The problem with Time Adjustments

[Terrel L. Shields]

Market conditions when sales all lie within a half mile or less of each other. Something is wrong with this picture. It's called inefficient market.

 

[TerryRohrer]

What is wrong with those pictures is that they lack any context. Just a bunch of pretty pictures. Why would anyone find them relevant to anything?

 

[Overimprovement]

Market conditions when sales all lie within a half mile or less of each other. Something is wrong with this picture. It's called inefficient market.

Isn't that just a nice way to say people are stupid?

It actually brings up an interesting question--if appraisals were no longer required by lenders, how would the market respond? I feel like most people have no idea what a home SHOULD be worth, only what works for their monthly payment. The only thing keeping many people from overpaying is an appraiser telling the lender the home is only worth X, not Y.

I've shared this before, but I did an appraisal on a house years ago where the buyer desperately wanted that particular house to be able to live next to his sick mother. He greatly overbid just to 100% ensure he would not lose the house. To him, the house was worth likely even more than he paid, but to the market, it was worth about 20% less. Either way, that home sale became a data point for the next listing in the neighborhood, because he covered the difference in appraised value and purchase price with retirement fund cash.

 

[Tim Hicks (Texas)]

I think that fluctuations in the market are typical and making monthly market condition adjustments can be rather unjustified. What if all the sales in one month are the smaller homes or one higher end home effects a certain month? 90 day market trends are more trustworthy because the pool of data is mixed into a bigger pool. But I don't think Fannie and Freddie care what I think. Nor do they care about the joke of adjustment support programs they are supporting. Every submarket is different for adjustment support based on paired sales. And don't get me started on barns, workshops and arena adjustments. There is too much variance in quality, style and appeal.

 

[glenn walker]

Present value doesn't factor in future value or income and we often over paid existing market value based on a future gain. Time adjustments are normally faulty because there based on looking in the rear view mirrors not at the cliff they may be driving towards.

 

[Joe Flacco]

It's very complicated.

 

[Joe Flacco]

It would be described as Inefficient if each piece of real estate was exactly the same. It's not that it is inefficient, it is that real estate is all different.

 

[OSU Beavers]

Those look like Zillow graphs of Zestimates for individual properties, anchored by sale events represented by the $ on some graphs, not time adjustments for the the entire market area.

 

[Tom4value]

Please don’t get me started!

Did an appraisal last week and adjusted comps one and two positively 4% because they sold in June and August of last year and comp three 2% because it sold in December. Explained the market in detail and how adjustments were calculated.

Client came back and said CU gave appraisal a 5 rating. Client included the CU report that gave the “suggested” adjustments; no data, no reasoning. Client asked if I could change the adjustments to get a better rating! Gave all my data and reasoning again and added that I couldn’t/wouldn’t do so without explaining why. Ended with no way I was putting in the report, “appraiser ignored data and findings and plugged in suggested comps to fit CU recommendations”.

Findings-
Due to recent comps and a general leveling off of the market, I rarely need to make time adjustments to the comps and only do when I have good data that CLEARLY shows that they are warranted and by how much. In most of these times, I get problems with CU. Seems that it is programmed to only accept minuscule time adjustments.

 

[CGinMN]

If you plotted out all the data points you used to develop your condition, quality, GLA adjustments, it would look just as erratic. Probably a lot fewer data points too.

I think the reason a lot of appraisers aren’t comfortable with time adjustments is because they don’t like extrapolating data, and being a transactional adjustment you can’t validate it using cost. It’s really the only adjustment that stands in its own. There is no rule of thumb for lazy or scared appraisers.