As Of Effective Date: Meaning

[J Grant]

So, in an increasing market, if an appraiser fails to make appropriate market change adjustments, they have not valued the property for what it "should" bring today. They have valued the property for what it "should" have brought in the past.

Sorry Ken, but that is not what the definition and market exposure indicates we do. In an increasing market, we make time (market change adjustments) based on past sales up to and including the effective date (yesterday to make it simple). So, if the most recent sale closed yesterday at 285k, and we made time adjustments to the other sales and the highest indicated value is 285k, how do you make a jump from that to a pending listing bid up to 300k?

We don't tell buyers what to pay, or how to behave in a seller's market. But, we are supposed to opine per the MV definition used for our client ( client is a lender in this example). We don't tell buyers what to pay. Our subject SC price is 300k, we only got to 285k even making time adjustments. If buyer wants to pay 300k, they can put another 15k down to make it happen. We are working for our client, not to make deals happen for cash poor buyers.

 

[Ken B]

The assumption is that the most recent closed sale sets the market.

This is incorrect for many reasons.

 

[J Grant]

The assumption is that the most recent closed sale sets the market. This is incorrect for many reasons.

That is not the assumption. Appraisers are aware that listings might be higher than the last closed sale price, and that tomorrow's prices may go up (or down) Appraisers don't "set" the market. However, we have to derive our value opinion according to a set protocol ( the SOW , certs or explanation of method, and the MV definition used) I am well aware that a property might "get more" in a bid in a hot market than I appraise it for, but that bidder is not offering their bid based on the protocol I have to use .

If MV development was intended to match a SC price, who would need an appraiser? Just loan on the SC price. The fact that the MV development protocol comprises a development that factors in enduring value elements, not just latest trend makes it what it is. And yes it created problems for us .

Change the apprasial development SOW from what is required, and change the MV definition and I can easily match the most outlandish high sale price each and every assignment.

 

[The Bob]

JG,

What if you had 2 recent closed sales at $300k and 3 current listings at $285k? Assume the houses are identical. Would you still opine a value of $300k since that is the value supported by closed sales?

 

[Ken B]

JG, your comments in this thread about what a property "should" sell for on the effective date defeats your argument that we should only consider what other properties sold for as recently as the day before the effective date of the appraisal.

Say that, this morning, it is announced that Apple was relocating their headquarters from Cupertino, CA to Palm Beach Gardens, FL. Do you think that what sale prices were yesterday (in either location) make any difference at all today?

 

[J Grant]

JG,

What if you had 2 recent closed sales at $300k and 3 current listings at $285k? Assume the houses are identical. Would you still opine a value of $300k since that is the value supported by closed sales?

That would depend. If listings are priced below closed sales it must be a declining market. If I apply time adjustments to my recent closed sales at 300k, they should adjust down lower. If the market is declining, there should be a lower recent comp sale as well. If not, then the value would be 300k and I'd note the listings are lower and why, if market is making a sudden reversal that has not happened yet in any closed sales, or are those 2 listings anomalies etc.

BTW that is mirror to a rising market appraisal. If prices are going up, I dont' simply apply a time adjustment and say well too bad I'm at 285k contract is at 300k. If the increasing market has already been seen in sales, I will look for a similar property to subject that reflects that higher price, and use it if applicable. If not applicable, then I might be limited by lag of market sales and have to opine at 285k.

The reliance on past sales and limitations of the MV definition creates problems for appraisers. I am aware of that. In an ideal world ( assuming we'd be paid for it), we could offer several values within a report based on different definitions, or even a future effective date value projection along with the current or past date value opinion. But right now most assignments for lending are limited to one (current or recent past) effective date and one value definition. The limitations of that means certain price possibilities will not be included in the supportable market value opinion.

 

[Howard Klahr]

As appraisers become more versed at how to properly use regression tools, support for market increases (or decreases) can be supported by noting where the current market is relative to the sine wave.

So the reports prepared by ppr and dividend capital of the commercial market sectors are any more accurate than any other analysis performed by those interested in real estate markets? I would say that these companies are pretty well versed in regression analysis.

 

[Meandering]

Isn't market value a reflection of the present value of future benefits? Yes, however, the definition demands it be based on retrospective acitvity (closed sales). It is assumed the parties of all the closed sales paid a price that reflected the present value of future benefits.
By definition, closed sales a backward thinking.
.

Nope,
Nope,
Nope.
Wrong all the way round.

.

 

[J Grant]

your comments in this thread about what a property "should" sell for on the effective date defeats your argument that we should only consider what other properties sold for as recently as the day before the effective date of the appraisal. (the MV definition is not what a property should sell for on the effective date! ) The MV definition verbiage is what a property should BRING as of the effective date, implicit in definition is passing of title and consumption of sale as of effective date I posted this thread because of folks substituting verbiage which means something else.

I did not say we should only consider what other properties sold for, we should, and do, consider listing trends and market trends such as inventory, list to sale ratio etc. What I said was what the market value definition demands an exposure time for subject up to and including effective date, (not ahead of it). So if list prices are ahead of effective date, we can use that information in analysis and reconciliation, but I fail to see how we can base a supportable opinion solely around that.

The cert on the lending form that require a MVO to be based on sales comparison approach, the operative word is sales (closed sales).

Say that, this morning, it is announced that Apple was relocating their headquarters from Cupertino, CA to Palm Beach Gardens, FL. Do you think that what sale prices were yesterday (in either location) make any difference at all today?

Market value opinions do not develop sale prices. They develop value opinions, based in large part on activity prior to and including an effective date. So if market or economic conditions change rapidly right after an effective date value opinion, users should perhaps order a new appraisal to reflect the changed conditions. This happens after storms or natural disasters, when lenders typically order new appraisals on recently appraised properties, for example. (or suspend lending for a period of time due to rapid change of conditions)

 

[J Grant]

Say that, this morning, it is announced that Apple was relocating their headquarters from Cupertino, CA to Palm Beach Gardens, FL. Do you think that what sale prices were yesterday (in either location) make any difference at all today?

If the effective date was yesterday prior to announcement, the market value opinion would reflect what was known and existed yesterday. Boo hoo, order a new appraisal after the announcement if the user wanted the appraisal to set a list price or what offer to accept. Appraisals that develop market opinions of value are by their nature limited in time and scope. That is why clients or users are free to order a new appraisal at any time and should do so under certain circumstances.