Bracketing

[Michael Boyd]

8. Closed sales bracketing value: The opinion of value must be bracketed by BOTH the actual sales prices of the CLOSED sales and the adjusted sales prices. Only by providing a closed sale with an actual sales price at a certain level can the appraiser demonstrate that this market does recognize such a value as realistic.

This is from Golf Savings Bank and not unlike many lenders. I suppose understand their need to "bracket" the opinion of value. And, I can honestly say when I was firsat in training to be an appraiser, which was from three people with many years of experience and who had a SRA & SRPA, a SRA and a MAI, SRPA, SRA and had a doctorate degree and was a professor at UNLV. I can not recall any of that training or classes in appraising where "bracketing" sales was common appraisal methodology.

I see "rules" like this as saying not all properties qualify for financing and if they are non-conforming, at the top or the bottom of gross living area and value then too bad. I guess just reject the assignment if it isn't a "cookie cutter".

What are your opinions?

 

[Mike Kennedy]

Appraisal of Real Estate, 12th Edition

Bracketing Techniques

Expanded information is also included in the chapter on "Adjustment and Analytical Techniques in the Sales Comparison Approach". One of the sales comparison method expounded upon is qualitative analysis. This technique divides the adjusted comparables into two groups: those that are qualitatively superior and those that are qualitatively inferior. The adjusted prices of these two groups then bracket the value of the subject. A variant of this technique is ranking analysis in which comparable sales are ranked in descending or ascending order of desirability. Each comparable is analyzed to determine its relative position to the subject.

http://www.propertyvalu.com/pvmfa01r.htm

 

[Mike Garrett RAA]

Common mis-conception is that the sales price of the comparables must bracket. It's the "adjusted sales price" that needs to bracket.

What happens if all sales were exact model matches and all sold for the same price? Should we "force bracketing"?

The very best comparable would be "the exact same model, next door, that sold yesterday". From there everything goes down hill.

 

[DaveH]

If the sales prices bracketed before adjustments then all homes would have the exact amenities. Seems like some education is in order.

 

[OminousRun]

I'm a bigger advocate of bracketing things like gross living area, site size, certain amenities. When you do this you are interpolating data.

Obviously from time to time you run into a situation where you cannot bracket these variables of a property, and you have to make statistical projections for the adjustment. For example, you are appraising a 950sf property and the smallest sale you can find is 1100sf. That's extrapolation of data - projecting beyond your known data set.

Extrapolation of data is less credible and less accurate, mainly because you have no real/concrete proof for that adjustment - just projections which may or may not be accurate. In appraisal it usually is acceptable to do this because sometimes you just don't have the data (or smaller sales).

I can see where lenders want you to bracket unadjusted sales prices, but in reality it doesn't make a lot of sense to do so (at least from the start of the assignment). To do so would be searching out comps and data by a specific end result (the sales price). As we all know, searching out comps strictly by sales price can lead to severe problems in an appraisal report.

As to the other requirement, bracketing adjusted sales prices, that occurs naturally in 99.9% of my sales comparison approaches. If I have 3 adjusted sales at $101,000; $98,000; and $95,000 then I'm not going to appraise the property at $104,000.

Of course you could if your cost approach or income approach dictate otherwise.

Bracketing the three approaches to value should really be your main concern. If you come up with a value that doesn't fit between the spread given to you be the sales comparison approach, the cost approach and the income approach then you really are going out on a limb.

 

[Michigan CG]

Bracketing...........the other white meat.

 

[Mike Boyd]

Bracketing...........the other white meat.

HAHAHAHAHAHA. Who do you think you are? Terrel?

I only have once comment on this subject. An appraisal report must PROVE that there is a market for the subject property at the price you have found. Bracketing provides that proof.

 

[Verne Hebert]

I have worked here for nearly 20 years now...with data most often being very dissimilar; without the concept of bracketing there is no way I could generate and verify a GLA adjustment (or any market derived adjustment for that matter)

The issue of having a closed sale of a higher price that the subject derived market value has been a contentious issue here. There have been occasions where this closed sale is just plain not available...for any number of reasons....and I know the lender wants it.

So there has been a number of occasions that I have qualified the report with language and reconciles a lower market value, below the highest closed sale, when I have had the liberty of the purpose of the appraisal being the collaterization of a mortgage loan, when this lowered market value was really a "collaterization value"..................

Example: the property is worth 1.2 million-highest sale 600,000-loan amount 250,000.

This is addressed in the LOT, the body, the conditions, and the reconcilation----

I can only remember one time that I sent a report in not supported on top..it was private banking SFR about $ 6million.

 

[hglenbetts]

I tend to agree with Mike, here.

If there are no sales of "Comparable" properties with a sales price above the opinion of value, regardless of where your comps adjusted to, it's hard to prove there is even a market at your value.

 

[Verne Hebert]

It raises two questions. First, marketability-this is an issue for the bank. Second superadequacy-this is also an issue for the bank-

---both of which should also have been addressed the report-even if a closed sale was available.

Hey! But we don't have banks any more (well we have a couple). Why should any care? It is not their money they are lending anyway.