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

[Mike Ault]

Regression isn't the only technique. To J's point - experience is the factor that helps one determine which is the more appropriate technique. Unless you think all mathematical techniques are equally crap?

No, I love the 2+2 = 4 bathroom example! I can follow that. However, when when the market demonstrates that it equals something other than 4 as is most often the case, then "mathematical proofs" are debatable. I'm not saying that they shouldn't be attempted, I'm just saying that when you arrive at "the goal", be prepared for criticism because few of your peers are that good and your clients will most certainly think you're lying.

 

[alebrewer]

What does this even mean? I never said the subject's value can't be known!

But if there were such a thing as an intrinsic value point, and every property had a known benchmark value that everyone would pay the same price for it, always and forever, we would not need an appraisal, AVM, or any valuation.

I'll slow down: If (as you say) the goal is to make the comps look like the subject (and I don't disagree), and IF the subject has an intrinsic value point that you're trying to distill, then saying the goal is to make the comps look like the subject is the same as saying the goal is a $0 range.

 

[J Grant]

The same property can get a diffrent sale price witin a realively short period of time from different buyres. How many times do we see the deal fell through, the property goes back on the market and it gets a different price 2 weeks later ? Market condions have not changed and nothing about the subject has changed.

Since prices do not match exactly up for properties, making an adjusted range that matches exactly up does not align with the way the market operates. If the market operated perfectly, we could have a kind of Kelly Blue Book that they use for autos and use it for properties.

And even with autos with a blue book value, prices still vary among buyers - did they get it from a dealer, from a private seller, did financing terms make a difference etc.

 

[alebrewer]

No, I love the 2+2 = 4 bathroom example! I can follow that. However, when when the market demonstrates that it equals something other than 4 as is most often the case, then "mathematical proofs" are debatable. I'm not saying that they shouldn't be attempted, I'm just saying that when you arrive at "the goal", be prepared for criticism because few of your peers are that good and your clients will most certainly think you're lying.

So in those (apparently VERY frequent) cases where the mathematical (i.e. quantitative) tools just aren't working - how do you support your opinion of MV? Experience?

 

[alebrewer]

The same property can get a diffrent sale price witin a realively short period of time from different buyres. How many times do we see the deal fell through, the property goes back on the market and it gets a different price 2 weeks later ? Market condions have not changed and nothing about the subject has changed.

Since prices do not match exactly up for properties, making an adjusted range that matches exactly up does not align with the way the market operates. If the market operated perfectly, we could have a kind of Kelly Blue Book that they use for autos and use it for properties.

And even with autos with a blue book value, prices still vary among buyers - did they get it from a dealer, from a private seller, did financing terms make a difference etc.

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.

 

[J Grant]

I'll slow down: If (as you say) the goal is to make the comps look like the subject (and I don't disagree), and IF the subject has an intrinsic value point that you're trying to distill, then saying the goal is to make the comps look like the subject is the same as saying the goal is a $0 range.

I never said the subject has an intrinsic value point. Where did you get that from? I do not remember being taught about an intrinsic value point we are trying to distill.

We make the comps more similar to the subject so that we can get an idea from their prices what teh subject might sell for as a way to analyze and support our market value opinion.

 

[alebrewer]

I never said the subject has an intrinsic value point. Where did you get that from? I do not remember being taught about an intrinsic value point we are trying to distill.

We make the comps more similar to the subject so that we can get an idea from their prices what teh subject might sell for as a way to analyze and support our market value opinion.

What do you think market value is, other than the intrinsic value point that the 'market' is willing to pay? Replace 'market' with 'intrinsic' if that helps you understand?

Definition of intrinsic (from AI):
"The word "intrinsic" means belonging to or inherent in something's essential nature, or originating from within a thing, rather than depending on external factors. For example, the intrinsic value of a diamond refers to its inherent worth"

 

[Mike Ault]

I just did a complex property. I analyzed the value of the subject's site with a one page narrative analysis. Then I had two comparable sales that I had very good land sales to establish a reasonable value. But the other 3 sales I didn't have any land sales to help. In that case I used market sensitivity analysis and then explained the logic of the adjustments. It's about the only way that made sense. And the reviewer from Red Sky Services took my logic. So yes, sometimes you need to use market sensitivity when making site adjustments.

Off-topic, however I like Red Sky Services. I've done several weird, non-conforming residential assignments for them in the middle of nowhere at fees commensurate with the effort involved and their reviewers and I always saw eye to eye. No hassles, quick pay, and highly recommended.

 

[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.

I agree sales price and value can differ ( or be the same or similar).

From what source are you making an appraisal, which is supposed to create a market value opinion, into something else, trying to distill an intrinsic value ??? Where the heck did that come from?

The statement of purpose of the appraisal says to provide an opinion of market value ( as defined ).

I do not see "provide an opinion of intrinsic value" as a stated purpose on the URAR form ( or in any appraisal assignment I ever received _).

Would love to see the definition of intrinsic value for an appraisal -

 

[Mike Ault]

So in those (apparently VERY frequent) cases where the mathematical (i.e. quantitative) tools just aren't working - how do you support your opinion of MV? Experience?

Order an appraisal from me and you can see for yourself! "Credibility", is King.