Comparable Sales Adjustment for Market Conditions

[Dean Adams]

The quick answer is that the Consumer Price Index is all about consumable products, not real estate, so the CPI has nothing to do with real property. Real estate can go up much faster than CPI, and it can also go down, which CPI almost never does.

But, to look at the big picture, it is rare to find paired sales in a small market. It is often more useful just to look at overall price trends over a several-year period. In the end, escalating sales at 2.5 percent hardly seems unreasonable. One could look at the price of construction costs and come up with an escalation that is far higher than 2.5 percent. While the appraiser's use of CPI isn't appropriate, it doesn't appear that he is trying to push numbers with his market conditions adjustment.

 

[The Warrior Monk]

David:
The reason market prices increase faster than the CPI is because of compounding which just supports the CPI method argument.

That would mean, based price increases in my market and accounting for compounding, that over the past decade CPI is 17.5% :Eyecrazy:

 

[Eminent Domain]

He-He... Well, that should remove all doubt about who are the back woods Appalachian truck boy appraisers here on this forum! Only one more missing... B Farley, where are you!!??

Oh well, that Sun Pump must have broken down again, he’s still in bed.

We finally got it up and running again. Its hard to keep the corn mash churned when its always dark, so we have to make sure the pumps a pumpn'.

BF

 

[Harve Bean]

I agree with Dean. In small markets sales are few and information sometimes even harder to come buy. In some areas rents can tell you the story. Increases in rent would increase the income approach value and also provide an adjustment for the market approach. I once did an appraisal on a bank building sitting on a leased pad site in a strip shopping center. The land lease was long term and had been indexed to the cpi. The cpi increased way faster than local rents had and the building had a near zero worth due to the above market rent based on the cpi.

 

[Michael Church]

Thanks for the feedback. From what I've heard I am further convinced that this appraiser is lazy and doesn't seem to care about his work. The bank I work for is a small bank located in the Triad region of NC, which has a very active market. I understand the arguments for CPI in a rural area or small market where there are a lack of comparables but it just doesn't jive in this case. Thanks again for the responses.

 

[xm39hnu]

Michael,
You said "small bank," so everybody assumed you were in a rural area. There should be all kinds of data available in the Triad area, so no excuses will fly for using CPI. Get Serge to do it.

One other thing I've noticed in my small rural market in west TN is that buyers of commercial RE purchase to occupy. Much of the time (depends on property type) this condition makes the Sales Comparison approach more meaningful than the income approach.