Opinion of Value Below Comparables

[Jayjay25]

Making a qualitative decision to lean towards one end of the indicated value range makes logical senses as your final value is supported by the adjusted values of the comparable sales. Picking an arbitrary number or percentage outside of that range while simultaneously stating you can’t extract a market conditions adjustments makes zero sense and the end result is an opinion of value that is not supported by the sales comparison approach.

 

[CGinMN]

Whether you realize it or not, leaning toward one end of the range is the exact same thing as picking an arbitrary number or percentage outside the range, which is why I don’t do either.

 

[J Grant]

Whether you realize it or not, leaning toward one end of the range is the exact same thing as picking an arbitrary number or percentage outside the range, which is why I don’t do either.

That is not true at all.

Opining at the higher, lower or middle of the adjusted range is based on where the subject fits in with the comps ( and can include market conditions as well. For example, if the subject is a extensively upgraded, and is most to an extensively upgraded comp, and that comp sold at the highest price, then an appraiser can support opining at the higher end of value.

And why would an appraiser pick an arbitrary number or percentage outside the range ? Even if an appraiser opines outside the range, they should have reasoning and support for it.

 

[J Grant]

The Market Value definition we use references the most probable price, that the typically motivated buyer would pay for the subject ..

Quality:
If a subject is most similar to the best comps, is it more probable a typically motivated buyer would pay on the higher end for it ?
If a subject is most similar to the worst comps, is it more probable a typically motivated buyer would pay on the lower end for it ?
If a subject is most similar to the average comps, is it more probable a typically motivated buyer would pay in the mid range for it ?

Market Conditions:
If the market is rising, is it more probable a typically motivated buyer would pay on the higher end?
If the market is declining, is it more probable a typically motivated buyer would pay on the lower end?
If the market is stable, is it more probable a typically motivated buyer would pay in the mid range ?

These two sets of simple questions apply to any price range, type of property in any market cycle. The logical answers gives you good support for why you opined at X $ .

 

[ZZGAMAZZ]

ok

In the Top 10 of the greatest all-time AF posts.

 

[ZZGAMAZZ]

I had an underwriter friend of mine tell me he sees appraisers do it all of the time. He said “they will just call the final value $20k over the adjusted value with no explanation in the report”. Pretty sure it’s more common than we think.

I'm curious after all these years....How does a typical underwriter become an underwriter? Do they usually have an appraisal background?

 

[CGinMN]

I’m not arguing that appraisers should be reconciling outside the adjusted range per se. My point is that reconciling from within the range when you have not quantified an adjustment, is putting a quantifiable limit on an adjustment that you didn't quantify. This type of qualitative analysis isn’t logical, especially when the element in question is greater or less than the comps (e.g. extrapolation), which is usually the case for date of sale/market conditions adjustments.

The Market Value definition we use references the most probable price, that the typically motivated buyer would pay for the subject ..

Quality:
If a subject is most similar to the best comps, is it more probable a typically motivated buyer would pay on the higher end for it ?
If a subject is most similar to the worst comps, is it more probable a typically motivated buyer would pay on the lower end for it ?
If a subject is most similar to the average comps, is it more probable a typically motivated buyer would pay in the mid range for it ?

Market Conditions:
If the market is rising, is it more probable a typically motivated buyer would pay on the higher end?
If the market is declining, is it more probable a typically motivated buyer would pay on the lower end?
If the market is stable, is it more probable a typically motivated buyer would pay in the mid range ?

These two sets of simple questions apply to any price range, type of property in any market cycle. The logical answers gives you good support for why you opined at X $ .

The logic here falls apart under basic scrutiny.

Six model match comps sold 3-9 months ago and the adjusted range is $245,000 to $260,000. Market values have been increasing, but since no model match sales from the development have sold since, I “can’t” quantify an adjustment. Instead, I’ll just reconcile to the upper end of the range at $260,000. The $265,000 contract isn’t supported.

The above is a pretty common scenario and rationale by appraisers… it’s a big-time fail. IMO because of the logic hole it results in an appraisal that isn’t credible.

That’s really all I have to say about it. If you don’t agree with me that’s ok!

 

[Dublin ohio]

I’m not arguing that appraisers should be reconciling outside the adjusted range per se. My point is that reconciling from within the range when you have not quantified an adjustment, is putting a quantifiable limit on an adjustment that you didn't quantify. This type of qualitative analysis isn’t logical, especially when the element in question is greater or less than the comps (e.g. extrapolation), which is usually the case for date of sale/market conditions adjustments.


The logic here falls apart under basic scrutiny.

Six model match comps sold 3-9 months ago and the adjusted range is $245,000 to $260,000. Market values have been increasing, but since no model match sales from the development have sold since, I “can’t” quantify an adjustment. Instead, I’ll just reconcile to the upper end of the range at $260,000. The $265,000 contract isn’t supported.

The above is a pretty common scenario and rationale by appraisers… it’s a big-time fail. IMO because of the logic hole it results in an appraisal that isn’t credible.

That’s really all I have to say about it. If you don’t agree with me that’s ok!

The logic doesn't fall apart. The basic concept that JG stated is sound. But when you start putting in conditions and not properly addressing those conditions. Is where the logic fails. In the scenario you provided. It was a failure of the appraiser. Not the concept.

 

[Lindseyw]

Has anyone encountered a situation where your opinion of value is below the comparables in the appraisal report?

LENDER STIP

• The value of the property is $1,190,000, but all 3 comparables used show an adjusted sales price above our value. I believe we should have an added comparable that comes in lower and then will bracket our subject's final value.

This is the situation, the subject was listed at 1,250,000 the price was lowered to $1,200,000 after 60 days due to a lack of showings and interest. The average DOM is 6-10. The executed purchase price is $1,190,000 as was my opinion value., The lender now wants a comparable to bracket the lower sale price. However, there are none as there have only been 3 sales in the subject market which are included in the appraisal report. In other words, there are no lower-priced sales in the market. The 1004MC shows as much. All this has been explained in the addendum of the appraisal report.

Is it reasonable to have an opinion of value below the comparables in the appraisal report? How could you justify a higher opinion of value than the executed contract when the subject has been on the market for 60-days without any offers?

Could this be a result of a declining market and/or mortgage rate increase?

Sometimes there are no good comparables and if you know the subjects market area then it’s justified. Since an appraisal is an ‘opinion’ then a lower value should be conclusive. I’ve had to do it. It seems there are no easy appraisals these days. It is what it is.

I just appraised a house recently where it didn’t sell for 67 days and then 5 months later they increased the sales price and out it back on the market in a very hot market. I valued it much lower and I know it will cause problems but some people just need an awakening. The 1004mc doesn’t explain anything. Cash talks and Bull**** walks…Loans are another ball game

 

[Lindseyw]

Definition of value depends on the intended use. There should be no harm in being wrong. Just make sure it’s an educated opinion.

The transition phase is here. As an investor and appraiser, it’s a dark cloud that has no right answer now. As an investor, I’d rather lower the price and sell faster. Not sure what others would do.