Home Appreciation

[Austin]

Mike:
Ever heard of Christopher Columbus? 99% of the people said he would sail over the edge of the earth. Where would you be if he had listened to the 99%?
Swimming up stream? Depends where you are going I guess. If the truth is up stream that is where I am headed.

 

[George Hatch]

Austin,

It must be nice to be able to sit in your apparently stable market and criticize what appraisers all across the nation are doing in their markets, without seeing what they dealing with or what they're actually doing. You just grasping at straws here, and not very well at that. I don't do a lot of reviews, but I do some. I also do appraisals on homes sometimes as well. In my market, home prices in some segments are getting close to having tripled in the last three years. Some of those sales are all-cash transactions from local buyers. No appraisal involved.


Even so, I can't even remember the last time I saw a time adjustment on a house appraisal. No need to use one if there is adequate recent data. Remember, appraisers have to account for trends, and that includes appreciation trends as well as depreciation trends. So if an appraiser has 10 very similar sales from the last 60 days a couple pending sales and a couple active listings, together those data are going to present a trend. Let's say the trend is that the average exposure time is less than 30 days (which is very common in this market) and that the closed slae prices are close, if not in excess of the listing price, also bvery common. Would you not say that there is a demonstrable trend here?

Lay them out chronologically and the subject's value will fall in that trend somewhere, all other factors being considered fairly. If the market is increasing, the subject should be ranked up there with the most recent sales and the pendings, those being the most indicative of that trend as of the date. If the market is in decline, the appraiser should be toward the bottom of the range for the same reason. No time adjustment needed if you use enough data. And most appraisers do exactly that.

So you need to stop intimating that the market should be forever stable, that supply and demand have nothing to do with prices, and that the reason entire markets are appreciating is because appraisers are creating value. That is, unless you have the reviews in your hand to back it up.


George Hatch

 

[Austin]

George, George, George:
You bet I can recognize a tend when I see one. Unfortunately, I realize that from a fixed point in time that to assume that the present tense is an extension of that trend into the present is an extrapolation. I also realize that to use the method you just suggested to me:

So if an appraiser has 10 very similar sales from the last 60 days a couple pending sales and a couple active listings, together those data are going to present a trend. Let's say the trend is that the average exposure time is less than 30 days (which is very common in this market) and that the closed sale prices are close, if not in excess of the listing price, also very common. Would you not say that there is a demonstrable trend here?

absolutely is a trend, but why didn’t the subject’s sale price reflect the trend? Another problem is, we are asked to appraise market value and not fair value. Read AO-8. Explain to me in your own words the subtle nuances between market value and fair in light of the definitions of MV & Fair Value in AO-8, time adjustments, and your suggested method of extrapolation. I would like for some one to clarify that for me. An example of extrapolation: A man jumps out of an airplane at 20,000 feet with no parachute. 15 seconds later he says, "Well I guess everything is OK, I have been falling for 15 seconds and nothing bad had happened yet. Hell, it has even been a thrill." Tell your trend theory to the guy scraping this jumpers butt up and putting it in a bag.
Then in your opening paragraph you say I live in a dream market, actually a sane real World market, and that I paint with to broad of a brush explaining your market where prices have gone up 300% in the last 3 years. Who in the hell needs appraisers in a market like the one you live in. George, you are living in outer space and don’t know it. Come on out here in fly over country where the rest of us live. The World you live in is not even relevant to this discussion. If everybody was rich and paid cash, who would give a rip. You just made my argument for me. If we didn't have sane appraisers the entire country would be as screwed up as the place you live. Come on. Do the rest of you people want prices to go up 300% in 3 years. If they do who needs appraisers?

 

[George Hatch]

Austin, Austin Austin,

One more time - no time adjustments, no extrapolation, and no assumptions.

If the size and other attributes of the property can be bracketed, it can be ranked within the range indicated by the closed, pending and active sales data, with the latter generally exceeding (at least a little) the upper end of a reasonable value range for the subject. The data are what the data are. Present it all and let the trend identify itself. If there is a trend, we observe and report; we don't editorialize on the deeper meaning or search for reasons to discount or ignore a trend just because we don't agree with it. We also don't apply a demonstrated trend from one market segment to another, unlike some of the AVMs currently in use that compare everything in a town or a region by size and age.

Another thing. These trends are not universal, even within our market areas. Different price ranges and neighborhoods have different trends in action at any given time. Even neighborhoods featuring similar sizes, quality and condition levels differ from other areas with comparable but different location influences. It is necessary to approach each appraisal assignment with an open mind and deal with it in accordance to the specifics of that assignment. Indeed, no two are exactly alike. Lucky for us as appraisers, or we'd be out of business pretty quick.

Is there a bubble? I think so, as do you. Is this a stable market and are these gains subject to future reversals? I don't think so, but I recognize that reasonable people might disagree on that one. Are these appreciation trends around here sustainable? I don't think they are; again, same as you. The thing is, it doesn't matter what I think, or what you think, with respect to the causes of these trends or foretelling what the future will bring; the only thing that matters is identifying them and reporting their effect on our appraisals. I try my level best to avoid making adjustments of any type unless I can demonstrate and support them in one way or another, usually by comparison of the data to each other. It's not uncommon for me to make no adjustments in an appraisal except for building area because the data are otherwise that similar. It all depends on the quantity and comparability of the data in the assignment.

You really should pay more attention to Brad's response earlier in this thread. He's the head hot rod at his bank here in SoCal and he reviews residential appraisals all day long. He did the same thing back east prior to this job, if memory serves me correctly. If he's saying that (effectively) nobody is using time adjustments right now, who are you to say that he's stretching the truth just because it contradicts your assumption? These price trends have nothing to do with shoddy appraisal practice. The market does what the market does.


George Hatch

 

[Austin]

George:
There use to be a saying in politics: “We should saw the NE USA off from the rest of the continent and let it float out into the Atlantic Ocean, because that way the country had a better chance of surviving.” The more I talk to you the more I think we should saw CA off and let it float out into the Pacific, that way the country has a better chance of surviving. Do you not read between the lines that Brad, George, and Austin live in different Worlds? Austin lives in the real world and Brad and George live in CA. The older I get the less I see that the rest of the country has in common with CA. Which way is up out there these days anyway? Every time I turn on the TV some 8 year old girl just got abducted, some idiot eats his wife and unborn kid, murders the little girl down the street, steals a little girl from her bedroom and holds her for a year, etc., sheesh! What does the water taste like out there? Maybe you have been out there too long George. Get out while you have a modicum of sanity left.

PS: Tell the 16,000 people in Charlotte, NC, that lost their homes about my off the wall assumptions.

 

[George Hatch]

Austin,

First of all, I'd like to amend my assertion about the 300% in the last 3 years because that was incorrect. The 300% applies to the last 5 years, not the last 3 years. It's only increased by about 200% in the last 3 years. It was not my intent to cause confusion or disbelief and I apologize for this misstatement.

Then there is your diatribe on the collective sanity of our region, as if that was a substitute for losing the debate on what is actually happening in both our markets and within our appraisal work. Even if the rest of the country would be better off without the wackos on the left coast, the fact remains that the west coast and California remains part of the country and that the rules of engagement still apply here just like everywhere else. Attacking our markets' sanity may very well be justified ( I do, too), but attacking our appraisal practices just because we are conforming to the rules and duly observing and reporting those wacky trends is not justified. Aren't you the one who keeps saying that ignoring a trend does not make it go away? Exactly what is it that you are advocating we do here, ignore the trends and extrapolate below the trends to reach a desired result?


George Hatch

 

[John Wilson]

Originally posted by Austin@Jun 12 2003, 01:50 PM
The more I talk to you the more I think we should saw CA off and let it float out into the Pacific, that way the country has a better chance of surviving.

I think Lex Luthor tried that in a Superman movie already.

He was in it for the real estate though. Go figure......

 

[Austin]

George & Brad:
First off, the reason I am spending so much time on the forum is that I took some time off and it has rained all day. It has rained every weekend for the last 8 weeks and I am bored. It is raining like hell right now.
After my last post with George I decided to do some reading, so I reached over and picked up the April 2003 edition of RV Magazine. George & Brad made me think maybe I was being a little too broad. I opened the magazine up to the 1st article on page 4. Guess what it is about? FHA fraud in Ore and the west coast. Harrison issues a caveat in the 1st paragraph basically implying that he doesn’t necessarily agree but he is just giving the author a chance to air his complaints. The people in power never see any problems or want to say anything that may upset the status quo.
The article is entitled “Appraiser Watch Redux: Let’s Look outside The Box” by Clarence Shaub, a trench appraiser like me. Here is what is going on in the FHA world on the left coast. Fraud! Here is how the scheme works. A home is listed for sale at $50,000 and goes under contract to an FHA purchaser. Then Realtors add the down payment, closing costs and any other fees to the $50,000 listed price inflating the price to say $58,000. Then they report the $58,000 as the market value sale price. Then when the appraiser comes along and appraises the property at $50,000 based on MV sales, he/she loses business and is cut off from getting more assignments. Should have used FHA sale prices they say. The author says this happens most of the time and is a total fraud operation.
George and Brad would probably say baa-humbug! Sounds like something Austin would say. Here is my point: The leaders in this business or people in positions of power see no wrong. Like at Enron they say: “Hey. Things have never been better, buy more Enron Stock.” The people like me out in the trenches are seeing it differently. Just a thought. But then again if I was making a couple hundred grand working for a big state bank grounded in the present appraisal system, from my perch I would probably not see any problems either, except for a few trouble maker like Austin and Clarence and others of their ilk. "What do those two know, nothing but line appraisers. Just ignore them, they will go away. It is Tee time, we are out of here. Love those stock options and golf club perks."

 

[Linda M Lynch]

Just as all politics is local, so it all real estate. I just spent 4 days in classes with about 30 other appraisers, all from Wisconsin (not California.) Now, we are all from the same state so our experience should be fairly similar when it comes to real estate appreciation...right? WRONG! The market in Madison and it's surrounding area is so hot that listings are considered long term if they have been on the market 20 days. And the prices have been going up, up, up for years now. On the other hand, the appraisers from other communities and rural areas are seeing a stable or even a stagnant market. If those appraising in Madison made assumptions about value based upon the experience of those in small, rural communities, they'd be wrong. Likewise, those in small, rural communities can not make assumptions based upon Madison's values. That is just common sense. So how in the world someone in Arkansas can make assumptions about value for the rest of the country when it can't be done within the same state, I sure don't know.