Adjustments for buyer motivation?

[Terrel L. Shields]

Consider going old school and tracking down and interviewing both the buyer and seller of the sales in question Both agent, too.

I wonder how many appraisers who started after 2005 have ever interviewed any two of the above about a comp.

 

[John Hassler]

I wonder how many appraisers who started after 2005 have ever interviewed any two of the above about a comp.

Most residential appraisers focus solely on the physical attributes of a sale and completely ignore anlalyzing economic ones. Most buyers/sellers love talking about their property once you break through a minute or two of trepidation. Mostly, I interview by phone but I’ve knocked on doors too. Even if you run up against a brick wall you can state such and factor that into your reconciliation.

 

[Surf Cat]

I wonder how many appraisers who started after 2005 have ever interviewed any two of the above about a comp.

I used to do this all the time during the mortgage broker days. I feel that appraisers were more intertwined with the realtors, mortgage brokers, and title companies. I used to go to the Broker's open houses on Thursdays and drop my cards off, check out the house and shoot the breeze with the realtors. Made a lot of connections that way.

Nowadays, I feel cutoff from all that with the exception of meeting the selling agent at a purchase. I get a lot more information via email or texting these days.

 

[David S]

whereas this closed 35% over the original list price.

I will say this is the market value but not fair market value.

 

[Overimprovement]

I would respectfully point out that we do so every day to comply with this Definition of Market Value requirement.
View attachment 87686
You can't figure out "market reaction to concessions" without calculating "what the comparable should've sold for" without the concession. The same would apply to "atypical market motivations".

True, but with these you have market data to back up your adjustments. With outliers, you typically do not. What support from the market would you have for "I wanted to live right next door to my sick mother, no matter what the cost"? If we can't support an adjustment, we best not make it.

 

[Overimprovement]

I'm not saying I can't explain why they sold for what they did. The explanation on the majority of the ones I've been reviewing are that those owners just "had to have" that property. This isn't a market factor that I am missing (again, appreciate the claims on my lack of knowledge lol). This is a luxury market where there's not 200+ properties for sale at a given time. Hell, it's the spring/summer selling season and there are 24 actively listed properties in the entire city and three of them are only listed because a property closed on their block for $15 million so they are trying to fish for similar offers.

I'm fine not using the ridiculous outliers as comps as I've been doing this entire time, but if I'm eliminating sales with surprising sales prices, questionable terms of sale, possible 1031 exchanges, etc., I'll be using 25% of the possible sales available. Luxury homes don't transfer the same way starter/tract homes do.

An outlier is commonly a one off. I'm saying if you have multiple "had to haves", that starts to look more like the market, even if the market is only comprised of relativity few people

 

[RCA]

Good morning all,

I hope this is the right forum to post this in as I've been a big reader of the discussions on this website but have never posted a question before. This is something that has been on my mind and I've flip-flopped so I was hoping to see what others in the profession think.

Is there ever a time it makes sense to make a line-item adjustment for extreme buyer motivation?

Without getting too specific, the market I am studying is a high-end luxury market near the greater Denver area. The properties within this market area vary substantially in lot size, home size, quality, desirability, locational influences, etc. so comps can be sparce. For example, there is a portion of the city under review that is relatively unique so it would be preferred to have at least a couple of comps from this area but the sales are limited. In one case, a property was listed for $1,850,000 and based on the property and comps around there, that seemed reasonable but it eventually closed at $2,500,000. Another home was listed at $2,375,000 (again reasonable) but closed at $3,500,000. Further research on these sales has shown the buyers were extremely motivated and just doing a quick comparison of these homes/properties in relation to other sales nearby, they don't fall in line with the immediate area or the surrounding areas.

In most markets, I would focus on other sales but due to the limited amount of sales and the desirability of this specific market, it's hard to look at other comps that can be vastly different than my subject properties. I have done a quick analysis of close to original list price ratios and using the $2.5 million sale for example, the average close to original list price for the same timeframe was from 100-104%, whereas this closed 35% over the original list price.

Any thoughts on an adjustment on buyer motivation?

Using the RCA method, everything on the Sales Grid obeys inherent mathematical constraints that I have proven. That means, that once regression has been completed on the comps and the subject, their remains a residual. All valuecontributions and associated adjustments for unmeasured (aka "subjective") variables such as "buyer motivation" (aka "overpaid") must add up to the residual value contributions and associated adjustments (comp adjustment =subject residual - comp residual). So, then, you go through and estimate as best you can value contributions for all subjective variables. If you are not able to match the residual, then that means you either have an "over-improvment"/"superadequacy" or an "overpayment"/"above-market price". And that value should be EXACTLY equal to the difference between the existing sum of your subjective variable value contributions and the residual. Or, if you prefer each comp subjective variable adjustment must equal the difference between the subject subjective value contribution and the associated comparable value contribution.

Note that the subject always has a 0 value for superadequacy and above-market price. Only the comparables can have values for these factors.

So, for me, using RCA, No Problemo.

 

[RCA]

And if you understand that last post, then you know that the current method of doing SCA as taught by everyone else, including the Appraisal Institute is a travesty of methodology and has led, I would estimate, to hundreds billions of dollars in errors over the past several decades, including untold damage to the financial systems of nearly all countries in the world. Believe it or not.

But unfortunately the population of appraisers could not handle this level of analysis without making a gigantic mess, mostly from overfitting models. So, yawn ...., what's new?

 

[sputnam]

I'm not sure how you know the Buyer's motivations. Do you interview the Buyers?

 

[Tom D]

I'm not saying I can't explain why they sold for what they did.

i just did a cash sale on a $1,400,000 sale price on a $1,075,000 listing price. but unlike most of you i called my friend at the lender's office. the borrower was only getting a $350,000 mortgage. so why the appraisal. i learned that fannie waivers are given only on sale prices of less than $1,000,000. so they needed an appraisal, go figure. the buyer was a young single woman.
now that being said, there were 13 offers on the property. the realtor was stunned. looking at the sales in the immediate area i noticed a bunch of cash sales. but, i went over the listing price, but under the sale price. sorta the wild west in high values. it didn't matter, cause it didn't affect the buyer or seller. in the report under the listing section, i just noted that there were 13 offers, which said it all. there are either sales, or not, to justify your value. but, most of you would be worrying about nothing, cause yous can't, or won't talk, to anyone.