How Precise Do You Need To Be?

[djd09]

Wow, that gets so tiring.

Do you have free will? Don't read it or put him on ignore.

 

[residentialguy]

Do you have free will? Don't read it or put him on ignore.

No, I'd rather tell him that gets so tiring. Feel free to don't read my post or ignore...after all, you do have free will, don't you?

 

[djd09]

I don't care what you write. You are the one whining.

 

[residentialguy]

I don't care what you write.

Good...then zip it.

 

[djd09]

Zip you? Quit whining.

 

[leasedfee]

Where do appraisers come up with generic "rules" like this, aka rounding by increments of 25k at a million dollar plus price point?

"Round like the market rounds," a quotation from a class a colleague took.

 

[J Grant]

"Round like the market rounds," a quotation from a class a colleague took.

That is a good way to view it. I personally see the market "rounding " up or down by 10k in the million dollar price point range, if I had to follow a guide- but every property is different and might see rounding by 5k or 10k or 20 k etc.

I sold RE for over 5 years - in football they say it's the last yards. In a price negotiation, it's the last few thousand, (or ten thousand,,,), that will make or break the deal. Which is true of our reconciliation- it is easy to come up with a value range, hard to find the best point value.

Rounding to a whole number does not materially impact value . Rounding up or down in larger increments does change the value. Follow where the indicators lead rather than a rote formula.

 

[Gobears81]

I remember doing a mobile home park appraisal and the guy gave me the old appraisal done on the property. It was something like $1,012,681 (don't recall the exact figure but remember it was "rounded" to the nearest dollar). Something was clearly off about that number and I've never heard of the guy doing the appraisal, despite the property only being about an hour from the office.
Farmland is one property type where it might not look so strange to have a figure like the above, as the market typically rounds to the nearest price per acre, rather than a rounded overall price, in most cases.
In general, my thoughts on rounding are that in many cases, I will not round as much on the individual approaches, but often have a more rounded figure on the final value opinion. I scanned through the first and last pages of this thread and haven't read the rest, but if the market seems to round to the nearest $50,000 or $100,000, yet I have a sales comparison approach value of $1,365,000, that says nothing about whether I am so precise at valuations, but rather, recognizing that if everything is rounded in one direction and the variance in that market errs to the same direction, one could effectively "miss the boat". Or, maybe the central tendency of the adjusted unit prices are $38.61 to $39.63 per square foot, but I round to $40 per square foot, then subsequently round up from there to the nearest $50,000-$100,000, which would result in a value being +/- 5% above the central tendency. Ideally, in the aforementioned example, the other approaches would be such that the final value would neatly fall into the nearest $50,000 or $100,000 increments. Leasedfee's quote of rounding as the market rounds is spot on, but I'd rather be off by not rounding as much as the market rounds than by rounding in the direction opposite that the market ends up rounding.

 

[Mike Kennedy]

FNMA

"Definition of Market Value
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• buyer and seller are typically motivated; <<< DEMONSTRATED BY OTHER BUYERS AND SELLERS OF OTHER, COMPETITIVE PROPERTIES
  
  
• both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
  
  
• a reasonable time is allowed for exposure in the open market; <<<< AVAILABLE TO OTHER BUYERS
  
  
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
  
  
• the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. <<< "NORMAL" consideration demonstrated by OTHER competitive sales by OTHER sellers and OTHER buyers.

Note: Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs that are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable because the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment."

_______________________________________________________________________________
IOW:
"comparables" = OTHER properties NOT a subject.
"normally" = paid by OTHER sellers of OTHER properties,
"market's reaction" = demonstrated by other buyers and sellers of OTHER properties, not a subject property

An appraisal (residential) reflects an Appraiser's qualified, OPINION derived from and supported by the actions of OTHER buyers and OTHER sellers of directly competitive properties "AS-IF" (Hypothetical Condition) a subject property was sold on an Effective Date of Appraisal.

Who the parties involved are, whether there is a Lender or not, whether an assignment is a SALE transaction appraisal, or not AND Whether a subject is actually active or under contract as of an effective date, OR NOT, is absolutely IRRELEVANT.

 

[J Grant]

Round as the market rounds is a good saying, and the gist of it is don't get hung up on tiny $ increments ( tiny can vary relative to price point. ), and try to "see" value as that set of buyers for a property would in price reaction.

But in reality, "the market " does not round anything. Sale prices come in all kinds of numbers, including high $ properties. We might see a 2 million range in contract for $2,870,000- ( not rounded to $2,750,000 or $2,900,000).

$10,000 would be a tiny amount compared to $2,8790,000. However, 10 k is a larger amount compared to the spread among the adjusted comp prices, as it is the spread we reconcile from.

Example, the adjusted range for above comps are $2, 720,000 to $2,920,000 is a $200,000 spread). Which makes a $10,000 rounding increment 5% of the $200,k, and a rounding increment of 50k as 25% of the adjusted spread. That's a big value swing due to nothing more than an appraiser's decision to round by that amount.