Fannie definition of market value

[Elliott]

Alsie,
I don't know if the history of housing prices indicate a 'soft landing.' Something in my memory recalls 'the angle of incident equals the angle of reflection," it was probably in a physic class on light theory. My son bought a house about 3-years ago for $640,000 in a area about 80-miles from San Diego. He listed it for $1,000,000 and had a sale in a week, he's planning to move to AZ.

 

[Alsie35]

Alsie,
I don't know if the history of housing prices indicate a 'soft landing.' Something in my memory recalls 'the angle of incident equals the angle of reflection," it was probably in a physic class on light theory. My son bought a house about 3-years ago for $640,000 in a area about 80-miles from San Diego. He listed it for $1,000,000 and had a sale in a week, he's planning to move to AZ.

View attachment 53294

Very true. There is always an element of wishful thinking in hoping for a "soft landing" in times of crazy appreciation (just think back to 2005-2007 - just before the bottom dropped out).

Bully for your son. I bought my home in 2017 and will be selling it in two months - though the appreciation in my area is not quite as steep as it apparently is in his. (Hope he picked the offer that guaranteed cash to make up any deficiency between appraised value and contract price ).

 

[Overimprovement]

Re: Views: They may not matter in Kansas, but trust me, they are very "real" in some areas. There are some areas I appraise in CA where the view adjustment is an automatic $100-200K (depending on the year and market). Real easy to quantify, too - when you have model matches on opposite sides of the same court, both remodeled, one with panoramic views of ocean/mountains, the other with residential views. Multiply that analysis 5-6 times within the past 12-18 months, compare and ... boom - its real.

Re: Farm loans. Horrible story, but not applicable to the SFR mortgage market.

I agree view adjustments can certainly be quantifiable, and even if they are not easily quantifiable, they can still exist. I would suggest any condo project on the beach will show this clearly. I have done some, where there is a fairly clear difference between ocean/bay/neither and what floor a unit is on. Obviously that is harder for a SFR detached unit, and the notion that view and location can be combined somehow is reasonable.

 

[Terrel L. Shields]

Does the view change? Does the view depreciate? Obviously the price differential between an ocean view and the back side of the same condo is quantifiable. Otherwise, pretty hard sell to me.

 

[Alsie35]

I agree view adjustments can certainly be quantifiable, and even if they are not easily quantifiable, they can still exist. I would suggest any condo project on the beach will show this clearly. I have done some, where there is a fairly clear difference between ocean/bay/neither and what floor a unit is on. Obviously that is harder for a SFR detached unit, and the notion that view and location can be combined somehow is reasonable.

Yes it is. There have been times that, for whatever reason based on the specific property/location, I have "split" the adjustment between location and view.

 

[RCA]

interesting point. There are a host of adjustments that are subjective. I have yet to make my first adjustment for "view" in 31 years. My mentors pounded in my head that these were too nebulous to quantify with any certainty. Pulling a single paired sale from the stack makes for a guess, not an adjustment. Find the most similar view. Same with quality. Condition-age - well I can extract that from the comps although that is difficult if the house has been remodeled extensively. I can extract accrued depreciation from any sale though. So it really boils down to finding the most similar properties. I will ignore less similar properties that are closer or more recent.
In many of my assignments, I find effective age (condition+age) and SF to be the 2 factors besides land that drive values - and land is valued as if vacant and available for its HBU- thus is a dollar for dollar adjustment.

Sometimes. And sometimes it doesn't matter. I worked for a number of banks during the crunch who sent notices to borrowers saying that they were re-appraising their property and if the LTV wasn't still 80% or whatever that they would need to come up with more money. Many couldn't. I recall 2 chicken farms in particular where the people were "underwater" despite making all their payments. There were people and groups who tried to get the FDIC to relent and offer forebearance to those who were making timely payments. Unfortunately, the FDIC basically insisted the banks shore up their balance sheets period. The banks then foreclosed, sold the places for what they could, and wrote down their reserves accordingly. One bank survived, one didn't.

1. Remember that once you make a set of adjustments you can move them around without impacting the adjusted value or value conclusion. For example, moving $10,000 from Quality to Condition will not impact the adjusted sale price.

2. Which means if you have an accurate estimate of the total of all subject/intangible values, that is all you really need. You could take that total and split it up anyway you want between Quality, Condition, View, Functional Utility, Aesthetics (e.g. Design).

3. And you can get that value directly from the residual (Actual Sale Price - Regression Estimated Sale Price) for all comparables. You will need to estimate that residual for the subject, because you don't have a sale price for it. I've gone over on my website how such estimates can be done. You could use some R multilinear regression to do that or the R earth package. But, how well your Sales Grid works will depend to a large extent on the quality of your regression software, and your ability to build models. The difference between the comparable residual and the estimated subject residual is your adjustment for the total of all subjective/intangible feature.

So, as far as creating accurate adjustments for the total of all intangible/subjective features, there is nothing preventing you from doing that, assuming you have sales comps to work with. That total can be split anyway you want to explain the "why", but that splitting itself will not impact the value conclusion.