Definition of "Average Condition"

[Robert A. Wiley]

I am curious if anyone knows of a written definition of what "average condition" means as it relates to appraising.

We have checked our appraisal dictionary but it didn't have a defintion. An appraisal management company told us that it differs depending on the geography. For example, in one geographic area, average may mean something different than in another geographic area.

Anyway, if anyone knows of an industry-recognized definition, please let me know where I can find it. If not, I would be very interested in individual explanations and guidance.

As a non-appraiser, I appreciate the opportunity to bring this question to the Forum.

Sincerely,

Robert A. Wiley
robert@liability.com
Liability Insurance Administrators

 

[Pamela Crowley (Florida)]

I consider 'Average' for the subject is when it's condition is typical, or average, for it's particular neighborhood.

 

[Blue1]

Robert,

Fannie Mae states two different crieteria.

1) There is a relationship between the actual and effective ages of a property. A property well maintained would generally have a younger effective age whereas a property with a higher effective age probably has not been well maintained

2) Based on factual data of the improvement's analysis, the appraiser must express an opinion about the condition of the improvements.

Please also note that on the 1004 form, the appraiser is requested to assign a conditon to interior elements in the "Description of Improvements" section on the front page. Harrison's guide (advises that condition should be rated either "Good" "Average" "Fair" or "Poor."

U.S. Dept of Housing and Urban Development Handbook (4150.2 Pg D-10) Paragraph: "Interior Materials/Condition" states: Enter the types of materials and the condition of the materials (Good, Average, Fair and Poor)

Hope this helps.......

 

[xmrdfghap]

Robert, thanks for the question, but average means just what it impys. It means it is average for the neighborhood, the community, for the price range, for the style. It is neither better (requiring an adjustment for superadequacy) nor is it inferior (requiring an adjustment). If the subject and all the comparables are tar paper shacks of 500 square feet, then a 500 square foot tar paper shack is average.

 

[Blue1]

Fannie Mae adds one caveat:

"The appraiser must report a detrimental condition of the improvements even if that condition is also typical for competing properties." "For instance, the appraiser should note if a property is characterized by deferred maintenance or a lack of updating even if the same condition applies to competing properties in the neighborhood." So, according to Fannie Mae, condition may be "average" as compared to other improvements but the appraiser must report deferred maintenance or lack of updating? Hmmmmmmmmmm

 

[Ross (CO)]

Robert, ..... I'll bet you tilted your head to the side, and said "what ?" when that individual at the appr. mgmt. co. told you that the descriptive term of "average" had some root meaning tied in with geography or differences between geographic areas! O.K., so, I'll say it....what ! That's like comparing desert to piedmont....or delta swamp to alpine. Unlikely that other sold properties compared to a subject property are coming from diverse geographic areas. You probably know what we appraisers are up against when follow-up contact from certain client staff pose questions about our report. By not knowing our process, or our required standards, or our terminology, it is only (il)logical that they struggle with some of our analyses. We'll save commentary about our value conclusions for another discussion.

Blue 1 was weighing in with good info when saying how important it is to portray the relative amounts of any deferred maintenance or lack of updating at a subject property. Providing that info, by itself and for itself, can be independant of the "average" condition term being used. At the same time, such conditions may well be average for the neighborhood or market area we have defined, although we do not get the intimate interior observation of those properties. That is why we place certain phone calls to verify the other comp data which we are using. It is certainly incumbent upon us to attempt to find and use available comparable sales which truly match the subject, selling in recent time, while also being able to sometimes sprinkle in another sale having a better condition (and assumedly better/higher price) to show how the subject might NOT match-up to its competition.

That word "Average" covers a potentially broad spectrum of judgment on the part of any appraiser, and is sometimes a real delicate issue when our gut says we should say "Fair", or on rarer occasion consider the dreaded "Poor" word. Many neighborhoods have their extreme properties. Sometimes we get stuck with an assignment that fits one end, or nearer that other. Our obligation is to call it like we see it, and hope that our reader has an open mind to accept our summary. I just grabbed my Merriam-Webster Dictionary and here are two line entries that are sure to settle the issue.....Average : (1) being about midway between extremes, (2) being not out of the ordinary. ( Not as absolute and clear as one might want ).

May I thank you for the Loss and Liability Prevention Seminar that you (or R.C.) and Claudia conducted for our Colorado Springs appraisers assoc. in January. It is a noble effort put on by L.I.A, professionally done, very informative, and hopefully a fulfilling effort at growing your customer base. I send an envelope to Santa Barbara every late June.

 

[xmrdfghap]

So, according to Fannie Mae, condition may be "average" as compared to other improvements but the appraiser must report deferred maintenance or lack of updating?

<span style='color:brown'>deferred maint has nothing to do with "average." Average is a term used to compare one thing with other things. Deferred maint is a condition.....it is not a comparison to anything. A worn out roof is a worn out roof. It may be below average for the neighborhood (if everyone else has a new roof) or it may be average (if no one has a new roof)......but a worn out roof is indicative of deferred main....even though it is average or poor or, possibly, superior (if the subject roof has 2 years of life left while the others in the area are worn out).</span>

 

[Blue1]

I understand where you're coming from Greg and it makes a lot of sense. However, I think the Fannie Mae guidelines are unclear. That is, how can we say a property needs updating if all the others in the neighborhood are similar? Updating compared to what? To me, if a property compares well with other similar properties in the neighborhood, then it is "average." Regardless of updating or not.

 

[vargasteve]

In my area many homes are jumbo & super jumbo with loans $750K - $2Mil or more...

When going through my appraisal training 'Average' meant typical for the neighborhood. That would mean that the majority of $2 million dollar homes are average. And while that is the professional description of the condition for the particular area & neighborhood in many cases I tend to avoid the description as 'average' when appraising the higher dollar properties. I believe that the home owners can be offended by this term, and when considering lending high dollar as a underwritter I just imagine them thinking 'average' as 'fair' in lower dollar valuations. (like your trying to help them read between the lines)

While describing a really very nice dream home as 'average' might be correct within its environment. I most often use 'Good' as I believe this also describes the condition properly as well. From that point comparables are adjusted just as superior / inferior or very good from there.. The nice thing as an appraiser is alot of variation is acceptable - and as long as I'm truely being honest I feel good about my performance & role.

 

[Restrain]

I agree that "Average" can be said to be "Typical". That being said, I look at a home that has had typical maintenance but has cosmetic problems (needs interior paint, carpet is worn, etc) as "Average". That being said, most homes that have been marketed generally need a downwards adjustment to the "Average" home because of fresh paint, recent carpet, etc. I have to explain this, stating that the subject has typical deferred maintenance while the sales have been made ready for sale. However, the homeowner can be much harder to convince.

Roger