Regression for GLA Adjustment

[Mike Ault]

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

Okay. When scarcity affects "price", does it actually affect "value"? If the negotiated price exceeds replacement cost, how do you deal with that in your reconciliation? Do you simply default back to the willing buyer/seller actions as "the most probable price"? Or, do you insert your opinion into the transaction and reconcile to a more sober "value"?

 

[George Hatch]

If I think that property would most probably have sold for $300k on that day and under those market conditions then that's what I'm going to say. 10 times out of 10. Risk management is the user's job, not mine. Predicting what they think might happen in the future is their job, not mine. Making judgements about how wise/foolish their borrowers are is their job, not mine. Deciding what their max LTV is their job, not mine.

And yes, it's very common for value conclusions from different approaches to value to be different from one another; sometimes very different.

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Let's elaborate a little on a comment I made in my previous post:

"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."​

That last line isn't as extreme an idea as it might appear. IRL we commonly DO have a certain knowledge about what happened in that market the next day - we refer to those as retrospective value opinions. That certain knowledge of that then-future chain of events doesn't prevent us from sticking to what would have been known/knowable as of the effective date. That's as clear an example of us not getting into the future on these assignments as it gets. Even when we have the means to do it we're careful to not do it in answer to the question thats actually being asked.

 

[J Grant]

"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.

.I never said most probable was a fixed benchmark. You invent things you imagine I said in my appraisals...

And most probable price is STILL not what we are estimating or predicting, we are providing a MARKET VALUE OPINION ( as defined ) --- as defined is the terms of sale and buyer/seller motivations in the MF definition ( the most probable price unaffected by concessions etc )

The actual prices and motivations of the named real-world buyers and sellers comprise the data we use THE MODEL BUYE AND SELLER IN THE MV DEFINITION is used for the most probable price for our MV opinion.

This is all not particular to me, or my personal idea of how to do an appraisal, it is literally what is right there stated that we do. i

 

[Mike Ault]

If I think that property would most probably have sold for $300k on that day and under those market conditions then that's what I'm going to say. 10 times out of 10. Risk management is the user's job, not mine. Predicting what they think might happen in the future is their job, not mine. Making judgements about how wise/foolish their borrowers are is their job, not mine. Deciding what their max LTV is their job, not mine.

And yes, it's very common for value conclusions from different approaches to value to be different from one another; sometimes very different.

So, how do you "reconcile" the differences in the income, cost & sales comparison approaches to arrive at your final value? Legitimate question. I thought that's what we were supposed to be doing. If it can be clearly shown that buyers are paying far above actual replacement cost, could they really be considered well-informed/advised? My value will be "the well-informed one" in that scenario, their negotiated price, not so much.

 

[J Grant]

If I think that property would most probably have sold for $300k on that day and under those market conditions then that's what I'm going to say. 10 times out of 10. Risk management is the user's job, not mine. Predicting what they think might happen in the future is their job, not mine. Making judgements about how wise/foolish their borrowers are is their job, not mine. Deciding what their max LTV is their job, not mine.

And yes, it's very common for value conclusions from different approaches to value to be different from one another; sometimes very different.

what the property would have sold for is not what we are asked to provide.

what the property SHOULD BRING ( per the appraisal and MV definition ) is what we are asked to provide. We are not guessing or predicting or estimating a most probable price.

It is not our job to make judgments about how wise/foolish their borrowers are, it is our job to opine to what the model buyer and seller represents in the MV definition (who are not foolish, who are supposed to be well informed and well advised )

 

[George Hatch]

Answer this question, be specific.

Most probable price is still the operative term here. Most probable compared to what? What do we make our comparisons to? What the market participants should be doing to what the market participants are doing? When have you EVER expressed value outside of the context of what the majority of transactions were actually doing?​

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You are notorious for blatantly ducking inconvenient questions so I'll answer for you. NEVER have you concluded to a value outside the context of what the majority of the transactions were doing, and the reason you never did that was because you would have had no way to do differently.

(And yes, I am giving you the benefit of the doubt as to what you are doing in an appraisal. If I'm wrong in my assumption then that would speak very poorly for you as an appraiser. ).

 

[J Grant]

Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting
conditions, ( sums up THE APPRAISAL ) and appraiser’s certification, my (our) opinion of the market value, as defined, ( as defined is the MV definition we use for the terms of sale and model buyer and seller HC for a most probable price. in the HC transaction)

( I added sums up the APPRAISAL ) as an insert - our MV opinion is from the appraisal development, and the most probable price is part of the AS DEFINED -

Appraisers make the mistake of thinking we are providing an estimate, guestimate, or opinion of the most probable price .

Unless or until the most probable price opinion is our assignment, I provide a market value opinion since that is the assignment (purpose: provide a market value opinion )

An appraisal is defined as a value opinion and a value opinion is an appraisal, That should make it clear to those who imagine that we are providing a most probable price opinion.

 

[J Grant]

Answer this question, be specific.

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

Most probable is the result of all the hours or days we've toiled away in the appraisal indicates it to be.

Why do you keep saying Most probable price is still the operative term here??

The operative term in an appraisal is market value opinion !! The most probable price is part of the MV definition and though extremely important, is not the purpose of the assignment _ the purpose is to develop a market value opinion. The most probable price is the price equivalence of the market value opinion. (my explanation of it)

Since people pay $ funds for a property, it gets expressed as a price. If it was just a math question ( which some appraisers operate on) it would just be digits and not a price.

 

[TerryRohrer]

So, how do you "reconcile" the differences in the income, cost & sales comparison approaches to arrive at your final value? Legitimate question. I thought that's what we were supposed to be doing. If it can be clearly shown that buyers are paying far above actual replacement cost, could they really be considered well-informed/advised? My value will be "the well-informed one" in that scenario, their negotiated price, not so much.

I think somewhere in there is the notion that one in the hand is worth two in the bush. I am continually surprised at how many people view the purchase of a dwelling "now" as an existential necessity. The gap you are questioning, particularly of late, seems to me a product of an unwillingness to wait, regardless of cost.

 

[Mike Ault]

Answer this question, be specific.

Most probable price is still the operative term here. Most probable compared to what? What do we make our comparisons to? What the market participants should be doing to what the market participants are doing? When have you EVER expressed value outside of the context of what the typical transactions were actually doing?​

"Most probable price that the property should bring". That statement is not parsable.