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Explaining Large Increase In Value

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swapp

Sophomore Member
Joined
Jul 9, 2012
Professional Status
Certified Residential Appraiser
State
Arizona
I recently appraised a property much higher than what it sold for a year ago. The sale was a normal transaction per multiple sources, I explained this. Minimal updates have been made, but the main accounting for the increase is apparent in the comparable sales ie, the current market. How can I elaborate on this increase without having to practically do a retro appraisal? Thanks!
 

BRCJR

Elite Member
Gold Supporting Member
Joined
Sep 20, 2005
Professional Status
Licensed Appraiser
State
Virginia
I recently appraised a property much higher than what it sold for a year ago. The sale was a normal transaction per multiple sources, I explained this. Minimal updates have been made, but the main accounting for the increase is apparent in the comparable sales ie, the current market. How can I elaborate on this increase without having to practically do a retro appraisal? Thanks!
Your analysis of the current market trends should speak for itself.

Do the same search you would do for the MC Form for the previous time frame. Export this to Excel. Do the same search for the current market. Export this to Excel. Compare and discuss the results in the report.
 
D

Deleted member 134708

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I state facts. I don't talk about the increase. What I say is; I did not perform a retrospective valuation on the subject and can not say if the prior sale was at, below or above market value. Since I cannot establish a baseline, I can not comment on the cause of the price differentials.

You can state market has increased x% since that date. But I don't talk about the prior sale besides facts.
 
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J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I recently appraised a property much higher than what it sold for a year ago. The sale was a normal transaction per multiple sources, I explained this. Minimal updates have been made, but the main accounting for the increase is apparent in the comparable sales ie, the current market. How can I elaborate on this increase without having to practically do a retro appraisal? Thanks!

We are asked to analyse prior sales, we are not asked to retro appraise...though a year ago you might be able to tell if it sold within prevailing prices or lower or higher then prevailing at the prior date for your own analysis..

When what happens above I state something like "Prior sale price reflects the market and comps in the prior year market cycle. (comment further on terms if applicable) Then state the appraisal current effective date opinion of market value reflects the most recent comps and activities of houses similar to the subject., That there has been market appreciation since prior sale date.

I presume you are truly comparable sales; ...big jumps in "value" from a year ago with no significant upgrades is going to be looked at hard by reviewers/client..
 

timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
I state facts. I don't talk about the increase. What I say is; I did not perform a retrospective valuation on the subject and can not say if the prior sale was at, below or above market value. Since I cannot establish a baseline, I can not comment on the cause of the price differentials.

You can state market has increased x% since that date. But I don't talk about the prior sale besides facts.
I would suggest reading USPAP standards rule 1-5(b) which requires the appraiser to analyze all sales of the subject property that occurred within 3 years prior to the effective date of the appraisal.

If you truly did analyze the prior sale as is required by USPAP, then you should be able to provide an intelligent statement regarding the apparent increase in value since the date of the prior sale and be able to adequately report the results of your analysis of the prior sale.
 
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hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
This question (a sale of the subject from a year ago... is there a reason for the significant increase?) isn't that hard to answer (although one of the answers might not satisfy the intended user but that's too bad). I don't think it is an unreasonable question (it is the first question I'd ask myself as the appraiser). And, I do not believe a retrospective valuation is necessary to answer the question.

There are four likely answers:
1. A change in the market conditions (appreciation)
"I note that the subject previously sold for $500k one year ago. In my market conditions analysis, I've concluded this market has increased 10%/year. My current opinion of value, at $565k is based on current comparables which reflect the current market conditions. This difference is consistent with the overall market condition change since the prior sale."​

2. A change in the market characteristics
"I note that the subject previously sold for $500k one year ago; my current opinion of value is $565k. After the prior sale, the local transit authority has confirmed that it is building a new transit HUB within 1-mile of the subject. This announcement (development expected within the next 3-years) will create a much needed commuter link to the major employment centers of Silicon Valley. Per my discussions with agents, this announcement has caused significant value increases in the subject's immediate area; it is not part of the redevelopment zone but will benefit from the transit hub project and planned amenities. All of my current comparables were sold after the announcement and reflect the anticipated benefits of this dynamic."​
(Does this sound farfetched? It is happening in my markets with the new BART extensions.)

3. A change in the subject's physical condition
This should be a no-brainer; explain the subject's current condition is superior to what existed previously and the current opinion of value reflects that superior condition.

4. I cannot explain it :ohmy:
"I note that the subject previously sold for $500k one year ago; my current opinion of value is $565k. Per the owners, there has been no significant changes or updates to the property. The market has moderately increased since then (3%) but that appreciation alone does not account for the difference. The residential real estate market is imperfect, and value variations between different points in time using different sets of comparables is not unusual (indeed, it should be the expectation). All the comparables used are recent, similar, and support my value opinion as of the current effective date. The conclusions are credible and reliable."​
This is the one they may not like, but too bad. I analyzed the situation and cannot explain it any more than with some appreciation and the imperfections of the market, differences should be expected. What matters is the current data supports the value. Note that I did not say the prior sale was below market, etc. The data is what the data is, the lender can take it or leave it.
I have no problem stating I cannot explain a price difference of past vs. current. I do look to see if I can find an explanation and provide what I do know. But at the end of the day, the value "now" is based on the comparables "now". Obviously, the larger the difference, the greater the expectation of our intended users for the appraisal report to make some comment on it. Once I make my comment, I'll leave it to them to determine if they want to make the loan or not. But comment I will.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I dislike couching it in terms of "an increase in value" ...coming from a client. I dont' know if "values" are increasing, I can say that prices are increasing.

I do want want to declare if prior sale price was at, above, or below market value since that becomes a retro date retro appraisal. I might offer a comment that due to prior transaction e concessions or cash price etc (or buyer motivation/unknown reasons) the prior price may have been on a higher or lower range of prevailing prices at that time.

Then I go on to talk about how my present date value opinion is based on recent sales/listings /market conditions.

There is only so much "analysis " we can do of a prior sale before it crosses into the territory of a prior appraisal ..
 
D

Deleted member 134708

Guest
I would suggest reading USPAP standards rule 1-5(b) which requires the appraiser to analyze all sales of the subject property that occurred within 3 years prior to the effective date of the appraisal.

If you truly did analyze the prior sale as is required by USPAP, then you should be able to provide an intelligent statement regarding the apparent increase in value since the date of the prior sale and report the results of your analysis of the prior sale.

I agree with you. I chose to ignore USPAP on this.

I realize it says analyze, this would mean doing a retrospective valuation. In no way can I start analyzing something without an accurate baseline. I need to know if the prior price was at, below or above MV. No way am I going to go retrieve this baseline #, which would require a retro appraisal.

I will gladly ignore USPAP on this.
 
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D

Deleted member 134708

Guest
I give all facts of prior sale. What the market has done from then until now. What has factually changed from then to now. But I will not give a reason for the increase since I do not have a baseline for the subject's prior MV.

I will give all facts, and let the reader find their conclusion on the increase.
 

reviewbe

Sophomore Member
Joined
Oct 4, 2016
Professional Status
Certified General Appraiser
State
California
As far as stating facts only, USPAP requires that you ANALYZE all sales of the subject within the prior 3 years (SR1-5b). Simply reporting the sale isn't enough (SR2-2a-viii), you have to show that you complied with SR1-5. It doesn't need to be included as a comparable sale, but you do have to put some effort into analyzing the prior sale and then reporting what your conclusion is.

Nothing says that what it sold for a year ago has to be a good indicator for what it's worth now. But it ought to be. And if it isn't, you better have a reason why you are now appraising it at a substantially different value. Thats part of your job to figure it out. Doesn't require a retrospective appraisal, but at least a bit of effort to get some idea what you might have appraised it at a year prior.

Inconsistencies like this are your friend, not your enemy. It can force you to learn something about your market, and the extra effort can actually lead to better confidence in your appraisal.

Sometimes a realtor will price a property a bit low because they need a quick commission, but not likely to get an admission on that one.

When I was appraising residential, there were times I couldn't figure out the 'why', there was no apparent reason for a change in value. In that instance, if you have current data on your side, you chalk it up to as an aberration, that the buyer got a good deal, and hope it gets thru the review. Youv'e done your job.
 
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