Paired sales.

[Yimmydatulip]

I understand and use paired sales analysis when completing my sales comparison approach and explain in detail what steps I used in order to complete the analysis. I have done a few appraisals lately that the use of paired sales was virtually impossible..even with the use of historical data. This is the second time in 2 weeks I have completed an appraisal for the same lendor and they are picking my appraisal apart due to me saying that not all data can be extracted from using paired sales analysis due to the lack of similar style (in this case, a 3 million dollar bay front home) homes and similar views in the subjects market place and there is an element of subjectivity when it comes to appraising homes like the subject. The review appraiser is telling me that I must only use paired sales analysis and by me stating that there is a possibility that the data cannot be extracted from paired sales would violate USPAP. I understand I can't just pull numbers out of a hat and throw them into the appraisal, but when it comes to a case where there are..lets say 6 sales of what you would consider to be comparable homes in the subjects neighborhood in the prior 12 months and the sales range from $1.25 million to $3.1 million with just a few differences in each sale, how can any sort of reliable information be derived from this type of market data?
I'm also getting asked if the upgrades are similar in each comparable as I did not make an quality or condition adjustment...The subject has about 2 pages of upgrades as do the comparables used in the report..are they all the same, no, but they are all similar quality upgrades. I can't say that the subject is worth x amount more because they have cherry oak flooring when comparable 2 has maple wood flooring..I have no way to extract this type of information. Imho, there are so many factors in the subjects neighborhood when it comes to dealing with the sale of a multi million dollar estate home that simply giving an adjustment for many of the items on the report are just things that would be made up. Is common sense completely thrown out of the window when it comes to doing these appraisals? My statement I provided in the appraisal said:
Not all adjustments in the Sales Comparison Approach can be directly extracted or supported by the available market data with a high degree of
accuracy. Some adjustments have an element of subjectivity and professional judgement, which the appraiser has applied, based on prior
observations of the reactions of typical/knowledgeable buyers and sellers' in the marketplace. This method is a standard and well-accepted practice
within the appraisal industry. All interested parties are encouraged to have an understanding of basic valuation practices when appraising atypical
or complex properties; or where there is an extreme absence of like elements of comparison; or in instances where the market data is inconsistent
on which to base better supported adjustments and/or overall value conclusions. Individual adjustments can not be relied on independently.

His/Her reply back to this comment was:

It indicates that the report has not provided credible results and is a direct violation of USPAP. All adjustments MUST be supported by market data, not subjectivity or judgement. Paired analysis is the acceptable method for determining MARKET VALUE for an adjustment. The statement provided tells the client that you really don’t know what the subject is worth, with any level of accuracy, confidence or support.

My question is..I can't use subjectivity or judgement? WTH?

 

[Michael S]

Paired sales analysis is a tool, but by no means the only tool. There are other techniques you could use, but at the end of the day the reason they hire you is to use your educated judgment to form an opinion.

 

[Randolph Kinney]

What you can do is rank the sales in order of similarity to the subject. Where there are noticeable and significant differences, you can infer what is the cause and put a value on those differences that brings the adjusted value in line with the rest of the comparables. This is called "sensitivity" analysis and is a valid approach to make adjustment where paired sales are not available.

 

[hastalavista]

If your client expects market-extracted adjustments based on paired sales analysis for each and every adjustment, you should find another client.

I just (1-hour ago) completed a 4-unit in San Francisco where I supported my adjustments based on:
A. Survey of market participants (for garage adjustments).
B. Paired sales extraction (for non-permitted studio).
C. Paired sales extraction (for bedroom adjustments).
D. Trend analysis (for GBA adjustments).
E. Survey of closed sales (for rental $/SF and GRM range analysis).
F. Market extraction (multiple pairs) to support a higher GRM for rent-controlled properties vs. a lower GRM for vacant/market rent properties.

My point is that I (like you) use the tools that we can when we have the pieces of the puzzle that the tools are designed to analyze.

I was going to include a qualitative analysis of the comparables, but I finally had to stop somewhere. I don't usually go to this extent (this was a complex assignment) but I always have at least a GBA/GLA and market participant survey as part of my analysis.
And, sometimes the math doesn't work out to a nice, neat, consistent number. That's where the appraiser's judgment comes in.

From Appraising Residential Properties (AI, 2007, p. 342-343):

Limitations of Paired Data Analyses
This brief discussion of paired data analysis may seem to suggest that identifying the effects of property differences from market data is a straightforward procedure that can produce accurate, complete mathematical results in all appraisals. Such an impression would be misleading. Appraisers develop an opinion of market value by applying their judgment to the analysis and interpretation of data. Paired data analysis is a tool that an appraiser can apply to market data in some circumstances. When used in conjunction with other analytical tools, this type of analysis supports and guides the appraiser's judgment, but it does not take its place.

Perfect sets of comparables that vary in a single, identifiable respect are rarely found. Because properties that are sufficiently similar to the subject are usually limited in number, the decision to apply paired data analysis in a given situation is a matter of judgment. Often the sampling size may not be large enough to provide solid statistical foundation for the appraiser's conclusions.

Nevertheless, paired data procedures are important valuation tools that appraisers should use whenever possible. Identifying matched data sets and isolating the effects of variables is a practical methodology for studying market data, even if a comprehensive paired data analysis cannot be performed. When only a narrow sample of market data is available, which would not lend itself to statistical analysis, paired data analysis can be used to test the results of other analytical procedures.

Out of curiosity, is your client Landsafe? I hear they are notorious about requiring paired sales analyses for adjustments.

Good luck.

 

[Michigan CG]

Going back 12 months is not sufficient to find a reliable trend (as you have stated) for a unique property. Go back three years, but then you are most likely a declining market for that time period.

Try a qualitative analysis. List the property and the comps in an excel grid and list the property features and state whether they are inferior or superior to the subject and rank them indication a range of value from the positive attributes and negative attributes.

 

[Yimmydatulip]

Thanks for all the input =) Denis, no it's not Landsafe..it's LSI. They aren't to bad to work with...sometimes...
Michigan - I will do that. I went back 18 months but I'll expand my time frame. Thanks for your input, always appreciated!

 

[residentialguy]

Dear UW,

You are incorrect. Not all adjustments in the Sales Comparison Approach can be directly extracted or supported by the available market data with a high degree of accuracy. It is impossible and nowhere does USPAP state that all adjustments must be supported by paired analysis. This stipulation would make every assignment an unacceptable for an appraiser. Some adjustments have an element of subjectivity and professional judgment which the appraiser has applied based on prior observations of the reactions of typical/knowledgeable buyers' and sellers' in the marketplace. As a professional appraiser, I am constantly analyzing the market and I am in contact with other Real Estate Professionals - agents and appraisers, as well direct market input with having personal interviews with buyers and sellers. Finally, the adjustments are refined using sensitivity analysis within the grid and tested for reasonableness with the selected comparables. This method is a standard and well accepted practice within the appraisal industry. It is NOT a USPAP violation as USPAP Standards Rule 1-1 states; "In developing a real property appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal".

The Appraisal institute touches on this exact subject. Appraising Residential Properties, 4th Edition, Appraisal Institute, Page 342, "Limitations of Paired Data Analysis" states: "...This brief discussion of paired data analysis may seem to suggest that identifying the effects of property differences from market data is a straightforward procedure that can produce accurate, complete mathematical results in all appraisals. Such an impression would be misleading. Appraisers develop an opinion of market value by applying their judgment to the analysis and interpretation of data. Paired data analysis is a tool that an appraiser can apply to market data in some circumstances. When used in conjunction with other analytical tools, this type of analysis supports and guides the appraiser's judgment, but it does not take its place. Perfect sets of comparables that vary in a single, identifiable respect are rarely found. Because properties that are sufficiently similar to the subject are usually limited in number, the decision to apply paired data analysis in a given situation is a matter of judgment. Often the sampling size may not be larger enough to provide a solid statistical foundation for the appraiser's conclusions..."

I am a bit concerned that a Reviewer can't grasp this and encourage you to gain competency in this area. It is important for you to have an understanding of basic valuation practices that when appraising atypical or complex properties; or where there is an extreme absence of like elements of comparison; or in instances where the market data is inconsistent with which to draw better supported adjustments and overall value conclusions, individual adjustments cannot be relied on independently.

 

[Yimmydatulip]

Residentialguy for the win!

 

[panappr]

Dear UW,

You are incorrect. Not all adjustments in the Sales Comparison Approach can be directly extracted or supported by the available market data with a high degree of accuracy. It is impossible and nowhere does USPAP state that all adjustments must be supported by paired analysis. This stipulation would make every assignment an unacceptable for an appraiser. Some adjustments have an element of subjectivity and professional judgment which the appraiser has applied based on prior observations of the reactions of typical/knowledgeable buyers' and sellers' in the marketplace. As a professional appraiser, I am constantly analyzing the market and I am in contact with other Real Estate Professionals - agents and appraisers, as well direct market input with having personal interviews with buyers and sellers. Finally, the adjustments are refined using sensitivity analysis within the grid and tested for reasonableness with the selected comparables. This method is a standard and well accepted practice within the appraisal industry. It is NOT a USPAP violation as USPAP Standards Rule 1-1 states; "In developing a real property appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal".

The Appraisal institute touches on this exact subject. Appraising Residential Properties, 4th Edition, Appraisal Institute, Page 342, "Limitations of Paired Data Analysis" states: "...This brief discussion of paired data analysis may seem to suggest that identifying the effects of property differences from market data is a straightforward procedure that can produce accurate, complete mathematical results in all appraisals. Such an impression would be misleading. Appraisers develop an opinion of market value by applying their judgment to the analysis and interpretation of data. Paired data analysis is a tool that an appraiser can apply to market data in some circumstances. When used in conjunction with other analytical tools, this type of analysis supports and guides the appraiser's judgment, but it does not take its place. Perfect sets of comparables that vary in a single, identifiable respect are rarely found. Because properties that are sufficiently similar to the subject are usually limited in number, the decision to apply paired data analysis in a given situation is a matter of judgment. Often the sampling size may not be larger enough to provide a solid statistical foundation for the appraiser's conclusions..."

I am a bit concerned that a Reviewer can't grasp this and encourage you to gain competancy in this area. It is important for you to have an understanding of basic valuation practices that when appraising atypical or complex properties; or where there is an extreme absence of like elements of comparison; or in instances where the market data is inconsistent with which to draw better supported adjustments and overall value conclusions, individual adjustments cannot be relied on independently.

Nice.......

 

[panappr]

What you can do is rank the sales in order of similarity to the subject. Where there are noticeable and significant differences, you can infer what is the cause and put a value on those differences that brings the adjusted value in line with the rest of the comparables. This is called "sensitivity" analysis and is a valid approach to make adjustment where paired sales are not available.

I like that....