Regression for GLA Adjustment

[TerryRohrer]

?? Where are the texts that teach appraisers are supposed to emulate what the buyers and sellers are actually doing? Show that to me.

Share, please, when you get these!

 

[Terrel L. Shields]

We talk about what the market is; what the prices are, what the financing is, how the market participants are acting, etc. According to them and what they're actually doing. But you talk about what the market should be, what the participants should do, how the lenders should act and how they should underwrite their loan decisions

Classic Normative vs Positive Economic models

Our job is to observe and report what the market participants are actually doing and what is most likely to happen with a price under the current environment, not editorialize on them being stupid or making bad choices.

Not even when we know the eventual outcome is a crash after a classic boom? Some predictions are relatively easy/safe to make. Timing, OTOH, maybe less so

 

[J Grant]

OMG

Do me a favor and break out a 1004 and read the entire definition of MV out loud to yourself, including all the assumptions. Then reconsider your question.

Whether an appraiser is right or wrong about the wisdom of the market or the morality of the lenders' actions is not an element of any appraisal assignment. Our job is to observe and report what the market participants are actually doing and what is most likely to happen with a price under the current environment, not editorialize on them being stupid or making bad choices.

We are not on the lender's team, we are not supposed to advocate for their interests or participate or sway their decision making. We do Observe. Report. Keep our personal opinions and moral judgements to ourselves. Keep our predictions to ourselves.

sorry but you are just ranting now, in a way that has nothing to do with my appraisals -
Just because we are tasked with developing an opinion of MV, does not mean we are preaching about the market, and it also does not mean we rote report with no analysis, which seems close to what you are suggesting>?

We are NOT tasked to report what is most likely to happen with a price, we are developing and providing a market value opinion as defined - which has nothing to do with editorializing to people about their choices-

BTW a buyer is free to pay whatever they want regardless of our MV opinion, If our MV opinion is below a SC price, what is stopping a buyer from putting the gap down from their own funds to reach SC price ?( rhetorical question)

 

[Terrel L. Shields]

If our MV opinion is below a SC price, what is stopping a buyer from putting the gap down from their own funds to reach SC price ?( rhetorical question)

Two things. A - they don't have the money; B - they have the money but are unwilling to put that much "skin in the game" and want the bank to carry the risk.

 

[George Hatch]

sorry but you are just ranting now, in a way that has nothing to do with my appraisals -
Just because we are tasked with developing an opinion of MV, does not mean we are preaching about the market, and it also does not mean we rote report with no analysis, which seems close to what you are suggesting>?

We are NOT tasked to report what is most likely to happen with a price, we are developing and providing a market value opinion as defined - which has nothing to do with editorializing to people about their choices-

BTW a buyer is free to pay whatever they want regardless of our MV opinion, If our MV opinion is below a SC price, what is stopping a buyer from putting the gap down from their own funds to reach SC price ?( rhetorical question)

"Most Probable" means something, and as usual the benchmark is relational and internal to the market segment; not fixed and external to and isolated from that market segment.

Did you read the definition to MV out loud to yourself yet? Because one of those assumptions is to the buyer and seller, being well informed/advised and acting in their own best interests. Which they demonstrate via their actions. NOT as demonstrated by what you think is a wise or foolish decision. Even if you were right and they were wrong, they're still right insofar as the definition of MV goes. The market participants as a group can NEVER be wrong within the context of that definition of MV.

So to answer the question you posed before, THAT's where we are tasked to emulate the perspectives of the participants in the market when performing assignments based on this particular definition of value.

 

[Mike Ault]

"Most Probable" means something, and as usual the benchmark is relational and internal to the market segment; not fixed and external to and isolated from that market segment.

Did you read the definition to MV out loud to yourself yet? Because one of those assumptions is to the buyer and seller, being well informed/advised and acting in their own best interests. Which they demonstrate via their actions. NOT as evidenced by what you think is a wise or foolish decision.

Well-informed/advised buyers and sellers "acting in their own best interest" have proven themselves more than willing to "gift equity which does not exist" in the form of down payment assistance every time the opportunity presents itself. Should we be rubberstamping those transactions as well?

 

[George Hatch]

Who said anything about rubberstamping anything?

The reference isn't to THIS buyer and seller of any one transaction; it's to the "typical buyers and sellers" for all the transactions in the entire group. "Typical" doesn't mean "Specific"

---------------------
If 5 model matches sold for cash at $450k and the 6th model match next door sold the same day for $450k but included some concessions, then what was the dollar amount of the value of those concessions in the market?

That is not a trick question. Moreover, the appropriate way to develop the answer to that question requires some analyses, not "rubberstamping" it. What actually happened here and what was the effect of what happened?

 

[Mike Ault]

Who said anything about rubberstamping anything?

If 5 model matches sold for cash at $450k and the 6th model match next door sold the same day for $450k but included some concessions, then what was the dollar amount of the value of those concessions in the market?

That is not a trick question. Moreover, the appropriate way to develop the answer to that question requires some analyses, not "rubberstamping" it.

It seems to me that your emphasis on following buyers and sellers actions could be used to justify following the entire "tulip market" over the cliff. The most probable price that the property "should bring" could very well be below what it is currently bringing in the market. That was one criticism of our profession after the 2007-2008 crisis, that we should have been paying more attention to what properties should be selling for based upon potential rental income and replacement cost, and less attention to what the overheated & fraud filled market was doing at the time.

 

[TerryRohrer]

In my view, too many appraisers fail to comprehend the "most probable" aspect of the MV definition. Around here, most people have to work (or scrap) to exist, so real estate prices have been pretty reflective of the local economy. Until Covid.

A building influx of buyers from other areas, largely where prices were much to dramatically higher, started with a few outliers. Initially, I could track almost every one to a much different location, so could argue they weren't informed. However, most appraisers in this area understand that you rubberstamp the contract to ensure your next assignment. Lenders and realtor insist. So very rapidly, those outliers became the norm, even for local buyers. The hard part was when those "outliers" approached half of the sales in every assignment, but the overwhelming preferance of "highest possible price" to "most probable price" reduced that to a surprisingly brief period.

 

[George Hatch]

It seems to me that your emphasis on following buyers and sellers actions could be used to justify following the entire "tulip market" over the cliff. The most probable price that the property "should bring" could very well be below what it is currently bringing in the market. That was one criticism of our profession after the 2007-2008 crisis, that we should have been paying more attention to what properties should be selling for based upon potential rental income and replacement cost, and less attention to what the overheated & fraud filled market was doing at the time.

Most probable price is still the operative term here. Most probable compared to what? What do we make our comparisons to? Do we make those comparisons to what the market participants should be doing, or do we make those comparisons to what the market participants actually are doing?

Terrell has been citing the distinction between normative vs positive economic models. The only reason they used the term "should bring" in the definition is because there's a hypothetical and using "will bring" gets into asserting an unrealistic expectation that nobody can meet.
---------------
As far as the tulip market goes, if the retail price in the market as of February 1 was $112 then it is what it is as of that date regardless of what might happen the next day. Regardless of the wisdom or foolishness of the people who thought $112 was a good acquisition price. Regardless if the appraiser had a crystal ball and was informed in advance that the market would crash the next day.