Adjustments for buyer motivation?

[Terrel L. Shields]

Nowadays, I feel cutoff from all that with the exception of meeting the selling agent at a purchase. I get a lot more information via email or texting these days.

I get far better results texting now than ever did with a phone. Agents do respond almost always nowadays.

 

[Tom4value]

In residential, non-income producing real estate, I am a firm believer in outliers. Many appraisers and underwriters don't believe they exist. "You are the appraiser! Explain why it sold for that much!". Problem is, buyers and sellers are not appraisers. They get guidance from real estate brokers but they are not appraisers. For even an average, run-of-the-mill house, if a buyer wants it, they will pay what they have to. If a seller just wants out, they will let it go cheap.

So how do we handle these sales that don't jive with our other comps? Ignore them? This ain't 1995! Underwriters have just as much access to sales data as us. The answer is, call a spade a spade. Say it is an outlier! Sorry, EXPLAIN that it is an outlier. Just saying, "123 Main St. was an outlier so wasn't used." is asking for a revision. Call the listing broker. Find out if there was anything funky about the property or the sale. If nothing is, say, "123 Main St. sold for zzz. In conversation with the listing broker, nothing was revealed as to why it sold for that price. Since the is not in the range of the other reliable comparables, it is believed that the buyer's and or seller's motivations were not typical of the market and this sale was not considered a reliable comparable".

 

[TerryRohrer]

i just did a cash sale on a $1,400,000 sale price on a $1,075,000 listing price. but unlike most of you i called my friend at the lender's office. the borrower was only getting a $350,000 mortgage. so why the appraisal. i learned that fannie waivers are given only on sale prices of less than $1,000,000. so they needed an appraisal, go figure. the buyer was a young single woman.
now that being said, there were 13 offers on the property. the realtor was stunned. looking at the sales in the immediate area i noticed a bunch of cash sales. but, i went over the listing price, but under the sale price. sorta the wild west in high values. it didn't matter, cause it didn't affect the buyer or seller. in the report under the listing section, i just noted that there were 13 offers, which said it all. there are either sales, or not, to justify your value. but, most of you would be worrying about nothing, cause yous can't, or won't talk, to anyone.

Well, lookie at the prima-donna, the only one who REALLY KNOWS how to do an appraisal. And the example to prove it is where the appraisal didn't matter. And the support was likely as compelling as the support for the baseless indictments of everyone else!

 

[TerryRohrer]

Maybe it is because I never talk to anyone so that they can tell me how their appraisal should read, and end, but I am at a loss as to how to factor in all those unacceptable offers into support for any conclusion. Do you weight the 13 offers and the contract price as 14 indicators, and three comps as 3 more, and by the preponderance of 82% of the "data" conclude the contract price has to be the most probable conclusion?

And while your talking to all those folks, do they tell you how to weight all those low offers (say, below asking price) that weren't accepted? I have never seen anyone argue that offers below listing should be introduced as evidence that a contract price above listing cannot be supported when those unacceptable offers are considered. I'm left wondering if the unacceptable offers are only relevant during a rubberstamping motion, but are irrelevant when at cross purposes to a user's desires. Here to learn, though (and just look at me communicating now...Ma would be so proud!)

 

[RCA]

Using the RCA method, everything on the Sales Grid obeys inherent mathematical constraints that I have proven. That means, that once regression has been completed on the comps and the subject, their remains a residual. All valuecontributions and associated adjustments for unmeasured (aka "subjective") variables such as "buyer motivation" (aka "overpaid") must add up to the residual value contributions and associated adjustments (comp adjustment =subject residual - comp residual). So, then, you go through and estimate as best you can value contributions for all subjective variables. If you are not able to match the residual, then that means you either have an "over-improvment"/"superadequacy" or an "overpayment"/"above-market price". And that value should be EXACTLY equal to the difference between the existing sum of your subjective variable value contributions and the residual. Or, if you prefer each comp subjective variable adjustment must equal the difference between the subject subjective value contribution and the associated comparable value contribution.

Note that the subject always has a 0 value for superadequacy and above-market price. Only the comparables can have values for these factors.

So, for me, using RCA, No Problemo.

There are other terms and puzzling questions possible here. For example:

1. There is the case when an owner spends a lot of money on nicely upgrading his home to a very high level and then for some unexpected reason is forced to sell - and there are no potential buyers in the market able pay what it is "worth". This clearly falls under what is meant by super-adequacy. But we have a problem with what "worth" means. Does it mean just Market Value - or does it mean Market Value assuming there are buyers in the market with sufficiently deep pockets. I think "worth" in this sense means the latter. Now, on to:

2. Then there is the case where some rich nut spends a lot of money on upgrading or building his dream house, that in everyone else's eyes is an ugly monstrosity. It may be so ugly and poorly engineered that anyone who were to take possession of the property would want to be paid to tear it down, so it could conceivably have a negative value. We are looking at the difference between Market Value and Cost Value. Is there a term for this difference? I think that on the subjective attributes side, we would just see an adjustment for something like "Radically Negative Design". -- Call it what you want. If it is a comp - the sale price will make it evident. There is little need to go into more detail than necessary.

- However, if said property is the subject, --- then you probably shouldn't have accepted the assignment in the first place.

 

[CO Native]

I'm not sure how you know the Buyer's motivations. Do you interview the Buyers?

You can. You can interview the agents involved in the transaction as well. Obviously, some agents are much more willing to answer your questions than others but I have gotten some pretty detailed information regarding sales from agents alone.

 

[sputnam]

You can. You can interview the agents involved in the transaction as well. Obviously, some agents are much more willing to answer your questions than others but I have gotten some pretty detailed information regarding sales from agents alone.

You can try. Here... the agents call you back 3 days after the appraisal report was due to the client.

 

[J Grant]

People spend way too much time trying to find out the named subject buyer's motivation for a subject deal. Yes, try to find out, then move on. Other than it (sometimes ) explaining why they arrived at their price, it is not important because the motivations of the typical buyer/seller in the MV definition is supposed to be relied on for our opinion of market value. Idk, seems some people forget that,?

The buyer and seller are rarely available to talk to; most sellers of high-value properties are not there on the inspection, and their caretaker or manager lets the appraiser in. We can ask the RE agent, and report what they say, which half the time is BS, but whatever their buyer;s reason ( 10 other offers, or the buyer fell in love with the property etc _) we use the MV typically motiaved buyer/seller in the MV defion. I keep repeating that because some appraisers, it seems, fail to realize that, which makes them so desperate to find out a buyer s individual motivation for overpaying (or under paying )

If their were 10 competing offers for a subject and the winner is the highest price, then 9 other buyers thought it was worth less. Is it worth the highest price? Idk, I never know until I finish the appraisal. Sometimes teh answer is yes, other times no. The most probable price is in the definition of MV, which is not always the same as the highest price ( although it can be if the property merits it. Have the biggest, top-quality renovated house with an incredible ocean view? Maybe it is worth the highest price. But a mediocre subject that shot up in price because of a bidding war, maybe not. .

The DOM is critical, not just the $ amount. If it takes 3 years to get the highest price, that is different than 3 months to get the most probable price and should be disclosed. I;ve done high end properties where typical marketing times were 1-2 years.

 

[residentialguy]

Good morning all,

I hope this is the right forum to post this in as I've been a big reader of the discussions on this website but have never posted a question before. This is something that has been on my mind and I've flip-flopped so I was hoping to see what others in the profession think.

Is there ever a time it makes sense to make a line-item adjustment for extreme buyer motivation?

Without getting too specific, the market I am studying is a high-end luxury market near the greater Denver area. The properties within this market area vary substantially in lot size, home size, quality, desirability, locational influences, etc. so comps can be sparce. For example, there is a portion of the city under review that is relatively unique so it would be preferred to have at least a couple of comps from this area but the sales are limited. In one case, a property was listed for $1,850,000 and based on the property and comps around there, that seemed reasonable but it eventually closed at $2,500,000. Another home was listed at $2,375,000 (again reasonable) but closed at $3,500,000. Further research on these sales has shown the buyers were extremely motivated and just doing a quick comparison of these homes/properties in relation to other sales nearby, they don't fall in line with the immediate area or the surrounding areas.

In most markets, I would focus on other sales but due to the limited amount of sales and the desirability of this specific market, it's hard to look at other comps that can be vastly different than my subject properties. I have done a quick analysis of close to original list price ratios and using the $2.5 million sale for example, the average close to original list price for the same timeframe was from 100-104%, whereas this closed 35% over the original list price.

Any thoughts on an adjustment on buyer motivation?

I'm all for adjusting for atypical buyer motivation. Big question for you: what did the buyer, the seller, and their agents say when you questioned them? I'm sure you are aware that you are required to verify the conditions of each sale.

 

[Tom D]

we use the MV typically motiaved buyer/seller in the MV defion. I keep repeating that because some appraisers, it seems, fail to realize that, which makes them so desperate to find out a buyer s individual motivation for overpaying (or under paying )

to give some more info on how a listing went from $1,075,000 to a cash $1,400.000. me doing the appraisal.
1. there were 13 offers with 2 offers being $1,400,000.
2. the property was shown 60 times in 4 days. obvious, a lack of area listings.
3. noticed in this area there were a bunch of cash sales, so people have the excess, or is it surplus, money to over spend and not care about mv definition

so the typical mv definition for this area might not be the same one as my neighborhood.
it was a twilight zone mv appraising experience