Reconciliation Written Comments

[hastalavista]

I'm in agreement with JGrant.
While the expectation is that the sale with the least adjustments is the better indicator of value, I can see many reasons why there could be exceptions.
As I've said time and time again: Clients expects X and when they don't see X, they expect Y.
"X" is whatever is expected; the comp with the least adjustments is the best indicator of value.
"Y" is the explanation of why the expectation isn't met. In this conversation, if the comp with the least adjustments isn't the best indicator, then the client is going to want an explanation of why that is, and why another comparable with a higher adjustment factor is deemed the better indicator of value.

This report was for a new custom construction home on a hunk of 'donated' dirt (family gift), which the lender wanted valued with the dwelling. Very difficult property with NO local comps anything similar to this place. Portfolio loan, on a GP form, not a GSE form.............at my request.

There were a total of 6 sale comps in the report (& NO listings). Two of those adjusted very close in value at the highest end of the range. I explained in the report why I used those as my evidence for the OMV I stated, but did not dwell on why the other comps were not weighted highly in the analysis.

The lender now wants an explanation about why the other 4 comps were not used to establish the value. Those, of course, had much lower adjusted values from the two I used to conclude the value.

Given this context, I don't think the client's request is unreasonable.
A total of six comparables; two are the best and the other four not so good.
The two that are the best adjust to the upper end of the range. The other four, fall at the lower end of the range.
The appraisal concludes a value at the upper end of the range (appropriately so).

All the client wants is some more discussion regarding the four sales that were given less/little consideration. While it may be apparent to the appraiser (the "grid" speaks for itself), sometimes that isn't sufficient communication.
The subject property, as described, is unique to begin with. There are not a lot of good sales available to compare it to. The report has two good comparables and relies on those two for its value conclusion. All the client wants is some more discussion as to why the other four are not as reliable; this way, the report is communicating its rationale for selecting the point-value where it did.

What may be crystal clear to us (since we authored the report and know the whys/wherefores better than anyone else) is not always crystal clear to our clients/intended users. This is especially the case when there is something atypical/unique about the subject property and/or the analysis (which includes the sales selected for comparison). Once the adjustment analysis is described, it is reasonable in a case like this for a client to want a comprehensive discussion about the rationale of how the point-value was selected within the adjusted range. In this case, it not only includes why the two sales are given most consideration, but also includes why the other four sales are not considered as much.

 

[BRCJR]

If you are dealing with dated sales and making larger adjustment for time than the combined adjustments of more recent sales ... maybe the reader would conclude that sale is less relevant than the more recent sales.

Not necessarily in rural markets. Larger net and gross adjustments do not always mean it is the least comparable to the subject.

 

[Terrel L. Shields]

Interesting to note that RE Working mag is promoting some "in the cloud" thingy that promises to let you get your reconciliation from the cloud....OK...how does that work? Is it data? I thought this was the part where you opine something about what and which is most applicable.

 

[Vermonter]

What may be crystal clear to us (since we authored the report and know the whys/wherefores better than anyone else) is not always crystal clear to our clients/intended users. This is especially the case when there is something atypical/unique about the subject property and/or the analysis (which includes the sales selected for comparison). Once the adjustment analysis is described, it is reasonable in a case like this for a client to want a comprehensive discussion about the rationale of how the point-value was selected within the adjusted range. In this case, it not only includes why the two sales are given most consideration, but also includes why the other four sales are not considered as much.

Very important point!

Since we do this day in and day out and are familiar with the structure of a report and appraisal method, not to mention the rationale going on in our own heads, it's easy to overlook the intended users perspective. My second mentor used to ride me for using "appraiser speak" as he liked to call it in my reconciliation. "Explain it like you would a {insert multiple profane expletives} child".

 

[J Grant]

Very important point!

Since we do this day in and day out and are familiar with the structure of a report and appraisal method, not to mention the rationale going on in our own heads, it's easy to overlook the intended users perspective. My second mentor used to ride me for using "appraiser speak" as he liked to call it in my reconciliation. "Explain it like you would a {insert multiple profane expletives} child".

To that end, especially when data or prices are all over the place, I put in a variation of the below: (though I can forget if busy)

"The appraiser reviewed additional recent and past year sales and listings in the relevant market area. A range of prices is present among similar size homes, due to the large differences of view, upgrades, and year built among the properties. The older, dated homes on dry lots tend to sell in a lower price range while the newer, upgraded or lake view homes tend to sell in the upper price ranges. "

While the above is obvious to us, it may not be to readers, esp if they pull up data and see a bunch of sales at different prices. First,, it lets them know you considered additional sales so they can't accuse you of "ignoring " other sales that took place. Second, it puts the sales data in a context, from which you can then go on to explain , comment on your comps in the grid..

 

[J Grant]

Denis I liked your post but at the end, why is it appropriate that he relied on these 2 higher sale price comps aka, on what basis are they the best substitute properties for the subject ?

All he said was this: :OP-"Two of those adjusted very close in value at the highest end of the range"

Where is a reference that these 2 sales are more similar in property characteristics to the subject than the other 4 comps? He never returned to the thread to clarify .. It might be possible the lender is wondering why he reconciled at the higher end and not the lower or mid point of value. I can't figure it out from his cryptic statement ...

 

[hastalavista]

Denis I liked your post but at the end, why is it appropriate that he relied on these 2 higher sale price comps aka, on what basis are they the best substitute properties for the subject ?

All he said was this: :OP-"Two of those adjusted very close in value at the highest end of the range"

Where is a reference that these 2 sales are more similar in property characteristics to the subject than the other 4 comps? He never returned to the thread to clarify .. It might be possible the lender is wondering why he reconciled at the higher end and not the lower or mid point of value. I can't figure it out from his cryptic statement ...

I'm going to take Volcano's word that they represented the best indicators of value. My intent is not to question why he came to that decision because that wasn't his question. His question was about the lender asking for more discussion about the comps he did not give as much consideration to, and if that was an appropriate request by the lender? I think it was, and explained why I thought that was the case.

I'm not saying those questions cannot be raised, and for some posters or scenarios, I might raise them myself. In Volcano's case, I don't question his decision.

 

[Digger88]

i do none of this and only super rarely ive been asked why i didnt use comp x, y or z. seems like a lot of extra work.

 

[jay trotta]

i do none of this and only super rarely ive been asked why i didnt use comp x, y or z. seems like a lot of extra work.

It most definitely is, as you are now trying to interpret what they seek as an answer; as your thoughts dance around like sugar plums in ones head while your in the field and writing the report, You know exactly how You found the answer to the appraisal problem, because you walked thru every aspect as you develop the work. Q&A is a minute perspective with No thought process, the computer made him/her initiate the question, that is a lack of Due Diligence on Reading the report. The real question is what does the report tell you ?? If you actually read it