Asking price adjustments for listings?

[TJSum]

To continue on with Web's point. If we are to use listings, and adjust them to what we think they will sell for as support for our subject's market value, how different is that from using a refi value from a refi we did down the street a couple weeks back???

 

[Mr Rex]

Just because it's a client requirement doesn't mean you are allowed to ignore USPAP and potentially create a misleading report.

I recently ran a six months of sales (84 transactions) for an area of very conforming tract homes. The SP:LP ranged from 92% to 121% with a median of 103%. To further break it down: 26 sold under 100% SP:LP; 50 sold from 100% to 109%; and 8 sold for 110% to 121%. 35 of the 84 were 5% higher or lower than the median. Additionally, 77 of the 84 sales sold in under 100 days and the median was 38 days.

While a median or average can be calculated does not mean it can effectively be applied. Do you remember the stories of the two hunters who shot at a charging bear? One shot right by 5' and the other, left by 5' but on average they killed the bear. If I were in a casino, applying a median may be the best figure to wager a bet. But that's all it is, a bet with a margin of error as high as 18% in my case above. Of cource you could cherry-pick a listing to what you think would be the best property to apply your SP:LP adjustment however at that point the appraisal process is pointless.

You need to ask yourself at what point is an adjustment reasonable and credible? In the case I presented above the maximum historical error could be 18%. Breaking my data down further, 42 percent of the time the actual SP:LP differs from the median by 5%. When was the last time you applied a single adjustment which more than four out of ten times will result in an adjusted price of the comparable which had an error of 5% or more? At best, you could come up with an adjusted price and state the error potential based on historical data. Or, you could use a range for your adjusted price of the comparable with limits of the credibility based on histoirical data.

Personally, I provide listings but do not use a SP:LP adjustment. Rather, I explain that as of the effective date this is how the subject would rate against its immediate, non-cherry-picked, competition.

Run a similar analysis and identify whether the FP added $1000 or $2500 in contributory value in each individual sale? Garages $3000, $5000 or $7500 per car bay? What about GLA, how much variation from each sale to the next? Be exact, as that is what you seem to allude is required for any adjustment.

 

[Mr Rex]

Well!!! LOL.. Ok, in that case, as you have just provided appraisals of multiple pieces of real estate all inside one appraisal report.... I sure as heck hope you included a statement of the Highest and Best use for that listing! AS well as...... Hmmmm let me see......

A)
B)
C)
D)
E)

and a bunch of other letters........... with things like 1.1, 1.2, 2.1, 2.2 etc next to them.....

P.S. Oh..and by the way, don't forget to make a permanent record of the appraisal you did of that active listing. Because USPAP will require you to disclose at any time over the next three years if you ever appraise it again.

m2:

Dont forget the sold comps that you "appraised" because you made market based adjustments to them.m2:

 

[TJSum]

Run a similar analysis and identify whether the FP added $1000 or $2500 in contributory value in each individual sale? Garages $3000, $5000 or $7500 per car bay? What about GLA, how much variation from each sale to the next? Be exact, as that is what you seem to allude is required for any adjustment.

Rex, every adjustment is made to adjust for the differences between the subject and the comp itself. No adjustments are made comp vs. comp.

However, when making that listing adjustment, via the LP/SP ratio, or any other method, you are adjusting for the difference between the comps. We are not comparing to the subject on this adjustment, but rather the sold comps.

Why is there a need to "equate" listings with actual sales with a "pretend" sales price? If we educate our clients on what listings stand for based on the theory of substitution, there is no need, listings and contracts are important but separate pieces of the puzzle than the actual sales.

 

[Mr Rex]

Yeah, our clients don't understand that the listing haven't sold yet. Sorry the LP/SP ratio makes you pucker so.

 

[Mr Rex]

Rex, every adjustment is made to adjust for the differences between the subject and the comp itself. No adjustments are made comp vs. comp.

However, when making that listing adjustment, via the LP/SP ratio, or any other method, you are adjusting for the difference between the comps. We are not comparing to the subject on this adjustment, but rather the sold comps.

Why is there a need to "equate" listings with actual sales with a "pretend" sales price? If we educate our clients on what listings stand for based on the theory of substitution, there is no need, listings and contracts are important but separate pieces of the puzzle than the actual sales.

How are these adjustments developed?

 

[Webbed Feet]

Dont forget the sold comps that you "appraised" because you made market based adjustments to them.m2:

Brother Rex, that was a brain **** on your part. The resulting adjusted sale price from an, adjusted to the subject, closed sale is an indicator of the SUBJECT market value derived from a fact, the closed sales price of the sale. It is NOT an indicator of the closed sale comps market value.

But making a statement that in an appraiser's opinion the listing price of a active listing is "over-priced" constitutes using the asking price as a benchmark with an opinion that the market value of that active listing is "less than" the benchmark. That is a real estate appraisal of the active listing, not the subject property.

 

[Michigan CG]

Well!!! LOL.. Ok, in that case, as you have just provided appraisals of multiple pieces of real estate all inside one appraisal report.... I sure as heck hope you included a statement of the Highest and Best use for that listing! AS well as...... Hmmmm let me see......

A)
B)
C)
D)
E)

and a bunch of other letters........... with things like 1.1, 1.2, 2.1, 2.2 etc next to them.....

P.S. Oh..and by the way, don't forget to make a permanent record of the appraisal you did of that active listing. Because USPAP will require you to disclose at any time over the next three years if you ever appraise it again.

m2:

Who invited the Duck?

So, do you disagree with adjusting a listing based on SP/LP ratios? What about citing the Realtor who says the property is overpriced by $20,000. Is a Realtor not a market participant and considered an expert. Do we not cite real estate professionals as sources of information and apply them to our appraisals?

If all the comps are selling for $95.00-$110.00/SF and the listing is at $120/SF is that not an indicator that the property is overpriced? Are appraisers allowed to make qualitative adjustments?

Adjusting a listing is not an appraisal, it is reconciling a comparable property to your subject property.

 

[AnonApprsr]

"Insure that active listings and pending sales are market tested and have reasonable market exposure to avoid the use of over priced properties as comparables. Reasonable market exposure is reflected by typical marketing times for the neighborhood. The comparable listings should be truly comparable and the appraiser should bracket the listings using both dwelling size and sales price whenever possible."

If a listing has had adequate market exposure at a certain list price, and is still a listing, doesn't that mean it is overpriced?

Per this guideline, we are to use listings with adequate market exposure, but NOT overpriced. ???

It seems to me the only data meeting this definition would be pending contracts.

IMO it is much sounder appraisal practice to use our appraisal expertise to chose the proper listings, and present them as they are, than to choose any lame listing and turn it into what we think it should be. Listings show one thing, actual sales show another, they don't need to be "equalized" by giving them a pretend sales price.

I agree and fight my hardest not to adjust them. If the client pushes back on it, than I will adjust because that's what the client wants. There will be a statement noting that it's a client requirement and that the appraiser does not find the "adjusted listed price" to be worth the same or close as an adjusted value indication from a closed Comparable Sale.

 

[Mr Rex]

Brother Rex, that was a brain **** on your part. The resulting adjusted sale price from an, adjusted to the subject, closed sale is an indicator of the SUBJECT market value derived from a fact, the closed sales price of the sale. It is NOT an indicator of the closed sale comps market value.

But making a statement that in an appraiser's opinion the listing price of a active listing is "over-priced" constitutes using the asking price as a benchmark with an opinion that the market value of that active listing is "less than" the benchmark. That is a real estate appraisal of the active listing, not the subject property.

LP/SP ratio is a fact. Listings are adjusted to the subject in the rest of the grid, so the adjusted price is NOT an indicator of the Listings market value.

For your dissection:
Sales or Financing Concessions: Comparable sales are adjusted for financial concessions that impacted the market value of the comparables. The active listings are adjusted for the historical market Sales to List Price ratio. NOTE: The application of this or any other adjustment to the active listings is not intended to be price predictive of the final sales price of the listings.