Lets put Historic to bed.

[toddmallard]

OK here is the question that most appraiser differ. I have spoken to some appraisers that say " We are historic". Now with this being said, Why does an appraiser need to view current actives and pendings. I have looked at USPAP and the only thing that I can find about historic and current market conditions is Standard 1 line 571. This section is about cash flow and expense.

If the bank or lender askes for this information as to actives, Than there is no problem giving it to them. My question is, "where does it say that actives and pendings must play a part in the decission making."

Some of the appraisers state that they would hate to explain, to a judge when being sued, why and how they came up with any value as to active sales and pending sales. these appraisers state that they are following the guidelines as written and to use data that has not happened yet would be absolutly wrong.

Can someone please help me find any direct rules that encourage us to use currently active sales in the appraisal process.

This is not a post for people to Blast My ***, just trying to have something to say to those who believe in "historic appraisals".

 

[Diego Lopez]

It has to do with the principle of substitution. If listings are lower than current sales, then your market is declining. In other words, listings give an indication of near future values, therefore listings can help you determine the correct + or - time adjustment.

Like you, I have many "old time" appraiser friends who disagree on using listings to support their values rather than closed sales because they see it as appraising to a future date. I say the appraisal community is about 50/50 split on this one.

 

[Joker]

"Most probable price...."

What is that based on?

Like any economic guesswork (or SWAG), it involves using past performance to predict future results. Yes, the closed sales are in the past. Current listings and pending sales represent the future results. An appraisal for PMV is current, or somewhere in between the past and the present. You look to closed sales to predict the trend for the future listings. Are sales prices higher, lower, or equal to listing prices. How many DOM did the closed sales have. Using that data and comparing it to future results is how we analyze current markets.

Are we historic? I certainly hope not. Unless, that is, we are doing a retrospective appraisal.

 

[toddmallard]

They understand principles of substitiution, But they will not come in lower than the lowest closed comp. they say that is a "crystall ball" appraisal. They will not guess at what the selling price will be. They said, "one of which was sued" that he had lost in court because he appraised under the lowest closed sale in the neighborhood, even though there were actives much lower. The principle of substitution did not help here.

 

[toddmallard]

Joker, One of the question on the State cert exam, Was "we are historic in nature". This was the correct answer.
also when the market was jumping up, Most banks would not allow us to set the market by using active or pending sales. Why the change now.

Can anyone find any set rules or guidelines as to use "not closed sales" as comps.

would it not be best to correct the guidelines and make the rules less open to interpretation.

 

[Mztk1]

Our values are not historic they are current (as of the effective date). We base the value on historic sales data and current pending and active sales. Market condition adjustments are not into the future but up to the effective date of the report.

Sales agents on the other hand are looking at what a house might sell for, given normal marketing time, at a future date (30 days, 90 days, etc). That is similar what we do when doing a relocation appraisal, providing an antcipated sale price. What we do and what agents do are different and relative to one another we can be viewed as "historic", which is where the idea comes from.

Where you might find directions on having to look and consider active and pending sales is in the scope of work of a client. For instance, when doing a mortgage appraisal to Fannie Mae guidelines there are several places that state the appraiser must consider pending and active listings as well as closed sales. Here is one:

The appraiser’s analysis of a property must take into consideration all factors that have an effect on value, recognizing that a well-informed or well-advised purchaser will pay no more for a property than the price he or she would pay for a similar property of equal desirability and utility if it were purchased without undue delay. To accomplish this, the appraiser must analyze the closed or settled sales, the contract sales, and the offerings or listings of properties that are the most comparable to the subject property in order to identify any significant differences (or elements of comparison) that could affect his or her opinion of value for the subject property. This is particularly important in declining markets because the competing listings and contract sales probably reflect the upper-end of value for the subject property as of the effective date of the appraisal. This analysis will result in more accurate reporting on market conditions, including trends that indicate sale prices for contract sales and asking prices for recent offerings or listings have declined.

 

[toddmallard]

Thanks Jim, Where was that found. I need some information like that to try and stop the madness.

Is this a fanny mae guideline?

 

[Mztk1]

Go to http://www.allregs.com/efnma/

On the left select 2007 Selling Guide

Then on the left go down to Part XI: Property And Appraisal Guidelines

Then go down on the left of Chapter 4: Reviewing the Appraisal Report

Then on the left select XI, 406: Sales Comparison Approach

Finally, on the left, select the very top line. I cut and pasted the 2nd paragraph in my last post.

 

[toddmallard]

Jim Thanks

 

[Lawrence R.]

Joker, Most banks would not allow us to set the market by using active or pending sales. Why the change now.

Because banks do what banks perceive it is best for them to do.

Bankers thought if they got involved with listings at a higher price, they were getting caught in speculation, and if the market radically changed, they would be in an unsecured position...
Boy, I sure am glad that didn't:new_all_coholic: happen!!

Now, the banks see fit to trust the speculation on the downside b/c if they are wrong about prices, and they start to increase, they will be in a further secured position, which enhances their portfolios.

So, this is basically the banks telling appraisers how to appraise, and we coalesce, because we need to feed ourselves.

Now, anyone here can argue all day long about substitution and what not...and all those arguments would be valid.

But if the banks told us tomorrow to stop using listings, all those arguments would go right out the window in the name of self preservation.