Summary Of Sales Comparison Approach & Reconciliation

[Tim Hicks (Texas)]

SR 1-6 says that each approach must be reconciled. SR 2-2(a)(viii) says the report must contain a summary of that reconciliation. It is hard to imagine how one summarizes the reconciliation without addressing how much weight/consideration was given to each of the comparables.

IMO, too many try to get away with boilerplate in the reconciliation, and that is the last section of the report where one should have boilerplate.

I actually agree with Danny on this one, except for the selling out and working for an AMC part. The comments on the sales comparison should explain, support your adjustments and explain which sales were given most consideration in the opinion of value. Forget the all sales...yada, yada..boiler plate..yada.yada. Just tell the adjustment and opinion story.

 

[hastalavista]

As luck would have it, here is one I just finished (and am shipping off today).
Feel free to poke holes in it (as some, I'm sure, are dying to do):

The unadjusted range of the comparables is $445k to $475k, and the adjusted range is somewhat narrowed to $465k to $490k.
Comparable #4, the same-street model-match would normally be given significant consideration in concluding an indicated value within this approach. However, I note (see 5-page market conditions analysis and refer to the top of page 2 which summarizes the 1004MC sales range for the last year) that the highest-priced comparable sold within the last year sold for $475,000. As noted, this market has been stable for the last 6+ months and Comparable #1 is the high sale at $475k, in superior condition, and required the least amount of net adjustments. I considered the $475,000 price-point to be the upper-limit of the value range for this market at this time, and concluded my opinion of market value at $470,000. This gives Comparable #1 most consideration, and reflects a price-point $10,000 higher than the sold price of the same-street model-match, in inferior condition, that closed within 6-days of the effective date.​

The client may or may not agree with me, but at least they understand exactly how I got to where I landed.

BTW, there is another listing on the same street that I am not including in the gird. I feel compelled to comment on why that I'm not including it.
So, the reconciliation is not only about the data that you do consider, but can sometimes be about the data that you evaluated and, in the end, decided not to include and consider.

Good luck.

 

[Michigan CG]

IMO, too many try to get away with boilerplate in the reconciliation, and that is the last section of the report where one should have boilerplate.

Amen brother!!

The boilerplate is annoying, foolish and makes the appraiser look stupid.

 

[Michigan CG]

RECONCILIATION OF VALUE: The unadjusted sales prices range from $44,000 to $73,000 ($60.19/SF to $95.05/SF). Sales #1, #4 and #5 are in similar condition to the subject; sale #3 was in poor condition when it sold. Sales #2 and #5 were REO properties at the time of sale. Sale #6 is the resale of comparable #2 after it was rehabilitated and I was not able to confirm the sale with anything other than assessor records.


The adjusted sales prices range from $58,000 to $66,450 (not including sale #6 which is given little consideration). While the subject property has a ¼-acre site it is odd in shape which is a detriment. The home has older cabinets in the kitchen and bathroom.


Given the property needs to be completed (door, window and floor trim and the wood flooring) I have reconciled the value of the property at $60,000. It is my opinion that the subject property value as of October 15, 2016 is at or near $60,000 which is $86.21/SF in the property’s AS-IS condition.

 

[hastalavista]

In for a dime, in for a dollar.

I only used the SCA for the assignment I posted. Here is my final reconciliation which explains why the SCA is so relaible (in my opinion) and why I didn't feel the need to include the Cost or Income Approach.
Note that I don't say the Cost Approach "isn't applicable" (it is always applicable when the assignment is market value and there are land + improvements to value); the biggest reason not to use it is because the data is so superior in the SCA that the cost approach isn't necessary. My subject's buyer-type is an owner-user; therefore, the income approach isn't necessary (again, IMO).

RECONCILIATION COMMENTS

The sales comparison approach is used and relied upon within this assignment to conclude credible results. In this market, residential properties are purchased primarily for owner-user utility and the sales comparison approach best reflects this market motivation.
The overall quality of the data is very good. There is a model-match that just closed on the same street with a pool. Furthermore, I have another cul-de-sac sale from within the immediate neighborhood as well as competitive sales from the overall competitive market. I was able to confirm the terms/conditions of the sales with at least one agent/broker related to the transaction.
I did not consider this data set to have any significant weaknesses. It provides a very reliable indication of value for this assignment.

The cost approach is not necessary to conclude credible results and is not required by my client. The typical buyer in this market does not consider the alternative of developing a site him/herself vs. purchasing home already built. As noted in the H&BU analysis, it is not financially feasible to develop a vacant site at this time; the lack of feasibility further weakens this approach's reliability. And, last but not least, the data available for the use in the sales comparison approach is so superior that the cost approach would be given little if any consideration, and only in a supporting role. Therefore, the cost approach is not completed.

The income approach is not necessary to conclude credible results and is not required by my client. The subject has been updated and is well maintained; as noted in the H&BU analysis, the typical buyer for this property is an owner-user; owner-users rely on the sales comparison approach as their primary means for evaluating a purchase: income revenue is not a significant owner-user motivation. Therefore, the income approach is not completed.
​

But, I say again: The entire reason for explaining oneself in the report is so the client/intended user can understand where you are coming from and why you did what you did.
They can always disagree (I'm fine with that as an appraiser). But what I don't want to hear from a client is, "Denis, we don't understand why you did what you did??". If they say that, I've failed to properly communicate my analysis.

(and, you can see one doesn't have to write War & Peace. A short paragraph for each approach should do the trick on most residential assignments).

 

[0351]

The voice of appraisal site has weighted analysis excel spreadsheets that you can import into your reports....very simple. It doesn't cover your explanation why which you would add but is a good illustration for the reader of the report.

 

[Michigander]

SR 1-6 says that each approach must be reconciled. SR 2-2(a)(viii) says the report must contain a summary of that reconciliation. It is hard to imagine how one summarizes the reconciliation without addressing how much weight/consideration was given to each of the comparables.

IMO, too many try to get away with boilerplate in the reconciliation, and that is the last section of the report where one should have boilerplate.

Reconciliation is where you get to tie the thought process together with a neat little bow and hand it to the client. It is your last chance to make the report make sense. http://www.workingre.com/reconciliation-rachel-tim/ is a simple article related to reconciliation.

 

[Terrel L. Shields]

Is it required to make a statement in the summary of the sales comparison approach or the reconciliation regarding placing emphasis or weight on certain comparable's?

To me the proper place to reconcile the SALES is in Sales approach. The reconciliation section should explain what approach is weighted and why. If an approach is not used, the reconciliation is where I explain if an approach was applied, or was not applicable. That latter item is easy to stumble over. The cost approach is usually applicable but not necessary. The income approach is often applicable but not necessary but I see appraisers usually claim it is "not applicable" and too often hand in hand is a statement or check box saying 10% or less of the neighborhood is rental property, when a manual survey or even census records suggest 30% or more. Here only new subdivisions are commonly 10% or less rentals.

Understanding the difference between "not applicable" & "not applied" is the difference between lightning and lightning bug (apple polly loggies to Twain)

 

[Don Clark]

Thank you all for the insight I really appreciate the feedback

Just one example:

Adjustments based on market reaction to differences between the subject and comparable sales, as appraiser is best able to determine and analyze those differences and derive an opinion of a dollar amount of market reaction for the differences. Appraiser makes every attempt to bracket the subjects square footage of livng area, as well as the opinion of market value. However, the market is never, or almost never precise as to those factors. There are factors both known and unknown that are not evident to the appraiser such as individual preferences, personal considerations, and other factors that may not be known and cause some differences to not be apparent. From what was observed and known, the amount to bring the subject to a similar condition as the comparable,s, would likely be similar to the amount of adjustments made + or - to the comparable,s. Subject square footage is bracketed by closed sales as much as possible. No adjustment between C1 & C2 as all properties similar to new construction. Equal weight given all comparables after adjusting for differences.

 

[bnmappraisal]

Usually, for residential mortgage work, the final value opinion is 100% dependent on the SCA. So, if you reconcile your analysis in the SCA section, you have communicated to the client/intended user why your point value is where it is at.