Delicate problem

[J Grant]

My problem is explaining why I didnt use the higher sales without stating the obvious truth, which will get my license yanked in a minute. If I do use sales from this area, how can I justify the locational adjustment necessary without stating the obvious. Its a no win situation.

State the obvious without mentioning a particular religion. Here is the obvious truth - sales in area X sell for more than sales in area Y. Though some say all you need is the data, UW wants to know why, on some level. You can state something like : Homes in X area demonstrate greater market appeal because they typically sell in under 30 days at prices that average 15% more than sales in Y area, which take 60-90 days to sell and show a median price 15% lower.

If you must use a sale as a comp from one of the differing areas, the 15% is your location adjustment ( 15% is an example )

 

[Gobears81]

I find this topic fascinating and got into a big debate with my wife over it last night. She is more in the Shawangunk camp and thinks that these sales are "overpays".

There is admittedly a common sense element to this that one side has, but it reminds me of an appraiser in my area that was telling people a year or two ago that the market is 25% overpriced. Does that mean that he is "overappraising" a property every time, or does he go conservative on every appraisal because of the market being overvalued?

We have a job because of market inefficiency, but I liken this scenario to orange prices after being hit by a frost. It is true that they are overpriced relative to historical levels or in relation to apples (i.e. similar neighborhoods in this case), but the market value is the most likely selling price on a certain date, and someone is still buying those oranges at higher prices, so that is the market value.

In this case, I still don't know why the religious members didn't buy this for more than what it is pending for - or if they were given the opportunity to. Does this surge make prices more vulnerable once the trend is more established? Maybe, but that is not our job to determine.

 

[Shawangunk RE]

Is this really a "sect?" What/who comprises this group that you keep calling it a sect?

The above just indicates people who get elected and might change zoning and vote a certain way. A huge segment of a population is typically not a sect. A sect usually means a limited-to-outsiders group that follows a religion or other codified lifestyle that is not typical of the greater population.

People buying up farmland and making it into towns might be unpopular, but I am still not sure how that qualified them as a "sect". HBU changing from rural to suburban /built up is a housing trend that happens in certain areas.

That is exactly it. Limited to outsiders that follows a religion and lifestyle that is not typical of the greater population. There are signs at the entrance to these massive condo complexes about how you are supposed to dress and act while walking their publicly funded streets.

 

[George Hatch]

"Most probable price" speaks to the prevailing trend in THIS MARKET SEGMENT. Not to what is happening in other market segments.

It's an extreme example, but....
If I'm appraising an oceanfront property the market segment is limited to other oceanfront properties. The parcels located on the inland side of the street are part of a different market segment comprised of different buyers and sellers. Regardless of the proximity. The oceanfronts can be trending in one direction while the properties across the street are trending in the opposite direction.

 

[sputnam]

Yes over thinking it and headed towards potential issues from appraisers hell.

Agree. Typical buyer, typical seller... informed... and each acting in their own best interests. The sales price of the subject property should not play a significant role in your opinion of value... if your assignment is 'market value'.

 

[J Grant]

That is exactly it. Limited to outsiders that follows a religion and lifestyle that is not typical of the greater population. There are signs at the entrance to these massive condo complexes about how you are supposed to dress and act while walking their publicly funded streets.

Your prior post -I got an order for a purchase in an area in which a religious sect is expanding into. This sect has its own schools, medical centers, ambulance and fire in the township they are expanding from. They do not use the public school system. This area is predominately huge condo complexes.
My order is a single family home

I find this confusing: the "sect" is buying mainly condos in X area, and your subject is a single-family home - in X area? If members of this sect are mainly purchasing condos, then an SFR might not be in their preferred property type they are willing to pay more for?
Buyers can hate or love condos for the same reason - the condo board is allowed to put more resrtricitons on who buys or how they use a unit. That typically is limited to within the condo complex though, they can not enforce it in public areas.

 

[Surf Cat]

You can state someing like : Homes in X area demonstrate greater market appeal because they typicall sell in under 30 days

But it's not greater market appeal to the mass and/or overall market. The greater Market appeal is "only" to the particular followers of this religious denomination. The sellers of the properties in this area know this. Thus, they can charge a premium to these followers to be with their flock. Of course we as appraisers can't state this in our reports..... because we're walking on not being biased eggshells.

That's why the commentary that AI produced for me with specific instructions to be objective and not use religious and/or school commentary, in post #16 of this thread works so well. It lays out the Crux of the matter for the OP's particular assignment. Plus... it states why a particular set of comparables were utilized and others were not.

You nip in the bud before the question even arises from the underwriter as to why you "didn't" utilized certain comps in the subject's neighborhood.

 

[J Grant]

"Most probable price" speaks to the prevailing trend in THIS MARKET SEGMENT. Not to what is happening in other market segments.

It's an extreme example, but....
If I'm appraising an oceanfront property the market segment is limited to other oceanfront properties. The parcels located on the inland side of the street are part of a different market segment comprised of different buyers and sellers. Regardless of the proximity. The oceanfronts can be trending in one direction while the properties across the street are trending in the opposite direction.

Exactly. It hinges on the appraiser correctly identifying who the predominant typical buyers are for the X subject property. A luxury condo buyer willing to spend 800k on a one-bedroom unit in a high-amenity building is not the same buyer as an SFR home buyer looking for a great family neighborhood who can spend 800k. Same with oceanfront, etc etc.

If two different buyer pools are competing for the same properties, we might see higher prices in those cases.

If an appraiser fails to identify the typically motivated buyer for their subject, the whole appraisal can go off the rails. For example, some have posted they use both finished C2 sales and C 5 sales in poor condition....why??? (Unless the assignment is as-is and a second value opinion as repaired.

A C5 home buyer is typically an investor or spec home builder looking for a deep discount. A finished home is an owner-occupant use buyer who will pay top dollar or top of the range for a well-finished, move-in condition home. They are not the same buyer, even if the same house resold 4 months apart first as a spec home C5 and later as a remodeled home C2.

The most probable price is usually the high end of the range for the best property among the comps and the low end of the value range for the worst house among the comps. Some mistakenly believe the most probable price is always a statistical average or should be the middle. Those folks, imo, should not be doing res appraising, because they are rote formula-minded. Just like the new age of data autofill and AI that will soon be distorting appraisals and valuations everywhere.

 

[J Grant]

But it's not greater market appeal to the mass and/or overall market. The greater Market appeal is "only" to the particular followers of this religious denomination. The sellers of the properties in this area know this. Thus, they can charge a premium to these followers to be with their flock. Of course we as appraisers can't state this in our reports..... because we're walking on not being biased eggshells.

That's why the commentary that AI produced for me with specific instructions to be objective and not use religious and/or school commentary, in post #16 of this thread works so well. It lays out the Crux of the matter for the OP's particular assignment. Plus... it states why a particular set of comparables were utilized and others were not.

You nip in the bud before the question even arises from the underwriter as to why you "didn't" utilized certain comps in the subject's neighborhood.

Agree, I said much the same thing. The appraiser can talk about why a buyer pool is paying more for X area without mentioning ethnicity or religion. Sometimes more buyers move into an area, and it drives prices up; other times it can drive prices down.

We don't need AI to tell us that! If your AI prompt gave a narrative that clearly explained, good for you - but appraisers should always check AI-generated narrative. It can make faulty assumptions that sound reasonable yet are incorrect. For example, I was appraising a home in the million-dollar range in a gated community with a few amenities. The RE agent proudly showed me her AI conclusion on the CMA she showed buyers for this house, which had an AI-generated narrative stating that homes in the area in gated amenity communities commanded higher values. Actually, the reverse was true in this area.

The stakeholders are always trying to drive down the already far too low appraisal fee, even at full C and R. Now their excuse is that auto-populating with AI will make it faster. Thier big word is efficient. I did not see efficient and fast as a standard in USPAP. Maybe they can corrupt the writers of USPAP and change it to whatever the big $ users want. Since USPAP writers stand silently by and watch their flimsy standards be exploited to kill the profession, they come out with a petty, arcane change to a definition every few years.

Perhaps AI software can shave off a few minutes off, but one has to proofread and check everything. And the RE agents and buyers and sellers will be running their own AI and challenging appraisals with it. Most res lending work is underpaid even at full C and R with no AMC, and with an AMC taking a big cut, it is almost criminal. Half or more of the appraisal work happens after we deliver a report and can get an ROV and then multiple reviews or challenges.

 

[George Hatch]

I would say the buyer type isn't what's significant, but the attribute for which the demand is higher. If the attribute is 1 story sells for more than 2-story then the observation of that difference and the quantification of the effect on value is what we're doing, not speculation about their motives being the buyers are older and don't want to do stairs.

This group sells for 12% more than that group. Done. The reason why doesn't matter in an MV appraisal. Nor does knowing why (if that's even possible) relevant to the decision maker's decision particularly when that reason gets into the personal attributes of the borrower. Even if that attribute isn't among the various classes protected in fair lending, treating one type of attribute different from another will soon touch upon the issue of treating people differently.

Stick to the property attributes and put the buyers' personal attributes out of your mind. If the location is the thing or if the orientation of the front door is the thing or if the number of bedrooms is the thing then prove it with the data. And keep any opinions you may or may not have about the people to yourself. Not one word.

And not just in the appraisal, either. If you're reviewing and some appraiser is running wyld with their speculation about the people then you gotta make them fix that because your client cannot get caught with a contaminated appraisal report in their files.