Do We Predict Or Not?

[Mark K]

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.

SFR purchasers rarely enter into a transaction pondering the effect of future changing interest rates, population migration, etc. on vacancy rates or cash flows. IMO, the commercial appraisal should do sufficient research to at least take a stab at predicting these issues. The typical SFR appraisal report user wants to know the value as of today; they don't expect the report to try to predict future values. The difference is a matter of scope and expectations of the user. And even if your crystal ball tells you that the world is coming to an end (possibly true in your state) are you going to base your appraised value on your crystal ball or on your historical data? How will this knowledge affect your appraisal with an effect date of valuation of yesterday? If you have 6 recent, good comps that sold for $500K is your report going to show something less?

Maybe some Illinois residents don't want to be the last one trying to get out of town when your pension liabilities cause either massive tax increases or bankruptcy. What are you up to now, $90 Billion, something like that?

 

[Gobears81]

And even if your crystal ball tells you that the world is coming to an end (possibly true in your state)

Had to like this post for this quote

No, this state has given me a good living and I've found that there are some genuine holes in the market for areas that don't seemingly seem strong, and vice versa. Commercial appraising might be one of those holes in some markets. The probable governor-elect might challenge my resolve to stay here for an an extended period if they change the tax structure here to a progressive system, but it is what it is.

$90 billion? Please. Chump change

https://www.bloomberg.com/news/arti...owes-11-000-for-pensions-with-no-fix-in-sight

 

[J Grant]

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.

Since res buyers and commercial buyers have different priorities and reasons for purchase, wouldn't an analysis appropriate or relevant for one be less so for the other?

For example, economics may not drive a buyer in an area it could be family ties, they grew up there, kinds in school etc...though one would expect they'd be reasonably informed what is going on in their own area

 

[nstanbru]

$90 billion? Please. Chump change

It is in California.

 

[Gobears81]

Since res buyers and commercial buyers have different priorities and reasons for purchase, wouldn't an analysis appropriate or relevant for one be less so for the other?

Not every commercial property is bought for its income potential though. Take a residence where they operate a business out of an office in an outbuilding. I agree that different analyses are warranted for different property types

 

[Carnivore]

Not every commercial property is bought for its income potential though. Take a residence where they operate a business out of an office in an outbuilding. I agree that different analyses are warranted for different property types

I have these in the Charlotte Area. The current owner rented the lower level has a commercial Tenant and upper level has a Residential Tenant

Additionally there is Corporate housing is a term in the travel industry meaning renting out a furnished apartment, condo, or house on a temporary basis to individuals, military personnel, or corporations as an alternative to a traditional hotel or an extended hotel stay.

 

[Mr Rex]

Given that the premise (pre mise?) of an appraisal is a non existent sale on the effective date of the opinion of value the use of the term “prediction” of a non existent “pretend” sale is hardly a misnomer. The pre indicates before it actually happens. The pre tend sale is “pre” an actual sale and the opinion of value is pre dictated (another pre) on a pre tend sale that has yet to occur. So offering an opinion of value regarding a sale that has yet to occur is a pre diction.

 

[J Grant]

That is preposterous...pre---posterous

Indeed the appraisal SC indicator is not an actual "sale", the SCA result is from the appraisal model hypothetical sale so how can we "predict" it? We reconcile results from the SCA along with other approach indicators used (CA or IA) to arrive at our opinion of value

 

[Mr Rex]

That is preposterous...pre---posterous

Indeed the appraisal SC indicator is not an actual "sale", the SCA result is from the appraisal model hypothetical sale so how can we "predict" it? We reconcile results from the SCA along with other approach indicators used (CA or IA) to arrive at our opinion of value

You said it “hypothetical sale” as in has not happened (and may never) so yep you are predicting a value based on an event that has not and may never happen.

 

[J Grant]

You said it “hypothetical sale” as in has not happened (and may never) so yep you are predicting a value based on an event that has not and may never happen.

Okay, I can go along with that BUT, it is a slippery slope....because while the above logic confines our "prediction" to our own presumed "sale" in the appraisal...

Some appraisers /other parties believe a "prediction " literally to mean the exact $ sale price a subject should,, or would , or will sell for in the market...