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

[Lloyd Bonafide]

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

Exactly - it used to be that a spread of more than 10% in the adjusted values of the comps meant that something was off in the comparable selection or in the adjustments.

These days it's fairly common for me because many properties do sell below market, (especially short sales). And sometimes you can't avoid using them due to a lack of any other similar recent sales, and the big variance does need explanation.

 

[Metamorphic]

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

Agreed.

The 10% figure relates to the RANGE OF ADJUSTED SALES PRICES not the net/gross adjustments.

Like Zdfenton, I agree.

Its worthwhile to remember the big picture of the SCA.

The idea is that you take a group of sales that are COMPETITIVE to the subject; meaning that the buyers of these properties would theoretically considered all the other comps and the subject had they all been available at the time they were looking. Then you try to make a financial accounting for the small differences between the subject and the comps that explains why this property sold more and this one sold for less. Theoretically, if you had perfect, God like, knowledge of the market, you could resolve all the comparables to a single number. Where the monkey wrench comes in (as Terrill alluded to) is that sometimes things happen in a transaction for which there is not a line on the SCA grid. To resolve all the SPs on a SCA grid to a single number you'd need lines for things like "buyer stupidity", "his wife just HAD to have this one", and "their agent was a suck negotiator".

So, I guess the answer is, if I was reviewing a typical SFR URAR with a 10% range of adjusted values, I would immediately go and looking for some element of value that the Appraiser failed to acknowledge and account for. Secondarily, I'd look for adjustments that were applied in the wrong direction (added where he should have subtracted). After that I'd look for adjustments that were scaled wrong (too big or not big enough).

I wouldn't say the appraiser was flat out wrong just on the basis of the 10% number, but that 10% would be a red flag and set me hunting in some very specific directions for something that was wrong....most likely an error of omission.

Essentially, I think its fair to say that an unexplained large range of adjusted values suggests that the SCA was not completed well....which is not necessarily to say that it was completed badly.


What I would be worried about is that say....the high end of the range was a property in the same nicer subdivision as the subject, and that all the rest of the comps were in a not quite so nice subdivision and that if you made a 7% location adjustment, you'd have a 2% range of adjusted prices. And so the subject was being undervalued.

 

[George Hatch]

If you're dealing with a dataset where the dominant attributes are relatively homogenous then you would expect to see a relatively narrow range of adjusted value indicators. If you're appraising some orphan and your data is both scarce and of low quality in terms of the similarity of their respective attributes it's a little unreasonable to expect that data to naturally yield the optimum narrow range of adjusted indicators.

Making it look good to avoid the red flags is sometimes just that.

GIGO. The RE market isn't perfect. You're seldom going to get the true matched pairs to use as the basis for your adjustments and so will be compelled to also include some professional judgement.

Thank goodness for the funk factor in many assignments - it's one of the reasons we still have an edge on the AVMs.

 

[Tim Hicks (Texas)]

It is an imperfect market. Sometimes a home will sell for less for no apparent reason and sometimes a home sold for more than is supported by the other sales in the market (one can only assume skippy made that transaction work). An adjusted sales price range that is larger than typical should warrant a comment by the appraiser if nothing more than to mention that there is no logical explanation.

 

[CANative]

It is an imperfect market. Sometimes a home will sell for less for no apparent reason and sometimes a home sold for more than is supported by the other sales in the market (one can only assume skippy made that transaction work). An adjusted sales price range that is larger than typical should warrant a comment by the appraiser if nothing more than to mention that there is no logical explanation.

Efifiknow?

 

[KJR2008]

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.

Thanks, I am referring to the adjusted value, not line item adjustments.

 

[Joyce Potts]

It's called 'trend analysis'.