Do you adjust listings in the grid?

[KD247]

This discussion is getting way off track.

Here's my logic:

Asking prices alone are not good indicators of market value, even after adjustments for typical negotiated reductions.

Asking prices are excellent indicators of the upper limit of value (based on the Principal of Substitution).

Adjusting asking prices, by attempting to forecast a sales price (typically by applying a LP/SP ratio), does not turn a listing into a good indicator of market value. Worse, the adjustment reduces the clarity of the price ceiling set by the listing.

Buyers typically look for the least expensive alternative property, so those listings which represent the best deal on a substitute property come closest to representing actual factors affecting buyer's decisions.

_____________________________

A couple of clarifications:
Most appraisers agree that listings used on the grid should always be adjusted for physical differences, like any other sales data. Usually, the debate as to whether listings should be "adjusted" pertains to whether the asking price should be adjusted to reflect typical negotiations, roughly shown by an average List Price/Sales Price ratio.

Data regarding a model-match listing next door to the subject is a crucial part of any appraisal and should never be omitted. The inclusion of a listing for a non-competing property (one that the hypothetical buyers of the subject would never consider) adds little, or nothing, to the appraisal. For listing data in between these two extremes, the appraiser's best judgment comes into play.

Whether to put the listings on the sales grid or not is a decision based on lender's requirements and the appraisers best judgment as to how the appraisal analysis is most clearly communicated. When the ceiling set by asking prices has a strong bearing on the appraisers conclusions, many underwriters and reviewers believe it's helpful to see the data side-by-side with the other comparable sales. But, outside of a specific lender's requirements, that decision is at the discretion of the appraiser.

No matter how listings are presented, the appraiser must insure that the reader is made aware that a listing's asking price is not the same as a closed sale price or even a contract price.

 

[444nutman]

I had this same conversation with one of my peers. He adjusts his listing based on historic data of SP to LP. I on the other hand do not adjust my listings but use them as an upper limit or an indication of future value. I find the most similar listing and have given them secondary consideration in a report. An example would be if the last sale in the sub was 4-6 months old but were 4 matches that were listed 20k less then you know the most recent sale is too high in a declining market. I think the problem that most appraisers have is they just don't do enough "splainin" in their reports. I have seen reviewed appraisals that say equal weight given to all sales and there are adjustments all over the grid.No explanations no nothing. I try to assume that the reader is a layman(most UW are) and make it easy to understand why I chose the comps I did and the rationale behind my adjustments. My buddy who adjusts listings is not wrong because he explains why and I am not wrong because I explain why. We are contracted to give a value, the least we can do is take the time to explain the hows and whys.

 

[Carnivore]

Absolutely Correct.

I agree also. Richard has nailed the obvious!

Just as a side note to this issue. In my area there must be 10,000 RE agents. They are a very eclectic group; old men, young men, old broads, young babes, some smart, some stupid. Big companies, little companies, shysters and Come to Jesus types. You name it we got it!

Then throw in all the nut-job sellers and you have a hell of a mess.

So to view listings as some form of consistent market reaction would be a stretch at best. Especially grabbing a random two and laying them out in a summary report as if the QLC crowd has ever actually read your entire report!

 

[Mike Kennedy]

duplicate deleted

 

[Mike Kennedy]

This discussion is getting way off track.

Here's my logic:

Asking prices alone are not good indicators of market value, even after adjustments for typical negotiated reductions.

Asking prices are excellent indicators of the upper limit of value (based on the Principal of Substitution).

Adjusting asking prices, by attempting to forecast a sales price (typically by applying a LP/SP ratio), does not turn a listing into a good indicator of market value. Worse, the adjustment reduces the clarity of the price ceiling set by the listing.

Buyers typically look for the least expensive alternative property, so those listings which represent the best deal on a substitute property come closest to representing actual factors affecting buyer's decisions.

_____________________________

A couple of clarifications:
Most appraisers agree that listings used on the grid should always be adjusted for physical differences, like any other sales data. Usually, the debate as to whether listings should be "adjusted" pertains to whether the asking price should be adjusted to reflect typical negotiations, roughly shown by an average List Price/Sales Price ratio.

Data regarding a model-match listing next door to the subject is a crucial part of any appraisal and should never be omitted. The inclusion of a listing for a non-competing property (one that the hypothetical buyers of the subject would never consider) adds little, or nothing, to the appraisal. For listing data in between these two extremes, the appraiser's best judgment comes into play.

Whether to put the listings on the sales grid or not is a decision based on lender's requirements and the appraisers best judgment as to how the appraisal analysis is most clearly communicated. When the ceiling set by asking prices has a strong bearing on the appraisers conclusions, many underwriters and reviewers believe it's helpful to see the data side-by-side with the other comparable sales. But, outside of a specific lender's requirements, that decision is at the discretion of the appraiser.

No matter how listings are presented, the appraiser must insure that the reader is made aware that a listing's asking price is not the same as a closed sale price or even a contract price.

Well Said!. I do suggest though that inclusive of a specific lenders' requirements, it is ALWAYS a decision that is at the discretion of the Appraiser. Listings when utilized must always be TRULY COMPARABLE.
Unfortunately, based on reviews, many (a)ppraisers simply throw listings into reports to "satisfy the SOW demand of a Lender which are easily discernable as having NO relevancy to a subject whatsoever. No different than the closed sales utilized to "hit the number".

 

[Richard Carlsen]

Asking prices alone are not good indicators of market value, even after adjustments for typical negotiated reductions.

Asking prices are excellent indicators of the upper limit of value (based on the Principal of Substitution).

I'd agree with you that listings are not an indicator of market values but adjusted, they are good indicators of market levels, most often being at the upper end of the value range as you state. However, spiking up or down to extremes beyond the normal establish market levels of what I call the Indicated Asking Price (list Price with adjustments) may happen in isolated cases simply because of sellers motivation. A highly motivated seller may chop his price to get rid of a house and price it -15% below the established market levels while a seller who thinks too highly of his house and is not well motivated to sell, may go on a fishing expedition and price it +20% too high. Most often, sellers motivation cannot be accurately determined so my practice is to disregard these spikes of either too high or too low asking prices as anomalies.

But the bottom line is that the Indicated Asking Price of a listing or better still, a series of listings should be a good indicator of the upper level of the subjects value range. In this respect, they do well to support the fact that the subject would be able to well compete with the current active market if the subject were offered to the market at the estimated value. This fact tends to support value.

 

[Carnivore]

Expired listings are often quite telling. Especially if you have you market/exposure times pretty well nailed down. A group of recent expired listings probably are better indicators of "The Ceiling" then actives.

You see, the market has indeed spoken and buyers have rejected those expireds for a reason!

 

[Richard Carlsen]

Expired listings are often quite telling. Especially if you have you market/exposure times pretty well nailed down. A group of recent expired listings probably are better indicators of "The Ceiling" then actives.

You see, the market has indeed spoken and buyers have rejected those expireds for a reason!

Amen to that. That's why I try to mention listings and expireds. Here's my market condition comments from a report on a $300K value house we recently completed:

"Using county wide data due to low density, in $225K to $350K price range, currently 10 listings with 5 sales in the past 12 months and 55 canceled/expired listings in the 12 month period. County-wide market in all price ranges, during the past 12 months, sales are 95% of list price with average marketing time of 231 DOM, (up 12% in past year). Conclusion: market values are declining due to over-supply and loss of mfg jobs. Source: WaterWonderland BOR MLS"

The sales and listings say something but the 55 failed offerings also say a lot. Some are relisted but many just give up on the market and don't try any more.

 

[McPheeters]

#2) The sales grid belongs to the appraiser. It is there to demonstrate his work. As such, appraisers should strongly oppose any requirements that lenders or UW's should try to place on the use of this grid.


Tell that to Cheif George Vann........and get cut off if you do not comply.

 

[ZZGAMAZZ]

Senior appraiser in the small company I work for says that although he includes active listings because the clients require him to do so, he does not give credence to them because the opinion of value of the subject is based upon market exposure time rather than marketing time, and there is no way to predict the future for the listings.

I don't agree . . .