Fannie Mae / Time Adjustments

[Webbed Feet]

To All,

Anyone have reference links, citations, or informative material regarding the proper use of time adjustments made to closed comparable?

Anything regarding some sort of unwritten or written rule as to how old (or recent) a contract date has to be for a comparable to use a time adjustment or not be allowed to use a time adjustment?

Anything regarding using closed sales versus active or pending listings as a "bracketting" comparable to show something not needing a time adjustment?

Thanks All,

Barry Dayton

 

[hastalavista]

From Fannie's selling guide- (my highlight in the text)

XI, 406.03: Adjustments to Comparable Sales (06/30/02)

Comparable sales must be adjusted to the subject property—except for sales and financing concessions, which are adjusted to the market at the time of sale. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. "Time" adjustments must be representative of the market and should be supported by the comparable sales whenever possible. The adjustments must reflect the time that elapsed between the contract date (or the date of the "meeting of the minds") for the comparable sale and the effective date of the appraisal for the subject property.

As to "how" old or how "young" the comp can be (again, my bold):

XI, 406.02: Selection of Comparable Sales (06/30/02)

Generally, the appraiser should use comparable sales that have been settled or closed within the last 12 months. However, the appraiser may use older comparable sales if he or she believes that it is appropriate, and selects comparable sales that are the best indicators of value for the subject property. The appraiser must comment on the reasons for using any comparable sales that are more than six months old. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.

 

[J Grant]

like everything else, time adjustments should be derived form the market, not some forumla. every market is different some might not show a time adjustment at all. I rarely use them, would much rather work harder to find recent comps. would rather do a location adjustment for recent comps if need be than a time adjustment if I had to chose.

 

[moh malekpour]

The first thing I do is to find out what is typical marketing time for the neighborhood market where I am going to select my comps. The page 1 of 1004 has 3 options for marketing time: Under 3 months, 3-6 months, over 6 months. When I established the typical marketing time for the neighborhood, then that marketing time would be the benchmark for my time adjustments. Suppose, my marketing time shows 3-6 months and one of my comp has been exposed to market for 8 months. Now, I have a comp that has 2 extra months exposure to the market that needs 2 months time adjustment to be considered typical exposure time for that market. If the typical marketing time is under 3 months, any comp over 3 moths would be adjusted to the benchmark, if the typical marketing time is over 6 months, any comp over 12 months would be adjusted for extra time.
I am open to a better option.

 

[J Grant]

Moh- i dont' think time adjustments are about marketing time as much as they are aobut comps that sold higher of lower, going back in time, (six months of more, typically) than a present home would in the current market. You could have a home that sat on the market 10 months because the owner was stubborn or not in a rush, that sold for more than a home that had a marketing time of two months. so why adjust it? it is about when teh comps SOLD, was the market higher or lower, 6 months of 10 months ago , when that comp closed? again, I try to avoid the whole thing by using recent comps when at all possible, and using very conservative time adjustments to older comps but if a time adjustment is seen in the market, by most similar homes selling for more or less now, then that is proof that it should be applied. current listings and pendings are always a good reality check on the very latests state of a marekt.

 

[Michael Chu]

I think there may or may not be a correlation between marketing time and the rate of appreciation or depreciation in a given area. For the purpose of making a time adjustment, I would think along the lines of what Joane posted. One looks at the market trend and adjust for the rate of price changes, rather than marketing time or DOM since home sales are typically cyclical.

In any case, I wonder how much to read into the part where FNMA mentions "The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale..."
If appraisers must, but don't make time adjustments do we get the Fannie whooped?

Anyway, if you do decide to adjust, would you always apply it to all the comps or select comps to be adjusted?

.

 

[Richard Carlsen]

It all depends on how fast or slow the market is changing.

If the change is less than 5% per annum, I seldom made any DOS adjustment under 6 months. In the past 4 years, I have made no adjustments, even for +1 year old sales, since most of that time the market has been soft and essentially level. Except for those ERC and they want it down to the month.

In a sales grid, you will normally end up with an indicated value range. If the market is active and indicators are on the up side, you can opine the value at the upper end of this range. If on the downside, be influenced to the lower end of the indicated value range.

It's called an opinion of value; not a mathematical equation.

 

[moh malekpour]

The name of the game is time adjustment. It has everything to do with the marketing and exposure times. What else justify adjusting for time? If you don’t want to consider marketing or exposure time for time adjustment, then don’t call it time adjustment, call it something else. What else indicates time? If you have comps within your marketing time frame, fine use it. If you don’t have comps within your marketing time frame, you have to use old comps that needs adjustment depending on the market movements which has to be established separately.
First, you select your typical marketing time frame from your 3 options on page 1 which would be your benchmark. Then, try to pick comps within that selected marketing time frame with no time adjustment. If you have to go out of your typical marketing time frame, you need to adjust your comps based on the difference between your selected benchmark, which is supposed to be your typical marketing time, which is supposed to be equal to exposure time for your market and your out of date comp.
If your benchmark is 3-6 moths, your typical exposed comps are any closed comp within 3-6 months. If you have one comp with closing date over that time frame, it is old and outdated comp per your selection of typical marketing time but you still can use it with a time adjustment for the difference of closing time of your out dated comp and your selected typical marketing time or benchmark.

 

[Fred]

Anyone have reference links, citations, or informative material regarding the proper use of time adjustments

The general condition of most appraisal literature is that it doesn’t establish a “proper” way of doing anything.

In my opinion, the most effective way to make a price index would entail creating a quality ranking for each property. Then you could say, that properties equal to subject were commanding a around 80 one year ago, around 90 six months ago, etc. The next most effective way I know of is using formal statistics.

It's called an opinion of value; not a mathematical equation.

I haven’t seen an appraisal yet that doesn’t convert to an equation.

 

[moh malekpour]

In my opinion, the most effective way to make a price index would entail creating a quality ranking for each property

.
Why not creating ranking for each market or neighborhood? How can you create a quality ranking for each property with no benchmark to compare it to?