Am I being trained properly?

[Dublin ohio]

I'll be honest, in a town of 33,000 people with stick built and manufactured homes, and lots of acreage properties with shops, barns, etc, a regression isn't always reliable.

Bert would strongly disagree. He actually claims that his regression methods will result in all comparable sales adjusting to the same exact amount.

 

[Tiffany Gibbons]

I'll be honest, in a town of 33,000 people with stick built and manufactured homes, and lots of acreage properties with shops, barns, etc, a regression isn't always reliable. Once you do them enough, you can spot when there's either errors in the data used, or there's just too much variation for that property type for it to be reliable. I still do it anyway. If it's not reliable, I keep it in the workfile and use a depreciated cost basis and then modify using a sensitivity analysis. But other times, it DOES work.

For YEARS there were appraisers in my market who were still adjusting at $35/sf for GLA and $10,000/garage space, EVEN during COVID when prices were increasing like mad! By doing the regression, I saw that buyers were paying up to $98/sf GLA, $35,000 per bath and up to $40,000 per garage space! And when you look at the COST data, it made sense! Because a lot of times those building materials were 2X - 5X what they normally cost. And sales prices were reflecting that. Building a garage in most cases would cost MORE than the value indicated by the regression analysis. Those were an extreme... typically it was around $20K - $30K per bath and garage. But you get the idea.

But I also learned other important things. Like in my market... $/sf of GLA is a FAR BIGGER driver of price. Bedrooms ALWAYS had a high P value meaning they didn't drive market value. That is, unless you had a tiny home of 1-2 bedrooms, bedroom count never made a difference in 3+ bedroom homes. Because you could get alternate utility with the same square footage regardless of the # of bedrooms. But again, I only learned that because I did a ton of regression models on different property types.

I also learned the regression supports market trends. In the above regression example, notice: days past sale was NEGATIVE. In other words... the older the sale (the larger # of days since the sale), the larger the negative adjustment, or the LOWER the sales price the further back you went. In other words... the regression also supported that the market was increasing on whatever time line I was using, whether 1 year, 2 years, etc.

Because I'm a nerd, I also played with other potential data set items... For instance: Was the study more accurate if I adjusted the sales price down for the concession before running the regression, or not? In lower priced homes... YES! It was! In other words... in lower priced homes, the concession did affect the sales price, more closely to a dollar for dollar adjustment. To back that up even further, I had 50+ sales contracts with counter offers saved that showed buyers and sellers adjusted sales prices exactly to account for the concession. But in higher priced homes, this was NOT the case! In higher priced homes, the concession was not an impacting factor in the sales price. Again, I might have instinctively thought that, but I couldn't prove it unless I ran the numbers.

I even used it to estimate the correct discount for an original location manufactured home vs. a non-original location. The VA will still loan on these non-original manufactured homes. Due to the low population of my area, I didn't always have only non-original location sales to use. Sometimes I had to use only 1 or 2 non-original location sales, and I had to use a few original location to compare with my subject which was a non-original location. Non original location manufactured homes, because it's been moved off it's foundation, won't qualify for a secondary market loan/typical loan, although it will qualify for VA if a lender is willing to loan on it in-house. So I had to figure out an adjustment for the original location sales. So, I used regression. I also did a separate study using median prices of original and non original which gave me a discount percent of around 19% for non-original location homes. And surprisingly enough, my regression supported that!

Regression is cool if you take the time to learn it, and you understand what the data is telling you. Again, it doesn't always work. But like anything else, it's a tool that can be used. I probably spent hundreds of hours running regression analyses. And doing so helped me REALLY understand my market! I'm not boasting here. I'm really just trying to say.... you can do some really cool stuff with regression models. It IS possible to use. And it doesn't have to cost an arm and a leg either. It DOES take some learning though. I started with the webinar that I linked above from the appraiser coach's website. From there, I watched youtube videos, I even contacted my old statistics teacher from my junior college who coached me through a few things I could try to make my models more accurate (he also happens to side hustle in real estate). It took me about 4 years to get really good at it. But it was worth it.

I promise if you went to work for any State or County Government, they would LOVE you. The people that were good at regression analysis ran the show in Tennessee. You would be well compensated in government work. You should check out IAAO jobs for sure.

 

[J Grant]

This makes sense to me, especially after having been in the commercial arena. That was in a way more intuitive for me because the investors were generally concerned with a similar goal - maximizing return.

Residential is harder in that respect, for me at least. I know there is some art to it. What I am being taught right now is, say you have an outdoor feature like a screened-in lanai. Maybe a comp or two have similar lanais that are unscreened. If we think we know the contributory value of the screened-in lanai, any adjustment for there not being a screen is more of small walk-back from the full screened-in lanai (depending on size, condition, quality). I would admit trying to find paired sales on a minor deviation (like a screen v. no screen) is probably not something I would agonize over.

The best paired sale are the comps on your grid. They are the most similar substitutes for the subject. I tend to use at least 4 if four comps can be found. You can make adjustments right there on the grid to extract out an adjustment for the isolated feature. Making the series of adjustments should narrow the adjusted price range. You can also put additional sales on the grid and extract for a feature, then take those excess sales off later.
That said, not every feature needs a line item adjustment. Some are too minor to extract a reliable adjustment -in that case say I considered X feature, and accounted for its contribution in reconciling to a higher end of value , ( or lower end of value if the "feature" is a defect )

It sounds like your supervisor trained back in teh day before clients demanded "show support" for your adjustments. Though even if using simple extraction methods, that is the support. Explain you paired some sales, did an extraction for X feature ( sensitivity analysis ), and you reviewed additional sales, asked RE agents for their opinion ( survey method )

If you use a regression program or software such as SPARK , the USPAP has a section which says the appraiser is supposed to understand how the program works ( paraphrasing the verbiage) and perhaps able to replicate how the regression arrived at X. So if you are just feeding in data, clicking and getting an output, that might not be a credible adjustment - need to apply judgement.

Depreciated cost is another way to support adjustments. If an average quality pool costs $35,000 to install, and an appraiser is adjusting a 10 year old avg quality pool by $50,000, that adjustment might be "off" ( typically) .

Buyers "adjust" with their wallets. A buyer pays X more for positive features and the buyer pays Y$ less for defects/adverse features. The problem is figuring out the amounts of each,

 

[PrincessLeia]

Bert would strongly disagree. He actually claims that his regression methods will result in all comparable sales adjusting to the same exact amount.

Meh. Don't get me wrong. I like regression. But it has its uses and limitations. Anyone who claims an absolute in appraising is ... well, I doubt what they have to say. If we know ANYTHING in appraising, it's that absolutes are unobtainable.

 

[PrincessLeia]

I promise if you went to work for any State or County Government, they would LOVE you. The people that were good at regression analysis ran the show in Tennessee. You would be well compensated in government work. You should check out IAAO jobs for sure.

I checked a few state jobs. The pay is crap. What is your definition of "well compensated?" P.S. Thanks for the tip re: IAAO.

 

[J Grant]

Bert would strongly disagree. He actually claims that his regression methods will result in all comparable sales adjusting to the same exact amount.

I bet they do if he claims it.
However, I recall past examples where he claims his regression methods will result all comparable sales adjusting to the same exact amount. - of price ( not value )
But even if you swap out value for price, arriving at such a precise exact sale is itself a problem because it does not reflect natural market variances. He also ( like many statistical programs ) feeds in large amounts of data to get a result - for example 40 sales or 90 sales -l how many of the 90, or 40 etc sales are comps for the subject ? 5? 10? 20? -it means we are relying on data from less similar to subject properties. While that can work for broader trends, such as a market condition adjustment or a location adjustment, it can skew results in other aspects From a past example he gave his program came out with a adjustment for a fireplace. Cleary that result was preposterous, yet it was "proven" by the math. But it needs to be proven by the market.

 

[glenn walker]

We used to play with what I call the Hill Billy Method take 6 sales make no adjustments and divide total sales prices by 6 -- Stupid yes but now set that number aside - and then have your appraiser go through all his/her analyses and making his/her normal adjustments . Your first averaged 6 sales prices in totality give a new or confused appraiser a starting point, This works real well on a very difficult assignments where yoiu really dont have any comparables that are truly similar because it smoothies out all the road noise and more importantly 75% of all adjustments made by appraisers are just BS because they believe they have to make adjustments to justify their existence. On refinances whats hard for a newby or even some older appraisers is they have no starting point or Anchor-That's why Lenders give us a Purchase Contract as they learned 100 years ago its like a magnet and the brain gets subconsciously focused at aiming at it and thats why 90% of all purchases come in at sales price and also because the appraiser knows one too many low and he or she is placed at the botttom of rotation with the Letters ( DK ) IE Deal Killer- Bye Bye time t get a new job

Uncle Billy : Dead SREA Why do we make adjustments ? Response so we can make it look like we are doing something otherwise, we would just total up our best sales and divide and that factors in all those buyers mental adjustments made when they purchased those homes. Lets call it a buyers Regression Model.

 

[Tiffany Gibbons]

I checked a few state jobs. The pay is crap. What is your definition of "well compensated?" P.S. Thanks for the tip re: IAAO.

Well it depends on the job and the state/county. The benefits are every holiday off, a week's paid vacation to start, pension with employer contributions, etc. Jobs start out low because they sometimes only require a high school diploma, but easily attainable state assessor or evaluator designations are easy to attain quickly for a CR. The CAE is difficult, but say, the Tennessee "Master Assessor", cakewalk. If you manage other appraisers or do the appeal work, those are well paid jobs. You can also still do fee work on the side, just not the jurisdiction or type of appraisal work you do for them. Like, if you worked for DOT, you can't do ROW appraisals but any other type of appraisal is OK. But they really love Excel, MARS, huge spreadsheets, which give me migraines and ruined my eyesight.

 

[glenn walker]

Me thinks right now every tom, Dick and Harry is trying to get a 4 day job at our Assessors Office and only time we see a opening is when someone retires or dies.

 

[Deleted member 157170]

I feel you 1000%. NONE of my mentors ACTUALLY supported their adjustments. Like noodles, they threw numbers into the appraisal to see if they would stick. When I'd ask honestly "how do you know it's X for a [garage, bath, etc]" They would get combative and say... BECAUSE I JUST KNOW! In other words... they don't really know and had zero idea how to actually support their adjustments.

I highly recommend taking a course from the Appraisal Institute on Supporting your Adjustments.

But HONESTLY... The hands-down, BEST game changer for me was a webinar hosted by Josh Wallit & Dustin Harris (theappraisercoach).

Seriously... this was a GAME CHANGER for me. Anyone who says regression doesn't work or can't work because of a small market, I'm sorry... they're full of it. I live in a town of 33,000 people. seriously. And I use regression on almost every appraisal. This won't count for QE or CE, but it was honestly the best penny I spent in appraising.

Regression Basics – Both Parts | The Appraiser Coach

theappraisercoach.com

Once you do this a few 100 times, you'll start to get a really good feel for what buyers are really paying for which items. When I can't support using regression, I default to a depreciated cost modified by a "sensitivity analysis." I get the Cost & Depreciation from the Marshall & Swift Residential Cost Handbook. It's about $349/year. IT'S WORTH IT! It's far cheaper than paying $16-$20/appraisal through total. And by using the actual handbook, you get a really good feel for costs and how the system actually works. (If your mentor isn't doing the cost approach... they probably should be. None of my mentors did that either. They just said... it's not applicable for homes over X years. But again, that's just lazy B.S. I've gotten the cost approach to come in perfectly (within $3000 of my sales comparison approach) even on a 100+ year old house. This explains how to get a copy https://www.corelogic.com/downloada...hall-swift-residential-cost-handbook_scrn.pdf

Here's also a great article from OREP about proving your adjustments with great examples!

Proving Appraisal Adjustments

When I began appraising, I asked my mentor what adjustments to use- he said, "Figure it out for yourself." So I did. Here's what I learned.

www.workingre.com

Lastly, keep in mind... You have every right as a trainee to ASK how they support their adjustments. A lot of old timers don't support them though and asking them usually makes them irate because they know you're catching them out.

A mentor wants you to fill out the appraisal they way THEY do, they don't want you doing things like regression, etc. I got yelled at so many times by so many mentors for even proving adjustments using a matched pairs sales technique. With regression, my mentors just didnt' understand it.

So keep in mind, it gets to a point where yes, you are lucky to get your hours. And yes, we SHOULD be backing our adjustments. But if your mentor will not allow you to back your adjustments using a provable methodology.... do it anyway, keep it in YOUR workfile for that property. That way, if the state ever asks, and they want evidence, you can prove you DID the work and your supervisor required you to change it.

I know of at least one person in my state who trained his son SO POORLY, BOTH appraisers were pulled in front of the state board and had to take remedial education because the appraisal was crap. I honestly doubt that would ever happen, but if it did, you could PROVE you supported the data but your figures were ultimately changed by your mentor.

I hope this helps!

IMO appraisal doesn't need as much support as regression analysis and a ton of sales outside of your comparison grid, at least most of the time. If your comps are really the best available and most comparable, then just do your paired sales analysis with them. That's what I do. I get narrow adjusted value range and target a value really easily without having to do a ton of extra work. That is also what they teach you to do in the most current appraisal education as well. If your math directly comes from your comparable sales, the support is built into your sales comparison grid. If someone comes back to me, I can just calculate out the adjustment from my sales comparison grid and show them the proof.

I have seen a lot of appraisers do exactly what your mentors did. Some have been in the industry for over 30 years. Most have never had an issue with sanctions or lawsuits. It doesn't mean it wont happen, but appraising in the way your mentors did it isn't necessarily wrong as long as they aren't negligent. They only time I saw a sanction was on an appraiser that was actually completely negligent. It was for a waterfront property and the only reason it went to the board was because he pissed off a local politician (who was the borrower). They just need to have good rationale for what they are doing. If you really do know your market, you don't need a lot of regression analysis and math for every report, or even most reports. That being said, there are always going to be those more complex properties where you do need it.

People think that adjustments need to be a mathematical equation with a ton of different variables, but the farther you roam into that territory the closer you get to an actuarial value, which by definition is not an appraisal. Personally I think that adding a bunch of graphs and math just removes the personal opinion part of what an appraisal is a little too much. Our job is always going to have its risks of being sued or being pulled in front of an appraisal board for discipline. Its an issue, because so much of our job is personal opinion and not truly supportable without a shadow of a doubt. bottom line, just make sure you have enough support in your report for your user to understand your rationale for your adjustments. Whatever your comfort level with that may be.