How Precise Do You Need To Be?

[J Grant]

If one has four comparable properties how do they arrive at $1,379,000?

If one understands that a home in this price range is not going to have $1,000 adjustments then they would also understand that you cannot have a final opinion with a significant digit less than what was used in the adjustment process.

If one really thinks about this, let us move the decimal point left two spaces and talk about a house in the $14,000 range. Would anyone with a brain opine to a value of $13,790? Would anyone with a brain make $100 adjustments or $50 adjustments?

I fail to see how some do not get this accepted concept.

A 14k house is absurd, so why bring it up? The cheapest property ( a small condo) I ever appraised was about 50k. The nearest number I would round to in the 50k range would be $500- if there was a reason to do so. Many properties in the lower price ranges will have contract prices and sale prices ending in $500- such as $62,500 so rounding to that or to $1000 reflects the market.

In the million dollar range, I would tend to round to $1,380,000 rather than $1,379,000 ...but If for a specific assignment there was reason to opine at $1,379,000 it could happen. I don't make adjustments in 1k increments in any but the extreme low price ranges . However, when we are in the reconciliation phase we are out of the adjustment phase of the appraisal. The reconciliation phase is the totality of the appraiser's judgement of where to opine from the approaches and qualitative comparison of the comps and their ranking, and part of where to reconcile is also influenced on market trends or intrinsic quality of the subject property.

 

[J Grant]

In the higher price ranges, it is common to round up or down by 5k or 10k ...or in larger amounts. However every assignment is different and the results should fit the assignment, rather than a generic "rule" of always round up or down by X $ or never opine to the thousand dollar .

 

[timd354]

A 14k house is absurd, so why bring it up?.

Actually, it is not at all absurd...I appraised a number of houses that sold for less less than $20k and you can still buy beauties like the one at the following link for less than $14k: https://www.redfin.com/MD/Baltimore/1513-Holbrook-St-21202/home/10810947

or, how about this beauty of $2,160? (it needs just a little bit of work): https://www.redfin.com/MD/Baltimore/1804-N-Regester-St-21213/home/10782586

 

[J Grant]

for a handyman/investor a good buy

 

[TJSum]

I've seen some Baltimore City properties listed for $1 and they still could not sell them...

 

[Michigan CG]

A 14k house is absurd, so why bring it up?

I have appraised multiple homes for $10,000-$15,000.

...but If for a specific assignment there was reason to opine at $1,379,000 it could happen. I don't make adjustments in 1k increments in any but the extreme low price ranges .

Putting these two sentences together shows that you don't understand the concept of significant digits.

 

[Terrel L. Shields]

A 14k house is absurd

OK....see attached

 

[timd354]

for a handyman/investor a good buy

Doubtful...in those neighborhoods, there is little chance that you could recoup the cost of rehabbing those properties. There is a reason that are over 10,000 abandonned housing units in the city of Baltimore.

 

[residentialguy]

But a decision to round up or down 25k is hardly about pinpoint accuracy. I'll leave it at that

That's down to 1.78%. No one is that accurate. You aren't that accurate...except in your mind.

 

[Michael P Jacobs MAI]

Some day I'm going to finally write a better Excel function for automating rounding. I'm still using the same one I wrote in 1992. It is fine but occasionally gives me a reconciled number like $10,100,000. Somehow this is abhorrent while $10,300,000 would be less so. It's not just a matter of perspective; I'm not sure how to explain it.

My eye says I should round the first to the closest MM but not the second. A small tweak during proofreading can make the "acceptable" $10.3MM turn into $10.1MM or even worse $10.9MM.

The problem with rounding, then, is how to write the function in a way that it can discern between the appearances of over-precision.

Another rounding algorithm problem to avoid is reconciling two close numbers, like $10.3MM and $10.4MM, to $10.5MM.

All of this goes away when you just round manually, but I'm "that appraiser" who could do an amazing report only to miss that in some small proofreading tweak I could screw it up with bad rounding... it's happened, in fact.