FHFA Request opinions from Lenders & others on what the new version of an appraisal will be.

[Sadie]

Actually you are wrong. They can be made very objective.

In simple terms if you have a good regression model on the tangible features, you get an estimated value for the tangible features. Subtract that from the sale price of the comparable and Voila! - you have the total value of all the other features not tangible, i.e. the intangible features. It is completely objective (on the comparable side).

You might ask, what good is the total value of the intangible features? Well, you can estimate the same total for the subject (which is the only thing that does require some subjective input) and subtract that from the value of the intangibles for the comparable, to get the total intangible adjustment for each of the comparables. That's a big difference, because one side of that equation for 6-12 comps, is completely objective and you only focus on estimating the value of the comparable for the subject --- through a specific procedure which minimizes error on that side [remember the regression model does give an estimate of the tangible features for the subject property as well].

Now, you might say, OK, you have an adjustment through this method for the total of all intangible features for all comps, but you still don't have the adjustments for specific intangible features. Well, it doesn't matter, because you can divide the total anyway you want between Quality, Condition, Functional Utility, ...., and it won't have any impact on the adjusted sales price for the comps. That's simple math. However, you do split the intangible sub-totals up, to explain to the user why the adjustments are why they are. And, you do this by studying of course the features of the sales comparables in relation to the subject. There is this underlying constraint, call it the "containment", all of your adjusted values of the intangible features have to total that sub-total you calculated. And if the the sales price was actually lower or higher than you thought it should have been, sorry about that!! This is a very tough constraint.

If you execute this method (IVCA: Intangible Value Containment Approach) correctly, you are guaranteed to pretty much have all adjusted sales prices within 1% of their average.

What can go wrong? Well, if you don't have a good regression model, you will likely find it difficult to split the sub-totals in a way that makes sense.

Here is an old demo, I actually have newer appraisals that are better, but this should do:

Sample Valuation - Intangible Value Containment Approach

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

pvn.pub

Another way of putting this is that with IVCA, the Sale Price of the comparable comes first; while by the traditional approach, the appraiser first cooks up an adjustment for the comparable out of thin air (so to say). The IVCA is truly geared to actual Market Value, the Traditional SCA is geared to the appraiser's subjective imagination and is totally *** backwards.

Definition of intangible: unable to be touched or grasped; not having physical presence.

here is another one.
not tangible; incapable of being perceived by the sense of touch, as incorporeal or immaterial things; impalpable.
not definite or clear to the mind:intangible arguments.
(of an asset) existing only in connection with something else, as the goodwill of a business.

The problem with a regression analysis in residential real estate is that it is a macro solution for a micro problem. Micro as in your subject market is not the market in general. Is it a basis for an adjustment maybe, but only if your particular submarket recognizes it. By relying too much on a regressions analysis you may be adjusting for something that your particular market does not recognize, or vise versa.

I never said there was no value in intangibles, that was you mis-interpreting me.
And FYI, very few appraiser's "cook up" adjustments. That is just you imagining how other appraiser's work.

 

[RCA]

Definition of intangible: unable to be touched or grasped; not having physical presence.

here is another one.
not tangible; incapable of being perceived by the sense of touch, as incorporeal or immaterial things; impalpable.
not definite or clear to the mind:intangible arguments.
(of an asset) existing only in connection with something else, as the goodwill of a business.

The problem with a regression analysis in residential real estate is that it is a macro solution for a micro problem. Micro as in your subject market is not the market in general. Is it a basis for an adjustment maybe, but only if your particular submarket recognizes it. By relying too much on a regressions analysis you may be adjusting for something that your particular market does not recognize, or vise versa.

I never said there was no value in intangibles, that was you mis-interpreting me.
And FYI, very few appraiser's "cook up" adjustments. That is just you imagining how other appraiser's work.

1. The general definition of intangible only partially fits the bill here. We are dividing features into two parts - those that have objective measurements such as lot size, gross living area, building height, number of stories, room count, garage size. That is, anything that is capable of being directly and objectively measured. Other features, may be partially measured but only with subjective input, such as quality, condition, functional utility and view. For lack of a better or more acceptable name, I would choose tangible vs intangible.

2. Your statement that regression analysis is a macro solution for a micro problem is nonsense. Non-parametric regression can be applied to any size of a data set from 1 property to thousands. And it is not just market area or neighborhood that is a concern, but also property type. Typically with MARS, it doesn't do just regression, it also determines which variables are significant, that is important. So, if MARS has a variable in the regression model for the given dataset, it has determined that it is significant.

3. You are misquoting me! I never said that you said "there was no value in intangibles." What I said was your statement "You cannot make a quality or condition determination without being subjective" is wrong. Just read that post more carefully. A "quality or condition determination" is assigning a value to quality and condition. That can be done objectively by using the residual, although it is done as a constraint on the value of all intangibles, and consequently the value of the adjustment for all intangibles. And, for the purposes of valuation, you can split or apply that adjustment anyway you want to the available intangibles and it will have no effect on the value conclusion. It is, to repeat, the total value of the value contributions of the intangibles, or resulting adjustments that is important.

4. I've been doing appraisals for many years, including in residential and commercial appraisal companies, standing over the backs of other appraisers watching them work on the nitty gritty details. While there is some reasoning that goes into the developing their adjustments, it is rarely founded in objective data analysis, rather it is a reflection of years of practice doing more or less the same thing, adjusting upwards or downwards, subjectively, based on the size of the property and other features, under unsupported assumptions, such as the value of the feature is proportional to the size of X, Y or Z. Typically, someone reviewing the report, really has no way to verify these adjustments and is totally reliant on the quality of the appraiser's judgment in making the value assignments. More than one appraiser, has been told to use something like $25/sf as an adjustment for GLA for all homes, especially if you go back far enough. I was told to do this, even though I knew at the time, that the adjustments were actually more around $100/sf or much higher.

Of course, I don't know how you do you appraisals. Your statements and logic are certainly deficient though. And clearly you don't understand the method I presented in the link. So, IMO, you posts are 50% BS.

 

[Zoe]

How exactly does the typical appraiser get their adjustment for condition, quality, view, functional utility and other intangible features? Just tell me exactly how objectively they go about doing this, and that should answer your question, because as far as I have seen, all across the board from the residential to the MAI who does skyscrapers, it is largely subjective guesswork. When you start adding up these adjustments for the intangibles, then the impact of any errors multiply. The intangible area is the place where appraisers can inject bias, inflate or deflate values based on their holier than thou "experience."

That is not true. I remember having to redo a proposed steak n shake restaurant for the largest bank in the nation at time because they wanted all dark comparables. That was their solution to removing business value from the property. I don't do fast food anymore or hotels, but you are still wrong for people who like doing them. Your just wrong period in your assumptions.

 

[Zoe]

That is still funny looking back on the steak n shake. I was working with two MAI's on that one. HIs daughter may have been one of first female MAI's in nation and most likely TN. She specialized in hotels. The chief said if that is what they want, give it to them. He turned around and said they don't want to make that loan. We did all three approaches on almost everything. I had to redo all three approaches in revised report. I bet it took me 3 weeks to finish that puppy. They were happy when I got through. He was right. They just didn't want to make the loan and used us. They were sharp appraisers. He died and she may have. I think she had cancer and she quit before getting sick. Idk if she made it or not through cancer. She was good on hotels. She wrote much literature on them or contributed.

 

[Zoe]

They would not even taken comps as rents, cost, or sales that sold as a franchise and remained as same franchise. They got them, but they got both them and dark, where they changed franchises on sale or dark at time of sale. Rents too. It was a nightmare. Never again for me. They were happy. They didn't pay extra for the extra work.

 

[Zoe]

That gave me a really good lesson in H&B use analysis. I try to be as specific as possible in my H&B use analysis summary. In my original report, if I would have been more specific in H&B use analysis, the request for revision would have been new assignment.

 

[glenn walker]

One of the main problems with residential appraisals today is the lack of consistency. Most of the problems we have is due to the structure of the profession with everyone being self employed.

That is true : )

 

[glenn walker]

Did he change his screen name ? Because he is touting the MARS product again....

Seems quite a few changed their screen names in the last month or so. Just starting to be able to detect who they are because just like a criminal 90% of the time they go right back to the scene of the crime.

 

[Sadie]

1. The general definition of intangible only partially fits the bill here. We are dividing features into two parts - those that have objective measurements such as lot size, gross living area, building height, number of stories, room count, garage size. That is, anything that is capable of being directly and objectively measured. Other features, may be partially measured but only with subjective input, such as quality, condition, functional utility and view. For lack of a better or more acceptable name, I would choose tangible vs intangible.

2. Your statement that regression analysis is a macro solution for a micro problem is nonsense. Non-parametric regression can be applied to any size of a data set from 1 property to thousands. And it is not just market area or neighborhood that is a concern, but also property type. Typically with MARS, it doesn't do just regression, it also determines which variables are significant, that is important. So, if MARS has a variable in the regression model for the given dataset, it has determined that it is significant.

3. You are misquoting me! I never said that you said "there was no value in intangibles." What I said was your statement "You cannot make a quality or condition determination without being subjective" is wrong. Just read that post more carefully. A "quality or condition determination" is assigning a value to quality and condition. That can be done objectively by using the residual, although it is done as a constraint on the value of all intangibles, and consequently the value of the adjustment for all intangibles. And, for the purposes of valuation, you can split or apply that adjustment anyway you want to the available intangibles and it will have no effect on the value conclusion. It is, to repeat, the total value of the value contributions of the intangibles, or resulting adjustments that is important.

4. I've been doing appraisals for many years, including in residential and commercial appraisal companies, standing over the backs of other appraisers watching them work on the nitty gritty details. While there is some reasoning that goes into the developing their adjustments, it is rarely founded in objective data analysis, rather it is a reflection of years of practice doing more or less the same thing, adjusting upwards or downwards, subjectively, based on the size of the property and other features, under unsupported assumptions, such as the value of the feature is proportional to the size of X, Y or Z. Typically, someone reviewing the report, really has no way to verify these adjustments and is totally reliant on the quality of the appraiser's judgment in making the value assignments. More than one appraiser, has been told to use something like $25/sf as an adjustment for GLA for all homes, especially if you go back far enough. I was told to do this, even though I knew at the time, that the adjustments were actually more around $100/sf or much higher.

Of course, I don't know how you do you appraisals. Your statements and logic are certainly deficient though. And clearly you don't understand the method I presented in the link. So, IMO, you posts are 50% BS.

You are assuming in am deficient in logic based on my statements. I assume you believe that your way of determining a basis for an adjustment is the only way.

Your statement are contradictory and in some ways prove my statements.
"That can be done objectively by using the residual, although it is done as a constraint on the value of all intangibles, and consequently the value of the adjustment for all intangibles. And, for the purposes of valuation, you can split or apply that adjustment anyway you want to the available intangibles and it will have no effect on the value conclusion. It is, to repeat, the total value of the value contributions of the intangibles, or resulting adjustments that is important." Right there you are making a subjective adjustment in how you assign those adjustments, how to split the intangibles. And you even recognize that. "there is some reasoning that goes into the developing their adjustments, it is rarely founded in objective data analysis, rather it is a reflection of years of practice doing more or less the same thing"

Throughout an appraisal you are making judgements based on the quality of your data. It is a judgement call on how much per square foot to adjust living area above and below grade, how to adjust for differences in amenities. Appraisals are subjective products based on interpretation of data. If it weren't, then anyone could plug data points into a program and have it spit out a number and that would be the price a typical market participant would pay for the property. But it doesn't work that way.

You say that you stood over the backs of other appraisers. well maybe you should have sat beside them and learned.

Macro vs micro market adjustments. What if your great big MARS program indicates and adjustment is warranted for a specific feature, however your particular submarket does not recognize any difference for that feature? Do you make it anyway? or realize that regressions analysis is not appropriate for everything all the time. Its nonsense to believe that all markets are the same and behave in the same manner.

You can think what you want of me, your opinion of me has no bearing on me at all. I will not even put in writing what I think of you and your posts.

 

[glenn walker]

Appraisers can keep up with the current demand if they are not forced to use the existing forms and reporting requirements, and the scope of work ramrodded down their throats by the client/intended user. Changing the wording and certifications/scope on a 1004 is putting lipstick on a pig. Once the housing market crashes, the GSEs will be fully responsible.

No we now have a New GSE CZAR and She will make sure the GSES are never going to be responsible because they have now become a Turbo-Charged the Political and Money Center Banks Drug Store.