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Adjustment For Appreciation

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Robert Greer

Freshman Member
Joined
Jan 31, 2004
Professional Status
Licensed Appraiser
State
California
I have a subject property that has an offer for 5,000-10,000 over the most recent closed sales, model matches.

What's the best way to adjust for the appreciation in a 1004 form.

Thanks for looking.
Rob :usa:
 
Ya know, if some non-appraiser were looking at your question, they'd be thinking that your approach to this problem is to match the results of your appraisal to the "offers", rather than to your data. But I know you don't mean that.

The comparable sales in your Sales Comparison will be demonstrating a value trend if they really are comparable. Sort them chronologically with Sale #1 being your most recent closed or even a pending sale, and work backwards. Assuming you have sales going back 6 months or so, the difference in adjusted prices, if present, will be very clear. If your market really is appreciating, the newer sales will be higher than the older sales. If your market is in decline, the older sales will be higher than the newer ones. You can develop your adjustments, if there are adjustments to be made, by calculating the appreciation rate between the different sales and then use the same rate to bring the more dated sales current to your effective date.

Whether or not those adjustments will enable your contract prices or the 'offers' is unknown. However, those adjustments will enable a current market value if you have enough data and do the analysis properly.

Just be reminded that a lot of lenders don't believe in time adjustments on an appraisal. Sure, the appraiser is the appraiser and they can do their work as they see fit, but they also shoulder the burden of 'selling' their opinion by way of disclosing, explaining, justifying and supporting what they're doing.

Personally, I don't use time adjustments per se. I usually just list my sales chronologically, note the trend, and rank the subject within the indicated range. In a really hot market, my dataset also includes pendings and listings, so I'm still able to bracket.
 
I have several sources for units sold, average sale price, %of sale/price to list price and appreciation rates by zip code. I update them religiously, and use them as a general base, then tone them down for conservatism. I have yet to face opposition to my time adjustments, but if I do, my answer is "Find another appraiser".
 
Good answers.

Robert,

How about pretending that you never saw what price they want and complete the appraisal first, then address the contract.

Do yourself a huge favor. Black out the 'value wanted' immediately. If it's a contract to purchase, put the contract in a hidden drawer. Now, complete the appraisal with NO preconceived idea of the value. Come to YOUR OWN OPINION OF THE VALUE BASED ON YOUR RESEARCH AND ANALYSIS. Only AFTER you've come to your own value opinion do you pull out the contract when it's for a sale, analyze it, put all information in the appraisal you need to about it, sign it and deliver it;, for refis, just sign it and deliver it. You've now done what you were hired to do, an appraisal.
 
I know it's strange, but my primary client never puts a value on their orders and always seems pleased when they get the appraisal. Go figure!!!
 
The perfect client Bill!!

Now, if they would just make it illegal to put any value on any appraisal order.....
 
You think that's tough - I just inspected a home today that's under contract for $90,000 over list with 28 offers.

Yikes!!! :cry:
 
If you cant find recent closed sales look at sales under contract. A couple of sales under contract may give you the basis for a time adjustment if you trust the brokers providing the information.
 
While I agree it would be better NOT to know the anticipated sales price, USPAP does require us to examinate ANY sales contract or listing on the subject property. Pretty hard not to know what they are looking for. Welcome to the real real world.
 
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