Prudent?

[djd09]

Only they can influence the appraiser. The other way around would make too much sense.

 

[George Hatch]

Trying to lead the market anticipating an unsustainable trend in price appreciation is "influencing" price and perpetuating increasingly higher prices. Realtors typically price just above their last closed sale and we can act as enablers unconsciously. The "bandwagon effect" is a common attribute to consumer psychology. It's not rational and this year's Bank of Sweden Nobel in economics was award to someone exploring this phenomenon.

Of course it's not sustainable and of course the market psychology is the dominant factor of effect. The disconnect lies in attempting to use ration/reason to predict when and where an irrational trend will end.

All that remains is "in lieu of information to the contrary the continuance of the current trend for at least the next 5 minutes is all that's left."

I made that mistake in 1993-1994 (this downturn can't last much longer) and I was proven wrong, so I resolved to never again make the mistake of attempting to time an irratonal market in advance.

 

[timd354]

Trying to lead the market anticipating an unsustainable trend in price appreciation is "influencing" price and perpetuating increasingly higher prices. Realtors typically price just above their last closed sale and we can act as enablers unconsciously. The "bandwagon effect" is a common attribute to consumer psychology. It's not rational and this year's Bank of Sweden Nobel in economics was award to someone exploring this phenomenon.

I don't advocate trying to lead the market or anticipate anything. I advocate analyzing all market data, including price trends in an attempt to provide the most credible and best estimate of market value based on that information. If the market has provided consistent and credible data that the sale prices are currently increasing (or decreasing) by say 2% per month and has been doing so say for the past 12 -24 months and the appraiser does not take those market trends into account (absent some indication that those trends have changed or are in the process of changing) when valuing the property, then he is simply not doing his or her job correctly because he or she is ignoring signifcant market data and trends which have are having a significant effect on market value. Simply reporting the market (whether it is flat, increasing or decreasing) is not perpetuating anything.

 

[Deleted member 142783]

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....

In my market the highest sales prices are often cash... I used to think that there should be an FHA/low down financing adjustment in my market until I really studied the data...

 

[Deleted member 142783]

I don't advocate trying to lead the market or anticipate anything. I advocate analyzing all market data, including price trends in an attempt to provide the most credible and best estimate of market value based on that information. If the market has provided consistent and credible data that the sale prices are currently increasing (or decreasing) by say 2% per month and has been doing so say for the past 12 -24 months and the appraiser does not take those market trends into account (absent some indication that those trends have changed or are in the process of changing) when valuing the property, then he is simply not doing his or her job correctly because he or she is ignoring signifcant market data and trends which have are having a significant effect on market value. Simply reporting the market (whether it is flat, increasing or decreasing) is not perpetuating anything.

“We report, you decide” Lenders are not stupid... I feel spelling it out and explaining exactly what is done and why poses no risks for the appraiser.

I’m not talking about ignoring sales here. I am

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):


View attachment 33912

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.

the reason I used the condo project as my example was due to the rate of increase... also the near perfect/ideal situation for paired sales. It’s almost textbook stuff in some complexes (situations you rarely get out in subdivisions)

 

[Deleted member 142783]

I believe it is the very same appraisers who number hit who are the deniers. I did a lot of reviewing after the boom/bust...anyway why replay that whole thing, the essential question of what an appraiser's role is has not changed and the OP admitted a method of fudging adjustments and relying on less similar sales to reach a price of 102k, at least they acknowledged it

Absolutely I acknowledged it. It

We are providing the credibly supported market value opinion to our client, we are, not telling a buyer what to pay. If our OMV is 100k, let the buyer put the 2k "variance" down in cash and pay 102k.!

isn't it notable though how often instead of the buyer putting more down, the parties re negotiate to the lower MV opinion? What does that tell you? Whatever the outcome, we are not telling the buyer what to pay or what the seller should accept. Buyers and sellers in financed deals should understand the role of appraisal in financed offers and if they don't, they were not well informed or well advised.

this really depends on the market. During this last spring, many contracts were written will pay “x” over the appraised value... after seeing 4 of these in one week,it provides data for other appraisals in that market/price point buyers are paying over the appraisers opinion of value... giving the appraiser additional support for coming in at the very top of the range. Exceeding the range is really the question in my mind. What is “credible/supportable”.

 

[J Grant]

It's pretty rare to see prices so close for units ( and very low prices for CA?) What is credible/supportable ...that is the appraisal ...the units even if similar surely are not identical- some are on higher floors vs lower floors , or have a view differential or some more upgrading than others?? What floor is your subject on compared to the comp sales where does the subject compare in upgrades, what prices were the other sales in the building besides the 4 mentioned.. that might factor into the value opinion. I can see the case for 102k but we don't know a thing about the building, what floors any of the units are on, how the subject compares, etc. Saying all the units are similar- no differences at all between them? Good thread though!

 

[J Grant]

In my market the highest sales prices are often cash... I used to think that there should be an FHA/low down financing adjustment in my market until I really studied the data...

Highest sales for cash are a lot more sustainable, agree? When the highest sales are predominatly the lower down $ financing, not so much, since an uptick of interest rates affects affordability which means lower prices if a lot of the properties on market are sold for financed offers.

BTW I have to comment I just appraised this morning a condo above purchase price.( and above highest recent sale in condo ) .because the value was supported by upgrades/remodel of subject and water views, with sold prices of similar upgraded/view properties in similar buildings supporting.

 

[Deleted member 142783]

It's pretty rare to see prices so close for units ( and very low prices for CA?) What is credible/supportable ...that is the appraisal ...the units even if similar surely are not identical- some are on higher floors vs lower floors , or have a view differential or some more upgrading than others?? What floor is your subject on compared to the comp sales where does the subject compare in upgrades, what prices were the other sales in the building besides the 4 mentioned.. that might factor into the value opinion. I can see the case for 102k but we don't know a thing about the building, what floors any of the units are on, how the subject compares, etc. Saying all the units are similar- no differences at all between them? Good thread though!

This was a hypothetical situation (over simplified the problem to boil down the essential question). Round numbers made it easier