Adjustment to Listing?

[incognito]

At the risk of repeating myself, WHO SAID ADJUSTED LISTINGS WERE SUPPORTING OPINION OF VALUE CONCLUSIONS????????????

Adjusted listings are supporting the upper end of the value range, AND NOTHING MORE.

As such, it is a very valuable tool, but it is not intended to be suggested to be comparable sale data...

 

[KD247]

There have been many heated debates on this topic. From my point of view, there are two camps. One group apparently believes that the goal is to paint a picture, without over-thinking the situation.

The other group believes that there should be a sound reason for including each and any piece of data, and that the analysis of that data should follow some sort of logic, from the ground up.

Closed sales are data samples that represent market actions. An asking price is nothing more than a revocable expression of the seller's desire. That said, most sellers who go to the trouble of listing a property are, in fact, willing to sell at their asking price. And most buyers won't pay more for a property than the asking price of a similar property.

Take it from there. But, if you find yourself discarding data that doesn't fit your conclusions, that's probably a clue that your should rethink your methods.

You can make the assumption that all sellers list their property at exactly 4% more than what the property will sell for, and there are plenty of underwriters who will be perfectly satisfied with that perspective, but I bet I can find some huge holes in the supporting logic.

 

[Artemis Fowl]

KD...one shiny, candylike reputation point for you!

 

[EVAUSA]

At the risk of repeating myself, WHO SAID ADJUSTED LISTINGS WERE SUPPORTING OPINION OF VALUE CONCLUSIONS????????????

Adjusted listings are supporting the upper end of the value range, AND NOTHING MORE.

As such, it is a very valuable tool, but it is not intended to be suggested to be comparable sale data...

They can also reflect the LOWER VALUE range. Listings have little weight to support the higher value, but they can always support the low end. If after all other adjustments, the Active comps are lower, it's my starting point for neg time adjustments on my sales. LISTINGS ARE SUPPORTING THE VALUE CONCLUSION, are they not? There have been cases where a neighborhood hasn't had a sale in 3 mos, each one less than the previous, but there are tons comparable listings priced below the previous sales. Do I go outside my neighborhood just to "bracket", or do I use a a few listings and adjust my sales down in iline with them, bracketed by adjusted values, not sales prices? When this happens, I usually explain the Theory of Substitution and weight the listings, which support the lower value threshold.

 

[SANDY]

EVAUSA:

Sound advise and practice in your last two posts-thank you for your contribution to the topic.

 

[KD247]

... Adjusted listings are supporting the upper end of the value range, AND NOTHING MORE.
As such, it is a very valuable tool, but it is not intended to be suggested to be comparable sale data...

They can also reflect the LOWER VALUE range...

There are two uses of the word "value range" at play here (which is why I believe it's good practice to avoid appraisal industry jargon whenever possible).

The most obvious value range is the price range of closed similar sales. Another "value range" pertains to the subject and is the range of probable values that is developed in the course of analysis.

Adjusted sales prices establish the range of likely values for the subject, and the asking prices for listings establish an absolute upper "ceiling" within that range.

 

[Tim Hicks (Texas)]

Basically, they want to see that it is not a declining market where the comparable homes are now listed for less than the opinion of value. Then they realized that much of the country has not got the declining values memo and decided we should reflect the drop in sales to list price that is apparently happening many places.

Asking for comparable listings is their way of trying to keep appraisers honest. Then they expanded upon it. In many ways, asking for active listings should help the appraiser with their opinion of value. Especially in a declining market.

 

[Mike Boyd]

LP/SP ratios can be misleading. I never have nor will I ever make such an adjustment on a listing. In the current market, it is even more misleading as incentives are not factored in.

I do comment that the prices shown on the listing comps are asking prices only and that the actual selling price will only be known if and when the property sells and is recorded.

To ask for such an analysis should result in an appraiser response as follows:

"Client (or underwriter) has asked for a LP/SP analysis. Properly performed, such an analysis is beyond the scope of this report and will only be undertaken if a separate report is requested which will involve an additional fee of $zzz.
A simple ratio taken from list price/sale price MLS data would be misleading. This appraiser does not participate in the preparation of misleading reports."

 

[KD247]

I'm with Mike. But I try to fend off requests for LP/SP adjustments by including a comment something like this (although I'd write it specifically for each report):

Comparable Sales #5 and #6 are current listings. Because their Adjusted Sales Prices are based solely on asking prices, they are not reliable representations of market value. However, based on the Principle of Substitution (whereby a buyer is unlikely to pay more for the subject than they would for a reasonable alternative property) directly competing listings are generally reliable indicators of the subject's uppermost limit of value. So, strong consideration is given to the most directly competing, least expensive, and currently available properties, but only as indicators of the subject's value ceiling.

In the current local market, asking prices are often significantly reduced prior to a sale, with no consistent trends for Listing Price/Sales Price ratios. And, because strongest consideration is given the least expensive competing listing (which may sell for close to asking price), it would mislead the reader to uniformly adjust all listings for typical negotiated reductions in asking price.

 

[Sid Pachter]

As an in house reviewer I do not like when listings are adjusted. I think it is wrong to do this by applying general market statistics. The appraiser cannot measure the markets specific reaction to the listing as the property has not sold and the sellers motivation is unknown. Listings that are incorporated in an appraisal report should be used to support the indicated market value estimate, based upon the list price. If there has been multiple price reductions or the listing was expired or withhdrawn and then placed back on the market all of this should be disclosed including total DOM. Many times I have seen list prices less than the S/P market value estimate, the appraiser makes upward adjustments to the listing to inflate the indicated value greater than the S/P market value estimate. When available listings should have salient features that reflect a near model match to the subject & should be located in very close proximity to the subject. Pricing of the listing will be affected by current market conditions as long as the seller is typically motivated.

Some lenders are requesting listings be mandatory. When I was a staff appraiser with World Savings 6 years ago, this was part of the SOP and we did not adjust the listing. I agree with post #7 above.