Range Of Comp Values After Adjustments

[ginadirocco]

Newbie here.

My first mentor said that the $$ range of the comps AFTER adjustments should be no more than than 10% of the estimated value of the subject. For example: if I come up with an appraised subject value of $300,000, then the range of the adjusted values of the comps cannot exceed $30,000, i.e. 290,000 to 320,000.

Now, my question is, doesn't 30,000 seem like a very wide range of adjusted values of the comps . Doesn't this leave a LOT of room for play in determining my final value.

Am I way off here, or does this "10% rule" seem right to you folks?

 

[Ghost Rider]

I also try to keep the range as tight as I can, and typically like to see things within the 10% range also.....The reason for this is simple - any more than that, and underwriters tend to freak out and ask all kinds of questions, and look at the appraisal with a more powerful microscope than they usually do.....

Its the same idea as the 15% net adjustment guideline and the 25% gross adjustment guideline from FNMA - If you are seeing a really wide range in adjusted values, or large amounts of adjustments to a sale then it's questionable how good a comparable sale it is, and that throws into question the estimated value at the bottom of the form.

There are a lot of times when none of the basic FNMA guidelines will be met, and when that happens, then you need to come up with a lot more documentation. I tend to shy away from using active listings, or properties under deposit as comparable data, but sliding them in as a comp #4, #5, or #6, to show an appreciating market, or to show a more comparable home that might not have closed yet, it tends to help slide things through the underwriting process a lot easier, and can explain things better to the reader of the appraisal.

By all means, if you can get your range tighter than 10%, great, but most of the time, seeing a range like that is not uncommon, and not a "bad" thing. My opinion is, I'd rather have a slightly broader range of adjusted values, than making contrived, or multiple adjustments that might not be totally justified. Since there are no real "rules" about this, it's a personal opinion thing, just like so much of how we do our appraisals

 

[Tim Hicks (Texas)]

10% is a good measure, but we work in an imperfect market and sometimes it is just not possible. Never, let guidelines, company policy, or any thing else inhibit producing a credible report or making baseless adjustments. Sometimes, there is no rhyme or reason for a wide adjusted range.

 

[jeff samolinski]

I have always contended that the worst appraisals are the ones that never get reviewed ie the ones that have tight ranges of value for all comps used due only to manipulated adjustments that have no basis except to make the appraisal "look good" I'm not saying that this is always the case but I know of some local appraisers that utilize this approach and are considered good appraisers by their clients. Sad thing is that it probably works most of the time to make unfounded adjustments ( particularly on those qualitative items not quantitative) rather than onlt make supported adjustments and end with a wider range of indicated value. I have to fight with myself sometimes to stop from doing this. The good form fillers usually end up with little variation in the indicated range of value for all their appraisals even if comps are difficult to find that are good comparables. Bottom line is: if you manipulate your adjustments to make them look like good tight range of value you end up with less hassle from underwriters but on the other hand do an honest job with a difficult one and you end up being ridiculed. So be it --- just part of the job. I refuse to manipulate and will always refuse to do only "good looking appraisals" This is not a science, not a job for form fillers and not a job for number crunchers.

 

[Roger R. Patzold]

I agree with Tim. He is from Texas and should know how to do things.

I really do agree with Tim.

One thing I always try to keep in mind is that once I make an adjustment I have to live with it. When that comparable sale is used again or that subject property becomes a comparable the new adjustment has to be compatible with the previous adjustment.

If I think the land on the comparable is worth $10,000.00 on one report it had better be worth $10,000.00 on the next report.

If I make an condition, functional, etc adjustment that better show up in the next report or be explained.

When I come up with a wide range of indicated values I try to explain. As most of the FHA & FNMA instructors, staff persons, etc say disclose, disclose,& disclose or explain, explain, explain.

About 90% of my report never get a question. Many of that 90% have FNMA flags because of the 10% line item adjustment, 15% net adjustment, or 25% gross adjustment, and the proximity of sales to subject.

Working in mostly rural areas and around Lake Livingston it is not unusual to have the closest comparable sale 10 to 15 miles away. Crows out here get a lot of exercise. I don't get many cookie cutters. Did the first one in I don't know when last week. Comps less than 0.1 miles away, Four sales were two stories like the subject and all four sales were found in the same subdivision. Worried about that one more than normal.

I know a few appriasers who change the land values, condition, effective age, etc to make the report "look better" and "support the sales price". That is not the way I do it and I don't think it is the way most people on the forum do it.

I will now put the soap box back in the closet.

Please join me in honoring the people who have given their lives for freedom. God bless America and all the world.

 

[Tejus]

Roger, good response but I'm confused about one point you made. In general, certain comp values (such as the land value) used on one appraisal should be consistent with another appraisal which also uses the comp.

Have you ever had a client (or reviewer) raise issues about inconsistent values for the same comp used in two different appraisals? The more general question is can a client (or reviewer) raise issues across two or more appraisals? I've never heard of a client (or reviewer) doing this. The client (or reviewer) will normally treat an appraisal as a standalone entity and raise issues only with that appraisal.

Furthermore, using an appraisal to confirm a 2nd appraisal probably will not comply with the 1st appraisal's intended use.

Any comments appreciated.

gracias.

 

[Restrain]

As with any "guideline" it is just that - a guideline. If you exceed 10%, explain FULLY. For example, there are market areas where land values can range from $300,000 to $1,500,000 and can vary $300,000 per lot just for being on one street vs. another street. So, don't be afraid to make necessary adjustments, just be ready to support the adjustments.

Roger

 

[ginadirocco]

I guess my main concern here is not worrying about exceeding the 10%, but coming up with the final value estimate from such a wide range of comp values after adjustments.

Who's to say whether $5,000 more or less is right or wrong? It's a little hard getting used to the fact that this is not an exact science and there really is no RIGHT answer.

 

[Terrel L. Shields]

The quality and quantity of data is the key. In cookie cutter subdivisions, you likely should be within 10% PRIOR to adjustments. In rural areas with unique properties, you may be very lucky to be within 100% prior to adjustment and might be higher indicated range. I did a property a couple of years ago that was in a subdivision of similar age and size dwellings, mostly in the 1200 - 1400 SF range with Single carport or garage and ended up with 3 comps with less than $1000 difference in price (about 1.5% range). I made no adjustments, and guess what? An UW called and said "I've never seen an appraisal without adjustments." I had to bite my tongue not to say, "You just ain't been around enough!"

 

[John Hassler]

The 10% rule has, historically, worked out well for most properties in my neck of the woods. I use it for my own internal review. 5% is about max for most condo/PUD's. I will still turn in a report when outside this range but is does give pause and make me re-think the comps I'm using. And that's what I believe is improtant - that their are truly no better comparables available. The last thing I want is a sales agent or review appraiser comming up with a better comp. I typically have staff grid out five comps for an average property and eight for a complex one. Never mind that only 3-5 will make it into the final report. Nothing makes my days more than when that UW or Agent calls and says "what about using 123 A Street" and I pull up the grid pages and tell them that I considered but rejected that comp as not being the most similar.


John Hassler