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Help Resolve A Problem

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Atlanta CG

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Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
Townhome in a subdivision where other sales are available. 3 sales available - $170,000 to $173,000. Subject sale price is $178,000. Homes are not dissimilar. Due to the demand for such properties of this price in the area, there are multiple offers at the sales price. Based on the sales in the complex, the value came in at $172,000. There are no close-by similar complexes so would have to go well more than a mile for additional comps. The agent's argument is legitimate - if you cannot go higher than the highest in the complex, how will values ever rise? I presented the Fannie Mae argument that they like to see sales within the complex if they are available, she said it does not recognize demand. People are happy there - they don't sell. What would my cohorts do in this case?
 

Meandering

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Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Recommend the buyer come up with more cash.

Demand and prices can rise all they want, but not when borrowing other people's money to buy.

besides,

the magical 1004MC is all the lender needs to know what the market is.

:ROFLMAO:.
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
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Arkansas
if you cannot go higher than the highest in the complex, how will values ever rise?
Cash Sales.
If the sales are more than a couple months old, the only adjustment available is for condition of sale (time) or demand. Proving time is a matter of doing a condition of sale study...no small feat at times. Much more difficult to prove demand (scarcity) but that may well be a factor.
 

hastalavista

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Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
What would my cohorts do in this case?

If I thought it was worth $178k, I'd value it at $178k and I wouldn't hesitate to go more than a mile to support that conclusion.

"In any given market, at some point in time, there will be a high sale. In rising markets, that tends to occur sequentially. In markets that have stabilized after an increasing period, it would not be unreasonable to see a new, high price point; it would be unreasonable to see it significantly above the current ceiling. In a market that is stable after a declining period, it would not be unreasonable to see some upward pricing movement; indeed, such movement could signal a change in the overall trend.
In the subject's case, there are three recent sales that range from $170k to $173k; a relatively tight range. Based on my research, homes in this development do not sell that frequently; indeed, except for these three sales, there has only been X sales within the last 36-months. The subject pending at $178k,and I have confirmed there are multiple offers at the price point. I do have comparables from a competing project that also support this price point (as noted, the more proximate projects are inferior and homes within the subject's project historically sell for a higher price).
In the final analysis, I considered the the recent closed sales within the complex and the competitive sales from the competing project. I also considered the subject's contract price as a data point and considered the multiple offers at that price. I've concluded that the subject's market value is consistent with the negotiated contract price; the difference from the next highest sale ($173k) is less than 3%; I do not consider that difference to be an unreasonable or significant.

If the above is what I conclude, then that is what I do.
Obviously, if I didn't think the subject was worth $178k, I'd come in at something else.

I've been in both situations:
The high sale that made sense but the project's most recent sales were lower; I did the work necessary to support the higher value.
The high sale that didn't make sense. In this scenario, I'd do the same kind of analysis but the data would show that the competing projects don't support the higher value.

And that is what it sounds like to me: You have support for a value at $178k but no data points within the project at that price-point. If you believe that the support for the higher value is credible, then rely upon it. If you don't, then rely less on it.
 

BRCJR

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Sep 20, 2005
Professional Status
Licensed Appraiser
State
Virginia
I think this is a case where it would/could be perceived as someone trying to hit the contract price.....
What would the opinion of value have been without knowing the contract price...we will never know.
 

BRCJR

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State
Virginia
If I thought it was worth $178k, I'd value it at $178k and I wouldn't hesitate to go more than a mile to support that conclusion.

"In any given market, at some point in time, there will be a high sale. In rising markets, that tends to occur sequentially. In markets that have stabilized after an increasing period, it would not be unreasonable to see a new, high price point; it would be unreasonable to see it significantly above the current ceiling. In a market that is stable after a declining period, it would not be unreasonable to see some upward pricing movement; indeed, such movement could signal a change in the overall trend.
In the subject's case, there are three recent sales that range from $170k to $173k; a relatively tight range. Based on my research, homes in this development do not sell that frequently; indeed, except for these three sales, there has only been X sales within the last 36-months. The subject pending at $178k,and I have confirmed there are multiple offers at the price point. I do have comparables from a competing project that also support this price point (as noted, the more proximate projects are inferior and homes within the subject's project historically sell for a higher price).
In the final analysis, I considered the the recent closed sales within the complex and the competitive sales from the competing project. I also considered the subject's contract price as a data point and considered the multiple offers at that price. I've concluded that the subject's market value is consistent with the negotiated contract price; the difference from the next highest sale ($173k) is less than 3%; I do not consider that difference to be an unreasonable or significant.

If the above is what I conclude, then that is what I do.
Obviously, if I didn't think the subject was worth $178k, I'd come in at something else.

I've been in both situations:
The high sale that made sense but the project's most recent sales were lower; I did the work necessary to support the higher value.
The high sale that didn't make sense. In this scenario, I'd do the same kind of analysis but the data would show that the competing projects don't support the higher value.

And that is what it sounds like to me: You have support for a value at $178k but no data points within the project at that price-point. If you believe that the support for the higher value is credible, then rely upon it. If you don't, then rely less on it.

Would the absence of a contract derived the same SOW you allude to, say if it were just a refi?
 

hastalavista

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Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Would the absence of a contract derived the same SOW you allude to, say if it were just a refi?

While it could, it most likely would not.

But here is the question for you: Can the contact price be a relevant data point to consider? The FAQs in the USPAP would say "yes" (as would common sense). The problem we have (IMO) is that many are leery of even evaluating the contract price (and the dynamics that occurred in its consummation) for fear of being accused of hitting a target. I don't have that fear, and I think a contract price can be a relevant piece of data to consider. Not always, but certainly sometimes.

This isn't about hitting a target (although that is a legitimate concern; primarily the appraiser's concerns). It is about credible valuation with the data that is available.

I can tell you that I would have and have had no reservations concluding a price higher than the last units that sold within the subject's complex if I had legitimate data to support it and I believed it reflected the market value of the subject. Likewise, if the value is different from the contract, so be it.
And, my concern about any risk I may have for "over-valuing" the subject is near zero given we are talking less than a 3% difference from the units in the same project and no difference from the next best set of substitutes.

Let's take this out of the project and put it into the street:

My subject is in contract and there are three sales on the same street or next street that sold for $170k to $173k. My subject is in a small tract development that consists of 30-homes and they don't sell that often. It was a redevelopment of a larger site; surrounding my development are older homes of lower quality and they sell for less.
About 1-mile away is a similar (some might call it a "pocket development) development. Those homes compete with my property in their physical characteristics and share similar location influences (surrounded by inferior homes). There are sales with a range from $172k to $180k.
My subject is in contract for $178k and there are several back-up offers at the same price.

Given the above, would it be unreasonable to conclude a market value of $178k based on the data that is available?
While no one would argue that $173k isn't credible, would someone argue that $178k is not credible?
 

BRCJR

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State
Virginia
Sure the contract is a piece of market data and must be considered.

My scenario tweaked the situation a bit.

I think if, in all honesty, someone would have looked at a development 1 mile, or 10 miles away if competing, for the refi appraisal so be it.

If they would not have looked for the refi but looked trying to support a known contract price, Mike Kennedy and the "Bullseye" come to mind.
 

jay trotta

Elite Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
Q - if the Buyer (according to market value) is knowledgeable, and sifted thru that data with his/her Agent and based on his/her (whatever that might be) decision to Pay $XXXX for a property, is that party not the Market ? Have the Seller and Buyer met the definition of MV ?

OP: "Due to the demand for such properties of this price in the area, there are multiple offers at the sales price" - meaning there are "others" who feel compelled to spend similar dollars ? The market appears to be talking and we are restricted by sale data ? and there has been "0" appreciation over the past 12 month cycle ?

Just sayin.........
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Sure the contract is a piece of market data and must be considered.

My scenario tweaked the situation a bit.

I think if, in all honesty, someone would have looked at a development 1 mile, or 10 miles away if competing, for the refi appraisal so be it.

If they would not have looked for the refi but looked trying to support a known contract price, Mike Kennedy and the "Bullseye" come to mind.
(my bold)

It may come to mind, but Mike (IMO) starts from a false premise that the contract price is not a piece of market data.
If it wasn't, then it wouldn't be evaluated and potentially considered.
I agree with your first sentence in the quote.
And that is a difference between the two scenarios; one we shouldn't necessarily fret about.
A refi does not have the same data to consider as a purchase.


Let me put it another way:
I have a contract. Should I consider it a relevant piece of market data?
That depends: If it makes sense in the market, I would consider it. If it doesn't, I wouldn't. I'd explain my position either way.
How do I determine if it makes sense in the market? By testing it to see if it reflects the market dynamic.
That isn't hitting the sales price. That is filtering and evaluating data (IMO).
Hitting the sales price would be what happens if it doesn't make sense, and I force it through.

The logic works the same the other way:
Adjusted range is $170k to $178k; contract price is $170k.
Does the contract price make sense? Assume yes.
Should it be considered? Since it makes sense, yes.
What does the appraiser bring the value in at?
Many appraisers would conclude $170k after considering the contract price. Within that group, it is very likely that some (without the contract) may have come in at $175k. But with the contract considered as a data point, they use it to refine their value-conclusion to a precise point: $170k.

Did they hit the target while ignoring the relevant market data that would suggest another price-point? No.
They considered the contract price as their final data point in selecting their value-point. Without the data point, their value may have been $175k. With its consideration, the concluded $170k. Either point is equally valid, reasonable, and credible. The only difference is that they had one additional data point to consider, and they did.

Finally, that additional data point isn't some random data. It reflects the buyer and a seller who have negotiated a price on the subject itself. If it is consistent with all the market data, it is hard to argue that the contract price shouldn't be considered in the final value-point conclusion.
 
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