Across The Board Time Adjustment?

[PushinValue]

FHA report
55+ pud
100 total homes
2 sales 6 months old
3 sales 6-12 months
10 sales last 1-2 year period
12% year to year increase
3% increase from 1 year to last (2) 6 month old sales

Overall zip code shows 12% 1-2 year vs current year and 6% increase year to date.

0 actives and 2 current pending (4 dom and 1 dom). Same agent has both listings revealing they are in contract 1 cash and the other 50% luv loan w no appraisal contingency. Both pendings are higher than old sales with applied time adjustments using zip code data...

Do you make an across the board time adjustment (using zip code data for the two 6 month sales based on the fact the zip code data mirrors pud info for last 2 years)?

Or leave the county and go into a different market for a recent sale and adjust for location/market differences?

Third option I have ruled out (using non age restricted sales)


Thoughts??


Thanks!!

 

[Meandering]

You may disagree,

But for me,

I consider sales outside of the 55 community, because, for the "typical buyer" in a 55 plus community, they have a choice of being in or outside the community. So what's outside can directly compete with what's inside, so long as the "typical buyer" for the subject property qualifies to buy within the community.

.

 

[J Grant]

The typical buyer for the SUBJECT is what counts, not some generic "typical" buyer. And the typical buyer for the subject has decided on a 55 age community for the restrictions and amenities it offers. Of course they could buy non age restricted, but they choose the age restricted. So I would focus on that community or competing age 55 communities for time adjustment. I also discard prior year for making this years' time adjustments. I can mention prior year in narrative, but from my oldest comp sale /contract date to present, I base it on this year activity. It sounds like from what you describe, present year appreciation is a lower rate than prior year?

I would make time adjustments for what subject PUD indicates, not the zip code. The zip code could include a mix of very disparate properties not like the subject, so why would you even consider using the zip code for a time adjustment, when you have enough sales data in subject community and can check on competing age restricted PUD's if you want to get a broader over view for how that community competes.

You can comment on difference between zip code or larger market time adjustment and subject community if there is a difference, and explain why. How much extra commentary and comparison you make to non similar sales is up to you, but substituting non similar sales to get adjustments from is a bad move...the clear directive from Fannie that trend section on page one, which includes are properties appreciation, is supposed to focus on the subject relevant comps for good reason.

 

[J Grant]

Or leave the county and go into a different market for a recent sale and adjust for location/market differences?

Why in the world would you do that, when you have plenty of local data?

 

[Terrel L. Shields]

If I cannot justify a time adjustment from the actual sales used in the grid, I am not making one. It would be a really dense amount of data that would persuade me to "do" a time adjustment for property sold within the past year. It takes a very large data set for me to "see" a time change solely the result of market conditions. And typically that is reflected in a quick bounce in the spring followed by semi-steady increases to about September, then flat as a pancake until the following spring. If an economic shift happens then that has to be factored in and laid over the supposed increase.

It is simple statistics that aberrations in data are less likely to be the result of "time" than to be the result of the normal variance one sees in pricing in an inefficient market...and real estate is by definition an "inefficient market".

 

[J Grant]

The below pasted from Fannie Market conditions form: since FHA and other 1004 /1073 assignments (typically) include the MC form

"Instructions: The appraiser must use the information required on this form as the basis for his/her conclusions, and must provide support for those conclusions, regarding housing trends and overall market conditions as reported in the Neighborhood section of the appraisal report form. The appraiser must fill in all the information to the extent it is available and reliable and must provide analysis as indicated below. If any required data is unavailable or is considered unreliable, the appraiser must provide an explanation. It is recognized that not all data sources will be able to provide data for the shaded areas below; if it is available, however, the appraiser must include the data in the analysis. If data sources provide the required information as an average instead of the median, the appraiser should report the available figure and identify it as an average. Sales and listings must be properties that compete with the subject property, determined by applying the criteria that would be used by a prospective buyer of the subject property. The appraiser must explain any anomalies in the data, such as seasonal markets, new construction, foreclosures, etc. Inventory Analysis Prior 7–12 Months Prior 4–6 Months Current – 3 Months

How much clearer can they get? They want market condition adjustments ( time adjustments) from 12 months to present, NOT 2 years back or 3 years back to present. They want properties that compete with the subject that subject buyer would consider, not dis similar properties that happen to be in the same zip code, county or across the street for that matter, if the property does not compete with subject.

Comment in narrative about larger area non competing sales activity, or prior year market condition changes, but for trend section and market condition adjustments, they want relevant to subject properties and past year activity to avoid misleading results from basing trends on dis similar properties or dated activity.

 

[hastalavista]

Thoughts??

As an appraiser/review appraiser, I don't have any issue making or seeing market condition adjustments across the board as long as I can/they are support them.

Now, having said the above, in most mortgage-finance scenarios, anytime a report has an across the board adjustment, the expectation of support for that adjustment is increased.
Some are no-brainers (IMO): a non-permitted garage conversion may require an adjustment to all comparables if no other non-permitted garage conversion can be found. Likewise, a functional obsolescence impairment to the subject may not be replicated by any of the sales one can consider (as should be the expectation because by definition, a functional impairment is something that shouldn't exist).

For an across the board market condition adjustment, I would provide a number of different sets of data to support the argument: Data by zip code and bed-counts is available for many markets on Trulia.com (I'll use this or some other 3rd party data source as a supplement to my MLS data analysis). MLS (in my market) is the typical method for marketing homes; I can download a lot of data into excel and analyze it on a number of different levels. You get the picture.

One thing I try to consider is if there is a "ceiling" for a particular competitive market given the subject's particulars. In most markets and at some price point, a typical buyer is not going to pay $X to live in that neighborhood; they will migrate to a better neighborhood even if it means getting a slightly inferior house. I don't want to adjust my subject to a price-point that the neighborhood wouldn't support. The 55+ community adds a bit of a challenge to this: if it is the age-restriction that is important to the buyer, then the buyer's primary alternatives (if none exist in the subject's project) are in similar 55+ communities; what is the pricing dynamic in those communities? That would certainly add to the data pool to evaluate if that market segment is appreciating overall.

My experience with 55+ communities (in NorCal and SoCal) is that they many times march to the beat of a different drum. They are not disconnected from the general economic forces (interest rates being one of the more important forces; and not just mortgage rates but savings/investment rates) but the forces that impact that demographic can be different than, say, someone in their mid-40s. When I've appraised in such communities and speak to the agents who sell in those communities (really cater to the 55+ buyer/seller) I gain insight as to how that buyer-type evaluates the purchase. These agents may also give an indication if there is pent-up demand (i.e., they have buyers waiting for certain models to become available).

So, in short, my opinion is that a well-supported market condition adjustment is not only appropriate but sometimes necessary to apply; and my ability to apply them is dependent on the quality of the analysis I'm able to complete to support that decision.
Whether my client likes it or not is something for them to decide. But for them to accept and rely upon it they'll expect (rightly so) sufficient analysis to support it.

Good luck!

 

[J Grant]

A time adjustment ( market conditions adjustment) is nearly always across the board so it was odd to see the question presented that way.

In my area, we have a huge range of price and amenity over 55 communities...some very low price ( 60k for a one bedroom condo), others high end luxury (over a million for a private house).

 

[Riick]

IMO, price inflation in the immediately surrounding area, and County-wide (if it exists)
provides additional support for a time adjustment inside the 55+ development.
Include that information in your report, but, base the time adjustment on sales in the community.

 

[gregb]

A time adjustment ( market conditions adjustment) is nearly always across the board so it was odd to see the question presented that way.

In my area, we have a huge range of price and amenity over 55 communities...some very low price ( 60k for a one bedroom condo), others high end luxury (over a million for a private house).

A sale in the same month or a month prior to the effective date of the appraisal may not warrant a market conditions adjustment unless there are pending sales with known contract prices that support such an adjustment. Across the board may apply, maybe not, depends on the current, prevailing market conditions which change sometimes like the weather.