Order of operations for market trend analysis

[George Hatch]

I was talking to a reviewer the other day about SFR adjustments and they recounted seeing an appraiser who developed the adjustments for the location and physical attributes first before adjusting for market trends. More similar to making the apples themselves more similar prior to analyzing the seasonal variances in the market for the prices of apples. More expensive in one season than another.

I have always played around a little with the order of operations of adjusting the other variables to test the combined efficacy of different combinations but I have always adjusted for dates and financing and terms of sale first before going on to the others. I know why I did it that way but now I'm re-considering the efficacy of adjusting for the combined terms and conditions of sale prior to the combined property attributes. Maybe it makes more sense to equalize the property attributes first.

 

[Tom D]

And you don't think your current method gives you an accurate value. The new uad will torture you enough without adding to the market grid. no mas, no mas.

 

[J Grant]

The adjustment for concessions or financing is at the top of the grid, and it is done independently of other adjustments to reflect the concession or financing impact on price - imo it does not affect the value whether we choose to develop it first or last. That said, I usually do it first out of habit; sometimes, when checking the reports, I find I missed something in that realm and then will go back and address it.

There are times I find when, after making the adjustments, something glares out as "off" - not revealed until we made the total of adjustments.

 

[Terrel L. Shields]

Maybe it makes more sense to equalize the property attributes first.

Quite possibly true. My schtick has always been to avoid comps with serious concessions or needs to adjust for financing... although sometimes I cannot get around a second mortgage at a much higher interest rate and shorter term. Not uncommon in rural land sales.

Ultimately, to me if I see that the comps don't align within reason, I want to know why. Is it because one is skewed by financing? And ultimately, does it matter more than a few bucks? I see no reason to adjust for market conditions on a sale that isn't more than a few months old. I've never been able to quantify time changes that exceeded one-half to one percent per month. And those usually tend to quickly fall back to the trend line, which here is under one-half percent per month. I mean what do we make of the two most recent land sales in my neighborhood. Land a mere one-quarter mile apart. 91 acres sold for $10,000 an acre and 15 months later 77 acres sold for $15,000 an acre. Am I to believe the market increased 50% in 15 months? Of course not. Other factors are at work, including frontage and topography. And not all the factors are easily quantified.

 

[George Hatch]

I don't appraise a lot of houses and I especially don't often appraise normal SFRs where there's a lot of data. So I'm accustomed to working with extremely small datasets with a lot of variances. But it occurs to me that the protocols we would be compelled to use when working with small datasets - and which protocols were established many years ago - might not be optimized for use with larger datasets and the tech tools we now have to analyze with.

If I'm only dealing with 6 or 8 properties with a lot of variables in effect then I have to do what I have to do in order to reconcile. But if I have a lot more nominally comparable properties to analyze that increases my options insofar as the tools and modes of analyses I can bring to bear on the problem.

 

[Joe Flacco]

It doesn't really matter IMO. I think I tend to make the most reliable adjustments first. Like, the data for the adjustment is so good that the adjustment is almost fact.

 

[CGinMN]

My process is the highest confidence adjustments come first. This usually means time adjustments, concessions, GLA, garage stalls. Then move on to the sensitivity based adjustments, such as condition and quality. Then you consider whether adjusting for things like amenities is appropriate at the end.

 

[Fernando]

It makes sense that location and physical conditions should be adjusted. Buyers look at those factors as most important in making an offer.
Agents' job is to influence buyer on past sales in subjective "reasoning".
Time adjustments more difficult to make and not sure why Fannie is encouraging market condition adjustments unless appraiser has definite proof.
Get most recent comps and no need to worry about time adjustments.

 

[Joe Flacco]

My process is the highest confidence adjustments come first. This usually means time adjustments, concessions, GLA, garage stalls. Then move on to the sensitivity based adjustments, such as condition and quality. Then you consider whether adjusting for things like amenities is appropriate at the end.

Yes, highest confidence adjustments first. For me it is usually site related differences. Subdivision or neighborhood differences or land area.

 

[CGinMN]

Yeah, if site/locational differences are significant, that is one to analyze up front. If appraisers do that plus well supported market conditions and GLA adjustment, then 80% of the puzzle is solved and the rest is just tinkering to fill in the blanks.