Sales Comparison Grid & Cost to Cure

[TekJ42]

Sorry this seems to be a a CYA statement but just makes things worse -


AS IS means that there is NO hypothetical condition. Why do you still not understand that ? Not trying to be mean- but making a HC negates it being AS IS. Understanding that can prevent future problems

It absolutely is a CYA statement. There's no reasonable way to derive a market based adjustment for a partially installed roof (in the absence of a closed sale with that exact condition) without some sort of assumption. Several people here have suggested exactly this - a condition adjustment - everybody else seems content to capitulate to cost based adjustments in a market based approach, or just fling poo.

 

[TekJ42]

I do not let a client instruct me or insist -

This was also a possibility - it just seemed the more... obtuse... of the available options.

 

[J Grant]

It absolutely is a CYA statement. There's no reasonable way to derive a market based adjustment for a partially installed roof (in the absence of a closed sale with that exact condition) without some sort of assumption. Several people here have suggested exactly this - a condition adjustment - everybody else seems content to capitulate to condition based adjustments in a market based approach, or just fling poo.

Hey if you want to make the adjustment as part of the overall condition in the AS IS appraisal, that is fine but you can not ALSO make a statement about the adjustment or the condition was an assumption/HC

Saying the statement about the HC was to CYA is ludicrous - any reviewer would see through the language.

 

[TekJ42]

Hey if you want to make the adjustment as part of the overall condition in the AS IS appraisal, that is fine but you can not ALSO make a statement about the adjustment or the condition was an assumption/HC

Saying the statement about the HC was to CYA is ludicrous - any reviewer would see through the language.

... better than a cost based line item in the sales grid. Guess we'll see.

 

[J Grant]

The OP's first mistake was not notifying the client about the roof. The second mistake was using an EA. A hypothetical condition should have been used.

Or appraise it as is. That is what the client wants -

 

[RCA]

Good Afternoon -

I am working on a revision for a lender who will not accept a subject-to appraisal report (assignment condition). The subject's roof is in the middle of being replaced (tiles are stacked ready to be installed). I based the value opinion on the extraordinary assumption that the roof replacement was completed in a timely and professional manner in accordance with local customs and regulations. The lender asked me to revise the report because they won't accept an extraordinary assumption - it bases value on a future condition so they won't allow it.

They are insisting I put a cost to cure adjustment in the sales grid - which seems highly irregular. Adjustments in the sales comparison approach are supposed to be based on measurable / quantifiable differences in attributes. Adding cost items to the sales grid seems inappropriate.

Has anyone come across this issue? Is it acceptable practice to use cost derived adjustments in the sales comparison grid?

Thanks in advance for your help -

Where do you get that adjustments in the sales grid have to be based on measurable or quantifiable attributes? The vast majority of appraisals are based to a large extent on subjective judgment for items such as view, condition, quality of construction, functional utility, and so on. But of course, it shouldn't be this way!!

HOWEVER, my method which I call the Residual Constraint Approach (RCA) lumps all variables without measures into one bag and uses the regression residual to in fact indirectly measure their value in a fairly accurate way. It simply subtracts the value of the measurable features, as obtained from MARS regression from the comparable sale price to get the residual - which by logic must be the value of everything else. It turns out that once you have the value of that "everything else" you can divvy it up any way you want without impacting the final adjusted sale price.

(Noticed in the first comment - I did make a correction to one of the equations.)

It is all mathematical and proven. There is the issue of Error, such as data errors. We can't do much about that, so the underlying assumption is that such errors, positive and negative, generally cancel out and don't have much, if any, impact on the final result.

There is an additional technique I haven't gotten around to documenting yet. -- That is the one single point where the appraiser using this method has to make a subjective estimate ---> the Subject residual has to be estimated because there is no sale price for the Subject. The way this is done is to rank all comparables (as fed to the MARS regression) based on their residual values - and by studying the ranking, place the subject within that ranking where it best fits. Noting of course that a ranking based on residuals will indeed be from the worst appeal to highest appeal homes: Homes that sell for more than expected are because the "Other" features have more market appeal and those with the lowest residuals have the "least" market appeal.

So you can quantify the value of the unmeasurable features - as a lump sum, - but that is all you need actually.

 

[J Grant]

The as is condition of the roof is not finished, but not completely missing. Partially installed is more similar to severely damaged than it is to finished or completely missing. If the client insists on an adjustment in the sales grid (instead of just commentary in the addendum), then isn't it more accurate to assume (HC) that the current condition of the roof negatively influences the overall condition of the subject than to use a cost based adjustment in a market based approach?

Its almost comical how different actual industry practice seems to be than what QE and National Test standards drilled into my head for literally hundreds of hours.

The reality is the work in the field and how to reconcile it with book knowledge is the hard part and why we see even experienced appraisers seeking guidance about it. However, keep in mind what an HC and an EA is and when we can and can not use it and that holds true in fieldwork -USPAP, not being misleading, the certs and limiting conditions if present, the client engagement for as is or subject to completion are anchors that are not changing if we run into this or that problem. If a problem is not consistent with or contrary to an engagement or type of assignment, we discuss it with the client and often times we educate the client; sometimes they correct us. Other times, we concluded it is an unacceptable assignment condition or a problem beyond our expertise in both cases withdrawn.

 

[Tom D]

i'm sure by the time you read this, the roof has been finished. close enough to drive by and take new pictures. sometimes you get the bear, and sometimes it gets you. and sometimes you bite the cost to get it done, should have waited. i can't believe the lender could settle that fast, before it was done.

 

[J Grant]

Where do you get that adjustments in the sales grid have to be based on measurable or quantifiable attributes? The vast majority of appraisals are based to a large extent on subjective judgment for items such as view, condition, quality of construction, functional utility, and so on. But of course, it shouldn't be this way!!

HOWEVER, my method which I call the Residual Constraint Approach (RCA) lumps all variables without measures into one bag and uses the regression residual to in fact indirectly measure their value in a fairly accurate way. It simply subtracts the value of the measurable features, as obtained from MARS regression from the comparable sale price to get the residual - which by logic must be the value of everything else. It turns out that once you have the value of that "everything else" you can divvy it up any way you want without impacting the final adjusted sale price.

(Noticed in the first comment - I did make a correction to one of the equations.)

It is all mathematical and proven. There is the issue of Error, such as data errors. We can't do much about that, so the underlying assumption is that such errors, positive and negative, generally cancel out and don't have much, if any, impact on the final result.

There is an additional technique I haven't gotten around to documenting yet. -- That is the one single point where the appraiser using this method has to make a subjective estimate ---> the Subject residual has to be estimated because there is no sale price for the Subject. The way this is done is to rank all comparables (as fed to the MARS regression) based on their residual values - and by studying place the subject within that ranking where it best fits. Noting of course that a ranking based on residuals will indeed be from the worst appeal to highest appeal homes: Homes that sell for more than expected are because the "Other" features have more market appeal and those with the lowest residuals have the "least" market appeal.

So you can quantify the value of the unmeasurable features - as a lump sum, - but that is all you need actually.

You've made this baseless statement repeatedly.

The adjustments are not subjective, they come from the market - the amount of the adjustment isi the appraiser's judgment of that and not just thin air silly subjective - adjustments are an approximation of the market reaction since there is no fixed benchmark out there.
In your zeal to be over precise it sounds like you can produce some odd results or end up with prices and not value -

 

[J Grant]

i'm sure by the time you read this, the roof has been finished. close enough to drive by and take new pictures. sometimes you get the bear, and sometimes it gets you. and sometimes you bite the cost to get it done, should have waited. i can't believe the lender could settle that fast, before it was done.

WTF , that is the day he went out, stop confusing the issue - the lender needs it done on x date and for their own loan purpose can not wait - appraiser can deal with it or turn down the assignment.