"Sample" Appraisal: Subjective Value Containment Approach

[TRESinc]

"Incompetent people tend to:

• Overestimate their own skill levels
• Fail to recognize the genuine skill and expertise of other people
• Fail to recognize their own mistakes and lack of skill

you don't say kettle...

 

[RCA]

The Valuation Engineers who will squeeze out and replace current Legacy Appraisers (the smarter Legacy Appraisers will, in fact, become tomorrow's Valuation Engineers), will be smart enough to make a good living. That is one thing that can be said about them for sure.

So, appraisal, in the form of "valuation engineering" has a healthy future, I would say a VERY healthy future, -but will most likely expand beyond real estate.

 

[George Hatch]

Your land sale analysis sux. Are you aware that not one of the first 6 land sales is directly comparable to your subject site? Did you even look at any of these sales? The 2018 sale is zoned R2 and it looks like they basically condo-ized that parcel. The other sales include a couple with views, sites with significant topography, most of the sales are way to the south in very different types of neighborhoods and so forth. Your analysis did address views, water and permits, but not locations or topo. If your assignment was to appraise a vacant lot next door to this property on Hibbert Ct this land sale analysis would be completely unacceptable by any measure.

Data qualification is a thing. You cannot - and indeed did not - overcome your lack of data qualification by simply throwing more unfiltered data at your analysis.

Then there's your use of a published apt cap rate for your income cap on an SFR. That's both lazy and dumb right from the outset. If you're going to go after an income approach on an SFR then why would you use a published rate for multi-family including investment grade properties instead of extracting GRMs from the local 2-4s? If you're that hot to cap NOI instead of using a market-based GRM - both of which are measures of income converted into values - then you could build cap rates by working backwards off the known/knowable rents.

I didn't go into the sales comparison - maybe you're using more diligence on that. But what I'm getting so far from the short take is that - as usual - just because the calculator can spit a number out doesn't mean that number is going to be meaningful.

 

[RCA]

Your land sale analysis sux. Are you aware that not one of the first 6 land sales is directly comparable to your subject site? Did you even look at any of these sales? The 2018 sale is zoned R2 and it looks like they basically condo-ized that parcel. The other sales include a couple with views, sites with significant topography, most of the sales are way to the south in very different types of neighborhoods and so forth. Your analysis did address views, water and permits, but not locations or topo. If your assignment was to appraise a vacant lot next door to this property on Hibbert Ct this land sale analysis would be completely unacceptable by any measure.

Data qualification is a thing. You cannot - and indeed did not - overcome your lack of data qualification by simply throwing more unfiltered data at your analysis.

Then there's your use of a published apt cap rate for your income cap on an SFR. That's both lazy and dumb right from the outset. If you're going to go after an income approach on an SFR then why would you use a published rate for multi-family including investment grade properties instead of extracting GRMs from the local 2-4s? If you're that hot to cap NOI instead of using a market-based GRM - both of which are measures of income converted into values - then you could build cap rates by working backwards off the known/knowable rents.

I didn't go into the sales comparison - maybe you're using more diligence on that. But what I'm getting so far from the short take is that - as usual - just because the calculator can spit a number out doesn't mean that number is going to be meaningful.

I've got a house across the street from me sitting on 714sf lot, 715 sf GLA, Zillow has at I think $690,000. My house is 2,900sf on 6,000sf at $1,500,000. So, yes, only the SCA is relevant here. The Cost Approach and Income Approach are not too valuable. Which you should know of course. And this is not an actual report. It is meant to show the use of the SCA, as the title states. So, you decided somehow not to look at that but mince yourself with unessential issues. Go ahead.

 

[George Hatch]

Okay, your point is well taken. We aren't supposed to be looking at the rest of what you've been telling us is the future of appraising.

In any case, if you think only the SCA is relevant then why did you build the other approaches to value in what appears to have been a live assignment? How does that support the credibility of your workproduct?

BTW, your land sale on Brighton subsequently got built out with 2 new homes, one of which is a 2061sf that might be a D7 in quality and which got sold for $1.525m in 10/2017. I'd love to see your CA on that project. Let's see how those costs on that new house squared with the way you build a CA.

 

[Terrel L. Shields]

The proofs are always when they actually sell...?

 

[George Hatch]

"Costs" don't always account for all the costs?

Raise your hand if you think you can can actually build these improvements on this lot in Pacifica for a total of $120,000.

 

[RCA]

Okay, your point is well taken. We aren't supposed to be looking at the rest of what you've been telling us is the future of appraising.

Point of obfuscation noted.

In any case, if you think only the SCA is relevant then why did you build the other approaches to value in what appears to have been a live assignment? How does that support the credibility of your workproduct?

Well, someone said they wanted to see a real appraisal, something they could relate to. Of course all I can do is get them something relatively close. We don't need to belabor these issues everyone knows and understands (or should), do we?

BTW, your land sale on Brighton subsequently got built out with 2 new homes, one of which is a 2061sf that might be a D7 in quality and which got sold for $1.525m in 10/2017. I'd love to see your CA on that project. Let's see how those costs on that new house squared with the way you build a CA.

When are comparables really comparables? Is the term well defined? No. For the lot/land cost, all I did was average 23 available lot sales going back 18 years. I did make some loose comments, whose backing you would find in my workfile. I saw no real significant patterns. The reason is that when a lot comes around to purchase, there are a lot of other considerations that go in to the price besides the lot characteristics. There has to be a developer/contractor who is interested in building - and that can depend on so many other factors.

GIVE UP. YOU ARE WASTING YOUR TIME. ( And if you get obsessed with one lot, you will be led astray. )

Anyway, since the cost approach is low priority, and the report is already bloated with SCA, demographics and other stuff, and time constraints, some things were not included - also because they were not impressive arguments. The best I could come up with was an average --- which seemed to be reflective of what a buyer would most likely have to pay at the time.

 

[RCA]

BTW, your land sale on Brighton subsequently got built out with 2 new homes, one of which is a 2061sf that might be a D7 in quality and which got sold for $1.525m in 10/2017. I'd love to see your CA on that project. Let's see how those costs on that new house squared with the way you build a CA.

So what? At the time of sale it was R1.

BTW, my MARS regression of the data set had a view rating, permits, plans, water, lot size, zoning. The best it could do was an R2 near 0. Nada.

Another way of looking at this is: You can have a great lot, great ocean view and good lot size. But, if the only developer in town interested in building on it when you want to sell it has a problem coming up with funds for a downpayment, you may have to take a lower than expected price if you really want sell. That's unfortunate for the seller. But that's the way it is. Contractors are also continually facing risk of the market going south by the time they sell it, and are looking for a buffer, i.e. to pay less than what the lot is worth. Yea, that's life around here anyway.

 

[George Hatch]

uhh, you're the one who has been telling us for months that this will be the new standard for appraising and anyone who doesn't get onboard is a donkey. You're also the one who posted a live appraisal report, so there's nothing theoretical about this. You apparently actually sent this report to a client. With your signature on it.

That was a bold move when considering what we're seeing here.

-------------------------

Anyways, here's another one to square with your manner of CA analysis. This is a new home which was built within your window, also presumably in a different neighborhood with different location factors. I used the same cost methodology you used - including a more expensive site value than you used - and came up with a land+improvements cost that didn't come anywhere near the subsequent sale price. If these costs represented the totality of all costs including profit for this project then how could this happen?

You said earlier that your larger-but-1970s house with the weird addition in back and some rooftop solar was worth $1.5m, and we know the sale on Brighton went for $1.525m at 2065sf. This new (but slightly smaller home) sold for a lot less than that. Presumably that means the underlying site value - for which we have a known acquisition price - was lower. So how do you square any of this with what you did for
a CA in the appraisal you presented to us?