Lender says no time of sale adjustments!

[Austin]

Brad: The time element represents different levels of supply and demand. Time is the distance between two supply/demand levels that is why I say it is not a time adjustment it is a market conditions adjustment and when the adjustment is always some figure like 1% per month it is suspicious.
Here is the other problem I have with a time adjustment under your circumstances: If the market is that hot, then there should be tons of comparables less than two months old. That being the case, a time adjustment of 1% per month is not supportable with data because no properties are bought and sold within that time period. How do you know the market has not dropped 5% or gone up 2% per month instead of 1% per month? To measure the different supply/demand levels, you have to have a beginning and an ending period; otherwise you are extrapolating as my above example about my grandson’s weight and height. You are also extrapolating when you estimate 1% per month for the same reason.
You say you don’t want to insult me about my statistics, but when you figure a time adjustment based on the methods you are using, all you are doing is extrapolating an unsupported trend line and no mathematician would extrapolate anything. If you can’t bracket it, you can’t measure it.

Jtrotta: You just made my point about extrapolating a trend line. You are predicting the future when you extrapolate by making a time adjustment because you don’t know when a downturn comes until the data supports the down turn, then we may be in an up turn. Thanks for making my point. I hope you can interpret that.
Speaking of the “all-stars” out there predicting the future, you and brad are good candidates because that is exactly what you are advocating. Do you guys have any stock tips? I think you two guys must have attended the MRS. Cleo Institute. Maybe you two should get together and have your own TV show since Mrs. Cleo bit the dust. She was a Voodoo Quack as it turns out. Time caught up with her as it is with you two guys.

 

[Alan Simmons]

For me it is less of a question of understanding the 1% per month (11.27% APR), as much as wanting to know what is keeping the market from reaching the equilibrium price. Irrespective of the supply or demand there still exists a point where the two curves intersect. There still exist a price (on the graph) where supply equals demand.

WAG - Because of the low supply (growing population and few new residence) the value of the SFRs dramatically increased, but because of the limitations of the appraisal process (using historic data) appraised values can only justify a 1% increase per month.

What are the income and cost approach indicating?

I have been told that back in the mid-eighties because of the local market that Appraisers in my area automatically added 1-2% per month. By 1990+/- whatever this was ended. We also had a flood of new construction.

 

[Bemis Pownall]

why do appraisers usually only make upward time adjustments?
did one last week, a year ago it would'ev hit HOEValue.
But this year with recent sales and ALL the listings, HUD property across the street, missed EV by 20% $350 vs $295..
Listing and Pending activity is SOMETIMES a good indicator of current trends..
JMHO

 

[Blue1]

Austin,

Where does your friend live in California? If he's in the SF bay area, his 1,500 sq.ft. "rancher" could be worth upwards of 600K. Right now in FAR Northern CA, prices in some areas are exceeding 100 per sq.ft. and we're in a "slow" market compared to the bay area. Bottom line, an appraiser has to know his/her market. Time adjustments? Sure, but make sure you have recent comparables to support them. I try not to use time adjustments. Just use the most recent sales. If you don't have current market data, forget it. BTW in an increasing Market, an appraiser should carefully analyize not only recent closed sales, but historical sales, expired listings and active as well as pending listings. The principle of substitution applies more heavily in an active market with declining inventory.

 

[Austin]

Blue 1: My buddy lived near Sacramento until he lost his house then moved to Citrus City where ever that is. Another thing about time adjustments in a hyper inflated market is that if the market is going up that fast, why worry about a time adjustment anyway? If the appraiser comes up $5,000 short on a $100,000 house, so what, in five months it won’t matter anyway.
Any way you slice the time adjustment argument, it doesn’t make sense. If property has historically increased 1% per month, then why the rule about current sales less than six months old. Three-year-old data adjusted for time should be perfectly acceptable. If the market is hyper inflated there should be ample sales less than two months old or less, which would logically not require a time adjustment. And again, with that kind of price increases, what purpose does an appraisal serve anyway? If contract price equals market price, who needs an appraiser? Appraising under these conditions with a time adjustment is just a perfunctory form filling out process making the profession just another loan form process to be filled out and filed away.

Bemis: The reason time adjustments are always positive is a dead give away. As in the story I told in an above post, if you come up short and the subject is under contract at a certain price or the amount necessary for the loan deal to work, the difference in some people’s mind has to be time. Very convenient huh? The reason they don’t make negative time adjustments is if the appraised property is above sale contract price the deal is made so why bother

In summary, the only time a time adjustment is justified is between two historical supply/demand levels which is historical with a beginning and ending date. It is like verb tense. Time adjustments don’t have a present or future perfect tense, only a past perfect tense. Present and future perfect tense is reading the Tara cards. I leave that to the Mrs. Cleo's of the world.

 

[bradellis]

Austin,

Sorry, man Not buying this at all. If you want to be a mathematician, go ahead, but count me out. I'll stick to the prevailing wisdom, but you are certainly free to disagree.

I can certainly suppport a time adjustments- maybe not 1% from March to April,- too short a time frame- but certainly 6% over a 6 month period if that is what the market is doing.

But this only a part of the whole picture, is it not. If it were not, we would not need appraisers at all- that is what AVMs are all about- and they are a lot cheaper than we are.

Brad Ellis, IFA,RAA

 

[Austin]

Bradellis: Can’t you see a pattern here: I don’t believe in time adjustments and my market is one of the most stable in the country. You and jtrotta believe in time adjustments and you have hyper inflated housing prices. It is like the argument, which came first the chicken or the egg. The reason prices are increasing 1% per months in some areas is that Realtors are building the increases in to protect their commission and the appraisers are facilitators by making time adjustments. I can guarantee you that if you stop making time adjustments, in one-year prices will stabilize. The down side will be more "for sale by owner" signs which is why 1% is built in in the first place.

 

[rijman]

Austin,
You hit a nerve with your last post. Appraisers do not dictate the market nor do they worry about future values or the lender/investors risk. Appraisers merely report on the market as researchers from the sidelines, we are not part of the game. If values go up 10% per month it is the appraisers duty to recognize this as a market trend, report it as they see it and take the necessary steps to reach market value. Appraisers simply appraise to market value as of a stated date. It is not up to the appraiser whether or not they decide to make time of sale adjustments, the market decides that and the appraiser simply reports on the market.

In San Diego I can view three different reports for value trends, which in almost every case over the past 4 years all will show increasing values. The appraiser must be aware of this. Add this to a paired sales data analysis, that consistently shows increasing values and it doesn't take a rocket scientist to figure out values are increasing. For an appraiser to not recognize this information and take appropriate steps to reach market value, for a federally related loan, is a violation of USPAP therefore not in conformance with FNMA/FHLMC guidelines. Any AVM product can input raw data into a form and state a value. It takes an experienced appraiser to be able to analyze and reconcile the data to reach the true market value.

The bottom line is market value. The appraiser must reach market value and that means recognizing market trends, doing the leg work to support the trends and making appropriate adjustments where necessary.

Regards,

 

[Austin]

Rj: That is a good speech and I agree with it 100%, problem is, again, you can't support a price increase as of date of appraisal and if you do you are extraoplating. Extrapolation is not support, it is blindly extending a trend line beyond the supported limits. Read any math book on extrapolation and see what it says. It is called fools territory, and for a good reason. It is a no man's land out there. I repeat; if prices are going up that fast, who needs an appraisal anyway. How can the lender lose under those conditions? With the wrong sequence of adjustments, how do you know the contract price is low or high anyway? It may already be out of bounds.