Considering filing complaint for lack of market conditions adjustment on stale comps

[Evincere]

These are interesting questions!

1. The basis for my belief is that for my day job, I'm running a cross-sectional multiple linear regression using detrended property prices and a handful of characteristics of the properties over the last 20 years. Properties are definitely selling for above the long term trend in my market in recent months to a statistically significant degree. Qualitatively, I was shopping for a house not too long ago and have seen what closed prices looked like and have not been living in a cave for the past year.

Not sure how a positive time adjustment would be in conflict with my belief. I didn't say buyers overpaying is the sole cause of an increase in prices, that would be silly. And really, I don't care who it is advantageous for or not, shouldn't the goal be to get the most accurate FMV? In my case, it is unclear whether a positive time adjustment would have made up the differential, it depends on the magnitude of the adjustment (I wasn't short $1, nor was I short $100,000). My issue was that 0% is probably not only incorrect in terms of magnitude, but also incorrect in terms of direction.

2. The subject is a duplex, the comps are duplexes in the same neighborhood. The comps sold 8-10 months ago. There haven't been any duplex sales in the most recent 8 months in the same neighborhood. There clearly isn't enough data to justify any kind of time adjustment, so you look for clues in substitutable products. I looked at similar sized, same # of beds / baths, detached SFRs and condos in the same neighborhood. Scatterplot shows increase. I pulled together some paired sales. All have increased. I thought this was laid out pretty clearly in the OP, but if it isn't, my apologies.

Appraiser said they pulled detached SFR data in the neighborhood and couldn't justify a time adjustment. I sent them my analysis. I did not receive a response other than that they're not changing their value.

For your last sentence, yes I am familiar and do not believe I ventured into AIR territory. Nowhere did I ask for a specific value, just a supported value. A value well below SC but supported by an analytically valid process would have been fine with me

“Appraiser said they pulled detached SFR data in the neighborhood and couldn't justify a time adjustment. I sent them my analysis. I did not receive a response other than that they're not changing their value.”

And the above was stated in the copy of the report you received from Lender?

I presume mean to say you sent “them” (the Lender) who is actually the Appraisers client the results of your own research and data - who obviously has reviewers?

If you don’t mind my asking - Why didn’t you buy a different product? A SF or Condo? What was your motivation for purchasing a Duplex. And Now that you have purchased a Duplex - Do you intend to occupy both units?

 

[throwaway12345]

Nothing prohibits the appraiser from changing their opinion of value with new and additional information on an ROV. Remember the definition of value. Please read it OP. I'll post fannie mae defintion.

Here we go:

B4-1.1-01, Definition of Market Value (04/15/2014)

selling-guide.fanniemae.com

Thank you for that. I asked for a ROV and was told to go away.

Intended use and user is critical to the op's problem. It is not the appraiser. It could be appraiser but they will work it out if buyer follows protocol.

I still want to know down payment and type financing and I want to visit.

20%, conventional. And yes, please come visit!

Yes, but most of time the concessions apply almost dollar for dollar. Rural can vary. And OP is talking $700K property and I doubt it's rural. I bet he or she is urban. I don't know Hawaii from garden of eden.

Suburban

I am thinking for about $2,000 and expenses paid, I could visit and we could work it out. I need paid up front on $2k and signed engagement. I could do damage in that market in a week.

Would have gladly paid more to avoid this situation

Is the report credible? Understand the value definition and intended use and user?

No in my opinion (whatever that's worth). Yes, yes, and yes.

That is scary. The OP has also made comments that nothing in subject subdivision has sold recently.;. That indicates urban or suburban. H&B use could come in to play. The OP is a player

Lots of homes have sold in the subdivision recently. No duplexes over the past 8 months, but lots of detached SFR and condos.

I have already told you your best choice. Appraisers are not deal killers. The bank wants your money. Trust me.

I trust you, but the deal has closed.

I really want to visit. I think maybe $4,000 plus might cover it.Let's say $4,000 to $10,000.

Did you just adjust your rate for market conditions?! It's growing like crazy!

 

[throwaway12345]

So I am sure many others have a similar opinion, and I have not read through all the comments.

First off, let me say that you have approached this in a logical manner and have made a compelling argument. Bravo for that, as a non-appraiser, your approach and explanation is superior to many within our profession.

That said, I think you need to let this one go. I understand that you are ready for a fight, but it is highly unlikely that anything will come of this. It will create a headache for you and for the appraiser and will not change his/her appraisal, nor where you stand on your purchase. If you file a complaint, the appraiser will defend themselves and it is highly unlikely that the State will consider this to be misleading or negligence.

You might consider going to a different bank, that is likely the best remedy.

Thank you for taking the time to read the OP and for providing your opinion. I wish the appraiser and lender found my approach and explanation as compelling as you did, but unfortunately that's how I ended up in this situation to begin with.

In regards to my purchase, I put up the cash to close the difference, the seller brought the price down some, and everyone lived happily ever after. I would have loved to shop the loan, but for factors outside of the transaction, I decided to move forward with it anyway. I have nothing to gain from filing a complaint other than the assurance that this situation may be less likely to happen to someone who doesn't have the cash to close the gap or isn't familiar enough with real estate to recognize and counter a weak analysis when they see one (if they see it). Professional standards designed to protect the parties involved are important, even moreso in a self-policing industry like appraising.

I really didn't want a fight, I just wanted a quality appraisal. I tried throughout the process to make the same points I have raised in this thread in order to avoid a fight, but was continually dismissed. That is what has led me here.

 

[throwaway12345]

Thanks for the compliment, It seems that the OP indicates that the appraisal report didn't include any significant market analysis or support for the opinion: quoting op:

“while prices for similar dwellings have increased in the neighborhood, the small data sample and variety of product sold in any one period has lead the appraiser to conclude that the market is stable and an adjustment for time is not necessary”.

As far as the reliability of the 1004mc; utilize the FNMA instructions: it is not going to be statically correct, because the removed video instructions for the 1004mc included a search utilizing price range. Which, has been established that results in generally stable statistical dataset output. You can experiment by placing a group of random variables of price points in a range in excel, placing a second group of random variables, and then gauging the median or mode of the variables. Output will be generally of little difference (stable). Like much FNMA says to do, it is not reliable, I concur with other thought leaders who have long advocated that GSE work should include a jurisdictional exception. I will leave that for another argument though.

Your graphs are great, it is highly unlikely that the OP's appraisal included that. I utilize graphical analysis in my work, and have paid $1000+ for my own home appraisals and seen that level of analysis and images, however, very seldom have seen it in a typical lending appraisal. According to the OP, a large group of data was not included and the appraiser(s) ignored the increase in neighborhood sales prices.

I would refer your graphing to enhanced market analysis, and a minimum required for a highly changing market. Good job!

I can only dream of my appraiser producing charts like these. You are right Russ that charts were nowhere to be found in the report. I provided my own, but I don't think they were considered (based on the silence after sending). I agree with NC Appraising, it isn't hard or time consuming to do. What I wonder is whether the appraiser (a) wasn't willing to put in the time to do the analysis or (b) looked at mine and didn't like the answer.

Here's the snippet of a chart I provided which took all of a half hour to make with MLS data and some filters.

 

[throwaway12345]

I was with you until that last sentence . Too many just want to fill in the 1004Mc grid and stop. As you point out, if the grid has insufficient data for trend analysis, the job (and the form) is not yet complete. The grid should be supplemented with additional data, as you point out. So, if done correctly, the 1004MC is neither wrong nor useless. It is only wrong and/ or useless when not fully completed.

A conclusion of STABLE should be no less supported than a conclusion of increasing or decreasing. Stable is not an “acceptable default”. It requires support. If there is not enough data to mark increasing, then how is there enough data to mark stable?

Sigh ... that's all I was asking for from my appraiser and lender.

 

[throwaway12345]

Agree my experience is as many as 70% of all 1004-Mc are not supported by the data or misapplied. In reviews we gave up trying to even deal with it because it's like trying to get someone to quit pounding square pegs into round holes. If the appraiser is new or one who wants to learn how to do it properly then you have a chance but often the worst offenders are the appraisers who claim to have 20 to 40 years of experience and then, deliver you a report in which there own form contradicts what market trend or adjustments they have made. Hey "dunderhead" you marked Stable but are using 2% a month positive time adjustments.

Maybe this is why back in the day the Chief appraisers at the Banks and Savings & Loans told us that we were only allowed to check the stable box because we had no idea what we were doing. Also Fannie & Freddie did not purchase loans in declining markets back then. Hey-Walker you could cause a major pile up and crash leading a small three car funeral procession- So un-check that increasing box right now before you bring down this entire bank-- OK Boss Man- You have the MAI and I have nothing but a hope and a prayer

Yikes, the "worst offenders" description was my appraiser to a T. Contradictory information in the form, lack of adjustment contradictory with the market trends, and citing years of experience as their support. I was sincere in asking whether there was something I missed that led them to their conclusion, but that unfortunately didn't get me anywhere.

 

[throwaway12345]

Just because some segments of the market have increases that are supported by numerous sales, there is no guarantee that all types of property have the same appreciation. An appraiser can't make that assumption based on limited market data for the specific market being appraised. I can understand the appraiser's concern. If the market is so hot for these type properties, where are the sales to show this hot market?

That is fair, I appreciate you providing your perspective on this situation. Point taken on not making an assumption for the specific market in question without fresh data. That definitely makes the appraiser's job difficult, but not impossible. Perfect data doesn't exist in real life, which is why comps and adjustments exist to begin with.

In my specific situation, yes the perfect data doesn't exist. What does exist is sales of substitutable product in the subject neighborhood, textbook paired sales, and aggregated market data (surrounding neighborhoods, county). And all are increasing. Pending sales prices are above closed prices 8-10 months ago (not helpful info on their own, I know, but they are a clue). Then, considering all of that, wouldn't it be more probable that the subject's market has increased (not "is increasing", increased) since 8 months ago rather than 0%? In the absence of the perfect data, which conclusion would you find more believable?

As to why there aren't recent sales to show this hot market? I can speculate, but am not sure for certain. For one, I bought half of a duplex. The developer didn't build a ton of them in the neighborhood, there's probably a 25:1 ratio of detached SFRs to attached SFRs (maybe even higher), so sales of my product type are going to be infrequent purely based on the number built by the developer.

Two, the homes are relatively new (built in 2017-18), so perhaps sales volumes are a reflection of that. Speculating here, but in order to dislodge you from your current home, you may need to (a) sell your home for a really high value and (b) find a newer, bigger home to move into. Jumping from a half duplex to a newer, bigger detached SFR is a big jump price wise, so the hurdles for (a) and (b) may be quite high.

Those are just my guesses. I am by no means an expert in that side of the industry, so just an amateur's hypotheses.

 

[throwaway12345]

Read it carefully. It doesn't make sense. Not enough detail I suppose.

1. How do you distinguish different types of property. Is a 100 year old updated Craftsman in Fairfax different from a new "Contemporary" type?
2. What is "hot". From the sales agent perspective, if multiple offers come in on most properties within several days of listing, with ensuing bidding wars, then the market is "hot" even if there are not that many properties to sell (say, because of some pandemic).
3. Usually there is plenty of historical data around to show which kinds of properties have linkages in responding the same way to market conditions.
.....

1. My use of the term was to distinguish between condos, attached SFRs, and detached SFRs. These are the three types of products built in the subject neighborhood.

2. Great question. My assumption was this was referring to prices, not volumes. Not to say both can't be moving in the same direction at the same time.

3. In fact there are! I mentioned in a previous comment that because I am a real estate nerd I ran correlations between prices for similarly sized (in GLA), 3 bed, 2 bath or 2.5 bath condos, attached SFRs, and detached SFRs. Nearly 90% between the three, with the highest correlation between attached SFRs and detached SFRs.

 

[throwaway12345]

If I come to the conclusion that the market is indeed rising, but lack contemporaneous comps for a half-plex like yours, I would HAVE to find a recent sale of the most similar functional product (townhouse or even a detached home).

I would then do a historical match pair analysis to determine how much of an adjustment to make to that recent sale for the difference in design.

Then I would have the freedom to apply the positive time adjustment to the similar, but dated comps. I would "hang" my value on one of those similar, but dated and time adjusted sales, and only use the recent dissimilar sale as an "anchor" in terms of the date to make the time adjustment to.

THAT is how I would make a time adjustment in this case, IF (and this is the BIG IF) I come to the conclusion that the market is indeed rising.

Is this a lot more work than I usually do for a residential appraisal? Yes, of course. But once in a while you "have to do what you have to do".

There is no way, knowing what was riding on it, not to mention my integrity, that I would try to ignore the issue on a purchase wher it would clearly make a difference - one way or the other. (But again, I have NO IDEA if that is what went on in your case. This is a HYPOTHETICAL only). That is the HOW I would do it.

(Too many people are on this thread hallucinating a meaning or motivation into your posts, or just not reading them completely, and having knee-jerk reactions to the idea of a complaint being filed. I get that, as appraisers none of us like that idea, but I am impressed by the thought you have put into this thread.

As in all my posts, you will notice that I am silent on the "complaint" part because I have no information to inform my opinion on that point one way or another. I do agree with some of the posters in that outside of the aggravation it would cause to the appraiser, no one will likely lose his/her license over something like this.

Thank you for walking through your approach, which of course, hinges on your market analysis determination first and foremost. That makes sense to me theoretically and also seems achievable based on data availability. It seems that my amateur attempt was only half baked, but heading in the right direction.

I hope your clients, and the clients of others on this thread who have shown a willingness to do more than the bare minimum to get to the best answer, are appreciative of the level of care shown. Having experienced what I believe to be the opposite, I am now less cynical than I was 48 hours ago about potentially going through this process again at some point in the future.

I can't blame anyone for reacting to this thread in whatever manner they choose to. Nobody likes having their work questioned, especially frivolously, and I'm sure appraisers have had to endure multiples more than their fair share. Perhaps that is my fault for using the word "complaint" so frequently in the OP and title. It was never my intent to use this thread as a poll for whether I should file a complaint or not. All I hoped for was to have experienced appraisers opine on the situation (as I presented it) and whether my questions / position have merit. And my has it delivered! This transaction was my first experience with residential real estate appraising, so frankly I wasn't sure whether I have blind spots due to my status as a non-appraiser, even after spending some time in real estate and valuation.

 

[Jayjay25]

Honestly I may actually hate the game more at this point. I wasn't aware that positive time adjustments across the board were a red flag for underwriters.

If you're in that situation, how would you approach it? Honest question. My guess would be you'd need to loosen your criteria for comps, so maybe expanding geographically or by product type to find something that the market would view as a close substitute, then finding a recent sale and then adjusting it from there to match the subject.

I would definitely loosen my criteria for comparable sales and expand my search for more recent comparable data. Most reconsideration of value requests require proof of errors in reporting the subject’s amenities or additional COMPARABLE SALES that would better represent the subject property or current market conditions. I read multiple times in this post that “the appraiser’s comparable sales were the best available” which indicates no additional COMPARABLE sales were provided. In a hot market with multiple offers on most properties and people overbidding each other with escalation clauses and such, your scenario (appraisal under contract price) is common. I’m guessing the underwriter and reviewer moved along to the next reconsideration of value which had support from comparable data.