Considering filing complaint for lack of market conditions adjustment on stale comps

[throwaway12345]

This is simple. There should be an explanation as to why there is no market condition adjustment. That is good appraisal practice. I would consider my report incomplete if I did not explain why I did not provide a market condition adjustment in the current market in my area. Prove that it is stable, increasing or decreasing. Don't just say it, prove it. That is appraising - not form filling.

That's all I asked for, especially after I provided all of the data supporting my view. I wasn't asking for a specific FMV or even for a specific adjustment, just that support be provided for the appraiser's opinion. I've gathered that not providing support for adjustments (or lack thereof) is not good appraisal practice, but at what point is this considered not compliant with USPAP?

 

[throwaway12345]

It depends on how one defines a Comparable Sale/Listing. Stale, I assume you mean dated. The starting point is selecting comparable that have the same Identical Economic Characteristics of the Subject. Ideally is sold one to two days before the Inspection/effective date of the Subject. After that, it all goes downhill. The Market is imperfect. Here on the mainland, we have lots of Cookie Cutter subdivisions. There are usually three to four different models and they are repeated. Work in those areas is actually boring.

Again, You have a good point about the elapsed time between the comparable sale date and the effective date of your property appraisal. In my practice, after I have identified the the Subject and its Market Segment, I always develop the Market Conditions next. When I take on a Review Assignment(reviewing another appraiser's work product). I do the same thing before getting into the nitty-gritty of the report under Review. Page one of a typical FNMA 1004 sets the stage. In the Appraisal for the property you purchased, I would look at the Neighhood section in the housing Trends. There are three questions and three choices for each question. These questions and answers are important.

My best guess about page one of this specific assignment the One unit Housing trends are probably(but not necessarily): Prop Value Checked Stable(I will get back to that below) Next is Demand/Supply; answer: Shortage; In Balance; Over Supply. Next is Marketing Time: under 3 months; 3-6 Months; Over six months.

In my general market area it is not unexpected to see Prop Values Increasing; Demand/supply; Shortage and Marketing time under three months. (absorption rate which is a little different) Especially in Mecklenburg County NC this holds true. I live in a Neighboring County. We are the last to see an increasing market and the first to see a declining market. Gaston County is the Proverbial Canary in a Coal Mine.

So here is what Fannie Mae Says about One unit Housing trends

B4-1.3-03, Neighborhood Section of the Appraisal Report (06/03/2020)

selling-guide.fanniemae.com

Let us get to your Valid Point. This is what the FNMA Selling Guide says:

"

Date of Sale and Time Adjustments​

The date of sale and the time adjustment (market conditions) are critical elements in determining an accurate value because the appraisal is based on a specific date in time (effective date of appraisal). The comparable sales being considered must be analyzed by the appraiser to determine if there have been any changes in market conditions from the time the comparable went under contract to the effective date of the appraisal. This analysis will determine whether a time adjustment is warranted. Adjustments may be either positive or negative depending on the market changes over the time period analyzed. Time adjustments should be supported by other comparables (such as sales, contracts) whenever possible; however, in all instances the appraiser must provide an explanation for the time adjustment in the appraisal report. (I would add an explanation may/or should be needed for a Lack of Time Adjustments

When completing Fannie Mae’s appraisal report forms, the appraiser should provide the date of the sales contract and the settlement or closing date. Only the month and year need to be reported. For example, appraisers may use “s04/10” or “c02/10” where “s” reflects the settlement or closing date and “c” reflects the contract date. If the exact date is necessary to understand the adjustments, it must be explained elsewhere in the report or in an addendum. If the contract date is unavailable to the appraiser in the normal course of business, the appraiser must enter the abbreviation “Unk” for unknown, in place of the contract date.


I apologize for the long-winded reply. I felt like you deserved a comprehensive answer and you got many excellent responses above me. Right or Wrong this is the way I and others see it. FTR; This is my second Professional License that I Have earned. My first Professional License was so complex that even minor errors could result in loss of life or severe destruction of property. I take this license just as seriously as the other. That is hard to do.

I appreciate the long-winded reply actually and thank you for your comprehensiveness. I'm not an appraiser so all of this is helpful to learn and understand the methodologies used and constraints that appraisers (sometimes unfairly) are subject to.

 

[throwaway12345]

Did you get the loan you were trying to get? If yes, let it go. You have better things to do.

I did get a loan (albeit a smaller one than what I originally signed up for), after scraping together all of the spare cash I had to make up the difference. You're probably right in terms of better things to do, blame the pandemic for that I guess lol

 

[throwaway12345]

It sounds like you have been or are an appraiser, you speak as if you have been through all the classes and have passed the national exam and for that I commend you. If you have not, then I commend you on your research of the appraisal profession. Having said that, I would tell you that obtaining an appraisal license is not a easy task and furthermore appraising in this very unusual environment is even more difficult due to how supply vs. demand are effecting prices in such a short amount of time. You must keep in mind that opinion of value and prices are two separate things, an appraiser will and can only provide an opinion and conclusion that can be supported and defended. At the same time, I understand your issue and would suggest that if you feel that the appraisal and appraisal review is not to your liking, for you to hire your own appraiser as a 3rd party as this may assist you in your quest. I will end with the following; as long as the appraiser complied with USPAP, and all local laws in performing services as an appraiser, filing a complaint will change nothing. The state appraisal board's responsibility is to make sure that appraisers provide services in compliance with USPAP and their local guidelines. USPAP Standard Rules do not speak of the value and conclusion, it only speaks to the process of how to arrive at the point that an appraiser can reconciliate the data and provide an opinion and conclusion based on that reconciliation as they see fit. The fact that the opinion of value is not what you were expecting is not a reason to submit a complaint to the appraisal board. If the appraiser (and in this case) the review appraiser did not follow USPAP guide lines, then you have every reason to submit your complaint. So often, people want file a complaint because the appraisal did not meet the value desired, the irony of this is that the appraiser did actually do what is expected of him/her and that is to perform the service competently and in a manner that is independent, impartial, and objective. While I have not seen the appraisal or review and do not know what market you are in, I doubt very seriously that the appraiser violated USPAP 1.3. I wish you luck with your endeavor.

No appraisal classes or exams, just a real estate nerd. And I completely understand what you mean when you say FMVs need to be supported and defended and can frequently drift from market prices. Nobody wants a repeat of the GFC.

In regards to USPAP, that is where I'm a bit confused. This could potentially be because I am not seeing the full picture (as the buyer I'm not the intended user) or because I am not familiar with the specifics of the standards. In determining USPAP compliance, is the appraiser required to "show their work" in the report for a lack of a market conditions adjustment? Especially if their conclusion is that "there aren't many data points, so therefore the market must be stable and an adjustment isn't required". In my naive opinion, that statement necessitates some additional notes in the report to support the stable characterization. Not doing so would seem to be an incomplete process that doesn't reconcile the data. But perhaps the support doesn't need to be included in the report for it to be considered USPAP compliant?

I didn't think the appraisal report lacked credibility because it didn't hit a certain value expectation. I thought the report lacked credibility because I never saw any support for a 0% market conditions adjustment, despite providing data which I believe supports a non-zero market conditions adjustment is warranted. If the data reconciliation happened off-sheet and the appraiser provided support for the 0%, then great! If the appraiser had done the work (which for all I know they did), it'd be as simple as sending an email. But since all I received was silence, I am suspicious as to whether the appraiser did any reconciliation at all and am left wondering whether that constitutes a USPAP violation.

 

[throwaway12345]

Look, just because median prices are decreasing or increasing does not by itself indicate any kind of price trend, especially when sales are lacking.

Let's consider an extreme case. In my neighborhood, I have only two sales/month over the last 12 months:

Month	Lot Size	GLA	SalePrice
1​	5,000​	1,300​	180,000​
1​	4,500​	1,000​	145,000​
2​	5,000​	950​	145,000​
2​	4,800​	1,100​	158,000​
3​	5,200​	1,050​	157,000​
3​	6,000​	1,200​	180,000​
4​	4,000​	1,150​	155,000​
4​	7,000​	1,300​	200,000​
5​	5,000​	1,250​	175,000​
5​	6,500​	1,400​	205,000​
6​	4,500​	1,350​	180,000​
6​	5,000​	1,500​	200,000​
7​	5,600​	1,450​	201,000​
7​	6,800​	1,600​	228,000​
8​	6,300​	1,300​	193,000​
8​	8,000​	1,700​	250,000​
9​	5,600​	1,650​	221,000​
9​	5,200​	1,800​	232,000​
10​	6,500​	1,750​	240,000​
10​	6,300​	1,900​	253,000​
11​	4,500​	1,850​	230,000​
11​	4,000​	1,300​	170,000​
12​	4,500​	1,950​	240,000​
12​	4,500​	1,400​	185,000​

1st Quarter Median: $157,500
2nd Quarter Median: $190,000
3rd Quarter Median $224,500
4th Quarter Median: $235,000

Are sale prices "increasing" over time? Yea, sure.
Is a market conditions adjustment indicated? Absolutely not.

Prices increased simply because on the average the GLA+Lot Size increased and the model is:

SalePrice = $100*GLA + $10* LotSize. [ Somethings MARS would discover very easily. ]

That's all. Time of Sale plays no role.

With the pandemic (or any market where sales are lacking) you should be placing a Bold Red Warning in about every 1004MC, that they are not reliable when there is not enough data per period to balance out the other factors involved in pricing. So, if your average GLA, average Lot Size, average Bedroom Count, average Bath Count, etc., are the same in each period, and your prices are still increasing - then the reason is may very well be market conditions.

I agree that medians can be misleading, which I stated in the OP. I don't think median price increases on their own are reflective of anything, but should be considered within the broader context of market conditions. A data point, nothing more. At the very least, it should indicate that you need to dig deeper into the data, which it seems you often do with your model.

That's exactly why I tried to find some other clues that could indicate changes in market conditions, which are stated in the two bullet points from the OP below. Now, if three paired sales of similarly sized properties in the neighborhood all show price increases to the tune of 8-17% in 6-9 months, shouldn't that be indicative of changing market conditions? In particular, if one of those is the exact same house sold twice?

• Pending sale of another attached home with a 770K SC price (I verified by calling the selling agent). This showed up in the appraisal at list price (735K), but was given no weight as it wasn’t a closed sale. I won’t argue assigning it no weight, but this is an informative data point (IMO) showing SC price well above list and both well above 700K
• 3 bracketed paired sales (2 model matches, 1 sale-resale of the same SFR) of 3 bed, 2.5 bath 1,100-1,500 SF detached SFRs and condos (I would argue substitutable competitive products based on beds, baths, SF & price point) that occurred at points across the past 8-10 months, each showing a CAGR of 10-30% (point to point it's 8-17% growth over 6-9 month periods)

 

[Bert Craytor]

I agree that medians can be misleading, which I stated in the OP. I don't think median price increases on their own are reflective of anything, but should be considered within the broader context of market conditions. A data point, nothing more. At the very least, it should indicate that you need to dig deeper into the data, which it seems you often do with your model.

That's exactly why I tried to find some other clues that could indicate changes in market conditions, which are stated in the two bullet points from the OP below. Now, if three paired sales of similarly sized properties in the neighborhood all show price increases to the tune of 8-17% in 6-9 months, shouldn't that be indicative of changing market conditions? In particular, if one of those is the exact same house sold twice?

• Pending sale of another attached home with a 770K SC price (I verified by calling the selling agent). This showed up in the appraisal at list price (735K), but was given no weight as it wasn’t a closed sale. I won’t argue assigning it no weight, but this is an informative data point (IMO) showing SC price well above list and both well above 700K
• 3 bracketed paired sales (2 model matches, 1 sale-resale of the same SFR) of 3 bed, 2.5 bath 1,100-1,500 SF detached SFRs and condos (I would argue substitutable competitive products based on beds, baths, SF & price point) that occurred at points across the past 8-10 months, each showing a CAGR of 10-30% (point to point it's 8-17% growth over 6-9 month periods)

Well, then, the question is whether someone else can also find 3 paired sales that show a different conclusion. I don't know whether you are right or wrong. But make such a claim based only on the 1004MC results, isn't advisable.

You need some kind of multi-variate regression tool that looks at all vaiables to decide whether time is the one causing the change. Paired sales are really just as bad as the 1004MC; because by definition you are only likely to use several paired sales that you consider the best. Just like the median issue or the 1004MC inability to look at all the relevant variables, you simply don't have good support for causing problems.

You really need to apply regression to look at all variables at once. MARS is best, but there are other tools you could used.

 

[throwaway12345]

Well, then, the question is whether someone else can also find 3 paired sales that show a different conclusion. I don't know whether you are right or wrong. But make such a claim based only on the 1004MC results, isn't advisable.

You need some kind of multi-variate regression tool that looks at all vaiables to decide whether time is the one causing the change. Paired sales are really just as bad as the 1004MC; because by definition you are only likely to use several paired sales that you consider the best. Just like the median issue or the 1004MC inability to look at all the relevant variables, you simply don't have good support for causing problems.

You really need to apply regression to look at all variables at once. MARS is best, but there are other tools you could used.

If the appraiser countered with 3 paired sales with 0% growth over the time period, I likely would've gone away quietly and not started this whole thread to begin with. The appraiser would have at least provided some support for their conclusion, so who am I to question whether my paired sales are better or worse than their paired sales? Unfortunately, since I didn't get any counter, I don't know whether I'm factually right or wrong either. What I do know is that the exact same property sold six months apart for nearly $60K more the second time around presents a pretty compelling argument for differing market conditions. The only change for that property is the passage of time.

Regarding the regression, I agree with you 100%. While there are analytically sound ways to quantify statistically significant changes in market conditions between two distinct time periods across an entire market area, it seems that they aren't required based on current standards. Good appraisal practice sure, but unfortunately not required by any means.

 

[Bert Craytor]

If the appraiser countered with 3 paired sales with 0% growth over the time period, I likely would've gone away quietly and not started this whole thread to begin with. The appraiser would have at least provided some support for their conclusion, so who am I to question whether my paired sales are better or worse than their paired sales? Unfortunately, since I didn't get any counter, I don't know whether I'm factually right or wrong either. What I do know is that the exact same property sold six months apart for nearly $60K more the second time around presents a pretty compelling argument for differing market conditions. The only change for that property is the passage of time.

Regarding the regression, I agree with you 100%. While there are analytically sound ways to quantify statistically significant changes in market conditions between two distinct time periods across an entire market area, it seems that they aren't required based on current standards. Good appraisal practice sure, but unfortunately not required by any means.

You may be right with respect to said appraiser. I wouldn't know. But in the SF Bay Area, I wouldn't rely on anything except MARS (or equivalent). I don't know what the market in Hawaii is like. But, mixed cultures, high tech, foreign investment - probably not that simple.

 

[George Hatch]

I previously explained how an appraiser could cite the pricing trends of parallel market segments in support of developing their opinion about the effect of current market conditions on a subject in this situation. It's a relatively simple analysis to perform, maybe 10 minutes of work to actually identify the trend and another 10 minutes to write it out in a report.

For example, if there's a condo project with similar sized units and with recent sales an appraiser could track the historical relationship in pricing between the units in that project and your project, and if the recent sales show price increases over the ones that sold 10 months ago that would be ample support to apply similar adjustments to your subject's direct comparables. Even better if the appraiser can also identify a subdivision of detached homes on regular sized lots with recent sales so as to bracket both sides of the subject's dominant characteristics.

Doing ANYTHING to try to analyze the effect on value of the current market conditions would have been better than (apparently) doing nothing.

 

[sputnam]

I know that people often just want to get even but, consider the practicalities. In most cases, the appraisal has NO effect on the value of the property. It's for the Lender to help them decide if the collateral for the loan is adequate to secure the money you are trying to borrow from them. No one outside the parties to the transactions, is likely to see the appraisal report... nor would they care. If you were able to get financing and buy the property (or conversely if the Buyer was and you were able to sell)... the game is over. The appraisal has fulfilled its purpose.