Over 10% adjusted value range a indication of poor adjustments?

[KJR2008]

Received this for a AMC, the lender requirement is that a value range over 10% needs comentary, is a over 10% range possibly a poor extraction of market adjustments, how do others deal with this stip?

 

[JRS at OBX]

I rarely have a report that doesn't have some adjustment of more than 10%.

I have a canned response: Some adjustments may exceed general guidelines. Adjustments are derived from the market. This is unavoidable and due to the lack of more comparable sales.

 

[Terrel L. Shields]

Send them to the dictionary.. Paucity of data...

I would comment on all adjustments that are larger than 10%

 

[AnonApprsr]

** Wow, read the thread entirely wrong, nevermind.

 

[Michigan CG]

Received this for a AMC, the lender requirement is that a value range over 10% needs comentary, is a over 10% range possibly a poor extraction of market adjustments, how do others deal with this stip?

It is my opinion, and the way I was trained that all comparables and the reconciliation of value needs commentary.

In this time of REO properties, short sales and weird market activities it is harder than ever to appraise.

If you write a couple paragraphs of reconciliation of value and why you arrived at where you did you should have no problems. Residential reports tend to have too little explaining as to why the value opinion is where it is at.

Excerpts from today's report:

SALE COMPARABLE #3: This property is a builder sale that was listed on the MLS (#3xxxxxxx). The property was on the market for a total of 60 days before it closed. The list price was $224,900 with a selling price of $219,000.

According to the MLS listing the home has 9’ ceilings and 8’ doors on the first floor, crown molding, custom cabinets, hardwood floors and a second floor laundry. It is my opinion that this neighborhood is a little more desirable than the subject neighborhood. Shown below is the comparable neighborhood......

SALE COMPARABLE #4: This property is located in a subdivision with similar desirability of the subject neighborhood which is shown below.......This property was a builder property that was marketed on the MLS (#3xxxxxx) and was the builder model property. The home, according to the listing Realtor has 9’ first floor ceilings, hardwood flooring throughout the home, a gourmet kitchen with 42” upper cabinets, granite counters and a full finished basement. This property also had a third driveway space, full landscaping and a brick patio. Considering the property was a builder model home it would be prudent to assume that the upgrades to this home were similar or better than the subject property improvements.

SALE COMPARABLE #5: This property is located in a more desirable neighborhood in comparison to the subject neighborhood. Lots sizes in this neighborhood are generally larger than those of the subject neighborhood and other new residential neighborhoods. According to assessor records the home has 1,732 SF of GLA. This property is a builder sale and was not listed on the MLS. Shown below is the neighborhood of this comparable property.

SUMMARY OF ADJUSTMENTS: It is optimal to obtain comparable sales that are recent and proximate to the subject neighborhood or a similar neighborhood. There are NOT ample sale properties that could be used that are comparable and in the immediate neighborhood and therefore properties in other neighborhoods were considered. The homes in this analysis have been chosen because they are suitable substitutes for the subject property.

Much of the analysis in the comparable sales grid is quantitative (dollar/numerical adjustments) although some of it as explained above is qualitative...........

RECONCILIATION OF VALUE: The unadjusted sales prices (after concessions are applied) range from $177,500 to $250,865 ($88.22/SF to $135.51/SF). The adjusted sales prices range from...........

Most of the sales listed in this report were builder sales and none of the homes in the subject neighborhood were listed on the open market or on the MLS. Many of these homes were custom ordered and many were ordered built before the market started to decline. Comparable sales #3 and #4 were exposed to the open market and by their descriptions are comparable to the subject property’s assumed quality in terms of upgrades and quality. These two property sales are most consistent with the definition of Market Value.................

 

[Mary Tiernan]

I find it helps if you quote Fannie when exceeding adjustments:

No sales were found which exactly match the subject in styling, room count and appeal in the past two years searched. Due to the low density, rural nature of the area, seasonal trending and other factors that restrict the number of comparable sales, it is typical to utilize several sales in the marketplace which assist in bracketing the subject's amenities. This often results in adjustments exceeding Fannie Mae recommended guidelines.

Adjustments exceeding 10% line, 15% net and 25% gross are common and typical in rural markets and, per Fannie Mae Guidelines, adjustments must be made to the comparable sales to reflect the reaction of the market to the differences without regard for the percentage or amount of dollar adjustments. If adjustments do not fall within recommended guidelines, an appropriate explanation is provided.

 

[Thern Newbell]

Original poster is referring to the spread in adjusted values between highest and lowest adjusted price, not an adjustment exceeding 10%. AMC's and some lenders don't like spreads this large, but it's unavoidable at times given property type and location. When I encounter this issue, I acknowledge the issue, give a reason why it was this way, and state which of the comparables were most meaningful. I don't think that you can artificially force every set of sales into a range of 10% or less, particularly when comparable data is in short supply.

 

[RSW]

I too have more than 10% adjustments on the majority of my appraisals. I comment on every line adjustment above the room count section and on any line adjustment above 10%. I also comment on how they effect the net and gross adjustments if more than 15 and 25%. I comment on each comp. one at a time in order to make it an easy read for the reader.

 

[zdfenton]

Original poster is referring to the spread in adjusted values between highest and lowest adjusted price, not an adjustment exceeding 10%. AMC's and some lenders don't like spreads this large, but it's unavoidable at times given property type and location. When I encounter this issue, I acknowledge the issue, give a reason why it was this way, and state which of the comparables were most meaningful. I don't think that you can artificially force every set of sales into a range of 10% or less, particularly when comparable data is in short supply.

I agree with Thern, the OP isn't being read right. He means the range of adjusted values for all comps, not the line/net/gross adjustments on any particular comp. IE highest adjusted comp sale price is $340,000, lowest adjusted comp sale price is $300,000, final appraised value is $320,000, ($340,000 - $300,000) / $300,000 = 13%

And actually I tend to agree with the AMC. An extremely wide adjusted range suggests (but doesn't prove) that adjustments aren't being applied correctly. In my experience most vanilla appraisals can be adjusted to a fairly narrow range, but the properties that seem to be more emotional purchases (lake frontage, properties with significant view amenities, etc) typically have wider adjusted ranges, due to differing buyer motivation

 

[Terrel L. Shields]

Well...that's clear as mud.

Run sensitivity analysis on the adjustments and see if you can "tighten up" the range. If not, then the liklihood is that the variation in market values exceeds that 10% range and that is a statistical function of the differences in property sales.

I scoured a bunch of land sales and had an air tight adjustment for everything... And out of 6 sales one was about 20% above the others while the remaining 5 were within 5% or so. I simply called it "above market" sale although it didn't appear to be a particularly uninformed buyer.