Do We Predict Or Not?

[J Grant]

So what? If stock brokers or investors want to gamble on predicting futures that is their venue, not ours. We do of course consider pending trends and what is happening or might happen in a market that affects the effective date opinion of value and recognize that buyers are buying future benefits when they purchase. Still, even though a buyer is purchasing future benefits from a property, they are paying today's price.

 

[Carnivore]

So what? If stock brokers or investors want to gamble on predicting futures that is their venue, not ours. We do of course consider pending trends and what is happening or might happen in a market that affects the effective date opinion of value and recognize that buyers are buying future benefits when they purchase. Still, even though a buyer is purchasing future benefits from a property, they are paying today's price.

Well when you get outside of FNMA world of appraising you might be surprised to learn that RE Appraisers are hired to do all kinds of Valuation services.

But I think we are at a point in this thread where I will back away and find another interesting topic to discuss. No point in wrestling with a greased pig.

 

[Mark K]

No, we're not predicting, in most situations. We opine a value based on historical data for an effective date that, in nearly all cases (residential), is a very short time prior to the date/time of the report. We discuss historical trends and unless you're looking for trouble you don't try to predict future trends. Doing so would cause an appraisal to have less credibility than it already has.

 

[J Grant]

Well when you get outside of FNMA world of appraising you might be surprised to learn that RE Appraisers are hired to do all kinds of Valuation services.

But I think we are at a point in this thread where I will back away and find another interesting topic to discuss. No point in wrestling with a greased pig.

If providing a future market value opinion as of X (future eff date) is purpose of assignment, then an appraiser would provide that. But even outside of" FNMA world", how often are appraisers asked to do that? When they are asked to do that, or course it appropriate.

The topic is appraisers believing they are "predicting " price within " FNMA world" ( or any MVO as of contemporary effective date assignment )

 

[Gobears81]

We discuss historical trends and unless you're looking for trouble you don't try to predict future trends.

Part of the market analysis involves understanding the "why" of where prices are going. If historical data suggests that prices are appreciating by 2% per month, we want to know whether it is appropriate to bring that same 2%/ month adjustment from the last sale pinpointed as holding that trend to the effective date, whether it is increasing from there, stabilizing, or even reversing. We can look at current inventory to assist, but we also have to make future predictions based on the best data available (or at least the best data known to the typical purchaser) to ascertain whether historical trends will hold on the current date or whether they change.

Not to mention, a 1-4 family residential income approach also utilizes pro-forma projections for a stabilized rent, which certainly qualifies as a prediction, albeit near-term. If we are to say that the income capitalization approach is forward looking, and consequently, utilizing predictions while the sales comparison approach is not forward looking, then there is an inconsistency in the valuation methodology.

 

[J Grant]

No, we're not predicting, in most situations. We opine a value based on historical data for an effective date that, in nearly all cases (residential), is a very short time prior to the date/time of the report. We discuss historical trends and unless you're looking for trouble you don't try to predict future trends. Doing so would cause an appraisal to have less credibility than it already has.

I agree, however we should also analyze pending future trends to extent we are aware of them as of eff date, as a buyer or seller would. ( I bet you do this in your work)

However, even as parties consider near future trends such as the economy is getting worse/better, interest rates are going up or down/ same model just listed for X $, and these trends can affect their decisions, they settle on today's price.

 

[J Grant]

Part of the market analysis involves understanding the "why" of where prices are going. If historical data suggests that prices are appreciating by 2% per month, we want to know whether it is appropriate to bring that same 2%/ month adjustment from the last sale pinpointed as holding that trend to the effective date, whether it is increasing from there, stabilizing, or even reversing. We can look at current inventory to assist, but we also have to make future predictions based on the best data available (or at least the best data known to the typical purchaser) to ascertain whether historical trends will hold on the current date or whether they change.

Not to mention, a 1-4 family residential income approach also utilizes pro-forma projections for a stabilized rent, which certainly qualifies as a prediction, albeit near-term. If we are to say that the income capitalization approach is forward looking, and consequently, utilizing predictions while the sales comparison approach is not forward looking, then there is an inconsistency in the valuation methodology.

I dont think there is an inconsistency. The common denominator is that even though purchasers are making decisions in part based on what they can know of future trends, and buying future benefits, they are paying today's ( as of effective date ) price.

The differential is that the future benefits of income can be calculated mathematically into a coming months/years return to inform an investor what to pay for today's Price. Whereas the future benefits in res occupancy are more personal, hoping to live in a certain neighborhood, avoid rental instability, fix up a house to taste, along with some tax benefits or hope of future appreciation.

Buyers decide to pay X $ for a property based on past known data as well as some consideration of future trends. They base it heavily on past, ( the same model home or income property sold last year for $Y and last month for Z $, and they factor in reliance on past data with a reasonable knowledge they have of the future ( better buy now before mortgage rates go up, I read they are going up etc )

Sellers also decide to sell at today's price rather than gamble or risk on future ( or because they have to sell now), even as they are aware of future trends as well..

 

[Mark K]

. We can look at current inventory to assist, but we also have to make future predictions based on the best data available (or at least the best data known to the typical purchaser) to ascertain whether historical trends will hold on the current date or whether they change.

.

I agree in regards to commercial appraising; that's generally an important part of the appraisal.

I don't agree for typical SFR appraising unless there's some overwhelming evidence that suggests (or screams) imminent change, e.g. large employer in small town announces they're closing up shop.

 

[Gobears81]

I agree in regards to commercial appraising; that's generally an important part of the appraisal.

I don't agree for typical SFR appraising unless there's some overwhelming evidence that suggests (or screams) imminent change, e.g. large employer in small town announces they're closing up shop.

But what is different about commercial vs SF residential appraising that causes predictions to be appropriate for one, but not the other? I appraise commercial properties with some residential component fairly frequently. From a standpoint of predicting the future, I don't really approach that differently from a "true" commercial assignment.

This part of Illinois is getting killed with population losses (partially to Indiana ), so I am unfortunately seeing quite frequently potential purchasers' concern with recouping their initial purchase and whether their initial purchase price adequately accounts for the additional costs associated with potential future vacancy. I get that stable markets don't really create the same discussion by potential purchasers regarding recouping the initial purchase price in the resale (or how much they'll profit from it), but when appreciation or depreciation isn't 0%, these types of issues become much greater considerations.

 

[J Grant]

Poorly informed, ego/ dreams can influence a residential buyer to over pay or make a poor decision. ...but until they decide to sell, their reasons for buying are less tied in to financial concerns or returns.

On the other hand, for commercial..: An investor buyer's reliance on financial data pegged to future trends can lead them to decisions that don't pan out.

Ddi investors buying retail property 10 years ago foresee the internet decimating demand for retail space? In my area, over a decade ago plans were in place for Scrips to buy this huge tract of vacant land, they were going to build a gigantic campus and research facility, thousands of jobs yada yada...Investors bought parcels of land in the slated area, then Scripps pulled out, now that land is worth far less than what they paid...