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Closed sales are irrelevant in a down market!

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Ariba

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Senior Member
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Feb 8, 2004
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Certified Residential Appraiser
State
Colorado
At what time in a down/declinning market do closed sales comparables become irrelevant and opinion of value is strictly based on active listings?
 

hastalavista

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May 16, 2005
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Certified General Appraiser
State
California
At what time in a down/declinning market do closed sales comparables become irrelevant and opinion of value is strictly based on active listings?

Ron-

I don't mean to over-parse your question and I hope I don't come off that way. I'd rephrase your good question this way:
Closed comparable sales are never irrelevant to the opinion of value. The question is at what point do the comparable closed sales (and, maybe all of them) appropriately warrant a market condition adjustment based on the active listings?

My threshold point occurs when I'm convinced that the comparable sale could not sell again at the same price due to the change in market conditions. I may have 4-closed sales but if I have evidence (based on listings/pendings, market interviews, etc.) that a current buyer could substitute any of those sold homes at a lower price based on what is available on the market (today), then that tells me their relevance to the subject in terms of value needs to be considered in light of that changed market condition (price decline). :new_smile-l:

I don't think there is a set formula. I think once the market persuades me that is the case, I make the adjustment (across the board) and provide the market analysis in my report to persuade the reader in the same manner I was persuaded.
 
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Doug Wegener

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Apr 14, 2005
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Certified Residential Appraiser
State
Oregon
When do they become irrelevant in an up market?
 

Joe Booth

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Oct 16, 2003
Professional Status
Certified Residential Appraiser
State
California
Based on historical market analysis you make an adjustment if warrented. Closed sales, up market, down market, are never irrelevant.
 

Tom Woolford

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Nov 20, 2005
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Certified Residential Appraiser
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Florida
I had a condo assignment last month where for the first time in 20+ years, I weighed active listings over closed sales. I have not done that for any other market segment, but in this case the only sales were old, no data available for a time adjustment, and a unique property. Sales indicated a value of $109,000, but 4 active listings were all under 80K. A competing project showed a list / sale ratio of 92%. Indicated value on that assignment was $72,500.

As doug indicated, when is ANY data relevent? That is up to us to decide, and present in a credible manner. If Skippy has done the assignment I mentioned, it would have been overvalued by 30K or more. Do your due dilligence and make your best call.
 

Michael Tipton

Senior Member
Joined
Sep 25, 2005
Professional Status
Certified Residential Appraiser
State
Florida
I tend to use actives and pendings to assist in determining a time adjustment factor, negative or positive, based on the Principle of Substitution. The closed sales are still relevant.
 

Carnivore

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Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
This is what happens when lenders have way to much influence on what we do. We just have to stop letting them manipulate the appraisal process.

Maybe the date of sell is problem, but there are other just as important factors still very relevent. It is not just about when they sold it also why they sold for what they did!

The sub-prime debacle along with the 'A' paper lying does not stop people with good credit, good job history and down payments from making rational purchase decisions in there own best interest. Same goes for people selling.

This is just hysteria gone wild!
 
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Mike Kennedy

Elite Member
Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
Ron Seylhouwer At what time in a down/declinning market do closed sales comparables become irrelevant and opinion of value is strictly based on active listings


Never.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
I tend to use actives and pendings to assist in determining a time adjustment factor, negative or positive, based on the Principle of Substitution. The closed sales are still relevant.

Correct. You don't WEIGHT the listings, you use the listings to make a date of sale adjustment. Those adjustments are supported by the active listings. However, they might go down further. What then, feathered friends?

You must comment that the value found is the value TODAY and that in a declining market, data will likely show further decline. The current rate of decline has been XX% per month over the last 6 months.
 
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c w d

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Oct 2, 2006
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General Public
State
Florida
At what time in a down/declinning market do closed sales comparables become irrelevant and opinion of value is strictly based on active listings?

They don't. When do active listings become relevant as a reliable indicator of value? They don't. A lot of folks will argue that point and a lot will support it on this forum. So take your pick. With an active sale ask these questions: Who decided on the offer price? What methodology did they use to set the offer price? Who decides to reduce the offer price if it's not selling? Why did they reduce the offer price? What methodology did they use to reduce the offer price? 9 out of 10 times it's the home owner who sets the offer price and decides to reduce it. The home owner has no formal education or experience in the valuation of real estate. The answer to the methodology will be "The I think method". I must of slept through that portion of my education where the "I think method" was vetted as a reliable approach to value. Now the realtor will most likely have input and do a CMA which in most cases influences the home owner's decisions. Or the realtor could have asked an office friend "How much are these selling for in that neighborhood?". Are you really going to pin the basis of your appraisal off a CMA or a value that is being thrown around the office? If so, then why does the lending industry require appraisals instead of CMA's or values they acquired from a friend of a friend's co-worker's buddy? Because the methodology for a CMA lacks specific guidelines and scientific bases and not to mention the realtor has a bias to sell the property. How do you rule out the possibility of bias? You can't.

Several posters that I have learned to respect through reading their posts and the help they have given me do derive adjustments from active listings. Here, I must disagree with them because I believe everything about an active listing is suspect and arbitrary at best. To develop adjustments from arbitrary data leads only to arbitrary adjustments. Arbitrary adjustments leads to arbitrary indications of value. And arbitrary indications of value leads to the dark side. Closed sales use you will!

Closed sales irrelevant? Every closed sale is relevant. However, as time passes a closed sale becomes more unreliable as an indicator of value because market conditions change over time. The local market conditions dictate which comparable sales are more reliable or less so.

The sales comparison approach is historical in nature. Every text you read will most likely make that point. Everyone knows this and yet it is an accepted and the most widely used method of valuation for residential properties. Perhaps what your client wants is a prospective. But wait, FNMA doesn't accept those. So I guess they're stuck with closed sales.
 
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