market analysis conflicts within report

[hastalavista]

These two quotes

Even when you do the "math" in our business, the only time you get a discreet adjustment is when you quit thinking about it too soon.

As I've evolved my philosophy on this I'm coming more to the opinion that a SCA grid can never be more than a plausible mathematical (quantitative) explanation of the most reasonable qualitative analysis of the situation.

should be the basis for an appraisal article.

 

[Metamorphic]

Co-Author?

 

[hastalavista]

Co-Author?

If we write it and use residential & commercial examples, we may be able to use it in lieu of our MAI demo reports (to the chagrin of Joyce! :laugh.

 

[ctapraser]

ctapraser - thanks for responding. It is my understanding of the mc addendum instructions that we are to analyze neighborhood sales. The heading of the mc addendum form states market trends and conditions in the subject neighborhood. I agree with you that looking at the entire market of competing comparables would be more useful, but that is not what is asked for.
Lee - you make a good point about checking the boxes on the mc addendum. Yes I do check the boxes based on what that particular data shows (primarily to avoid call backs and addendums) but follow up in the comments section that the data is too limited to provide indications of trends and I then provide the analysis based on the data that I feel is more applicable. Perhaps instead of checking the boxes and then saying ignore the boxes in the comments, I should just leave them blank.
JGrant - I guess the question remains what exactly is the time frame the neighborhood trends boxes on the form are supposed to reflect. In my current case the market has been up and down, so if the time frame is two years I would have one conclusion, if it were one year it could be a totally different conclusion, if it were three months it might be something totally different. This is not the steady consistent straight line trends shown in our classes and text books that we would all prefer to work with.
Lee - it seems to me that on the mc addendum if the data entered is showing one trend and you check the box indicating a contradictory trend, you are inviting questions, even if it is explained below, as I often receive requests for addendums for things that are already in my report. I think I will try just leaving the boxes blank with a comment about insufficient market data, then show my own analysis based on a more applicable sample. I usually include a graph I can create through the SMART software.
Joyce - I do provide the data from the sample I determine as being applicable.
Marion - The underwriter might be looking at the trends of the county or state overall, but that has no affect on my focus on the trends in my particular market segment (except as perhaps the county or state trends may impact my market segment). Obviously many various market segments buck the county and state trends, so while being informed on the county and state trends, my concern is what is happening in this particular neighborhood and price range. I do like your comments and may incorporate them into my reports. And unfortunately the appraisers I have personally asked about how they are determining market trends and time adjustments have all stated that the market is fluctuating too much so they just call it stable.
Luke - I agree with you that the mc addendum would be more applicable if it were expanded to include competing properties the typical buyer would consider, but that is not what the form asks for. I originally was doing the mc addendum that way to try to make it more meaningful and useful, but the rather arbitrary data points we are forced to focus on, and the fact it just asks for neighborhood sales, I have been unable to glean any useful information from the mc addendum. So I now supply the numbers but explain that no conclusions can be drawn from the limited data, and then provide my own analysis using the perimeters I deem applicable. Apparently many appraisers are dismissing the mc addendum but not following up with a more applicable analysis, instead just stating stable. It drives me crazy that I often spend 20-40 minutes per appraisal analyzing market trends and creating supporting graphs when competing appraisers are skipping the entire process and getting the same fees that I am. My fees are down to approximately $25-$45 per hour on my appraisals, when it used to be double that.
TJ - In my case the market shows decline in values over the three to six month period in which my comps sold, but improving in recent data as prices have started to stabilize and increase, market times are shorter, lp/sp ratios are increasing, list prices are increasing, number of listings are declining as properties get absorbed. Perhaps I am over analyzing the market, or I'm taking too micro a look at the trends as opposed to standing back and looking at the bigger picture. The problem with that would be I could be overlooking a change in the trend which could affect the borrowers ability to borrow as checking declining values will affect the l to v. I have supportable data to show a decline in values from 3-6 months ago (requiring time adjustments to my comps), but also data to show a recent change in the trend, so the neighborhood trend boxes would not match the negative time adjustments I have made in the sales grid. I agree with you that year over year comparison is the most accurate due to strong seasonal variations in my market. I again go back to what is the neighborhood trend specifically referring to? If it is based upon one year or two years worth of data to define the trend, then I would have to check the declining property value box, but that is not indicative of what is happening in the market at this time and perhaps over the past few months as values have stabilized and increased. While historic data trends can be useful, the lenders concern is not with what was happening 18 or 24 months ago, but what is happening most recently and is currently happening with on markets and pendings. I look at the neighborhood trends as answering "how's the market" meaning right now. It is how I would answer the question if a buyer, or a seller, or a lender were to ask me that question on the effective date of the appraisal. Maybe I am looking at this wrong, that since the buyer and lender are most likely in this for the long haul, I have to give more weight to historic trends as useful for predicting future trends and not to focus on the near short term. Okay, my head is hurting now. Thanks for the responses, please let me know if you have any additional thoughts on this.

Please re read (or read if you never did) the instructions for the 1004MC, see last sentence.

 

[Joyce Potts]

If we write it and use residential & commercial examples, we may be able to use it in lieu of our MAI demo reports (to the chagrin of Joyce! :laugh.

I don't think so, Scooter.

Now back on topic. Ya'll are over thinking this whole mess. There is generally no right or wrong answer. Only the best supported and compelling answer.

Is there any other insane market than Central Florida? If you want to stay in business, learn to write your reports within the most comprehensive context of full transparency and dislcosure--as if a state investigator or experienced Reviewer were going to disect your report. You know--those Reviewers who actually did full demos and understand the complexities, downsides and upsides of those approaches. <DENNISWHACK>

I take exception to primarily reliance on closed sales because your valuation is only as current as the most recent CONTRACT DATE or when the meeting of the minds took place. If a sale never closed, throw it out. If it did close, the contract date is far more important in my ever so sarcastic humble opinion. It's more reflective of market conditions that existed at the time that determined the agreed upon price and terms between the parties.

The last few years are unprecendented with perhaps the exception of Arnold's home state of Calliefornicate. We are now having to actually become analysts. It's not just about three closed sales (IT NEVER WAS) despite what the lending industry led everyone to believe and who are now filing civil and regulatory complaints against their old BFF's.

Given erratic and inconsistent market data inclusive of solds, listings, pendings, short sales, REO/Bank Owned--you name it, you have to pick your poison given the horrific options but at the same time fully disclose to your client what you're faced with. How hard is it to scan in the MLS data and search criteria and basically add verbiage telling your cilent the following: (That is COPYRIGHTED and like everything else could change tomorrow and probably will):

"In addition to the comparables analyzed in the Sales Comparison Approach and Competitive Listings/Pendings Analysis, the Appraiser's Larger MLS Sampling Addenda is also included specifying the search criteria and an MLS generated Market Analysis Report. This larger statistical analysis is inclusive of short sales and bank owned properties and includes a longer 'historic' look-back period of closed sales that often returns a lower median/average value, especially in a market that is 'transitioning' from oversupplied to undersupplied conditions.

The 'Appraiser's Larger MLS Data Sampling' is provided (see Addenda) with the MLS "Special Sale Provision" highlighted indicating the ratio of Arm's-Length, REO/Bank Owned or Short Sales within the larger data population. Absent of any specific client assignment conditions, the Appraiser emphasizes the use of Arm's-Length data whenever possible which is considered to be consistent with the principle and intent of the definition of 'Market Value' set out on Page 4 of 6 of the URAR report. While providing this additional information exceeds typical USPAP, Lender, GSE, HUD, VA, Inter-Agency or ERC/Relocation appraisal protocols and guidelines, its purpose is to provide full disclosure and transparency as to the Appraiser(s) reasoning, comp selection, analyses and methodology used in the valuation process.

It is imperative that the Client(s), underwriters, reviewers and all Intended Users have a thorough understanding of changing market characteristics and trends and the inherent challenges with regard to the multi-tiered market data (arm's-length, REO Bank Owned and Short Sales) to facilitate them in making a well-informed and prudent decision in accordance with the 'Intended Use' and definition of 'Market Value' set out in the Scope of Work herein."

:new_2gunsfiring_v1::new_all_coholic:m2:

In short and more to the point learn to throw the liability/responsibility back onto the lender/underwriters and Reviewers. If they don't agree with your approaches/methodology then tell them to NOT MAKE THE FRIGGIN LOAN. Therein lies the benefit of full disclosure and transparency when you use it YOUR advantage.

We've been spoiled over the last 20 years with mostly stable markets. You've been thrown a curve ball. Adjust your skills and tactics or exit the playing field. Tebow that.

Respectfully,

Ms. High and Mighty

P.S. Had lunch with Pam C last week. She's doing so-so but in good spirits and says hello (to some of you and you know who you are.)

P.S.S. - Chagrin? Seriously?

 

[Mike Garrett RAA]

I didn't know Pam was ill????? Have met her several times and was always one of favorites on the forum. Please update me.

 

[Terrel L. Shields]

I'm coming more to the opinion that a SCA grid can never be more than a plausible mathematical (quantitative) explanation of the most reasonable qualitative analysis of the situation.

an astute observation and frankly I think it was the intention of such grids in the first place. It wasn't meant as rigorous scientific formulae. The notion that heuristic analysis can be readily quantified is the flaw in the Efficient Market Thesis which suggests that humans always do the thing that they believe is most optimally profitable without regard to any "outside" influences. The variance is underestimated in almost all such math based solutions.

Pam's RA again? I know an appraiser suffering from it and she cannot afford the drugs except a cheap steroid. Big knots on her fingers and elbows. constant pain. She continues to work because her husband had a stroke but both should be on full disability.

 

[hastalavista]

I don't think so, Scooter.
....
P.S.S. - Chagrin? Seriously?

Joyce, haven't you heard?

Getting published in TAJ (or, another peer-reviewed journal) for a real estate-related paper can be accepted, subject to review, in lieu of a demo report.

 

[Mike Garrett RAA]

An appraisal is an opinion of value and nothing more. We can create all kinds of analysis and use more and more data but it all boils down to an opinion on the part of the appraiser. If it wasn't reasonably reliable it would have been replaced by some mathematical calculation on a computer long ago.

 

[Terrel L. Shields]

Getting published in TAJ (or, another peer-reviewed journal)

I wonder if that has more to do with the lack of good articles and the fact upon occasion the AJ has had to reprint older articles to fill the magazine?

Frankly, we do need a lot more peer-reviewed articles.