Opinion of Value Below Comparables

[J Grant]

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.

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The logic holds.

A few points. 1) We do not appraise to support a contract. We appraise to develop an opinion of MV. So in the above, if the OMV is 260 and SC is 265k, so be it, However, you failed to say what the market conditions are. Are they rising, or stable.? If they are stable, then the 260 k is supported. Need listings and pending's . If the market is rising, maybe the subject is worth 265k , or 268k r
SO, in the above, if I were appraising, I would not limit the comps to 6 model matches. Model matches, while they make great comps, are not the only comps. What are superior houses selling for? What are inferior houses selling for ? Your last comp of a model match was 3 months ago. If the market were increasing, I'd look for sales more recent as well, even if not model matches. I might use 3 of the more recent model match sales, and add between 1 and 3 more other sales and see where the adjusted range is .

The reconciliation is the easy part, if we do all the hard work of comp selections and understanding and applying market conditions. In the above, after the adjusted range is developed, then all needs be asked is where to point value within the range - if SC is within the range that is often where an appraiser opines. But if my subject were among the better houses and market is increasing, I might opine over the SC.

 

[J Grant]

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.

The above shows a lousy job by appraiser for reasons shown in my other post. But that aside, we don't appraise to support a contract. However, a SC price can support our market value opinion.
A sale contract is a market indicator, and we do need to consider it.

The above scenario lacks a search for comps beyond those model matches and a lack of sales less than 3 months old and a lack of what market conditions are. The problem is not the logic of how to reconcile, the problem is the appraiser did not do a thorough job of research and analysis.

The reconciliation is the last step after all the hard work is done. The reconciliation is the icing on the cake. If the cake inside is rotten and made from stale ingredients, the icing won't change that.

 

[lefty2cox]

I apologize if this was mentioned already but I've only read through a few pages. Are we talking about hundreds of thousands of dollars difference between opinion and adjusted range or just a smidge?

 

[CGinMN]

However, you failed to say what the market conditions are. Are they rising, or stable.?

I do say. Please read and take a moment to understand my posts before you respond and tell me I'm wrong.

Appraisers can't be like "I don't have enough data to support a time adjustment" then be like "I'm gonna make a qualitative adjustment instead." The logic doesn't work. IMO

This is the simplest way I can put it. If you can grasp this concept, maybe one day you will understand.

 

[RCA]

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?

Your statement doesn't make any sense. The "value" of the comparables is their sale price, adjusted for market conditions to the effective date of appraisal. Your "opinion of value" is your value conclusion for the subject.

It's pretty much like a beauty contest where your contestant "the subject" just happens to be the ugliest gal in the lot.

And also, if you are really talking about the "adjusted value" of the comparables - then if you are doing a very good job in your adjustments, all adjusted values should be exactly equal to your value conclusion by the sales comparison approach. Mine are each and every time.

But, to reiterate, the "adjusted value" of a comparable is NOT its "value", but rather its hypothetical value if we adjusted all of its characteristics to match those of the subject.

 

[Jayjay25]

CGinMN said:
Appraisers can't be like "I don't have enough data to support a time adjustment" then be like "I'm gonna make a qualitative adjustment instead." The logic doesn't work.

That’s not exactly correct. It’s more like “I don’t have enough data to support/extract an exact number for a time adjustment but I can conclude the market is increasing. My SUPPORTED opinion of market value will place the greatest weight on the high end of the value range SUPPORTED by the comparable sales. It is logical that a property would sell toward the high end of the supported value range of values are increasing. To opine at a value outside of the adjusted value range results in a value that is not supported by the comparable sales analysis. How would the final reconciliation read? The final estimate of value is not supported by comparable data however is supported by the contract price?

 

[alebrewer]

And also, if you are really talking about the "adjusted value" of the comparables - then if you are doing a very good job in your adjustments, all adjusted values should be exactly equal to your value conclusion by the sales comparison approach. Mine are each and every time.

By this, are we to understand that your LSR never has residuals?... Interesting.

 

[ZZGAMAZZ]

Your statement doesn't make any sense. The "value" of the comparables is their sale price, adjusted for market conditions to the effective date of appraisal. Your "opinion of value" is your value conclusion for the subject.

It's pretty much like a beauty contest where your contestant "the subject" just happens to be the ugliest gal in the lot.

And also, if you are really talking about the "adjusted value" of the comparables - then if you are doing a very good job in your adjustments, all adjusted values should be exactly equal to your value conclusion by the sales comparison approach. Mine are each and every time.

But, to reiterate, the "adjusted value" of a comparable is NOT its "value", but rather its hypothetical value if we adjusted all of its characteristics to match those of the subject.

Your perspective is quite erudite, but don't you ever feel guity of imposing a subjective perspective on adjustments when they all equal the others, despite the nuances of real property?

 

[RCA]

Your perspective is quite erudite, but don't you ever feel guity of imposing a subjective perspective on adjustments when they all equal the others, despite the nuances of real property?

The adjustments are all the result of regression. My subjective input is limited to my ranking of the subject with respect to the comparables for the unmeasured or subjective features such as condition, quality of construction, view, functional utility, aesthetics, etc.. You can't get around that, because you don't have a sale price for the subject (in any case that you can use). The adjustment for the unmeasured features - is really for the entire group of such unmeasured/subjective features. You can break that total adjustment up any way you want, - and it will have no impact on the adjusted value.

 

[Ariba]

Thank you all for your inputs.

The STIP has been withdrawn with the following statement:

"Thank you so much for pointing those paragraphs out to me. I apologize for missing them. They are extremely detailed and certainly confirm the value. I sincerely appreciate your time if getting back to me."