final value outside the adjusted values

[Michigan CG]

Can a value opinion be outside of the adjusted sale comparables? Well yes as long as the opinion is supported in a well explained reconciliation however that reconciliation would most likely include other approaches to value.

The theory that active listings could bring down the final opinion of value does not hold water as if the listings are showing lower values then the solds were not properly adjusted for in market conditions.

I have an assignment that I will be working on tomorrow that will have very limited sales data and the value will be based mainly on the income approach.........but it is commercial.

USPAP does not address this issue but the author of the report should certainly address the issue with a few very detailed paragraphs justifying his opinion and why the grid does not show the rationale for the opinion of value.

Most likely a reasonable explanation is not provided in the report or the OP wouldn't be here.

 

[J Grant]

I personally bracket for price, almost 100% of the time. And I think that it is good methodology and proves the value is within range of similar or competing sales. However, as a reviewer, we are asked to comment on someone else's methodology, value opinon how reasonable and accuarate, aka how supported it is. So go from there, beyond the bracketing issue, is the value supported, and were there better comps they could have used, and do you agree/disagree with adjustments, and why?

 

[Michigan CG]

I personally bracket for price, almost 100% of the time. And I think that it is good methodology and proves the value is within range of similar or competing sales. However, as a reviewer, we are asked to comment on someone else's methodology, value opinon how reasonable and accuarate, aka how supported it is. So go from there, beyond the bracketing issue, is the value supported, and were there better comps they could have used, and do you agree/disagree with adjustments, and why?

It isn't about bracketing, it is about the final opinion of value being outside the adjusted range. If there is only one approach to value the appraiser has not justified his opinion.

Bracketing....the other white meat.

 

[J Grant]

It isn't about bracketing, it is about the final opinion of value being outside the adjusted range.

The OP asked specifically about bracketing relating to final value opnion outside adjusted range, I was responding to his query, see his posted question.

If there is only one approach to value the appraiser has not justified his opinion.

I'll let others respond to this.

Bracketing....the other white meat.

Best served barbequed


__________________

 

[AnonApprsr]

Oh, I didn't see the word "adjusted" in "outside the adjusted values." Well, then there has to be either other market data in the SCA (maybe listings?) that received weight during the reconciliation or the income or cost approach was also relied upon. Check on that!

 

[Riick]

Can a value opinion be outside of the adjusted sale comparables? Well yes as long as the opinion is supported in a well explained reconciliation however that reconciliation would most likely include other approaches to value.

The theory that active listings could bring down the final opinion of value does not hold water as if the listings are showing lower values then the solds were not properly adjusted for in market conditions.....

I've done several REO appraisals over the last 6 months where the Actives adjust out lower than the Sales.
It may well be that I haven't adjusted the Sales sufficiently, but that's because I can't support larger negative adjustments.
The data's just not there.
The end up is that my value estimate has been at the bottom of the range; I say the Actives are telling me prices are falling even faster than my market-data indicates.
.
So......... what am I doing wrong? :new_all_coholic:

 

[Metamorphic]

I've done several REO appraisals over the last 6 months where the Actives adjust out lower than the Sales.
It may well be that I haven't adjusted the Sales sufficiently, but that's because I can't support larger negative adjustments.
The data's just not there.
The end up is that my value estimate has been at the bottom of the range; I say the Actives are telling me prices are falling even faster than my market-data indicates.
.
So......... what am I doing wrong? :new_all_coholic:

The listings ARE your support for a larger negative market condition adjustment providing the listings are comparable and effectively salable at that price.


As far as the OP. If the OAR is relying primarily or solely on the SCA in their final reconciliation, and the value they obtain from the SCA is not within the range of the Adjusted comps, then you're looking at 1 of 2 scenarios:


1)The appraiser lacks even a basic grasp of the principals behind the SCA. They picked some comps, might be the best, might be the one's they had pictures of, they made the adjustments off their list, ignored any contributing amenities that complicated the situation, and wrote down their pre-concieved opinion of value (or the contract price or 80% value) without ever really looking thinking about the comps, what the comps say about buyers performance in the market, or the results of the SCA.

2) This person has some serious appraiser-** and has written a fabulous summary of the SCA that explains this circus freak of a subject that cant be appraised by normal means.

Since you're asking the question I'm guessing 2 is not the situation.

USPAP does not require that the OMV be within the range of the adjusted comparables. But it does require basic competency, due diligence, and performance in accordance with peer standards. If you conclude an OMV outside of the adjusted range, its effectively an admission that you have not properly completed the SCA. The only way this situation can occur is if you've failed to take into account 1 or more significant elements of value or if your adjustments are not conforming with market reactions.

 

[Terrel L. Shields]

Odds are, they missed an adjustment somewhere along the line.

In a given property time, the statistical margin of error is likely greater than the adjustment(s) This is no biggie but I would explain. Further, "Bracketing" is not a specific requirement of USPAP. The most expensive, the least expensive in a subdivision, by definition cannot be "bracketed" by the sales in that subdivision ever...

 

[PropertyEconomics]

The appraiser should discuss this in the reconciliation. In my experience it's usually a matter of rounding up. Or the property is a little better than the others, etc.

Not trying to be smart here .. but if the above is true .. perhaps a LITTLE BETTER ADJUSTMENT would have been in order.

My initial thoughts are if the value of the subject falls outside the range either the sales are not truly comparable or they have not been made sufficiently comparable via the adjustment process.

 

[J Grant]

In a given property time, the statistical margin of error is likely greater than the adjustment(s) This is no biggie but I would explain. Further, "Bracketing" is not a specific requirement of USPAP. The most expensive, the least expensive in a subdivision, by definition cannot be "bracketed" by the sales in that subdivision ever...

That is true. However, it is good appraisal practice to find a similar /equivalent subdivision, even if it is five miles away, and find out if any more expensive homes are selling/sold recently in those subdivisions to bracekt your subject value opinion with. Because while there is always a most expensive home, our job is to prove that a typically motivated buyer will pay for the most expensive home in today's market in a given subdivision. If you can't prove it by a sale in a similar/competing subdivision, or at least a pending listing, it is hard to tell if a buyer really will pay more, or if the biggest/nicest home is an overimprovement for the area, a home that people would buy, but not necessarily pay more for.

For example, if the most expensive homes selling in a subdivision within past year or even two years is 500k, and your subject is bigger and has upgrades that are better and after adjusting, your subject comes out at 510k, that is close enough in the range of the most expensive sales that it can be supported by buyer activity, it is close to predominant highest prices. But if after adjusting, your subject comes out at 550k, that is tougher to prove ( and an underwriter at that point will ask you to add a higher price sale).

At that price point, 550k, will the typical buyer for that subdivision/type home really pay that much more? Because there becomes certain price points where other, better choices become available to buyers.

For example, in a superior subdivision in a better location, let's say near the beach, they could buy a home at 550k, but were priced out at 510k of that better subdivision location. So then you need to go to similar appeal /location subdivisions as the subject, and see, are buyers paying 550k or more for better/bigger homes in these subdivisions, or is there an upper range that they just won't pay beyond?

An income approach can prove that people will pay X to rent similar homes, and therefore it is worth 550k in income approach with GRM . However, in most res owner occupant appraisals they do no want income approach developed.

Cost approach, you can prove it cost so much to build a similar home, but the cost approach still does not answer the question if people will pay that much to buy an existing home for 550k, as would be proven by the actions of market participants. For lending purposes, even if a cost approach is well developed, the underwriter will almost always ask for a higher price sale to bracket subject MVO. If an appraiser can't find any sales, they have to ask at that point if the subject is an overimprovement, ask realtors, look at listings and their history...were larger, higher priced homes ending up as expired/cancelled listings over the past two years because they didn't sell at the higher list prices? Those are the questions to start asking if no higher prices are found in competing subdivisions.