Can Value Be Higher Than Highest Comp?

[Lobo Fan]

I have a situation kinda like this. I have a small gated subdivision in a middle class Northern NM town (Espanola for Catherine and Otis). The developer is building some nice 1500 - 2200 SF houses on 0.20 Acre lots inside of a gated area. The closest comp from the developer is almsot the same size, but without several upgrades, such as granite counters, better grade tile, kiva fireplaces,etc. Plus the developer says that the comp was sold on the cheap because he was a soldier heading off to Iraq and wanted a decent house for his family before he shipped out. The comp is $289K. The subject is under contract for $316K. There are no comps at all in the town to support that value.

If that same house were built 10 miles to the south it would be worth $400K minimum. I think that the house is really worth about $309-310Km but I cannot prove it with comps in that price range. All I have are $275-285K comps that could be adjusted for quality.

Going to Nambe or Tesuque for comps is an option that the lender will allow, but I am not too sure it is cool. Espanola is a clearly defined market area and going outside will solve my problem but it would have a bit more peanut butter smell than I care for.

I still have to get this report out, and I am stewing over this one.

 

[Terrel L. Shields]

I told L.O. the appraisal was going to come in shy of sales price

Preconceived valuation????????????????????????????

I do not like giving a heads up, especially for a complicated report. You are inviting getting stiffed if they cut off the report, and/or causing other problems.

You can bracket by gross sales price or price per SF. Usually the best house in the neighborhood is not going to be both. But remember, every neighborhood no matter how large or small, will contain one house that is the largest or most expensive. One that is the smallest or cheapest. We are inappropriately regressing towards the mean when we refuse to accept that occasionally we have the best or worst house in town to appraise.

 

[Edd Gillespie]

Hey. Good stuff guys. You all must have passed the DUI check points with flying colors this weekend. Marc, they gave you a lot of good stuff to go back and work on. Just shot several of your sacred cows. But, s*(% happens.

 

[Steve Owen]

We can not create sales to satisfy an underwriter. Sooner or later, you will have an appraisal with all positive adjustments or all negative adjustments.

 

[moh malekpour]

Marc,
Regardless of FNMEA, guidelines or underwriter, you still need to do bracketing and you still are supposed to have at least 3 comps. Those 3 comps that you put in the grid are not for ritualistic purpose, there is a reason for it and that is to show the readers of the appraisal why the subject value should be x amount.
You said, you searched the market for 12 months and all comps are are inferior to subject or are lower than the contracted sales price. Just forget about the sales price for a minute and lets try to work on those inferior comps. First, you got to find out if your subject is a typical property or a unique property. If you are dealing with a unique property with no similar one in the area at all, you can deviate from normal procedure for your value conclusion because the subject is not a typical home. If you are dealing with a typical home but with some expansion, modification and you don’t have comps to support the improvements, you have two possibilities for that:
1- There are only those three comps available to you within one-year period that you have used them and there is absolutely nothing else in the market, not even listing, pending or anything, then you are excused to go beyond the higher comp.
2- There are many comps available but all are inferior to the subject, then you have no choice but to select the most similar ones to subject and explain that the subject is over improvement and the market doesn’t accept that addition improvement as there is nothing in the market to support it but first, you got to go a little farther distance in the neighborhood to see if you can find anything either equal or superior to subject just to prove that the market accepts that improvements and if you could not find anything, just call it over improvement and appraise it accordingly.

 

[JSmith43]

Moh: If not for supplemental standards, where in USPAP does it say three comps are necessary on the report part of an assignment?


Bracketing is a nice little technique, but going out of the way just to achieve bracketing can be a mistake.

Example: Subject is avg condition/quality 3 BR rambler. 1,100 SF. Three recently closed rambler comps same condition and quality, same neighborhood, same site value etc. 975 SF, 1025 SF & 1050 SF. As an appraiser I wouldn't include the recent sale of a 1,400 SF rambler that matches up except for SF unless the UW beat me with a stick. And, even then, I would fully disclose the beating :rofl:

I have run into that situation a handful of times, used the best three comps and merely explained that there were higher sales that just weren't as indicative of MV as the 3 comps selected for the report. No problem. More defensible and potentially less misleading than chasing high sales to achieve "bracketing" at all costs.

 

[moh malekpour]

Moh: If not for supplemental standards, where in USPAP does it say three comps are necessary on the report part of an assignment?

Roger, you already answered your own question. "If not for supplemental Standards". You know that compliance to Suplimental Standards are part of USPAP, why do you exclude that?. You want USPAP tell you about every details, then we are going to have 200 pages USPAP. When you do appraise for lenedr, you got to comply with FNM supplimental standards and one of them is atleast 3 comps and a bracketing is recommanded. The best way to find it out, try to turn an appraisal report with 2 comps and see what happended. It is not going to be the end of the world and you are not ging to lose your license but your report is not going to be accepted and don't ask me why.

I have run into that situation a handful of times, used the best three comps and merely explained that there were higher sales that just weren't as indicative of MV as the 3 comps selected for the report. No problem. More defensible and potentially less misleading than chasing high sales to achieve "bracketing" at all costs.

You were lucky, it doesn't mean that you were right . I have run red lights, over speed in freeways, and many other mistakes but were not caught for them. It doesn't mean that I was right, it means that I was just lucky but you cannot be lucky all your life of may be you could. Anyway, You appraised a property for a value that there was no market for it according to your own claim as your comps showed. It was a value with no support. Not acceptable in my book.

 

[jeff samolinski]

QUOTE
I have run into that situation a handful of times, used the best three comps and merely explained that there were higher sales that just weren't as indicative of MV as the 3 comps selected for the report. No problem. More defensible and potentially less misleading than chasing high sales to achieve "bracketing" at all costs.


Well said-seen it too many times where strict adherence to this and many other so-called rules of thumb end up making the opinion less credible-It's your opinion so you choose the comparables not some rule of thumb guideline that may not apply in all circumstances.

 

[Steve Owen]

Anyway, You appraised a property for a value that there was no market for it according to your own claim as your comps showed. It was a value with no support.

I really don't agree with this statement for the example given. You guys are used to a housing market where tract houses are the norm and conformity exists to make all those guidelines doable... most of the time. When appraising unusual properties, commercial, or vacant land, there are many instances where bracketing is not possible. Not being bracketed does not necessarily mean there is no support for the final value opinion.

 

[moh malekpour]

Jeff,
Forget about the bracketing but lets talk about the supporting the value. If you have a property with so much improvements that you cannot find a similar comp in the neighborhood and you think if you go out side of neighborhood to find a similar comp to support the value for that extra improvements on your subject is going to be misleading, then don’t do it. Stick to your best three comps and treat your subject as an over-improvement property.
But when you use your best three comps and your value conclusion is beyond and above those three comps, then you should be able to say how did you get that extra value for that extra improvement on your subject or how did you know that the market is going to pay for that extra improvement or how did you know the extra improvement is desirable to a typical buyer in that neighborhood? And if you cannot say it, then why did you use those three comps. It is not enough to say it is just appraiser opinion or just because appraiser think so or feel so. You got to be able to support for what you say and those three comps are not supporting of what your are saying but I guess going against the guidelines and rules and regulation is a fashion. After all those who have written these guidelines don’t know anything about USPAP and don’t know anything about appraisal. We are the experts and each one of us has his or her own opinion. But remember you are appraising with assumption that a typical buyer is going to pay for that appraised value in a timely manner and adequate marketing and that typical buyer is not going to be you. By that I mean, you may like the property, you may feel the property is worth more than your comps but you cannot support it. Unless, you rely on cost approach, you cannot not support it by market approach.