"Quantifiable Market-Derived Methods" for adjustments required by FNMA/USPAP

[Sadie]

Exactly, although I'd argue that $0 range is possible in highly homogeneous markets - like maybe high rise condo's? Not frequent, but it happens.

Its our job to figure out typical motivation, Its in the definition of MV that we certify to.

 

[Sadie]

Sensitivity analysis isolates a feature for an extracted adjustment.

I was being a little sarcastic, referencing that I never saw a goal of 0 (zero) as the adjusted range of the comps.

Because there is always something.

 

[Sadie]

The question was: If regression is a recognized methodology (along with sensitivity), and the goal of both is to reduce the range, then why would reducing the range not be considered the goal of the exercise? And - while generally not possible - if the goal is reducing the range, then by definition a $0 range is the end goal. I'll say again, though, that it's typically not possible due to the subjective nature of RE transactions. Don't throw the baby out with the bathwater, though...

I do believe the goal is not 0 range adjustments, its to arrive at a supportable adjustment for a feature

 

[Sadie]

Sales price is different than intrinsic value. Sales price is what one buyer and one seller agreed to. Intrinsic value (which is what we're trying to distill) is what the 'market' would pay for that property.

So, Market value as defined by F/F.

 

[J Grant]

Sales price is different than intrinsic value. Sales price is what one buyer and one seller agreed to. Intrinsic value (which is what we're trying to distill) is what the 'market' would pay for that property.

A sale price can be the same or different from a defined kind of value. But I do not see a valuation definition for " intrinsic value " being used on appraisals.
Market value takes real-world sale prices and vets them according to a definition of market value in the appraisal, and then uses comp sales and other methods to arrive at a market value opinion, which may be more than, less than, or equivalent to a real-world sale price.


We are not trying to estimate a real-world sale price in an appraisal. That would be nearly impossible to do, since an individual buyer or seller can change or set a sale price at X$ $ within any given day.

 

[Sadie]

It's interesting that an appraiser has to show proof and illustrate "quantifiable, market derived methods" for adjustments when Realtors, who set the price for properties, use a CMA and their "local market expertise". Realtors provide a snapshot to the sellers of how the market/ buyers perceive the current market.

In essence, Realtors use their "experience" and feelz where an appraiser cannot.....anymore.

I've met Realtors at a lot of purchase assignments and been handed a few MLS listings of how they derived their list price. I've NEVER been handed an Excel spreadsheet of an analysis on how they derived their list price. Just sayin....

I have been provided with spreadsheets to go along with comps provided by a realtor. Not often, but I have. They do their research, but have to deal with their clients who are not as reasonable as ours. And their who purpose is different from ours.

 

[J Grant]

I do believe the goal is not 0 range adjustments, its to arrive at a supportable adjustment for a feature

The goal is to narrow the adjusted range of the comps ( using supported adjustments).

Out of the narrower adjusted comp value range, the appraiser typically opines a value opinion cfrom within that range. The appraiser should have credible and logical reasons for opinion of X point value and not Y point value when both are within the range.

I disagree with those who say any point number within the range is as good as another or that the number is a dart throw. They spend hours or days developing the app and then pick X $ value for no particular reason or because it is the average or a middle number. If X, the average, or a middle number is the best supported market value opinion, then the appraiser needs to explain why.

 

[timd354]

20% is a big range, I would expect more like a 10% range.

20% may not be too large of a range for a proeprty that is very rural or is unique due to a lack of recent truly comparable sales data.

 

[Joe Flacco]

If it is better than everything else that has sold is it an over improvement or has something better just not sold? In which case you might what to throw in a really dated sale so the reader knows its not an over improvement. f it is an over improvement, then your need to let your client know how much of an over improvement it is. If you are working for a lender, you are assisting them in determining the collateral value. A 20% deviation is huge if the loan goes south.

Before we discuss this further, we have to discuss what the acceptable area is where something similar has sold. Ale Brewer previously mentioned that his standard is something like a 50 mile radius which based on my experience and observations is ridiculous.

Let me describe an example.

In a neighborhood about five miles away from me in Potomac, they could buy a two acre lot for $2 million, spend $6 million on construction, and sell it for $10 million. It is feasible in this specific location.

In my neighborhood, five miles away, which is adjacent to Potomac, a two acre lot would be about $400,000. If someone built the exact same house for $6 million, it would be a major overimprovement.

If it was feasible to build, then with entreprenurial incentive, it would be worth $8-$8.5 million.

If it is over-improved, how much is it over-improved?

The highest sale price on less than 10 acres is $2.3 million. If it is worth what it cost but there is no entreprenurial incentive to build it, then it would be worth $6.4 million. But I doubt someone would even pay that.

 

[Sadie]

20% may not be too large of a range for a proeprty that is very rural or is unique due to a lack of recent truly comparable sales data.

I have to agree, when you've got one of those super rural properties. But most, even the high end, tend to be within 10%.