"Quantifiable Market-Derived Methods" for adjustments required by FNMA/USPAP

[Joe Flacco]

Help me understand this. What if there are 20 other signficant differences between these properties that, combined, account for their difference in sale price? How is the $200k difference in sale price accounted for by condition alone? What if Comp 1 is a 3,000 sqft colonial on two acres with a finished basement and ig pool while Comp 2 is a 2,000 ranch on a slab, no pool, and on .5 acres? Would the condition adjustment be around $200k?

It's kind of like a puzzle. It is like algebra with multiple unknown variables. In algebra when you need to solve for X, Y, and Z, You solve for one variable first, solve for the next variable, then you can solve another variable.

Your example with all of those differences is possible, especially in a market with few transactions, but the appraiser should try to address most of the differences in the selection of the comparable sales. Most appraisers would say that picking the right comps is more important than what the adjustments are.

 

[alebrewer]

I always considered paired sales to be great in theory - but how exactly do you eliminate the influence of multiple differences between two properties to confirm the value of a single item such as a fireplace, ig pool, finished basement, etc.?

Tis true that you have to be alert for covariance and cross correlation. These can be tested for if using regression. If using other techniques, I try to isolate the more meaningful elements of comparison first and solve for those (site size, GLA, maybe pool or shop?). For discrete elements, I really like sensitivity analysis/bracketing. For binary elements, I prefer paired sales/grouped sales (or regression).

 

[J Grant]

Experience helps make sense of quantifiable adjustments as well as analying data—and everything else that goes into appraisal development. However, I have never cited "experience " as the basis for making an adjustment.

 

[J Grant]

It's kind of like a puzzle. It is like algebra with multiple unknown variables. In algebra when you need to solve for X, Y, and Z, You solve for one variable first, solve for the next variable, then you can solve another variable.

Your example with all of those differences is possible, especially in a market with few transactions, but the appraiser should try to address most of the differences in the selection of the comparable sales. Most appraisers would say that picking the right comps is more important than what the adjustments are.

The right comps are crucial to an appraisal. Picking the wrong comps will produce skewed or misleading results even with well-derived adjustments applied.

 

[alebrewer]

While I agree with that in theory, in reality every appraiser is going to have a different opinion WRT the most important elements of comparison - which will result in a different comp selection. See it every day on HV loans where two appraisals are procured. Appraiser A thinks location is more important. Appraiser B thinks age is more important (or date of contract, or whatever the other element of comparison is believed to be most important). Looking at two as I type this - one at $3.2M and one at $4M. Really reinforces that public trust, huh?

 

[J Grant]

While I agree with that in theory, in reality every appraiser is going to have a different opinion WRT the most important elements of comparison - which will result in a different comp selection. See it every day on HV loans where two appraisals are procured. Appraiser A thinks location is more important. Appraiser B thinks age is more important (or date of contract, or whatever the other element of comparison is believed to be most important). Looking at two as I type this - one at $3.2M and one at $4M. Really reinforces that public trust, huh?

There is something wrong with one of the reports then ( or both of them ) Appraisers if they are picking truly good comps and making supported adjustments should come within a relatively close rane of each other, on both regular and complex properties.

Of course, if one is picking appraisers by low fee /letting an AMC do that, the choices are more limited . IDK why anyone hires or uses appraisers who have a pattern of bad work, as far as comps and supported values. Who cares about the nitpicky, small stuff that so-called QC reviews look for?

Everything is important in comp selection; however, some elements are more important than others- which can change from one appraisal to the next because it depends on the property, the area, buyer reaction, how many similar sales are available, etc.

 

[alebrewer]

Of course, if one is picking appraisers by low fee /letting an AMC do that, the choices are more limited . IDK why anyone hires or uses appraisers who have a pattern of bad work, as far as comps and supported values. Who cares about the nitpicky, small stuff that so-called QC reviews look for?

If you eliminated straw men from your repertoire of debate styles, you wouldn't have much to say, huh? The post has nothing to do with AMC's and picking appraisers by low fee. Try to stick to the topic, J.

 

[Fernando]

Adjustments can be quantifiable but the problem is that we don't have the time and knowledge to do such analysis and its outside the pay grade for the low fee appraisers.
The demands put on appraisers with the new changes will eliminate many appraisers in future.
I'm seeing the terrible changes coming will decrease supply of appraisers if fees do not increase.
And when that happens, fees will go up.
It's the nature of supply and demand and lenders/borrowers will have to pay for their higher expectations from appraisers.

 

[J Grant]

If you eliminated straw men from your repertoire of debate styles, you wouldn't have much to say, huh? The post has nothing to do with AMC's and picking appraisers by low fee. Try to stick to the topic, J.

I am sticking to the topic. You just want to exclude content that makes you uncomfortable. If you got two appraisals with a huge value variance on a complex/high value property, one of them is a poorly supported or skewed value - unless someone BPTJH reports stink. I commented that if an appraiser has a pattern of turning in bad work, why are they continually engaged? (For example, if one of those reports stinks, why would you use that appraiser again?) Letting the AMC pick an appraiser largely by fee limits the pool of appraisers -

 

[Joe Flacco]

While I agree with that in theory, in reality every appraiser is going to have a different opinion WRT the most important elements of comparison - which will result in a different comp selection. See it every day on HV loans where two appraisals are procured. Appraiser A thinks location is more important. Appraiser B thinks age is more important (or date of contract, or whatever the other element of comparison is believed to be most important). Looking at two as I type this - one at $3.2M and one at $4M. Really reinforces that public trust, huh?

You wouldn't expect that kind of range for anything kind of typical.

Depending on what the subject is, a 20% difference between two appraisals might not be an unreasonable expectation.