Opinion of Value Below Comparables

[residentialguy]

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

Sometimes a quantified adjustment suggests a precision that is just not possible. I personally think that many quantified adjustments fail in this. A qualitative analysis is still an adjustment in reconciliation, but does not pin the appraiser to a precision that the market does not possess. As a newb, I made all sorts of "supported quantified adjustments". As I learned more about the market and how appraisers got slammed in court, I found that qualitative analysis was a much safer space.

 

[CGinMN]

All adjustments are imprecise. That becomes evident when you develop your adjustments 2 or 3 different ways. If readers or courts misconstrue a number in your report for a level of precision that doesn't exist, then all your adjustments and your final OMV are also open to that same criticism. The point of making adjustments is to build a credible valuation model, and that often doesn’t require precision.

---

This is from The Appraisal of Real Estate 14th Edition:

Qualitative Analysis-Relative Comparison Analysis
Reliable results can usually be obtained by bracketing the subject between comparable properties that are superior and inferior to it. If the comparable properties are either all superior or all inferior, however, only an upper or lower limit of values is set and no range (or bracket) of possible values for the subject can be defined. For example, if all the comparable properties are inferior in terms of qualitative factors, the only conclusion the appraiser can draw is that the value of the subject property is higher than the highest value indication for the comparable properties. The appraiser must search the market diligently to obtain and analyze sufficient pertinent data to bracket the value of the subject property. If the available comparable sales do not bracket the subject's value, the appraiser should consider employing other analytical techniques to establish such a bracket. Quantitative adjustments to the comparable sales can often serve this purpose.

When it comes to using qualitative analysis for site size, it is obvious when you are bracketed. However, for market conditions, it's not possible to know if your comps bracket the subject without doing a quantitive analysis first. One of the most common things I see in appraisals is that no MC adjustment is made for sales that closed 2, 3, and 5 months ago, but that appraiser reconciles to the upper end of the range. In a market that is appreciating, the adjusted range will only represent a floor. In a market that is declining, which is possibly the OPs scenario, the adjusted range will only represent a ceiling.

 

[J Grant]

Buyers adjust with their wallets.

As a broad generalization, buyers pay more for larger than desirable features and less for properties that lack them . It is that simple. Of course, what is desirable in one market/area /price point may not be in another. If an appraisal can not figure that out in their market area, they should not be appraising there.

The problem is, not every buyer pays the same amount for a feature. The most similar sales are reviewed, and extraction from paired sales, or regression finds one One buyer paid 40k for a lake view, another 65k , 4 buyers paid 45-55 k. The appraiser adjusts 50k as the most typical $ amount found. Adjustments, as is so much else in appraisal,, is predicated around the actions of the presumed typically motivated buyer . An outlier buyer might pay 100k for the lake view or pay 5k for it. But MV is not based on the actions of outlier buyers.

Very minor items such as fireplaces, wet bars, a fence, etc are usually not worth adjusting for because the amounts are too small or not able to be extracted. Best thing is to mention them, state that they were considered as part of the overall upgrades and factored in the reconciliation.

One area where some appraisers fail is they do not properly identify the typically motivated buyer for the particular subject and its market. A property flipper has different motivations than a family buyer than a luxury penthouse buyer. Some appraisers think in terms of rote/math and rely on stats and can not fathom why some things sell for more or less since all they see are numbers with no context.

 

[ramrcdk]

This is what I posted: "However, the forum is entertainment and you pick up a fresh perspective on an issue that you might not have considered and now and then you pick up a gold nugget."

Sorry, you take offense to that.

Again, the same simple question, do you consider the appraisers posting on this forum your "Peers" Simple Yes or No

...said with a grain of salt: YES!! Absolutely SOME I consider Peers & Piers (platform for support) TOO!

 

[residentialguy]

All adjustments are imprecise. That becomes evident when you develop your adjustments 2 or 3 different ways. If readers or courts misconstrue a number in your report for a level of precision that doesn't exist, then all your adjustments and your final OMV are also open to that same criticism. The point of making adjustments is to build a credible valuation model, and that often doesn’t require precision.

---

This is from The Appraisal of Real Estate 14th Edition:

Qualitative Analysis-Relative Comparison Analysis
Reliable results can usually be obtained by bracketing the subject between comparable properties that are superior and inferior to it. If the comparable properties are either all superior or all inferior, however, only an upper or lower limit of values is set and no range (or bracket) of possible values for the subject can be defined. For example, if all the comparable properties are inferior in terms of qualitative factors, the only conclusion the appraiser can draw is that the value of the subject property is higher than the highest value indication for the comparable properties. The appraiser must search the market diligently to obtain and analyze sufficient pertinent data to bracket the value of the subject property. If the available comparable sales do not bracket the subject's value, the appraiser should consider employing other analytical techniques to establish such a bracket. Quantitative adjustments to the comparable sales can often serve this purpose.

When it comes to using qualitative analysis for site size, it is obvious when you are bracketed. However, for market conditions, it's not possible to know if your comps bracket the subject without doing a quantitive analysis first. One of the most common things I see in appraisals is that no MC adjustment is made for sales that closed 2, 3, and 5 months ago, but that appraiser reconciles to the upper end of the range. In a market that is appreciating, the adjusted range will only represent a floor. In a market that is declining, which is possibly the OPs scenario, the adjusted range will only represent a ceiling.

Say what you want. Fight your report in court, I'll take the qualitative analysis overquantitative adjustments all day.

 

[J Grant]

Say what you want. Fight your report in court, I'll take the qualitative analysis overquantitative adjustments all day.

We often use both !

 

[Ariba]

If you think so little of the posters on AF, why post a question at all? I'd hate to be tasked with trying to find someone you might consider your 'peer'... I'm guessing you believe very few (if any at all) in our profession are your peers...

Many of the posts on this thread have been informative and the reason I post questions on the forum. Thank you for all your input, it is appreciated.

 

[RCA]

Sometimes a quantified adjustment suggests a precision that is just not possible. I personally think that many quantified adjustments fail in this. A qualitative analysis is still an adjustment in reconciliation, but does not pin the appraiser to a precision that the market does not possess. As a newb, I made all sorts of "supported quantified adjustments". As I learned more about the market and how appraisers got slammed in court, I found that qualitative analysis was a much safer space.

That is kind of a bunch of baloney.

You see, the sale price for the sales comparables, the basis of our analysis, is indeed very precise. That should be the foundation of everything that follows. That is a very exact constraint. All of your feature values for all of the features of each sales comparable should add up to exactly that sale price. --- And if you follow that constraint, your adjusted sales prices will, mathematically, all be equal to the same value!! And that is regardless of your subjective/qualitative judgement. 99.99% of appraisers can't figure that out because they haven't had the necessary math background (I suppose).

They just cannot figure out. I give hints all of the time on this forum. Although I am sure some have figured this out by now, they are rather quite, - perhaps to just be polite to the idiots.

But, I set back, and see this garbage perpetually generated and am amazed.

I'm not going to tell you every exact detail. Why should I? --- I had to figure this out on my own. You can do the same.

 

[Fernando]

That is kind of a bunch of baloney.

You see, the sale price for the sales comparables, the basis of our analysis, is indeed very precise. That should be the foundation of everything that follows. That is a very exact constraint. All of your feature values for all of the features of each sales comparable should add up to exactly that sale price. --- And if you follow that constraint, your adjusted sales prices will, mathematically, all be equal to the same value!! And that is regardless of your subjective/qualitative judgement. 99.99% of appraisers can't figure that out because they haven't had the necessary math background (I suppose).

They just cannot figure out. I give hints all of the time on this forum. Although I am sure some have figured this out by now, they are rather quite, - perhaps to just be polite to the idiots.

But, I set back, and see this garbage perpetually generated and am amazed.

I'm not going to tell you every exact detail. Why should I? --- I had to figure this out on my own. You can do the same.

Your funny IVCA. You have some valid points. Yes, there are factors that can explain the sales price which many appraisers have not taken into account.
It requires more detail analysis which for practical purposes, not many appraisers have the knowledge and time to do it.
Just like you, I have appraisal secrets that I don't disclose. It comes to me naturally from years of experience. I didn't even disclose them to my trainee.