Predominant Value

[DRMORALES]

What Is The Best Way To Calculate This Value In A Given Market Area?

 

[hastalavista]

What Is The Best Way To Calculate This Value In A Given Market Area?

Assuming a normal distribution of values (i.e., a "bell curve" if plotted), then a reasonable indicator would be the median sale price of the neighborhood.
I will typically indicate it as something like:
High: $1,200
Low: $700
Pred: $950+/-

Keep in mind the purpose of this question: The lender wants to know where the subject falls in regard to the neighborhood range and if that value is higher than what is predominantly paid. By definition, half of all properties will be above the median price, so in a stable market, your chances are almost even that your subject's value will be higher than the predominant value (assuming you use a technique similar to what I do).

Good luck!

 

[Mike Plumlee]

The predominant value can be a difficult number. The mean and the median are relatively easy to identify. The predominant value could be a single number or even a range of values, but the intent is to identify the value that is most predominant. I think it's most often a mischaracterization to identify the predominant value as a single value, but that's what FNMA gives you on their form.

There is no single method to determine this value. It might be close to the mean or the median in a set of values, that just depends on the neighborhood. Simply trying to select the mode in a set of numbers most often isn't representative either.

I have been taught to view the entire spectrum of values and try and determine the value or range that most nearly represents the predominant value. But there is no formula to use - just experience and judgment as to what that value is. It can be anywhere in the entire range - so don't just look in the middle.

 

[Tim Hicks (Texas)]

I have always given a range. It is ridiculous to think any market has one predominant value. For instance, a subdivision can have 80 sales between $100,000 and $250,000. But if 50 of the sales are within $160,000 to 200,000, that is what it put on the form.

 

[Ken B]

Predominant: most common; prevalent

Mode: the value occurring most frequently in a data set

Given data set:
110
110
110
120
150
150
160
190
200

Mean (average): 144
Median (half above, half below): 150
Mode (most common): 110

Predominant value: 110

 

[Darrel Clark]

Kenneth is right on with his answer. There should be MLS statistics showing number of sales according to price ranges in each given area. Looking at the statistics should help with an idea of what the neighborhood is like. On the other hand, sale statistics do not necessarily reflect the values of all existing homes in a neighborhood. With current market conditions, it's possible that a certain price range may be selling better than others. So a combination of viewing the neighborhood plus considering MLS data helps with this judgment call.

 

[JohnJKeene]

I believe if FannieMae intended to ask for the average price of a one-unit housing they would have used "average" instead of "predominant". I agree with Ken B. If your search for sales produce eight results: 7.5k, 17k, 20k, 49k, 80k, 87k, 170.5k, and 217k to say the predominant sale price is the same as the average would be misleading, since in this case the top two sales comprise more than half of the total sales amount. I agree the predominant can be expressed as a range and do not see any prohibition in HUD Handbook 4150.2 Appx D-1. Certainly in the above example the predominate sale price lies between 7k and 50k.

 

[incognito]

I'm not sure I agree with Ken. In his example, the predominant value is 110k, yet 66% of the properties exceed the predominant value. This is not consistant. This suggests, in the mind of the underwriter and reader that anything over 110K is abnormal, and must be a reason for concern. This is clearly not the case. I believe the predominant value is more accurately described as the middle 30% of the value range, excluding extreems on the high and low. Given the values:

110
110
60
110
130
210
150
170
180
170

Ken would say predominant is 110. I say exclude the 210 and 60, and look at the middle 30%, and I say the predominant is more like 150 +/-.

Just my view.

 

[PropertyEconomics]

I personally believe predominate value is best represented by a range of values. It gives a more accurate picture of the neighborhood and any particular subdivision with the highs and the lows being used as the total range and the most predominate being the most prevalent range between .. which in Ken Bs case would be $110,000 - $150,000 I would say.

 

[Em Tee]

Ken would say predominant is 110. I say exclude the 210 and 60, and look at the middle 30%, and I say the predominant is more like 150 +/-.

Just my view.

Sorry, but you can't make up your own meaning for predominant. It has a specific meaning and Ken has it right.