Client asking for specific data on appraisal

[DWiley]

Not to overfit the range down to the last $100 whether those are the reactions in the market or not.

You should be very careful, a certain poster is bound to come along and explain to you why you should actually have no range.

 

[RCA]

Using the net sale price and MARS regression to model the measured variables and provide a price estimate based on that model, plus the difference between the two, i.e. the "residual," - gives you a very exact measurement of the appeal a property has in the subject market as of the appraisal effective date. The residual is an exact measurement of the market reaction to the total of those variables that did not go into the MARS regression, or in other words, the impact on price of the unmeasured or what are commonly called "subjective" variables such as quality and condition.

So, we actually can get farily exact measurements of the "whole" - it is just a question of explaining the differences to some user.

The human brain is very good at looking at something that can be fundamentally complex, and then judging how much "appeal" it has, or more specifically whether X has more or less appeal than Y. This more or less leads to ranking, like in a beauty pageant. Something the brain is very good at. Ranking has its own statistics, called non-parametric statistics. And it is the basis of most current data mining techniques, such as MARS and Random Forests.

And so, high level appraisal is possible. But it is a different world from traditional appraisal. - A much different world.

 

[J Grant]

Traditional appraisals mirror how buyers behave in the market - that is their strength ( not their weakness)

It;'s simple - buyers pay more for positive features (such as upgrades or a lake view ) and buyers expect a discount for adverse conditions ( such as repair, noise influence on a site)

Not every buyer will pay the exact same $ amount, but the MV definition references the typically motivated buyer ( not the outlier buyer ). The adjustment reflects the decisions buyers make with their wallets, and that means the most probable amount the typically motivated buyer for that property tends to pay.

The reason we adjusted is to make the sale properties more equivalent to the subject, and that narrowed the adjusted range. The appraiser should have sound reasoning for why they reconcile within that range to X $ point value and the reason should not be rote or random. No two buyers may pay exactly the same amount for a feature, but they tend to show a pattern of the more probable and typical amount they pay. The adjustments are right there on the sales comps on the grid. The SCA relies primarily on lending assignments, and additional support for the adjustments can be profited from depreciate costs, RE agent surveys, or other methods relevant to the assignment.

 

[Tom4value]

The purpose of the adjustments is to refine the range and reduce the amount of subjectivity it takes to reconcile for a value conclusion. Not to overfit the range down to the last $100 whether those are the reactions in the market or not. The SFR market is the most imperfect market there is in RE appraising.

The dominant unit of comparison for commercial/industrial/office is usually the price/sf *except* when the buildings are so small that the buyers revert back to using the sale price itself (same as the SFR appraisals). 640sf storefront on its own lot vs an 850sf storefront on the same sized lot is usually going to show bigger differences in the price/sf than in the sale price itself.

That was exactly my point. I guess you just said it better than me!

 

[RCA]

Traditional appraisals mirror how buyers behave in the market - that is their strength ( not their weakness)

It;'s simple - buyers pay more for positive features (such as upgrades or a lake view ) and buyers expect a discount for adverse conditions ( such as repair, noise influence on a site)

Not every buyer will pay the exact same $ amount, but the MV definition references the typically motivated buyer ( not the outlier buyer ). The adjustment reflects the decisions buyers make with their wallets, and that means the most probable amount the typically motivated buyer for that property tends to pay.

The reason we adjusted is to make the sale properties more equivalent to the subject, and that narrowed the adjusted range. The appraiser should have sound reasoning for why they reconcile within that range to X $ point value and the reason should not be rote or random. No two buyers may pay exactly the same amount for a feature, but they tend to show a pattern of the more probable and typical amount they pay. The adjustments are right there on the sales comps on the grid. The SCA relies primarily on lending assignments, and additional support for the adjustments can be profited from depreciate costs, RE agent surveys, or other methods relevant to the assignment.

You have some of the dots, but you need to do a. better job of connecting them.

1. Understanding Market Value​

"Market value" is the expected value of a property under typical market conditions, as specified by standard definitions. This concept has important implications:
It's a theoretical construct, not an exact point value.

• It's derived from imperfect real-world data (actual sale prices).
• It accounts for typical market conditions and motivations.

2. The Nature of Sale Prices and Errors​

2.1 Variability in Sale Prices​

Sale prices are not perfect representations of market value. They contain various types of errors:

1. Random Errors
   • Examples: Rounding to nearest $5K, minor miscalculations
   • Characteristics: Unpredictable, tend to balance out over large samples
   • Statistical Assumption: Expected to average out to zero
2. Systematic Errors
   • Examples: Consistent GLA (Gross Living Area) measurement biases in certain neighborhoods. E.g. contractor removel of 2nd floor areas for vaulted ceilings, result in significant reductions of GLA that do not get reported back to the assessor's office in some towns - at certain perious during the past. If the appraiser is aware of this, then he knows to check the data, especially for the comparables going into the sales grid.
   • Characteristics: Consistently skew data in one direction
   • Appraiser's Role: Identify and compensate for these errors
3. Adjustable Factors
   • Examples: Sales concessions, atypical financing terms
   • Appraiser's Role: Adjust sale prices to account for these factors

2.2 Sources of Errors in Real Estate Data​

• Rounding of sale prices (e.g., to nearest $5K)
• Communication issues between parties
• Inaccuracies in property data records
• Variations in measurement methods (e.g., GLA calculations)

3. Statistical Approach to Market Value​

3.1 Sale Prices as Sample Data Points​

• Each sale price is viewed as an imperfect sample from the true market value distribution.
• The market value is estimated by analyzing the central tendency of these samples.

3.2 Regression Analysis in Appraisal​

• Technique: Fitting a line (or curve) through the midpoint of sample values
• Goal: Estimate the expected value (market value) from imperfect sample data

3.3 Law of Large Numbers in Appraisal​

• With a sufficient number of data points, unbiased random errors tend to cancel out.
• This principle underlies the statistical validity of market value estimates.

4. Appraiser's Role in Error Mitigation​

1. Data Verification
   • Cross-reference multiple data sources (e.g., assessor records, MLS, satellite imagery)
   • Example: Compare GLA figures from different sources to identify discrepancies
2. Adjustment for Known Biases
   • Identify and correct for systematic errors in the local market
3. Statistical Analysis
   • Use regression techniques to estimate market value from imperfect sale data
   • Apply appropriate statistical tests to validate the reliability of estimates
4. Professional Judgment
   • Interpret statistical results in the context of market knowledge
   • Make informed decisions on which data points to include or exclude

--->> Market value in real estate appraisal is a statistical concept derived from imperfect real-world data. By understanding the nature of errors in sale prices and applying appropriate statistical techniques, appraisers can provide reliable estimates of market value despite the inherent variability in real estate transactions.

5. Therefore​

The Net Sale Pridce is the Holy Grail, It Is The Major Constraint In Sales Adjustments

• Because adjustments implicitly come from feature Value Contributions, and all Value Contributions must add up to the Net Sale Price. This constraint ripples down to those precious subjective adjustments through the Residual, which is the Residual = (Net Sale Price - Regression Model Estimated Sale Price Based On Measued Variables).
• Total of all Subjective Adustments = Subject Residual - Comparable Residual. Is The Critical Constraint.

But to reiterate, to do things this way, the correct way, requires being able to develop a very good price model via a tool like MARS Regression. - And that requires training and experience, plus a good knowledge of the subject Market Area.

 

[mp2277]

This was what I was asked for by a client in an addendum letter about a recent 1004 appraisal I completed.

"Please provide the data & analysis used to derive the room count, condition and GLA adjustments. If paired sales analysis is utilized, the appraiser cannot just say an adjustment was made and the amount, based on experience, or paired sales were used; the actual pairing/analysis must be included in the report. If another method is utilized, the thought process behind it needs to be thoroughly explained."

This is a Summary Report and I have never been asked to put my Paired Sales data in my report.

What say you?

More and more it seems like they want a narrative report and pay for half of a summery. I'm old school and feel like all of that belongs in the work file.

 

[mp2277]

One thought on all of this. The leaders in the appraisal industry especially GSE's think of appraisals in academic terms. We on the other hand live in the real world where people buy what they want and need without care of what's above/below grade or sometimes even finished living area. The crazy pandemic market taught me this. There were times I made no GLA adjustment because people were buying room count. Even when the sf was significant I notice d that trend. There just wasn't enough inventory and any listing had several offers, mostly above offering price, within hours. It was a feeding frenzy. At first I got push back all but demanding an adjustment but soon figured I wasn't the only appraiser doing that because the revision requests disappeared. Also, cynical me notices that every revision request demanding lots of narrative and commentary about relatively simple adjustments is accompanied by a link to "more resources" which of course are available for a price. Somebody is making money of of this. Imagine that LOL. Concerning this BS, I'm glad I'm 66 and not 36 in this profession.

 

[Cob]

Traditional appraisals mirror how buyers behave in the market - that is their strength ( not their weakness)

It;'s simple - buyers pay more for positive features (such as upgrades or a lake view ) and buyers expect a discount for adverse conditions ( such as repair, noise influence on a site)

Not every buyer will pay the exact same $ amount, but the MV definition references the typically motivated buyer ( not the outlier buyer ). The adjustment reflects the decisions buyers make with their wallets, and that means the most probable amount the typically motivated buyer for that property tends to pay.

The reason we adjusted is to make the sale properties more equivalent to the subject, and that narrowed the adjusted range. The appraiser should have sound reasoning for why they reconcile within that range to X $ point value and the reason should not be rote or random. No two buyers may pay exactly the same amount for a feature, but they tend to show a pattern of the more probable and typical amount they pay. The adjustments are right there on the sales comps on the grid. The SCA relies primarily on lending assignments, and additional support for the adjustments can be profited from depreciate costs, RE agent surveys, or other methods relevant to the assignment.

You have my vote for post of the year.......

 

[Terrel L. Shields]

Over the years, have seen appraisals where for only 3 comps there may be 12-18 total adjustments in 6 or 7 line items. But if you simply eliminate some line by line that are small (often less than 1% of the value) the range does not change measurably. So, why make them? You have to justify them. Minimize your adjustments to the basics and reconcile the differences in narrative.

My first adjustment is to the land. And that is a dollar-for-dollar adjustment because land does not depreciate. It is what it is. And without knowing the land value "as if vacant and available for its HBU" then how do you know if an external obsolescence exists? Now I want to adjust for effective age and square footage. The only other adjustment is for site improvements like pool, shop, etc. Only in a rental do I even consider room count and I want to be careful and not double-dip with the SF adjustment. I don't adjust for trim, granite, etc. and only rarely for bathrooms - consider that only if an inadequacy where 1 bathroom in a 3,500 SF house for example.

It is said that "cost does not equal value". True enough. But buyers do understand the cost of things impacts its value anyway. They may not pay $70 a SF for that detached shed, because they know they don't cost that much. They won't pay $100,000 extra for a cheap pool. So, they are conscious of costs in their buying decisions.

 

[Lee Lansford ASA]

This was what I was asked for by a client in an addendum letter about a recent 1004 appraisal I completed.

"Please provide the data & analysis used to derive the room count, condition and GLA adjustments. If paired sales analysis is utilized, the appraiser cannot just say an adjustment was made and the amount, based on experience, or paired sales were used; the actual pairing/analysis must be included in the report. If another method is utilized, the thought process behind it needs to be thoroughly explained."

This is a Summary Report and I have never been asked to put my Paired Sales data in my report.

What say you?

Did you say that you used paired sales for those adjustments?