suggest a range of $ x to $ x.

I am looking at a house now thats been on the market 496 days with the list price having declined 23% over that time period. Using that as a listing 450 days ago and applying a LP/SP ratio would have resulted in a faulty assumption that the market has proven wrong.

 

[Mr Rex]

I never forecast sales prices .. but rather state in the reconciliation that LP/SP ratio among the majority of market sales are x% - x% and if applied the listings would suggest a range of $ x to $ x.

I am looking at a house now thats been on the market 496 days with the list price having declined 23% over that time period. Using that as a listing 450 days ago and applying a LP/SP ratio would have resulted in a faulty assumption that the market has proven wrong.

Consult OK for better Addenda writing. I don't think anybody that uses LP/SP ratio suggests that they are "forecasting" sales price. FWIW, when asked to provide listings and to comment on List to Sales Ratio, I often do comment that the Listing agent is out of their freaking tree with such an unreasonable List Price, but due to client imposed SOW, here's the only listing within 10-20% of GLA within a reasonable proximity etc, and that I have placed no weight on that comp, but obvisouly sets the "upper limit" of an unreasonable value for the subject

I'm much more eloquent in my report writing, but the point is the same, and as obvious.

 

[PropertyEconomics]

Consult OK for better Addenda writing. I don't think anybody that uses LP/SP ratio suggests that they are "forecasting" sales price. FWIW, when asked to provide listings and to comment on List to Sales Ratio, I often do comment that the Listing agent is out of their freaking tree with such an unreasonable List Price, but due to client imposed SOW, here's the only listing within 10-20% of GLA within a reasonable proximity etc, and that I have placed no weight on that comp, but obvisouly sets the "upper limit" of an unreasonable value for the subject

I'm much more eloquent in my report writing, but the point is the same, and as obvious.

Full Moon tonight Mr Rex?

 

[TJSum]

Consult OK for better Addenda writing. I don't think anybody that uses LP/SP ratio suggests that they are "forecasting" sales price. FWIW, when asked to provide listings and to comment on List to Sales Ratio, I often do comment that the Listing agent is out of their freaking tree with such an unreasonable List Price, but due to client imposed SOW, here's the only listing within 10-20% of GLA within a reasonable proximity etc, and that I have placed no weight on that comp, but obvisouly sets the "upper limit" of an unreasonable value for the subject

I'm much more eloquent in my report writing, but the point is the same, and as obvious.

My red above, Rex, I totally agree from the appraiser's view point. But IMO the clients are doing exactly that which is why they are requesting it and hence my opinion they are getting a false sense of security by mis-using this data. I rather not contribute to that notion.

 

[Mr Rex]

TJ, don't hold back, tell the client what they are getting from/for their imposed SOW. You are the expert in the area. They ask for BS, and pay you for it, give it to them, but explain the localized smell, based on your nose and the heels of your shoes.

 

[EVAUSA]

The LP/SP ratio looks good on paper, and can be accurate, but not always. Just because sales typically close at 97% of the list price, that doesn't mean your listings are priced 3% above. Another thing to think about is, are they selling at 97% of their list price from the most recent price reduction or from the original price?

I might adjust one listing down 5% and another 10%. I use this comment and have not had a condition yet: "Price reductions are typical in the marketplace, overpriced listings generally have increased DOM. Typically, listings that are originally priced competitively have below 90 DOM. In the market area, list price to sales price ratio ranges from 89% - 98%, depending on how competitively the listing is priced. Listings may have varying applied adjustments for buyer negotiation, arrived at by extraction after all other reasonable adjustments were applied."