Adjustment Support Request

[J Grant]

This from a report that cost $870. Not my report, not saying the explanations are sufficient. One day loan approval. State of the Art?

"-View adjustments are made based on market data and reflect sites which offer a view / location considered superior than typical neighborhood view. A $175,000 city / strip view adjustment was applied based on market reaction and using paired sales analysis with comparables 1 and 2."

"The adjustments utilized are reasonable and within an acceptable market range based on market analysis. Based on MLS data there is an acceptable range variance for properties differing in a variety of attributes. Adjustments are extracted from and are supported by the actions of the market. Positive and negative adjustments were applied to comparables in areas of dissimilarity to produce an indicated value of the subject property based on paired sales analysis. Not all adjustments in the Sales Comparison Approach can be directly extracted or supported by the available market data with a high degree of accuracy. Some adjustments have an element of subjectivity and professional judgment which the appraiser has applied based on prior observations of the reactions of the typical / knowledgeable buyers' and sellers' in the marketplace. These adjustments are then refined using sensitivity analysis within the grid and tested for reasonableness with the selected comparables. This method is standard and well accepted practice within the appraisal industry. All adjustments are rounded to the nearest $100."

Other adjustments are 'supported' with one or two lines of narrative. 30% LTV and the appraiser hit value. 42-page report.

I have no idea from the above how good or bad the support is, without seeing the appraisal or at least the grid ( and without konwing the area ) But the comps themselves on the grid tell the story - which is why std 2 review appraisals ask about the comps on the OA ( and what altnerate comps are better if a value is not supported in the OA).

I fail to see why the amount of the appraisal fee, the page count, or the LTV of the loan is relevant. The narrative has some strengths and some weaknesses in it. However, the real question is whether the best comps and a set of reasonable and credibly supported adjustments were applied.

 

[Tom D]

Time to lose that client. Ask anyone you deal with to give you a detailed outline of how they got their opinion.
Although in my case i have charts and graphs that show i maybe did more than just pull numbers from you know where.

You are not required to give the details of your work file, but something sort of better that a few sentences on your report. But then, i normally only have 3 adjustments, GLA, time & condition, my easy appraising life. But nobody would understand all my excell data & charts that i have, if i gave them everything.

And of course i state to the stupid in my report which includes, we are not perfect, or exactly right, adjusters:
The Appraising Residential Properties, 4th Edition, Appraisal Institute, "Other Quantitative Adjustment Techniques”, Page 344 further states: “…In instances where paired sales analysis is not conclusive, the appraiser may apply judgment to resolve the problem." The adjustments resulting from the appraiser's judgment is based on a study and understanding of historic or past buyer preferences. It further suggests that cost and depreciated cost data may be used with the appraiser arriving at the value contribution (not cost new) of certain features. The process of supporting the contribution of individual variables (features) is limited and often difficult to quantify, with adjustment deemed to be qualitatively supported unless otherwise addressed. All methods of supporting adjustments are usually limited by inherent uncertainties within the applications themselves.

Adjustments, in this report, are based on a combination of Paired Analysis with Sensitivity and/or Trend Analysis & on a study and understanding of historic or past buyer preferences. Support for adjustments may be based on multiple applications and rarely do two methods return identical results with a high degree of accuracy. While not always 'strongly' independently supported, collectively the adjustments serve to narrow the adjusted value range of comparables in support of the market value opinion, the subject's 'most probable selling price' commensurate with the definition of Market Value set forth herein.

 

[Sadie]

This from a report that cost $870. Not my report, not saying the explanations are sufficient. One day loan approval. State of the Art?

"-View adjustments are made based on market data and reflect sites which offer a view / location considered superior than typical neighborhood view. A $175,000 city / strip view adjustment was applied based on market reaction and using paired sales analysis with comparables 1 and 2."

"The adjustments utilized are reasonable and within an acceptable market range based on market analysis. Based on MLS data there is an acceptable range variance for properties differing in a variety of attributes. Adjustments are extracted from and are supported by the actions of the market. Positive and negative adjustments were applied to comparables in areas of dissimilarity to produce an indicated value of the subject property based on paired sales analysis. Not all adjustments in the Sales Comparison Approach can be directly extracted or supported by the available market data with a high degree of accuracy. Some adjustments have an element of subjectivity and professional judgment which the appraiser has applied based on prior observations of the reactions of the typical / knowledgeable buyers' and sellers' in the marketplace. These adjustments are then refined using sensitivity analysis within the grid and tested for reasonableness with the selected comparables. This method is standard and well accepted practice within the appraisal industry. All adjustments are rounded to the nearest $100."

Other adjustments are 'supported' with one or two lines of narrative. 30% LTV and the appraiser hit value. 42-page report.

A view can be a huge determinant of value.

 

[Terrel L. Shields]

And of course i state to the stupid in my report which includes, we are not perfect, or exactly right, adjusters:
The Appraising Residential Properties, 4th Edition, Appraisal Institute, "Other Quantitative Adjustment Techniques”, Page 344 further states: “…In instances where paired sales analysis is not conclusive, the appraiser may apply judgment to resolve the problem

This is good and accurate. We should expand that discussion.

First, there are more than one way to skin a cat without getting hair in your teeth as my pappy used to say.

10 appraisers can analyze the available data and approach it differently. And the more unique a property, the absolute necessity to exercise judgment. Using paired sales anyone who has actually went to the trouble say to estimate the contributory value of a fireplace will find pairs that indicate a fireplace is a negative number which is equally unlikely as finding a fireplace that contributes $50k to the property. It's somewhere in between but where? Do we cherry pick the number we think best? Do we average all of the numbers? Throw out the high and low and use the median number? Does it matter? It is a judgment call in any case.

You can apply Bert arithmetic to it and crunch a number, but like Shakespeare's quote, " I can call the spirits from the vasty deep." "But will they answer?" retorts the other guard.

For years, I did a spreadsheet that compared my appraised value to the actual sales price of a property that was NOT FOR SALE at the time of the appraisal and judged if it was consistent with the market conditions. I used sales up to 3 years after the appraisal. Well, some sales were higher, some lower but most were reasonably close. A few spot on. But overall, the average deviation was low. I think that is the best we can hope for.

One banker told me once upon a time that I was the most conservative appraiser they used and the one they trusted most. He mentioned two other appraisers that were consistently high. And one other appraiser that he told me, "We never have a clue if she is going to be low or high." That appraiser lost her license eventually after several complaints. One of the others mentioned as 'high' appraisers also lost her license after getting two complaints - one from an AMC and one from a private party. In fact, the private party one also filed a complaint against her own appraisers in a divorce. There were 2 working together. The younger one was sanctioned and the older appraiser escaped facing the board by having the temerity to die before the hearing. But I had seen his work before, and he did an arm-waving value added to a small farm for 20 walnut trees in a fence row. (FYI, lumber companies do not like trees from a fence row due to nails, fencing embedded in the tree, or occasionally an old farmer hung a plow shovel in a tree fork, and it was entirely covered over. The wood turns blue and metal ruins saw blades.)

 

[TerryRohrer]

A judge's opinion on "paired sales analysis", to which "a different approach" refers: "A different approach would be to gather data about the actual selling prices of real estate with and without transmission-corridor easements and use these data to determine how much the easement reduces the value of real estate in real transactions. The law of large numbers would make up for the lack of closely matched comparison pairs. How many feet of transmission easement encumbers a parcel is a continuous variable and could be one independent variable in a regression. Daniel L. Rubinfeld, Reference Guide on Multiple Regression, in Reference Manual on Scientific Evidence 179–227 (Federal Judicial Center 2d ed. 2000), provides a good description. Using real transaction prices reduces the role of guesswork. Although no one suggested such an approach in this proceeding, litigants (and district judges) should keep it in mind for the future, as it has the potential to be faster, less expensive, and more accurate than a parade of witnesses offering estimates that cannot be verified."
Guardian Pipeline, L.L.C. v. 950.80 Acres of Land, et al., Chief Judge Easterbrook, US Court of Appeals for the Seventh Circuit

 

[Surf Cat]

Time to lose that client. Ask anyone you deal with to give you a detailed outline of how they got their opinion.

I agree with your entire post and this is how it used to be back in the mortgage broker days.

That said, the AMC's with their use of the cheapest and fastest appraisers who used pull from behind adjustments turned it into a s*it show with their demands to prove every single adjustment and how it was derived. Everyone here has seen those reports and understands why these requests were made.... problem is, the AMCs don't want to pay for the people who know how to produce a credible report.

The AMCs still use the cheapest and fastest (because they don't want to give up their profits) who now have their hands on these whiz-bang software packages that produce the very same unsupported reports only with charts and graphs because they don't have the fundamental foundation of knowing how to derive differences between the subject and similar sales..... instead of firing said lame appraisers, they are rewarded again and again with more work, which in turn, gives appraisers a bad name and has lenders searching for "a better way".

 

[Sadie]

I notice that when I review certain appraisers, they load up the report with lots of graphs and boiler plate that refer to regression analysis, etc, but don't actually say or indicate how or why the adjustment was made. Just here is the graph, isn't it pretty and I did a regression analysis, aren't I smart. Nothing against graphs, charts or any other kind of tool, but you need to know what they show and how you used that information in making your adjustments.

 

[jpowers]

I agree with your entire post and this is how it used to be back in the mortgage broker days.

That said, the AMC's with their use of the cheapest and fastest appraisers who used pull from behind adjustments turned it into a s*it show with their demands to prove every single adjustment and how it was derived. Everyone here has seen those reports and understands why these requests were made.... problem is, the AMCs don't want to pay for the people who know how to produce a credible report.

The AMCs still use the cheapest and fastest (because they don't want to give up their profits) who now have their hands on these whiz-bang software packages that produce the very same unsupported reports only with charts and graphs because they don't have the fundamental foundation of knowing how to derive differences between the subject and similar sales..... instead of firing said lame appraisers, they are rewarded again and again with more work, which in turn, gives appraisers a bad name and has lenders searching for "a better way".

This is exactly the problem I'm trying to solve from the software side. I'm a developer building appraisal tools, and this whole thread is why I spend time here — I need to understand how appraisers actually work, not how software vendors think you should work.


Sadie's point is dead on. A chart that the appraiser can't explain is worse than no chart at all. It gives a false sense of support while actually making the report less credible.


The way I see it, good software should do two things: save time on the tedious stuff (data entry, formatting, FEMA lookups, pulling MLS data) and make the appraiser's reasoning MORE transparent, not less. If the tool generates an adjustment suggestion, the appraiser needs to understand exactly where that number came from and be able to override it or throw it out entirely.


J Grant's concern about large datasets pulling in irrelevant comps from gated golf communities when the subject is in a non-gated subdivision (#63) — that's a comp selection problem, not a data problem. The software should be smart enough to filter by subdivision type, amenity level, HOA structure. But the appraiser still picks the comps. The tool just narrows the haystack.


What would actually be helpful to you all? What's the #1 time-waster in your workflow that software could handle so you can spend more time on the analysis that actually matters?

 

[Terrel L. Shields]

A judge's opinion on "paired sales analysis",

The problem with paired sales is that too many appraisers use a single pairing or at most 2 or 3. If you have worked with regression analysis enough you recognize that sometimes you have an outlier that is the result of picking the wrong factors. A fireplace may be a non-event in an area where it is not considered necessary for the ambiance of the community - like maybe a town which bans wood fires due to air quality, but might allow gas or electric decorative fireplaces. Those vary wildly in cost and appeal, thus are pretty much dart board adjustments. While the standard is we have to "support" an adjustment and not "prove" it. So, that invites taking the quick way out. And that is the problem. Compensation is so low in this business the appraiser will starve to death trying to 'real science' or stats.

For instance, say you have a rock quarry. So, first you try to ID all sales within one-quarter mile, then a circle 1 mile, then 3 miles. The hope is that the closest sales will reflect the lowest values. Unfortunately that is not always the case. The closest sales may have value for expansion of the quarry, or demand related to something else. It gets maddening. So, you find yet another quarry, 20 miles away and do the same... and another. Pretty soon you've spent 3 days time and may have or not have a defensible assessment. Years ago, I tried to estimate the impact of poultry farms on surrounding property. It turned into a fool's errand. You were comparing apples to oranges to pears. Today, there is a very large farm less than a mile across a field from me with 6 barns that are 60' x 600' in size. I can't smell it even when the wind is blowing my direction, but I know nearby it has to stink. But the neighbor beside that farm just sold 2 5-acre tracts of land for $150k each. They've already built a house within 300' of the closest barn. The buyer closest to the property said he was used to living near poultry houses and didn't mind. Well...whatever floats your boat but trying to quantify that ain't gonna fly. While I admit a poultry farm isn't nearly as bad as a hog farm with a lagoon, or a cattle feedlot, its certainly a negative in my mind but the market is not confirming my opinion. So, I have to go with the market data. It is what it is.

 

[Surf Cat]

This is exactly the problem I'm trying to solve from the software side. I'm a developer building appraisal tools, and this whole thread is why I spend time here — I need to understand how appraisers actually work, not how software vendors think you should work.

Well.... you're a little late to the party. Real Estate Appraising as it has been for the last few decades, is circling the drain. Also, and this is a big one, is the users of our services do not care what we think. For example, I don't think a single appraiser was involved in the design of the new uad 3.6.

If I were you, and I was still going to forge forward and develop something, I would slate it heavily to work with the UAD 3.6 as most of the tools that are out now, were developed prior to it. The problem for you is, we don't know how it works. Everyone is just speculating and coming with an opinion that it wasn't too well thought out.

The way I see it, good software should do two things: save time on the tedious stuff (data entry, formatting, FEMA lookups, pulling MLS data) and make the appraiser's reasoning MORE transparent, not less.

This company here in this video, came out with this over 8 years ago. They were really ahead of their time. They don't even offer this service anymore to appraisers. They only market to realtors for BPO's now. I would use something like this now. Especially if it was to include commentary and features that matched what the software like Spark and Synapse does. But with the 3.6 coming out.... it's hard to say what is going to work with it.

One more thing, develop our own personal AI appraiser assistant to deal with AMC's.... they are huge time bandits.