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Analyzing Adjustments - USPAP, Etc.

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Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I'm starting this question with some USPAP quotes:

Standards Rule 1-1:

In developing a real property appraisal, an appraiser must:

(a): be aware of, understand, and correctly employ those recognized methods and techniques that are neccessary to produce a credible appraisal; ....


Standards Rule 1-2:

In developing a real property appraisal, an appraiser must:

(f): Identify the scope of work necessary to complete the assignment;

Comment: The scope of work is acceptable when it is consistent with:
* the expectations of participants in the market for the same or similar appraisal services; and
* what the appraiser's peers actions would be in performing the same or a similar assignment in compliance with USPAP.

Statement on Appraisal Standards No. 7 (SMT-7):
[This is regarding the above SR 1-2(f) Comment]

"The expectations of the participants in the market for appraisal services" means those entities that are commonly clients of appraisers and who regularly use appraisals. "Appraiser's peers" are other competent, qualified appraisers who have expertise in similar types of assignments involving similar types of perperties.

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My questions to all of you 'who have expertise' in residential lending appraisals is:

What do you do and have in your files to justify your adjustments? Such as:
How do you determined the adjustment for a garage vs no garage or good quality of construction vs average.

If you would please, explain what you actually do keep in your work files both for 'typical' cookie cutters. Then, what you do when you are dealing with comps that are not very comparable but are the only ones available and the adjustments are going to be very high. What I'm looking for here is what you do and keep for justifying your adjustments. What are my 'peers' doing????? This is a very important question and I really want your answers to be what you do do, not what you 'think' you are 'supposed' to do.

------------------------------------------------

I'm going to start with my own answer.

At a variety of times per year and in various separate sub-markets, I'll run 6 - 12 comps on grid and play around with them to see what adjustments make the most sense for the various line items. Sometimes I get surprised by what I find for the adjustment for certain items. Such as, an in ground pool in popular yet older neighborhoods will hit around $6 - 8,000; in older and 'low income' neighborhoods will hit around $3 - 5,000; in the high end newer neighborhoods or waterfront properies where the pools are very custom or simply 'expected', they could hit in the $15,000+/- range, sometimes more. I'll find the same types of breakdowns for a fireplace only much smaller $.

I then print out copies of those grids that I've done and put them in that back of the work file that I was working on at the time I did them. I remember doing them, many of those conclusions are committed to my own memory and I often pull up and print out the grid of similar propertie I have more recently done to look at as I complete a new appraisal in that area.

I consider this a form of "paired sales analysis'. What do the rest of you do to determine your adjustments? I'm looking for what my peers do in accordance with the above USPAP comment: "'Appraiser's peers' are other competent, qualified appraisers who have expertise in similar types of assignments involving similar types of perperties."
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Could all of your work files be your basis for your adjustments?
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Come on gang! I would like to see some answers here!!!! I'm asking what my peers do. I do not and will not do a paired sales analysis for every appraisal. My grids from my appraisals, especially the ones where I have worked up numerous comps, I believe, ARE what most typical residential appraisers doing lender work actually do, at the MOST, to determine adjustments.

We all need your answers here, to defend ourselves. The 'pat' answer is 'paired sales analysis'. Now, what do you have to prove that in your workfiles? I believe that my peers use their combined appraisal experience with various sold data and the grids we have worked up to find the adjustments and that these previous appraisals are our 'paired sales analysis'. I also believe this conforms to the above USPAP standards.... this IS, at the most, what most of my peers are doing. (Austin, you are not really included here :lol: and I still want to learn regression!) We all help each other when we know and can show what our 'peers' are doing. This is part of the Scope of what we lender residential appraisers do. What are you going to produce when asked for your paired sales analysis for each adjustment? We all need to know:

* what the appraiser's peers actions would be in performing the same or a similar assignment in compliance with USPAP.

"Appraiser's peers" are other competent, qualified appraisers who have expertise in similar types of assignments involving similar types of perperties.

Please give me some data.
 

Lee SW IL

Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Come on gang! I would like to see some answers here!!!! I'm asking what my peers do.

It's Monday morning, :asleep: :asleep: You just posted this 2 hrs ago. Getting a little pushy? Are you in line to be a LO or an underwriter, NEED IT NOW!! :D Jus kiddn :D

As I advise the LO's quality comes with time.
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
I am a firm believer that if you pick four good comparable sales, it is much easier if the subject is under contract of purchase and you can use it too, bracket the subject in all essential value factors, use the correct sequence of adjustments, then every value factor will be supported. The reason you have a problem is that when you don't use the correct sequence of adjustments (physical factors first) and import adjustments from outside the selected data set, you are only screwing the data set up to the point that the results are meaningless and then you can't support anything. It is a very simple process, adjust for physical factors first starting with GLA and the rest is obvisous from the range of the remaining variance about the trend line. If anything else affected value, it would show up on the graph.

PS: It would take one hell of a time adjustment to be detected using the correct method. If values were changing fast enough to matter that much, then the appraisal would be obsolete before it went out.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
Pamela,

It is monday morning and I have only had one cup of coffee so if this does not make sense please forgive me. :asleep:

The analysis of the comparable sales in your gride IMO would be the last step in the appraisal process. The first step to me would be pulling the sales from around the subject market area to find comparable sales this would give you an idea. I start with the subject's plat first pulling all sales there to see what has sold in the past 12 months. Then I continue to pull all sales in the S/T/R that the subject is located in next for SFR's. No taking that this will be located in a more urban/suburban enviroment I will most likely see a trend of sales prices for the houses. Then I will pull sales similar in GLA to the subject in the past 6-12 months in all S/T/R's that touch the subject giving me a 9 section grid pattern. Possibly adding parameters for age or view. Finally I will pull all active, pendings and solds from the MLS for the subject's area per MLS. With all this data an initial analysis has begun IE 1995 house two story 2200+/- SF 3 car garage. I start to see a trend say 2,000 to 2,500 SF houses built in the 1990's to 1999 sell between $220 to $290K without views. Below 2,000 SF sell for considerably less because and might be a break point in the market mind and over 2,500 sf starts selling for higher. So then I have a trend to start from depending on quality of the sales and condition. Again this is my initial analysis that I would use to defend myself on why I used the comparable sales that I chose.

My secondary analysis would be chosing several sales in that range of house to view from the exterior after viewing my subject. From that I may get an idea of the differences of location, quality, external influences, garages, and overall street appeal. From those notes I may chose the best in my mind 3-6 comparable sales for report.

Then after I have inputed into the 1004 all the subject information and all the comparable sales information and no adjustments are made I will look at all comparable sales data (more than three print them out and look side by side). From there the final analysis begins what are the biggest differences of the sales what are the initial market data telling me that people are willing to pay for to me from my initial analysis it has always been GLA and GBA. I know that many will disagree with this but from start 1 that has always been what I have seen that people are paying more for the size of the house then all the amenities. If asked to produce my work file and reasoning this is what I would defend myself with. That I chose these 3 to 6 comparable sales from my initial research for X factors others were not chosen or others were observed but not relied upon for these reasons. And how I came about my analysis of the comparable sales information from the grid and my initial research.

Ryan

PS is it :beer: time yet
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Pamie
,
I think I want to know why this is a wild hair for you?
The adjustment issue is virtually impossible to support,
but it gives the state boards a ton of leverage, but then
again, they can't prove it either.

My MAI USPAP instructor was given the "adjustment question".
His response was along the lines that its common for residential
appraisers to make reasonable adjustments and asked the
group when the last time was they made a pair sales analysis.
No one raised their hand.

My honest answer to your question is that I've developed a range
of adjustments, mostly based on cost (house stuff) and value (land
stuff), that I consistently apply in my appraisal work. And that is what
I consider the appraisal process. Its part art and part routine, and many
times I'm amazed it works and I can print the report, then there are times
when I have to fuss and nudge to get things to look right.

elliott
 

Joshua Fookes

Junior Member
Joined
Jan 15, 2003
Professional Status
Certified General Appraiser
State
California
Being a newbie and just trying to get a good "feel" for the market and its response to certain property attributes, I find myself doing matched pairs quite often. However, when I come across something I've studied before, I'm not going to take the time to reinvent the wheel to get the same answer I got before. I use my previous Experience to guide me in my subsequent value estimates. The knowledge and experience of the appraiser is what make them good. I'm not that experienced and I'm still getting the knowledge, and I have a great supervisor who helps me along the way, but one of these days I am going to be a darned good appraiser because I'm taking the time to learn the fundamentals and put them into practice.

That being said, will I always do matched pairs? not all the time, only when I don't already know how the market will respond to certain attributes. But because I'm so new at this, I do it all/a lot of the time.

You veteran's with experience probably don't need to do a matched pairs every time, because you already know how the market reacts to certain features. It is my suspision that you could say, "look Mr. reviewer, I've been doing this for 15 years, and I've seen hundreds of homes with and without pools, and that experience tells me a swiming pool is worth +/- $XX,zzz". If you are within a respectable range how could they prove you wrong.

market analysis is not all about facts (if it was then the AVMs would work), there are also trends that need to be considered that do not show up in MLS and other data sources. It is the knowledge and experience that makes you veterans good, and all of us newbies totally respect you.

Now all that being said,
Pam, because I am a newbie, I don't think my response should be heavily considered. I would not qualify as a peer with equal experience and competency; however, I do hope my peers are in agreement. I will be watching this thread to see what you vets are doing. Remember you are setting the standard for us newbies.
 

Patrick Egger

Sophomore Member
Joined
May 29, 2003
Professional Status
Certified General Appraiser
State
Nevada
I think a great deal will depend on your market ... in ours, we do a lot of tract or production housing and can use statistical analysis from the MLS, of a large set of sales to extract reasonable adjustments for big ticket items, pool vrs no pool, garage vrs no garage, etc.

We've been able to relate those adjustments in many cases to a percentage of the sales price in confroming areas, ie pools range from 8-10% of the price, etc. ... and tend to check them via paired sales and cross-correlation with each assignment ...

As for record-keeping, I note the work file with a reference to the stats that are on file ... and try to run the stats at least once a quarter. I also tend to make hand written notes on paired sales I use in the report ... and my grids.

The upside .. we have a very active maket with 30K resales and 25K new sales each year, along with a high percentage of very similar production housing. For customs, we have a much different record-keeping task and tend to write more notes on the comp sheets from the MLS and drop them into the files.
 

jeff samolinski

Senior Member
Joined
Apr 18, 2003
Whenever I am lucky enough to come across a good paired sales analysis for a particular feature (which occurs while I am gridding out the comps for a particular job) I print out a copy make some notes on it and put it a 3 ring binder labeled by feature. Periodically I refer back to it if my comps seem out of whack to determine if a higher $/s.f. adjustment is warranted etc... So I basically apply my experience combined with periodic checkups from my binder of paired sales analysis. I don't always have the right paired sales in there for every item in every submarket but it does help.
 
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