I Got Hollared At By The Realtor

[Austin]

Alan: In your last paragraph, I think you agreed with what I stated above, and that is if recent contracts showing higher prices exists then the lender can look at them and make the call, but the lender doesn’t know whether the contract is in line, above, or below the market value unless the appraiser defines the market with a market value estimate that addresses the definition of market value question.

Serge: It seems to me that you are playing ping-pong with the two definitions, market value and fair value. Read AO-8 definitions of market value and fair value.

Lets hear some of you guys address the nuances that distinguish “market value” from “fair value.” When you get up to the date of appraisal and start looking at the problem in the present and future tenses you are toying with a different definition, “fair value.” As of date of appraisal your duty is clear: What is the most probable price as of date of appraisal assuming the subject property had been exposed to the open market for the average marketing period prior to date of appraisal? The only way to make that determination is comparable sales adjusted to the subject that sold with the same approximate marketing period. If a property sold in one day that could indicate a lot of things: Offered to low, high demand, pocket listing, etc.

Here is the way I handle this problem: “After reviewing and analyzing a statistically significant number of sales the most probable price estimate is centered at $100,000. The contract price of the subject is $105,000. In the course of my research I was shown a number of pending sales that indicate an upward shift in general property prices and an increase in market activity. The client can take this additional information and use it at their discretion in evaluating this loan package.” I have not risk rated their loans, I have not appraised “fair value”, and I have not exceeded my authority or area of expertise as an appraiser. I appraised the market value and supplied all of the relevant information found to help the client evaluate the loan application. If the lender wants to assume property prices are going up 10% per month, that is their concern, not mine.

Karl:
If your sales are arms-length transactions then when closed they become comparable sales. One thing to be aware of though: These sales become part of the statistical base and their influence on the market's bell curve for that market segment will determine their influence on the most probable price estimate. They may be outliners. That is why you need to evaluate about 30-comparable sales and pick from the center of the range, otherwise you are cherry picking. One sale does not define a market trend.

PS: If prices are increasing, the bell curve will reflect that fact over time. The bell curve determines the most probable price and not individual sales. It is a group effort.

 

[Serge Paquette]

Austin,

AO-8. Read it. Don’t like it at all. Easy to criticize that one.

Key line in it: “Market value assumes the property has been previously exposed for sale and the closing takes place on the valuation date, while fair value assumes that the property has not yet been exposed to sale and the sale will occur in the future.”

So let’s say you have a huge event which reduces values by 50%. One set of comps had the typical going market exposure period of 100 to 150 days, but the contract date was before the 50% value reduction. The other set of comps has an abnormally short market exposure period of 1 day or less, but the contract date was after the 50% value reduction occurred. What comps will you use?

Pick the ones with the typical market exposure and you are giving the value before the 50% value reduction. Pick the ones after the 50% value reduction and your value recognizes the 50% value reduction, but you used comps with a market exposure of 1 day or less.

I’ve seen plenty of sales which were on the market for 30 days or less when the typical marketing period is longer, and they fell right in line with the rest. It often happens that a good market deal is negotiated in very short period of time. The short market exposure should not necessarily make it an invalid comp.

 

[Mike Garrett RAA]

Yep, it sure is. The market is what it is, not what we think it should be.

 

[Austin]

Serge:
Sorry you don’t like AO-8, but it says what it means and tells it like it is.

As to your example about a 50% value reduction: It takes two things to prove values went down 50%: 1. A market value appraisal as of a certain date to establish a most probable price for a particular property or property category as of that certain appraisal date. 2. A second market value appraisal as of a subsequent date to establish that the same property’s value has fallen by 50% in relation to what it was on the prior date. Just like it works for proving price increases. The prices and dates are the points of reference. I think where you are getting confused is at the point in time when values fell. As I just stated, after the event that caused the decline the new price level can only be determined by a subsequent date of appraisal based on sales that went under contract and closed after the market-shattering event. There is no question about which set of sales to use. It depends on the date of appraisal. You like a lot of others are just confused about what to do in the interim period.
Another thing that confuses most appraisers is that when something happens like a large plant closing which the appraiser just knows will have a negative impact on prices. Again, you don’t know how that event will impact prices until after the data comes in to prove it. You can’t assume it during the interim period; you can only report the potential and looming economic obsolescence-causing event that could result from the lay off. It is the client’s responsibility to determine how this will impact prices before the data comes in to prove it.
My job as an appraiser as I see it is to handle it this way: "The most probable MV price as of this date was determined to be $100,000, however, a few days prior to date of appraisal there was a large unexpected plant closing in this market area that in my opinion will negatively impact residential properties in the coming months. The degree of this negative impact cannot be determined until sufficient properties have gone under contract and closed subsequent to the date of this plant closing and resulting job loss." Again, I think I did my duty. I appraised the market value and reported the market conditions such as I knew them to be as of date of appraisal. I didn’t attempt to look into my crystal ball and see what the “fair value” might be. I leave that line of work to Mrs. Cleo and the Tara Card readers and Watercooler crowd.

 

[Rich Hahn]

I LOVE it when I have a realtor show up at an appointment with "comps" for me, which typically consist of 2 or 3 listings

Realtors?

Got emailed 3 listings by a realtor, $178,+/-

Pulled sales, $130 to $170

This Realtor has his/her property LISTED for $139,999
and currently refinancing, why? points closing costs, hello! I dunno...I just work here.....

I replied to his/her email, "thanks for the listings but I need homes which have closed and settled, do you have any?"

Not finished with report but I can tell ya all it wont be $170 but much closer to $130 +/-

No reply to my reply to email yet.

Richard Hahn esq.

 

[Pamela Crowley (Florida)]

Man! Would I love to 'review' some of those BPOs!!!!!!

 

[Linda M Lynch]

When I made the statement that a house is worth what someone is willing to pay, I was just making a general observation......not appraising value. Calm down folks. Sometimes, even appraisers just "chat" instead of "appraise." I will say though that I get some houses where the usual method of determining value leave a lot to be desired. I can tell you for sure and certain that a 1800 sq ft house designed by Frank Lloyd Wright will sell for a WHOLE lot more than a brand new, 5000 square foot house in the same area, even though it is much older and smaller, and may be built with more ammenities of excellent quality.

 

[Mike Garrett RAA]

Historic value then becomes a complex appraisal assignment and not for new appraisers.

 

[hal380]

Hi All;

I cant believe this is still going on. I startedthis thread with a post 6/6/03.

To refresh your memory--- condo sale contract @ 98K I came in @ 89K, had 2 identical sales inside 1 @K 70, 1 @ 82K & 1 outside @ 98K. ( Sorry Austin I made a time of sale adjustment on the 82K for 8 months)

Next thing that happens, is the UW wants me to take out the time adjustment, (must have read Austin's posts ), and she wants me to add an additional comp, and wants me to come in @ 88K

I said yes to addn'l comp, (but will be inferior to what I already have analyzed (sp?), said no to the time adj. removal, and said that I do not appraise to a specific value. I feel like Fox News "I report you Decide" UW is free disregard any and all of my report. She can order another appraisal.

In the mean time the Realtor has been sending the LO comps for me to use. The LO kinda understands my position and even though it makes her life harder she has confidence in my number. I believe the seller and buyer were able to work out a compromise and the sale will close and everyone will make their commish.

Hold on not so fast says the UW, remove the original comps and use these as provided by the Realtor. Yeah right, my subject = 970 sf, 2 bed 2 bath, wood frame structure secure parking under. These new comps are close by, true, but in a converted brick school building. 4 storys high and therefore some nice view, 9 or 10 ft high cielings, FIREPLACE IN EACH UNIT 1350 SF, yes 2 bed 2 bath, open reserved parking with automatic gate to parking lot, and card key controled access to building.

I shudder to think that some newbie might do this. Can you imagine two separate reports signed by the same appraiser, with the same effective date, two different sets of comps and two completely different final opinions of value????????

This is one that K. Lewis should use in her article.

I wish EVERY PARTY TO A TRANSACTION were bound by USPAP.

Sorry for the rant but just cant belive the realtor and UW.

Oh well off to my club. Is veterans club right on the harbor with a deck overlooking the water, and a bunch a good ole boys doing a bit of drinking and solving all the worlds problems.

Take care all

Hal

 

[Austin]

Hal:
There is no such animal as a time adjustment, it is an adjustment for different levels of market conditions related to time and based on the information from the above posts, you just proved that the market is no better now than it was 8 months ago. Don't fall off the deck. Actually you would not be falling, you would be going from one elevation to another. The result depends on the elevation. If the elelation is the same then there is nothing to worry about. Falling in the dark is the most frightening experience because you are just guession at the elevation, kind of like you are doing when you make a time adjustment.