Let The Borrower Pick The Appraiser

[George Hatch]

How do you know such a comment is not meaningful? And I would not comment in exact words, but certainly describing flipping, affect on prices of no money down etc can describe a market in a meaningful way.

We don't just observe and report, we analyze the market, impact of conditions and prevalent financing on prices , and state our opinions and conclusions from the market analysis in the appraisal.

Applying the MV definition as it is intended, and adjusting for undue stimulus or not prudent buyer behavior as of effective date is not fortune telling.

I apologize profusely. I assumed the cliche "observe and report" was universally understood on this forum to refer to the unbiased, impartial and competent appraisal practice, of which market analysis is an integral component. The conclusions of that analysis consisting of "what is" as opposed to what any of us might think it "should be".

As was the case when the market was in decline, "undue stimulus" is not tied to a fixed and immovable external benchmark, but to what's typical in a particular market segment. If they're all bidding 5% above list in 2016/2017 then it doesn't become atypical for the subject's situation just because that wasn't happening 3 years ago or 10 years ago.

 

[J Grant]

No I did not adjust for EVERY sale in EVERY appraisal for undue stimulus, and moreover, your basis for saying unless I Adjusted for EVERY sale in EVERY appraisal then it was not good practice is dead wrong.
All kinds of financing was present, including some sales with no financing (cash) Not every buyer was using no money down loans, and even among those who did, not every price was impacted by it above prevailing prices for undue stimulus.

Your imaginary standard that unless I adjusted for undue stimulus for every sale in every appraisal I practiced poorly is frankly insane. It's something you decided to invent as a standard. Adjustments are supposed to be market based for impact on price and thus may be present for some properties in some appraisals, it is not good appraisal practice to make across the board rote generic adjustments to every sale on every appraisal ..

 

[timd354]

...how do you reconcile a loss of 40% or more in a year-18 months? The property was not over valued, it dropped 40% for no reason?
.

This a pretty simple concept that has to do with effective dates and changes in market conditions. Just because the value of a property drops by 40% in 18 months does not mean that the property was overvalued 18 months prior when it was sold/and or appraised. A 40% drop in value may indicate that the entire market was overvalued, but the value of the subject property within that market may have been adequately supported. This is a subtle but very important difference that you do not seem to grasp.

By the way, the 40% loss that occurred over an 18 month period did not happen for no reason....it happened because the market changes, more specifically because the most important factor driving the market changed....that is easy mortgage financing very suddenly disappeared and even traditional standard conventional financing dried up and became very difficult to obtain (particularly in the Jumbo space). This is because once the first significant number of defaults of ALt-A/subprime loans started to hit, everyone from the regulators to the investors in MBS's and the lenders woke up and turned off the credit spigot to the point that by the end of 2007 instead of handing out loans to anyone to fog a mirror they did not make loans to anybody who except those who could almost prove that they actually did not need the loan. Turning off the easy money spigot is what caused the bubble to fully burst and lead to the 40% decline values that you describe.

 

[J Grant]

I agree, George. Your comments about undue stimulus mirrors my use of it, where it affected prices above prevaling/typical for that market ...vs TMD's fixed generic insistence I should have adjusted for it on EVERY sale in EVERY appraisal I made during the bubble

 

[timd354]

I apologize profusely. I assumed the cliche "observe and report" was universally understood on this forum to refer to the unbiased, impartial and competent appraisal practice, of which market analysis is an integral component. The conclusions of that analysis consisting of "what is" as opposed to what any of us might think it "should be".

Obviously, what is understood by most is not understood by all and never will be

 

[J Grant]

Timd354, post: 2743636, member: 112435"]This a pretty simple concept that has to do with effective dates and changes in market conditions. Just because the value of a property drops by 40% in 18 months does not mean that the property was overvalued 18 months prior when it was sold/and or appraised. A 40% drop in value may indicate that the entire market was overvalued, but the value of the subject property within that market may have been adequately supported. This is a subtle but very important difference that you do not seem to grasp.

While what you say might be true, conversely, it can also mean that the market was over valued. You seen loathe to consider that possibility. Yet weren't there numerous books and media stories post boom about how entire markets were over valued?

 

[timd354]

..vs TMD's fixed generic insistence I should have adjusted for it on EVERY sale in EVERY appraisal I made during the bubble

once again another lie and misrepresentation as that is NOT what I said. You have made the statement "I understand that in the worst of the boom, nearly all properties became over valued." and you have attributed that to undue stimulus in the market. I have never stated that you should have adjusted for undue stimulus for every comp in every appraisal at that time nor did I expect that is what you actually did. My point is that the fact that you did not proves that your statement "nearly all properties became over valued" is just dead wrong.

 

[timd354]

Timd354, post: 2743636, member: 112435"]This a pretty simple concept that has to do with effective dates and changes in market conditions. Just because the value of a property drops by 40% in 18 months does not mean that the property was overvalued 18 months prior when it was sold/and or appraised. A 40% drop in value may indicate that the entire market was overvalued, but the value of the subject property within that market may have been adequately supported. This is a subtle but very important difference that you do not seem to grasp.

While what you say might be true, conversely, it can also mean that the market was over valued. You seen loathe to consider that possibility. Yet weren't there numerous books and media stories post boom about how entire markets were over valued?

I have never argued that the market was not overvalued, what I have stated and stand by is that not every property within the context of that market was overvalued. Again, you don't understand the subtle difference between a generally overvalued market and a specifically overvalued property within that market that both George and I have tried to explain and apparently never will.

 

[J Grant]

TMD -By the way, the 40% loss that occurred over an 18 month period did not happen for no reason....it happened because the market changes, more specifically because the most important factor driving the market changed....that is easy mortgage financing very suddenly disappeared and even traditional standard conventional financing dried up and became very difficult to obtain

Which came first, the chicken or the egg? You are correct above, but your conclusion is backward. The very thing you describe, easy mortgage financing LED TO PROPERTIES BEING OVER VALUED (sold for prices so impacted by the financing and other factors of the time, that their sale prices were above any historic benchmarks of value, or value relative to income of buyers who would normally purchase with conventional financing, and a price not supported by proper application of cost approach or income approach.

You seem incapable, for reasons I can not fathom, of realizing that properties in large number were over valued, when that is what happened, with subsequent years yielding studies and books about the bubble and bust putting forth that markets indeed were over valued.

 

[J Grant]

http://www.housingwire.com/articles...vervalued-markets-doubles-since-first-quarter

A recent article on it...they report entire markets as being over valued ( and conditions are mild now compared to bubble of 2006 -2007), so yes, markets as a whole can be over valued. (according to experts)

Which is different than an appraisal report that over valued an individual property.

The point is, when an entire market cycle sees a large # of properties over valued, the benchmark of sale prices can become skewed. The constant benchmark remains in an market cycle, for an appraiser is the application
of the market value definition terms to the sales...was the buyer acting prudently, knowledgeably , was price affected by undue stimulus, etc. Whether one adjusts for these or not, they can help screen out certain sales and analyze the ones used.