Appraisal Bias

[alebrewer]

that is certainly good practice. but if you have 2 separate appraisals with 2 different values and why we picked that number, then the average person seeing that thinks a pov is that accurate.

An unintended consequence of proliferating this flawed line of thinking that a property's value can be distilled to the dollar is that borrowers believe that as well. So, when you DO have two appraisals, which will almost ALWAYS result in two different values, it's extremely difficult to convince someone that BOTH appraisals could be correct (at least in the context of credible).

 

[Zoe]

An unintended consequence of proliferating this flawed line of thinking that a property's value can be distilled to the dollar is that borrowers believe that as well. So, when you DO have two appraisals, which will almost ALWAYS result in two different values, it's extremely difficult to convince someone that BOTH appraisals could be correct (at least in the context of credible).

Where an appraiser gets in trouble is on complex assignments in very heterogeneous areas (forgive the term heterogeneous, no sex affiliation intended).

Jumping to competing areas and skipping most competing areas is what gets appraisers in trouble. It is okay to jump to competing areas if that is all you got and make considerations for differences in location.

 

[J Grant]

An unintended consequence of proliferating this flawed line of thinking that a property's value can be distilled to the dollar is that borrowers believe that as well. So, when you DO have two appraisals, which will almost ALWAYS result in two different values, it's extremely difficult to convince someone that BOTH appraisals could be correct (at least in the context of credible).

First of all, we distill "down to the dollar, " you and I both in our OMV as a singular number. I can get exasperated with the sometimes weird analogies like this.

We are only concerned with our own appraisal, did we develop it credibly etc. I can not be responnsible for what another appraiser does. The word "correct" or incorrect" is typically not applied to appraisals, accurate , credible, well supported are usually the standards but in any case, if a party orders two appraisals on a same property and they have different value opinions, that party should be made aware of what an appraisal is and what it is not, and that appraisals are not done to produce identical, matching value opinions.

If there is a minor variance, it is likely both appraisals are "correct" ( in your terminology ) however if there si a larger variance, typically one of the appraisals would have a more supportable value opinion than the other.

 

[J Grant]

I think maybe you're stuck on 'typically motivated buyer and seller' being one entity. It's not really meant to suggest that only one pair of participants make up the market (at least as I see it). It encompasses ALL participants who qualify as 'typically motivated'. So, then, yes - for one buyer and one seller - I can see where you might come up with 'one number'. As there are multiple participants, however, the 'market' (all of the participants) will demonstrate a range of value for a property - Buyer A thinks it's $X, Seller B thinks it's $Y, and so on. See the difference?

So that, yes - you can distill everything to a single point if you'd like, and that certainly appeases many of the users of our services, but in reality, there is no single point - there is always a range.

I am not stuck on anything. I do use the MV deviont as we should when appraising for market value

The MV definition we appraise to in MV references, see below references a singular buyer and seller. Now of course this is not a real live breathing buyer and seller, this is a hypothetical "model" buyer and seller who transact at the terms and conditions of the definition of market value. including one of which they be well informed and well advised, and a well advised and well informed person recognizes that $290,000 or $300,000 is substantially different enough to matter - so if 290k and 300k were both in an adjusted value range how can an appraiser say they are both the same? That is not reflecting how market participants think and act.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

 

[Zoe]

Take Memphis and Shelby County for example where value changes so quick based on geography alone. Census tract has no clue. Race has no bearing. An out of state appraiser is in deep trouble trying to hit a number if they don't know the area.

 

[Zoe]

I think of Marin City in CA. That was a complex assignment. I would guess the original appraiser probably didn't give the view enough credit on their appraisal.

It was really nice view. Seems the owners spent a buttload of money on renovations for the view.

I would have ironed that out better with homeowners.

Comps........I would have had to jump most likely to competing areas or make huge condition adjustments to very local comps. My condition adjustments would have been somewhat based on cost they spent and very local comps.

I would have jumped to competing area almost certain for a competing property.

 

[J Grant]

Most probable price came about to replace the former "highest most probable price" - and the reason for that was the realization that a transaction is not always producing the highest price. I do not believe most probable was meant to be a median or mean or statistical average

Most probable is a flexible term that allows an appraiser to analyze the subject and market conditions and conclude, that for a specific subject property in a specific market cycle, the most probable price may be low, high, or around the middle. Then you just need to explain and support why

It is more probable an upgraded house will sell on the higher end of value than a house without upgrades so why would an appraiser default to the middle then? Most probable should be measured against the qualify of the subject, the comps, the market conditions etc.

 

[alebrewer]

First of all, we distill "down to the dollar, " you and I both in our OMV as a singular number. I can get exasperated with the sometimes weird analogies like this.

We are only concerned with our own appraisal, did we develop it credibly etc. I can not be responnsible for what another appraiser does. The word "correct" or incorrect" is typically not applied to appraisals, accurate , credible, well supported are usually the standards but in any case, if a party orders two appraisals on a same property and they have different value opinions, that party should be made aware of what an appraisal is and what it is not, and that appraisals are not done to produce identical, matching value opinions.

If there is a minor variance, it is likely both appraisals are "correct" ( in your terminology ) however if there si a larger variance, typically one of the appraisals would have a more supportable value opinion than the other.

I wasn't arguing for, or against, point values, J. I was simply stating a FACT that, due to the prevalence of point value appraisals, unintended (and intended) users think that is the case as well, resulting in a mentality that if there are two different value conclusions - one must be wrong. And that simply isn't necessarily the case.

 

[alebrewer]

I am not stuck on anything. I do use the MV deviont as we should when appraising for market value

The MV definition we appraise to in MV references, see below references a singular buyer and seller. Now of course this is not a real live breathing buyer and seller, this is a hypothetical "model" buyer and seller who transact at the terms and conditions of the definition of market value. including one of which they be well informed and well advised, and a well advised and well informed person recognizes that $290,000 or $300,000 is substantially different enough to matter - so if 290k and 300k were both in an adjusted value range how can an appraiser say they are both the same? That is not reflecting how market participants think and act.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

Do you believe that two different appraisals - by two different appraisers - with the same effective date - and two DIFFERENT values - can both be credible and supported?

 

[Zoe]

In California, don't tell me view don't matter. I will say your crazy. Never been to California. Heard many crazy people live there. Fernando may be most sane.