Common Sense Vs Paired Sales

[Ariba]

Paired sales versus common sense/experience.

Do you always derive all adjustments in the grid from paired sales. What role does common sense and real estate experience play in making adjustments? For example if a house has a partial basement but there are no other houses in the market area with basements would you make an adjustment for the partial basement? You cannot support the adjustment from paired sales. However common sense tells that the basement has value.

Another example: house has a large garage/workshop, and there are no other properties with this type of workshop improvements. It might be over improved for the market area. How would you determine value for the workshop?

What if you have two identical properties (paired sales) except one has a regular basement and the other has a walk-out basement. The difference in sales price is $35,000. Would you now make an $35,000 adjustments for the walk-out basement since this is an paired sale. Common sense and experience tells you an $10,000 adjusted is more realistic.

Ron
AppraiserPlus.com

 

[Austin]

Making unsupported adjustments is extrapolating and there is no market support when you extrapolate. The way this situation should be handled and the way I do it is to tell it like it is. “This house has an in ground pool and pools are not common in this area. The pool cost $20,000 to install three years ago and I could find no market data to support any value contribution. If the client wants to take a guess at it they can have at it.”
I think every other appraiser would do the same if they had the freedom to appraise properly. The fault lies with the GSE’s and their supplemental guideline power structure. If you reported it the way I just described they would nail you to the wall. If real appraisers are going to do their job then we must have the freedom of speech to tell it like it is without being forced to tow the line. Same goes for time adjustments. “As of this date the data indicates a market value of $zzz however the trend is sharply rising prices. It is not the responsibility of this appraiser to assume the risk or responsibility of risk rating this property for the client based on personal speculation.”
Here is what is happening in this market and I received a call from a local appraiser on this subject yesterday asking my opinion on how to handle it. If you think the cost approach is not relevant, think again. Costs for metal class S buildings are up over 15% in the last two years. Residential lumber costs are up 27% in the last 6 months and the local cost index is up 12% in recent months. I have been using M & S for many years and the local index has always been between 88% to 90% until the last issue when it went to 101%. Utility electric rates are going up 35% in June of 2005, and the headline in the morning paper is that we can expect another 30% in June of 2006. How do you handle this? Again, I say tell it like it is. Do costs affect value? We will just have to wait and see.

 

[CANative]

The fault lies with the GSE’s and their supplemental guideline power structure.

I think I'll disagree with this statement. The fault lies in appraisers and appraisal users who misunderstand the supplemental standards. Nothing is written in stone and all that is required is an explanation of why guidelines could not be complied with.

 

[Baldwin]

If value can not be found with paired sales, as in this case, a good way is to use depreciated cost new. You need to figure cost new and subtract all types of depreciation. This is good common sence with a backbone..

Bob

 

[Austin]

Greg:
Did you notice that I specified "supplemental guideline power structure?" If reviewers demand their interpretation then that is the way it is if you want to stay in business. The law is applied based on how it is enforced. If it is not enforced then it is not law. If the wrong interpretation is enforced, then that is the law. AO's are not part of USPSP but for a period in Virginia they were enforced as law because if the charged person stated that he or she read and attempted to follow the AO's their penalty was sharply reduced. If they stated the AO's were not part of USPAP they got the full ten lashes. So, what is at fault, the law or the interpretation and enforcement of the law? Without the law or rules there would be no interpretation or misinterpretation. Any way you slice it, the guidelines are a problem.

 

[Tom McDowell]

You can always do matched pair analysis. If your subdivision does not have basements then go where there are basements. It may not fit into the lifestyle of the McAppraiser but it can be done.

 

[Jim Onderisin]

Makes sense to me, Ron. That's why clients hire us...we can hopefully make more accurate guesses on value than they can. It's our expertise.

 

[jeff samolinski]

Have done it many times-just have to explain the lack of available data and use the cost approach less depreciation and explain what it is-a guess based upon estimated contributory value.

 

[JSmith43]

Have done it many times-just have to explain the lack of available data and use the cost approach less depreciation and explain what it is-a guess based upon estimated contributory value.

Ditto, perhaps using the phrase educated guess based upon....

The way adjustments are made and the purpose of the adjustment, if the purpose is for more than illustration, should be incorporated into your scope statements, IMO. List techniques considered:

Direct comparison (ranking/bracketing), multiple paired sales, regression analysis, depreciated cost, etc.

For ranking/bracketing method, you might comment that direct comparison was the primary method and that the adjustments indicated are for illustration purposes only, or an attempt to further refine the relative position of the subject.

The purpose: If you don't define what you are doing in that sales grid, someone might define it for you, such as a reviewer or a ****** off client or 3rd party user of the report.

 

[CANative]

It seems to me that GSE appraisal guidelines have at least a two-fold purpose:

1. To readily identify properties with characteristics or marketability issues which don't meet their eligibility requirements.

2. To help ensure that appraisers have put some thought into the process by choosing comparable sales which require the least amount of adjusting.

The problem kicks in when appraisers are afraid of their clients and make inadequate adjustments just to keep the underwiters at bay.