Just for the heck of it

[Crunch Hardtack]

Started to do some preliminary research on an appraisal. Pulled MLS area data and without additional filtering decided to see how many bank sales, etc. there were. 80 sales within the last 12 months, 24 of the 80 appeared to be conventional arms length sales, 28 sales were bank sales and the other 28 were "as is", short sales, distress sales and so forth. I hope most of your markets are doing better than this one.

As an aside, it appears sufficient comps can be found within either the conventional sales or the bank/"as is " sales. Non-conventional sales make up the bulk of the sales and I think one would certailny have to consider using those comps, but if given a choice, from which pool do you draw your comps?
(conventional sales 80-90 thousand range, bank sales 50-60 thousand range)

Edited to add: For discussion purposes, I'd just like to get a rationale from other appraisers. This specific appraisal is not an FRT but assume that it is. (As an additional aside, if you want to have some devilish fun with an underwriter send out a 1004 where the final value conclusion is a range of values rather than a specific number..........then sit back and wait for the phone call)

 

[Crunch Hardtack]

Well.welll.well.

I see my discussion question has largely been addressed in the "comparable or not comparable" thread. In that thread Richard Carlsen has a point, but if I am a typical buyer and I can pay 100k for a bank sale dwelling or 150k for a conventional sale, I'm going to buy the cheaper dwelling, so, if there are a significant number of bank sale, etc sales in the 'hood you have to consider that they may be the market.

As to my range of value reference in my above post, it is acceptable to state a range of value rather than a specific value. Requiring appraisers to provide a specific number is just another way to increase our liability. Let's say you do an appraisal in a cookie cutter neighborhood. Your three (or 4 or 5 ) comps adjust from 200k to 220k. Your final value conclusion is 216k. (I've seen where some appraisers get justifiably irritated when they review an appraisal and the original appraiser's value conclusion is $101,500 because the feeling is that to value a property to within $500 is not justifiable) For some reason, you wind up in court over that appraisal and the other attorney's appraiser values the property at $212k. You do a good soild job on your appraisal, but because the judge likes the other appraiser's testimony, you lose the case and end up getting spanked by the state.

On your grid you have an adjusted range of 20k. Your specific value, 216k, is rounded to the nearest thousand dollars. Rounding to the nearest thousand means you have 20 possible values to choose from based on the adjusted value range of 20k. (1/20th=5%). If your value conclusion was $216,500 you would have had 40 possible values to choose from (1/40th=2.5%). I maintain that by choosing a specific value rounded to the nearest thousand dollars, you have (based on all the variables we must consider) a still difficult, if not impossible, to defend precision.

Let's assume our final value conclusion is a range of value to wit: "my opinion of value is between 211k and 216k." This is a 5k spread out of a 20k range of value. (1/4th=25%). My final value conclusion in that case is within 25% of the spread rather than 2.5% or 5%. It is a much easier to defend number so there is less liability. A lender could choose to lend on any value within a still narrow range but they would be assuming more liability. Just one more way we allow ourselves to get screwed.

 

[Ray Miller]

I would address both market values in the report, show a grid for each value. Let the underwriter choose which to use. my range would state zzz to yyyy and give supporting reasons in the report for both.

 

[Crunch Hardtack]

Thanks for the reply Ray.

 

[Steve Metz]

I would do the same as Ray. I just ran into the same situation last month. The sales situation was similar to your number spread. 40 total sales 15 arms length, 15 bank and 10 distessed sale. Watch for consessions 5 of the arms length sales had things like free home theater system ect. This was not on MLS and I would have not found out about it unless I had interviewed a number of people.

 

[Mztk1]

Which are more recent?

If the only recent sales in the area are the bank owned sales, then I'd likely see them as driving the market and use them.

If the regular market sales are just as recent, then I'd compare apples to apples.

The typical buyer will not always buy the bank owned sale because it is cheaper. In some market segments the typical buyer will not buy a bank owned sale; and in most market segments the typical buyer will not buy a foreclosure without a discount.

As for the $200,000 to $220,000 thing, there aren't 20 possible answers, or 40 if you go by $500 increments because we are supposed to be weighting the sales. Lets say the comps adjusted to $200,000, $208,000 and $220,000 and comp #2 is most similar, comp #1 second most similar and comp #3 least. So a bad appraiser weights them at 33% each and comes in at $209,000 rounded; another appraiser gives 50% to comp #2, 30% to comp #1 and 20% to comp #3, or $208,000; the last appraiser gives 65% to comp #2, 20% to comp #1 and 15% to comp #3, or $208,000.

Even is someone comes along and goes crazy by giving 50% of the weight to comp #3 and 25% to the others because he is pushing value, you have a value estimate of $212,000.

A reasonable opinion of value involves a reasonable weighting process. How many reports do you read where the appraiser actually discusses the weighting process of the comps? If your experience is like mine, it is far to few.

 

[Crunch Hardtack]

Thanks Steve and I see your point Jim, but weighting still involves educated guessing. How are you weighting........stylistic similarity, date of sale, similar utility, location........still many variables.

 

[Ray Miller]

A reasonable opinion of value involves a reasonable weighting process. How many reports do you read where the appraiser actually discusses the weighting process of the comps? If your experience is like mine, it is far to few.

Jim,

In my range I would discussess the weighting process for each and why I gave a range of of value because the weighting process suggested I should. Does that make sence??

 

[J Grant]

I would choose from among bank owned and non bank owned by which are most similar to the subject in features, amenity, location etc, re the principle of subsitution. Yes, we have to give one estimate of value how can you give two estimates and let an underwriter choose? flip a coin time? We make it much more complicated than it has to be. Principle of subsitution is what drives the buyer and what drives the selection of comps. If some of those comps are bank sales and some were sold by owners, use all of them, and see where the value comes out. I'd also include some listings, pendings if possible, for a check where most recent market trend is.

 

[Mztk1]

Thanks Steve and I see your point Jim, but weighting still involves educated guessing. How are you weighting........stylistic similarity, date of sale, similar utility, location........still many variables.

It is an educated approach and appraisers are supposed to be educated. My point is if I weight sales and you weight sales, unless one of us is looking to make a certain value, we are going to be reasonably close. Even if you gave 65% to comp #2 and I have all my comps 33%, we are still within $1,000 of one another. In the example I painted, in order to get to $220,000 you'd have to give 100% of the weight to the least similar sale. Perhaps someone says, but that $220,000 sale was most recent so I have it most weight. If that is the case, than it is likely going to be more similar because the other sales will have higher market condition adjustments. If there are no market condition adjustments and that sale is given 100% of the weight even though it is least similar, it is obvious the numbers are being fudged.