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

[Terrel L. Shields]

f you have two comps whose only difference is an extra bath, and the comp with the extra bath

And where would such a unicorn property exist.... nearby, same seller and buyer motivation, and recently to boot? Even in cookie cutter subdivisions, you would be cherry picking sales.

I remember returning time and again to my ex's home she sold. It was the only one in the subdivision of 20 cookie-cutters with a fireplace. A cheap $1,800 unit. Did I ever find a true "paired sale" without a fireplace? Well, yes, there were several - prices varied from -4,000 to +10,000... what good is that? Even as prices went from under $50 k to $80 and even higher, over the decade or so, it sold and resold there was nothing that defined with any certainty that the FP was anything but a meaningless feature of vanity.

 

[alebrewer]

Of course, the unicorn "matched pair". In real life, that one with the extra bath sat on the market for 330 days at $100,000 and sold for $105,000 with a $5000 seller concession. What's the adjustment for the bath then? And to make matters worse, the list price was increased to $105,000 the day the contract was signed.

Of course, the unicorn "made up scenario to poopoo quantitative analysis". If homes with an extra bath sell for less in your market, then you'd adjust up for having the extra bath.

 

[J Grant]

Think of it this way: If you have two comps whose only difference is an extra bath, and the comp with the extra bath sold $5k higher than the other, you'd adjust $5k, right? The goal of which is to reduce (or eliminate) the adjusted range. That is nothing more than a very simple single variate regression...

The goal is actually to apply the adjustments in order to make each comp more closely resemble the subject.

The result is a narrower range of adjusted values.

We apply the 5k adjustment as a value to make the comp "As if" it had the same number of baths as the subject.

 

[Terrel L. Shields]

Experience lets an appraiser analyze the regression results

but but the PTB insist "experience" does not count... only math does.

 

[alebrewer]

And where would such a unicorn property exist.... nearby, same seller and buyer motivation, and recently to boot? Even in cookie cutter subdivisions, you would be cherry picking sales.

I remember returning time and again to my ex's home she sold. It was the only one in the subdivision of 20 cookie-cutters with a fireplace. A cheap $1,800 unit. Did I ever find a true "paired sale" without a fireplace? Well, yes, there were several - prices varied from -4,000 to +10,000... what good is that? Even as prices went from under $50 k to $80 and even higher, over the decade or so, it sold and resold there was nothing that defined with any certainty that the FP was anything but a meaningless feature of vanity.

You'd still use mathematical analysis to determine what those adjustments should be, no? You're creating another straw man. The illustration was simply that - an illustration. Look - if your clients are ok with using 'experience' as the quantification for your SCA, then that's what I'd do. Such, however, is not the case in the residential mortgage world.

 

[J Grant]

And where would such a unicorn property exist.... nearby, same seller and buyer motivation, and recently to boot? Even in cookie cutter subdivisions, you would be cherry picking sales.

I remember returning time and again to my ex's home she sold. It was the only one in the subdivision of 20 cookie-cutters with a fireplace. A cheap $1,800 unit. Did I ever find a true "paired sale" without a fireplace? Well, yes, there were several - prices varied from -4,000 to +10,000... what good is that? Even as prices went from under $50 k to $80 and even higher, over the decade or so, it sold and resold there was nothing that defined with any certainty that the FP was anything but a meaningless feature of vanity.

Paired sales do not mean perfectly matched in every aspect paired sales.

As far as motivation, we make the motivation the same among the comps by adjusting for concessions or special financing or any unusual real-world motivation that impacted a specific price. We always value with the MV terms of sale applied ( a price not affected by concessions etc )

 

[alebrewer]

The goal is actually to apply the adjustments in order to make each comp more closely resemble the subject.

Exactly what I said - the goal is to reach a $0 range.

 

[J Grant]

but but the PTB insist "experience" does not count... only math does.

They are wrong.

Math is a tool, the experience allows you to use the tool effectively.

 

[Terrel L. Shields]

Paired sales do not mean perfectly matched in every aspect paired sales.

But if I have 2 pairs in the example I give and one shows a negative value and the other a value far in excess of its cost, why would I rely upon either one? I won't. Cherry picking the "best" paired sales is as misleading as guessing, in fact, perhaps even more so.

 

[Airstream]

I just did a complex property. I analyzed the value of the subject's site with a one page narrative analysis. Then I had two comparable sales that I had very good land sales to establish a reasonable value. But the other 3 sales I didn't have any land sales to help. In that case I used market sensitivity analysis and then explained the logic of the adjustments. It's about the only way that made sense. And the reviewer from Red Sky Services took my logic. So yes, sometimes you need to use market sensitivity when making site adjustments.