Conditional/quality Adjustments

[J Grant]

You are absolutely right. Next question, why don't they just make it Quality and Condition (without forcing a strictly defined Qn/Cn response)? If it works for Style, why not for Condition and Quality? It works for view as well. These are all intangibles, or partial intangibles. The problems have been well documented on this forum, I'm not to go into them any further.

Actually, let me reverse myself there. Whoever came up with Q1 must be a nutcase. I couldn't say enough bad about it:

"Q1: Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified user. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinements and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are of exceptionally high quality."

Does it take any brains for any appraiser to see what is wrong with this? Yea, it really works with a Trump mansion. But then we drop ALLLLL the way down to Q2, which could work just about anywhere. Q1 is de facto useless. I mean. For example, we get $7M homes with vinyl counter tops in Pebble Beach. Yea, it's kind of shocking. I will repeat, whoever came up this is a nut case.

Yes, Cn/Qn works for some appraisers, maybe most, especially those who work with tract homes and homogenous subdivisions. But it's ridiculous to force this on all residential appraisers. Anyway, be sure I don't really care about your opinion on this. I am stating my position for the record, - in agreement with some others. It's a statement of position and there is plenty of evidence to support it.

But I couldn't actually show my problems with it without going into my methods in detail. - Which I don't, at this time, have any interest in doing. I mean, IF I had to do a URAR, I would have a problem.

Just take it as a statement of position: The Fannie Mae Quality-Condition ratings are CRAP for market areas made of of highly heterogeneous custom homes with highly varying degrees of upgrades, ages and styles.

UAD is a language, nothing more nor less. (that is why it has definitions included in the appraisal ) The idea behind is the UAD is then the same language shared and understood and relied on by appraiser, UW, a client, and Fannie reviewers. The problem was some appraisers use certain terms to describe condition or quality while other appraisers use different terms, and readers their own vernacular.

UAD as a language-can describe highly variable custom or homogeneous. An appraiser is either competent or not competent to appraise certain properties , and UAD does not change that. The only difference is, if UAD is an assignment condition, the appraiser should be fluent in UAD, (or learn it.)

I could be handed a great appraisal written in Mandarin Chinese . I'd have no idea what it says, or if is great or terrible because I dont understand Chinese. I understand enough Spanish to read an appraisal written in Spanish and of course in English, and by now I understand UAD well enough to use it to communicate in a report. If an appraiser described the same house in Chinese or in English, they are probably saying the same thing, the key would be understanding the language.

 

[RCA]

What you describe (buyers, sellers having an idea of costs/relationship of rent and payments etc ) is what is known as a well informed buyer and seller. Patterns of buying and selling may not always form consistent results, but they form enough consistency to derive analysis from them.

Simply put, buyers pay more for positive features and pay less when a property has negative features. That is true of 100k properties and million dollar properties. Only the scale is different.

I would think regression is more useful where large sets of data is needed such as year over year time adjustments.

In my database, there are over 500 fields or features for each house. No one. NO ONE. is smart enough to even begin to figure out the interrelationships between all of these. Not even 100. Not even 50. Not even 20. Not even 10. Certain things go together, they interact. The interactions get very complex. VERY COMPLEX. Radiant heating is a variable - but in high end homes. Forced Heating is a variable of importance in most homes, but depending on whether it is gas or electric. Age is important, most newer homes automatically have a lot of upgrades built in. Older homes only if they have had remodeling. Larger homes are associated with the value of larger lot sizes. So many interactions. Sewer issues. View issues. Style issues.

Salford Systems MARS can juggle all kinds of possibilities around, millions per minute and come up with good fits. In fact it can come up with different models because of all the collinearity.

It doesn't really matter. The absolute critical thing I focus on is differentiating the value of the tangibles like GLA, Lot Size, Heating, Sewer, Water, Bathroom count and features, Kitchen features, - from the intangibles like Condition-Quality-Sytle-View. If I can do that, then I capture the intangibles in the residuals and I can work forward from there.

Sorry guy. Matched pairs analysis went out the door decades ago for most of the neighborhoods, most of the market areas, I work in.

 

[RCA]

UAD is a language, nothing more nor less. (that is why it has definitions included in the appraisal ) The idea behind is the UAD is then the same language shared and understood and relied on by appraiser, UW, a client, and analysis-ts at Fannie, etc.b Otherwise, some appraisers use certain terms to describe condition or quality while other appraisers used different terms, and UW is using their own vernacular.

UAD as a language-can be used just as well for highly variable custom as for homogeneous. An appraiser is either competent or not to appraise certain properties. If UAD is an assignment condition, the appraiser should be fluent in UAD, or learn it.

I could be handed a great appraisal written in Mandarin Chinese . I'd have no idea what it says, or if is great or terrible because I dont understand Chinese. I understand enough Spanish to read an appraisal written in Spanish and of course in English, and by now I understand UAD well enough to use it to communicate in a report. If an appraiser described the same house in Chinese or in English, they are probably saying the same thing, the key would be understanding the language.

It's a poor language.

 

[J Grant]

It's a poor language.

Perhaps, but it is the one Fannie developed...

 

[Terrel L. Shields]

You know the barn style i

Here barn style would also have to factor quality too. The styles of equal quality and/ or relative cost here suffering a functional obsolescence would be berm, underground, A frame, geodesic dome, and log.

 

[residentialguy]

Which is why regression works.

I'll have you know that JG is an expert with that.

No, wait....sorry, scratch that. I thought you said digression.

 

[RCA]

Here barn style would also have to factor quality too. The styles of equal quality and/ or relative cost here suffering a functional obsolescence would be berm, underground, A frame, geodesic dome, and log.

Speaking of barn style, and by that I mean a home that is rectangular, two story, four sides. AND, the closer it is to a square, the more of a barn it is. Now these are quite popular in Europe, in fact town after town, that is all you might see. A lot of high end expensive homes in Germany, France and elsewhere in Europe are what I call "barn style". I see them here in California, often painted barn red!. Some people like them, .... I guess. But this is not Europe, these homes are definitely not very well accepted here in California - at least in the area I am in. I once did one of these in Carmel and I remember at the time, I wanted to discount $200K for the style. Although to be fair, as I recall, it was well over two times the width to the depth. Anyway, I didn't have the evidence to do so at the time, so I didn't. But having given it thought for a number of years, I've come to the conclusion to trust my own judgement on style, --- at least I've got the support of a number of years reflection on this and a few other cases I can think of. I would tend to avoid such adjustments if I can - and I certainly can with comps (and can get whatever support I need from their residuals). But with the subject, assuming no evidence from historical sales for the subject, you have to make a move, at least a partial downward adjustment, in certain cases. Although, with enough experience, you should certainly see evidence at least in some nearby market areas to support your decision. Expect flac from the owner.

 

[RCA]

Part of the problem is the complete lack of absolute standard or examples. We are left to essentially guess what is meant by words (my bold above) such as higher, above-standard, significant, well-finished, upgraded, many, finishes. If the powers that be want absolute ratings, they need to make it very clear what separates.

The other issue is this--what if the interior demonstrates Q3 characteristics, but the exterior merely Q4? What's a poor UAD adhering appraiser to do?

Yes, there is a GREAT degree of dishonesty and misleading analyses among the leaders in the field. I just got the latest "Working RE" in the mail today, with an article "Paired Sales Using ....", where the analysis is based on a Miami condominium. It doesn't explicitly say, but I am pretty sure it is based on one single condominium where they are showing how to use paired sales to get an adjustment for ocean view from two matching sales that are different only in the fact that one doesn't have an ocean and the other does, then calculate the percentage difference and apply that to a more recent sale. The "trick" is apparently to use a the percentage to get the old pairs to work for a more recent sale.

OK. in my world this is trivial. This article does damage by giving misleading credibility to the technique of paired analysis. It is much easier to use multivariate regression -which will also work with far more complex markets.

But beyond this, it is an example of:

1. Analysis based on unrealistically simple data. In this case, a single condo complex with sales very likely controlled by one or two agents with a fixed pricing sheet that gets updated periodically. For many of us, the pricing influences are far more complicated.

2. Somebody writing an article for the sake of writing article, perhaps to put on his resume.

We have a host of idiot books on appraisal. Some are pretty good and usable. But I would have to say I have never come across one related to the Sales Comparison Approach that wasn't BS.

You will see these appraisals based on the latest R-Language techniques that produce fancy graphs that show this or that feature of the market place.

-Without a good argument for the adjustments. But isn't that the goal? To determine and substantiate a sound opinion of value? That is the whole point.

Most residential appraisers when adjusting for complex markets with poor comps just make up their values to look good, at least in the reports that I have seen. They are flying by the seat of their pants. They do a good job of it in many cases, for flying by the seat of their pants. - They don't have much choice. The decision makers at the AI, RICS, the FIDC, Fannie Mae, etc., haven't given them the tools the need. In fact, they are effectively obstructionists, getting in the way of anyone wanting to do good appraisal. Saddling appraisers with what is effectively a 4 level Q2-Q5 rating for quality is a good example. I need 20 levels to get good adjustments, and I need them to relate directly to the market, in terms of percentage better or worse in quality. The advantage of that, is that they are also auditable, and in fact can be objectively derived from residuals.

As you state, those definitions are obscure and effectively useless. But the State Enforcement will pull you license if you get them wrong. Idiots in the woodwork everywhere. - No, they aren't actually. They will overlook these issues, if they are so inclined. If not, for one reason or the other, possibly political, they CAN fry you. You know, errors are errors, if they call it an error, it is, small errors are as good as big errors if you make enough of them.

It is a difficult job.

Let's take my MLS, MLSListings.com. The broker feed has 400 columns for residential data. Many of those columns such as "Kitchen Description" or "Heating" are themselves lists of numbers such as "13,28,32,40" that describe the presence of features. These numbers refer to lookup tables that describe the feature; for example "radiant heating" or "wolf range". For regression analysis, these lookup values have to have boolean columns created as "Y/N" fields. There are about 4500 of them. So, we have 5000 fields to analyze. Now certainly, we can eliminate many of these fields. But still, it is very easy to want to use perhaps 100-150 fields on an initial run, to discover whether any features are important to value. You may talk to a local agent at length and get some idea of what is or isn't important. But even they will miss things.

So, look, there is no way in hell, you are ever going to used paired analysis for this. IN FACT, the most advanced regression software on a super computer can get bogged down with all the data.

The lenders, the AMCs, the State Enforcement, spin their wheels dinking around with really minor stuff. They don't have a clue what they are doing. .....

 

[Terrel L. Shields]

OK. in my world this is trivial. This article does damage by giving misleading credibility to the technique of paired analysis. It is much easier to use multivariate regression -which will also work with far more complex

So you caught that too? A couple of the WRE articles are suspect...although I commend them for having a number of articles that were not the more ordinary piffle we see in some industry magazines. Lack of honestly peer reviewed articles and techniques is a real failure in our profession. Sometimes I think we are a bunch of the gang who couldn't shoot straight.

 

[Artemis Fowl]

So you caught that too? A couple of the WRE articles are suspect...although I commend them for having a number of articles that were not the more ordinary piffle we see in some industry magazines. Lack of honestly peer reviewed articles and techniques is a real failure in our profession. Sometimes I think we are a bunch of the gang who couldn't shoot straight.