Fannie definition of market value

[J Grant]

Bert: When I say "appraisers" I mean reviewers as well. Everyone else except me - as far as I know.

Okay, in your view that is truth. And maybe 10 years an appraisal Czar, will proclaim "Bert is right and all the other appraisers are wrong ! " . But for now, appraisal is a profession of peers who follow an accepted set of USAP standards and accepted methodology to derive values. You believe your way is better. .

But imo, your way produces an engineered data driven value with a fatal flaw of the results can be divorced from the actual market. But that's my view.

 

[J Grant]

MV is expressed on appraisals as A ( not as B or C). But if anyone is expressing MV on appraisal statement of B or C , please share about it. .

A) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, my (our) opinion of the market value, as defined, of the real property that is the subject of this report is

B) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, my (our) opinion of the most probable price of the real property that is the subject of this report is

C) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, my (our) opinion of the market value, as the most probable price of the real property that is the subject of this report is

 

[J Grant]

To sum up, The fannie definition of MV is A. It is not B .Some people are using B it appears. Does anyone see how using A versus B can bring about a different opinion of market value ?

A) DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

B) DEFINITION OF MARKET VALUE: The most probable price which a property should bring .

 

[J Grant]

I did not invent a MV definition to include" price not affected by undue stimulus. So why am I getting attacked for merely reminding people to apply the MV Definition as it is written?

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus ( the remainder to end)

The MV definition is meant to apply in ALL markets. Including bidding war appreciation markets or REO affected decline markets. I don't see a caveat to drop the MV definition in certain markets.

From my experience, some appraisers under valued properties in the REO decline market, then turn around and over value properties in an increasing market. Both times due in part to their deciding to set aside some of, or all of the terms of the MV definition as applied to price.

Because applying the MV definition in volatile markets can result in more cases where appraisal OMV is not equal to a SC price, or does not meet a value direction in a refinance/other type assignment.

 

[Joe Flacco]

I hate how this forum provides a platform for yahoos incompetent to perform appraisals during times of unstable market conditions. Just non stop ranting about how market conditions are basically irrelevant to the Fannie Mae definition of market value. It's complete nonsense.

 

[Joe Flacco]

Some of these people have been ranting about the same nonsense for many years now while prices have continued to increase during the time frame. It is ridiculous.

 

[RCA]

Well I've described the Subjective (or Intangible) Value Containment Approach (SVCA) before on this forum and on my website:

Sample Valuation - Intangible Value Containment Approach

This is a heavily redacted report that was created using the Subjective Value Containment Approach

pvn.pub

Intangible Value Containment Approach

Intangible Value Containment Approach Sales Comparison Approach: Intangible Value Containment Approach, or IVAC for short, is a term I give to the following method for the Sales Comparison Approach. This method could also be called the Contribution Value Approach or CVA. The method is designed...

pvn.pub

I would think that out there, somewhere, are some MAI/ National Merit Scholar level appraisers who have developed this understanding. But apparently not yet.

I guess, in fact, I kind of figure that if, after all this time, no known appraiser other than myself understands this, it's not likely to happen any time soon.

That's OK.

I kind of relish this.

 

[Overimprovement]

When I say "appraisers" I mean reviewers as well. Everyone else except me - as far as I know.

1. So. for example, let's start with GLA. Maybe the true price per square foot adjustment is $200/sf for the range of comparables we are dealing with, according to the best possible regression. If the appraiser adjusts, for the sake of argument at $400/sf and most of his comps have less GLA than the subject, then the adjusted sale prices for homes will a lower GLA than the subject will be higher than they should be, just as if they had a higher sale price than they in fact do. So, given his comps are unbalanced, the resulting value estimate will be too high if based on the average adjusted sale price. -- The opposite is true for homes that have a higher GLA than the subject. So, by using that large GLA adjustment, you force the sale prices of some comps to be effectively higher and other comps to be lower. You should be clear on that with a little thinking. And that is one reason evenly balanced bracketing is desired - because it will tend to negate the impact of improper adjustments. Unfortunately you usually cannot balance your comps in all respects; especially if the subject is at the extreme end of a range. But of course, note that a good appraiser can likely nail another appraiser who does a poor job in selecting an adjustment for objectively measured GLA. So, this example, is used just to make clear how this sort of thing works.

2. Now, jump to the intangible/subjective type adjustments such as for Condition, Quality, View, Functional Utility and so on. The problem with these kinds of adjustments, is that it is difficult for a reviewer (who doesn't know what he is doing like most don't) to decide whether these adjustments are too large or too small. Correct me if I am wrong by telling me just how you would be able to determine this. My guess is you don't really have a clue. ... Because this requires a deeper understanding of the Sales Grid than you will find in ANY book on appraisal.

No, you are categorically wrong. But, then you. just like thousands of other appraisers. wouldn't know any better. You don't even have the faintest clue.

You need both advanced tools and advanced understanding to get around these problems, - and in complex neighborhoods that can be a real chore.

What does this have to with the subject of this thread? Please start another thread if you wish to discuss adjustment methodology.

 

[RCA]

Some of these people have been ranting about the same nonsense for many years now while prices have continued to increase during the time frame. It is ridiculous.

I think people know more or less what market value is; despite a few slight variations in the definition.

And, many would be correct to argue, that Market Value goes up and it goes down and and that its specific value at any point in time, is hardly the basis for collateral value. A smoothed average would be better. One can argue for something like 80% LTV, or on top of that lenders could have the option to lower or raise the LTV depending on the housing affordability index or some such measure.

So, what we have is a rough approximation to what we need, but is chosen because it would be too difficult to provide the real thing.

But having said that, we then get into the mechanics of providing MV by the Sales Comparison Approach.

And, again, most kind of know the mechanics of using it. - But at this point things break down. To do the SCA correctly, you need to dig deeper than the current state of the art. You need advanced non-parametric regression software, and you need somewhat advanced understanding of the underlying concepts. You need to get away from creating adjustments directly for intangibles, but indirectly through a procedure that doesn't violate the rules of the SCA by effectively altering comparable sales prices.

MAI's and others send me emails, and you know, for them, it is just about the ability to use regression; - as they have apparently tried for years to do only that and have run into roadblocks. That's really surprising. I've been using MARS since 2004 and no one has really given me a bad time about it. These other appraisers who contact me from time to time are unsure of themselves and mostly looking around for a "peer" that uses these advanced methods to make them legitimate for them to use.

I don't believe anyone should care a rat's *** about "peer" behavior, because 99.99% of appraisers are doing things *** backwards. Really.

No need to worry about peers.

They are, to put it proverbially, "a bunch of idiots". And that pretty much covers anybody in the profession - except for me of course.

 

[Overimprovement]

To sum up, The fannie definition of MV is A. It is not B .Some people are using B it appears. Does anyone see how using A versus B can bring about a different opinion of market value ?

A) DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

B) DEFINITION OF MARKET VALUE: The most probable price which a property should bring .

Can you be more specific about what elements in A, in this current market, should be bringing in a different opinion of market value than if an appraiser just used B? You keep wanting to have some great divide between the definition of price and market value. Well the Fannie definition clearly defines MV as PRICE, with several caveats. Which caveats are the issue in a rapidly increasing or decreasing market?