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Prudent?

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PushinValue

Junior Member
Joined
Nov 28, 2011
Professional Status
Certified Residential Appraiser
State
California
Say you have a steady 24% increase over the last year.

Condo complex with only one model.

12 sales a year

Three comps 1 closed on the effective date 100k 2.sold one month ago for 98k 3. Sold 3 months ago 96k 1pending at 102k

No other similar complexes

All identical condition with no concessions

No other active listings


Based on this information, would the most likely sales price of the subject be 102k or possibly even 103k?




I ran into a similar situation with 2 appraisals at the same time (each a different model within a gated community).

Most appraisers say you cannot come in above the highest sale... but wouldn’t the most probable sale price be higher than the last?

This is one of the most common questions I get. Usually my response is - appraisers do one of two things 1. Stick you with the highest most recent sale or 2. Use some other less similar “comps” that are really not similar, but expand the range or use other slightly less similar “comps” and fudge the adjustments to come in at the supported pending prices...




I tried to make the situation as simple as possible to boil down to my questions. It is almost never that simple. But the base question remains. Thoughts?
 

CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
you have to go with your data, training, experience and analysis. don't worry too much about the phone-monkey rules.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
You are painting a picture of a rising trend. You can extract an adjustment for date of sale to adjust with. Also, because you have a condo complex, what is the trend of all condos that compete with your condo in that market. Use the market data to base your adjustments.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Say you have a steady 24% increase over the last year.
Condo complex with only one model.
12 sales a year
Three comps 1 closed on the effective date 100k 2.sold one month ago for 98k 3. Sold 3 months ago 96k 1pending at 102k
No other similar complexes
All identical condition with no concessions
No other active listings
Based on this information, would the most likely sales price of the subject be 102k or possibly even 103k?
I ran into a similar situation with 2 appraisals at the same time (each a different model within a gated community).
Most appraisers say you cannot come in above the highest sale... but wouldn’t the most probable sale price be higher than the last?
This is one of the most common questions I get. Usually my response is - appraisers do one of two things 1. Stick you with the highest most recent sale or 2. Use some other less similar “comps” that are really not similar, but expand the range or use other slightly less similar “comps” and fudge the adjustments to come in at the supported pending prices...
I tried to make the situation as simple as possible to boil down to my questions. It is almost never that simple. But the base question remains. Thoughts?

The most probable price is 102k,. But as appraisers we are engaged to develop an opinion of market value, correct?

Therefore,the question is not what is the most probable price, but what is the more credibly supported market value opinion ( market value as defined ) .

The "most probable price" is the definition of market value , but it is not an opinion of market value. The opinion of market value is the appraisal, which factors in comparative value elements and relies on recent closed sales, not just on pendings or listings. A market conditions ( time) adjustment if warranted can bring past sales current to effective date market conditions.

Analyze your statement below:

"1. Stick you with the highest most recent sale or 2. Use some other less similar “comps” that are really not similar, but expand the range or use other slightly less similar “comps” and fudge the adjustments to come in at the supported pending prices."

If you are fudging adjustments and using less similar ( usually superior ) sales to "come in at a pending price", you are "number hitting".
It would be very apparent in a review when that is done. A review std 2 might not take place now, as an AMC or lender often just does a compliance QC read

Number hitting is not the same thing as coming in at a SC price. When supported, coming in at or above a SC price is fine, the SC price was one more indicator of value, a value that is supported in the market by the other similar sales in the building or in the most similar buildings . Number hitting is when the best indicators/most similar sales do not support the SC price, and less credible means are used to "hit" the SC price (such as relying on less similar or superior sales )
 
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J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
"Three comps 1 closed on the effective date 100k 2.sold one month ago for 98k 3. Sold 3 months ago 96k 1pending at 102k
No other similar complexes
All identical condition with no concessions
No other active listings
Based on this information, would the most likely sales price of the subject be 102k or possibly even 103k?
"

The most likely sales price would be 102k or possibly even 103k. Based on the above, in an appraisal, if one is looking for market value ( which is what we are supposed to do ) the opinion of market value could be anywhere between 98k-100k- 100k to reflect upward trend if you see the trend continuing .

Some might say an appraiser is "not that good" to be 2k "off " a sales contract price. I say that is pure number hitting bunk, spin to justify coming in at SC price. We are indeed hired to be "that good". If an appraisal comes in at 100k on a 102k price, the parties can re negotiate or buyer put in 2k cash. If they cant' keep the deal together for a lousy 2k, and buyer wants to walk, it is not the appraiser's fault for doing their job.

The "not good enough" argument says that 2k is aprox 2% of the total value, and how can an appraiser be so precise within 2%....but that is pure bunk, because we are not reconciling anywhere between 0$ and $102,000, we are reconciling between our lowest value indicator of the comps (96k) to the highest value indicator (100k) per above example the comps range is 96k-100k, making 2k is 50% of the adjusted range- if one is going to stgart throwing around percentages.

The real question is the appraiser subverting the purpose of an appraisal ( an independent market value opinion, not done to meet a pre determine goal or favor an outcome, ) or are fudging value to hit a SC price- if they adjusted for market conditions and used a very recent sale, they've factored in market trend- what is the outcome- it is what it is.
 
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Mike Kennedy

Elite Member
Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
Which of the Closed Sales are the most recent and similar? How many Closed Sales in the subject's condo within the prior year? Any Closed Sales in competing Condos within the prior 6 months, 12 months? Prior to forming a conclusion, recommend doing / or posting the results of the additional searches above
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
I say $100K because it doesn't sound like you have enough data to stand hard on and the pending sale at $102,000 " may never even close escrow. No competing projects so your 24% increase is not the market just your own little condo project.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Say you have a steady 24% increase over the last year.

Would a price increase of 24% occur a year if a segment of appraisers were not number hitting? Number hitting makes the next closed sale be a possible comp. It's like the chicken and the egg-which causes which. In my area many of the highest price offers are from the low cash down buyers, heavily dependent on financing. And the financing hinges on the appraisal. So....
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Too small a sample set will give bad results. If I have 30 - 40 sales with a rising trend, I might consider it "OK" but I would prefer to see the overall market going up at such a high rate as well. Building costs alone do not justify such an annual increase, California or not. A larger market trend overall is lower I bet.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Say you have a steady 24% increase over the last year.

Would a price increase of 24% occur a year if a segment of appraisers were not number hitting? Number hitting makes the next closed sale be a possible comp. It's like the chicken and the egg-which causes which. In my area many of the highest price offers are from the low cash down buyers, heavily dependent on financing. And the financing hinges on the appraisal. So....

Here is a chart from a condo project in the town next door to where my office is. These are all 2br condo units of the same size (1,043sf):


upload_2017-12-18_9-7-28.png

Do you attribute the increase to number hitting?

This is an existing project; built in 1991. 64 sales over the course of the last 5 years.
 
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