"Sample" Appraisal: Subjective Value Containment Approach

[RCA]

Bert's Cost Approach should have been omitted, and his Income Approach was weakly developed, using a cap rate for a SFR based on multi family. Oy, if his report had been submitted as an AI demo report, I would not choose to read that outcome. The SCA I am still marinating over.

Despite your comments, I like the way I did it. The GRM is really not used for sales, and overlooks the cost factor by and large, if not completely. The exact cap rate - well as far as I know there are no good published cap rates for SFR rental property in this area. Multi-family is close enough, - given that for an IRS appraisal, the main purpose of the Income Approach, if it is not being used for establishing Fair Market Value (which it definitely is not) - is just to show it is not suitable for that purpose! Same for the Cost Approach.

What a load of crock most of these posts are. .... ANY APPRAISER who thinks they can get to the market value with the Income Approach in this area is out of their mind. If that were the case, this market would be red hot.

For those idiots complaining about the cost approach, keep in mind that this is not only an old house - but it was built in the 50's and if rebuilt would be a completely different kind of home built to far higher standards. That seems to have gone unnoticed by a certain individual here who claims expertise on the Californa BOE's Tax Assessor Residential Handbook.

And for those claiming to be SRAs (including myself) - of course an SRA or MAI is no guarantee of competence but is what it is - proof of a certain level of ability and competence in the past, an indication of the current state of affairs, so to say.

 

[gregb]

From Santa Barbara I could have completed a report for IRS based on the SCA with 6 recent comparable sales that would have better met irs guidelines than the convoluted jerry-rigged presentation in the sample report. Where was your discussion of using three bedroom comps when the subject was a two bedroom property?

 

[glenn walker]

As Glenn Walker probably did, I would say your effective date was sometime in November 2018 but you had pictures dated December 7 2018. both of these snapshot photos taken directly from your report.

Also, you MLS printouts had a copyright of 2018. Guess you did not redact everything.

I actually was using data from 2016 & 2017 and even if I had used the data from 2018 it was still a $800,000 +/- property, The value is mostly in the land and I am surprised to hear this was on a double sized lot, because that should have had a very large effect on the homes value, unless, its located very far-inland or in a location challenged area ? How are Site values on 3,000 to 5,500 square foot lots selling at $450,000 to $550,000 or more without even a house on them ? Yet a 10,000 to 12,000 square foot lot on the Subject has no additional value ? Another issue is my estimated opinion of value using 800 to 1,000 square foot homes on small 4.500 to 5,500 square foot lots, came in at the same Value range as Bert's--And I had no disagreement with Bert's OMV at $800.000 but I failed to consider the Subjects double lot size and so now I am thinking it may be worth more.

Unfortunately now I have to go back into MLS and see what buyer action is showing on double sized lots ? Was Bert just too conservative ? Did the regression simply fail to have the correct data pool to begin with ? In my opinion Bert needs to forget about the house and run more data on the lot and land sales in that City , and then try to extract at least a reasonable estimate of the value of subjects site or lot. Once that is done he will be able to complete a supported and realistic cost approach, and I would also go back and run some rental comparables in the City to see what a reasonable GRM is. I came up with 220-221 as most probable. Also forget using a Cap-Rate , the typical owners or buyers of 800 Square foot bungalows do not purchase for income unless they steal the property and have plans of either updating or remodeling it and flipping it for a higher price, $800,000 is just too much cash to make anyone be a long term landlord. Frankly I do not see the income or the cost approach on this property as having much credibility because both result in lower values, and that is because these homes at these prices do not male good rentals.

To be honest, some redaction is necessary to make it look real. But


OK. What is wrong with that? Mars is that exact. Far more exact than a human. I can make these adjustments no problem. If you are using traditional methods, the argument can be made you are not capable of that kind of accuracy. I'm guessing that is kind of what you are talking about.

In other words, if MARS puts an adjustment out that amounts to $1,400 --- it has determined that it is significant. So, yes, I would use it.

How can a $1,400 adjustment on a $800,000--800 square foot California Bungalow Be Significant ? You are the mathematician and engineer, but you seem to have no idea of market reaction or how market participants conduct themself's in the real world. I don't want to be rude because I believe you are a highly intelligent person and well educated, but your passion for statistics , may be blinding you to how Real Estate values are derived in a market where buyers and sellers do not base their decisions on pure data. Just Saying ...)

 

[Michigan CG]

The GRM is really not used for sales, and overlooks the cost factor by and large, if not completely. The exact cap rate - well as far as I know there are no good published cap rates for SFR rental property in this area. Multi-family is close enough.............

You actually typed the above and you accused ME of not having an SRA? The SRA classes do NOT teach anything about using direct cap for a residential property income analysis and the GRM approach is the ONLY thing taught in the SRA classes and the residential income approach class by the AI.

You do NOT understand the income approach and now it works which is PROVEN in this sample report. You tell us all we are behind the times yet you use a multi-family cap rate with no explanation of why it is applicable with a SFR property.

Then we go back to your Cost Approach which is complete garbage.

If your report, with a CA of $400k, an IA with a value of $500k and your SCA of $800k were submitted to the state or the AI the results would not be favorable to you.

Regression is a viable tool and you might be good at it. Your basic appraisal knowledge of the CA or IA are significantly lacking. Your report can be discredited by using those approaches against you, especially the CA.

 

[RCA]

You actually typed the above and you accused ME of not having an SRA? The SRA classes do NOT teach anything about using direct cap for a residential property income analysis and the GRM approach is the ONLY thing taught in the SRA classes and the residential income approach class by the AI.

You do NOT understand the income approach and now it works which is PROVEN in this sample report. You tell us all we are behind the times yet you use a multi-family cap rate with no explanation of why it is applicable with a SFR property.

Then we go back to your Cost Approach which is complete garbage.

If your report, with a CA of $400k, an IA with a value of $500k and your SCA of $800k were submitted to the state or the AI the results would not be favorable to you.

Regression is a viable tool and you might be good at it. Your basic appraisal knowledge of the CA or IA are significantly lacking. Your report can be discredited by using those approaches against you, especially the CA.

Well it's likely because it is considered too complicated for most residential appraisers and sales agents. There is nothing wrong with using the cap rate, in fact, it is superior in many respects. GRM should ONLY ONLY be used where it is the typical basis for buying and selling rental property in the subject area. Around here - homes are bought and sold mostly to owners who will use it for a principle residence. Cost can vary widely, making the GRM for all practical purposes unusable. In El Granada, you will find greatly varying water/utility bills depending on whose got a connection to the county and so on and so forth. Oh yes, don't forget those homes next to the woods, where the insurance rates have gone through the roof.

I've been through the SRA and MAI courses and passed the MAI exam, - and taken many courses since. And, I take everything with a grain of salt. Whatever you do has to make sense. And, quite frankly, all you can apparently do, by your own admission, is follow instructions. You know, they don't teach MARS in SRA or MAI classes. They don't have any instructors smart enough. And those instructors want to keep their jobs. The AI, despite the many good things I could say about it, is inertia laden with bureaucracy. Let me back up, - someone could argue that they are doing what they are doing under the assumption that the students couldn't really handle anything more complicated - based on the great number who do poorly on their already simple exams.

Oh well. Someday .....

Also, there are many AI courses that deal with cap rates. There is nothing to stop any AI member from taking one of those courses - or the one that deals specifically with cap rates.

And, #2, if you want to be a great appraiser, you need to take courses that the AI doesn't offer in math, statistics, programming, data and so on. In fact, I would have to give that at least equal importance - at a very minimum.

 

[RCA]

I actually was using data from 2016 & 2017 and even if I had used the data from 2018 it was still a $800,000 +/- property, The value is mostly in the land and I am surprised to hear this was on a double sized lot, because that should have had a very large effect on the homes value, unless, its located very far-inland or in a location challenged area ? How are Site values on 3,000 to 5,500 square foot lots selling at $450,000 to $550,000 or more without even a house on them ? Yet a 10,000 to 12,000 square foot lot on the Subject has no additional value ? Another issue is my estimated opinion of value using 800 to 1,000 square foot homes on small 4.500 to 5,500 square foot lots, came in at the same Value range as Bert's--And I had no disagreement with Bert's OMV at $800.000 but I failed to consider the Subjects double lot size and so now I am thinking it may be worth more.

Unfortunately now I have to go back into MLS and see what buyer action is showing on double sized lots ? Was Bert just too conservative ? Did the regression simply fail to have the correct data pool to begin with ? In my opinion Bert needs to forget about the house and run more data on the lot and land sales in that City , and then try to extract at least a reasonable estimate of the value of subjects site or lot. Once that is done he will be able to complete a supported and realistic cost approach, and I would also go back and run some rental comparables in the City to see what a reasonable GRM is. I came up with 220-221 as most probable. Also forget using a Cap-Rate , the typical owners or buyers of 800 Square foot bungalows do not purchase for income unless they steal the property and have plans of either updating or remodeling it and flipping it for a higher price, $800,000 is just too much cash to make anyone be a long term landlord. Frankly I do not see the income or the cost approach on this property as having much credibility because both result in lower values, and that is because these homes at these prices do not male good rentals.

How can a $1,400 adjustment on a $800,000--800 square foot California Bungalow Be Significant ? You are the mathematician and engineer, but you seem to have no idea of market reaction or how market participants conduct themself's in the real world. I don't want to be rude because I believe you are a highly intelligent person and well educated, but your passion for statistics , may be blinding you to how Real Estate values are derived in a market where buyers and sellers do not base their decisions on pure data. Just Saying ...)

I can write something, it doesn't register. But again, regression with MARS, the $15K version, the most advanced statistical regression software in the world, all data input features on the lots shows no pattern. This is, like I said, because of "noise" - because lots are often not that easy to sell, they go to developers who are not always that interested in paying more than they have to for anything in the early stages of their game; this just simply is not a good market for lot sales - at least not as of 2018. Basically, a lot is a lot and the best you can estimate you can come up with, at least until the effective date of that appraisal is $350K. Now things have changed somewhat since then. The back-seat drivers are on a different road, with blinders on and their eyes all red and watery.

 

[RCA]

From Santa Barbara I could have completed a report for IRS based on the SCA with 6 recent comparable sales that would have better met irs guidelines than the convoluted jerry-rigged presentation in the sample report. Where was your discussion of using three bedroom comps when the subject was a two bedroom property?

I have a model with a Stage I R2 of 0.91, so the adjustment for GLA and bedrooms should be very good. Using or not using 3 bedrooms comps is not an issue. It looks like about $18K for that third bedroom, using $61/sf for GLA and roughly $12k/bath looking at the Contribution charts.

Do you really know the guidelines? Because, I don't see how you would have "better met" them. Maybe you could enlighten us.

 

[gregb]

Suggest the ERC assignment, where you will be guaged by what the property sells for, versus its appraised value. Forgive me I did not realize you have been appraising for 6 years.

 

[Artemis Fowl]

Looking back, I was dangerous around the 5/6 year mark. Thought I knew a few things...I only knew few things.

 

[TRESinc]

can't all of you just post that bert is smarter than anyone else on the planet to stroke his ego and be done with this thread? despite multiple errors pointed out by multiple people you are getting no where with him. just playcate him and be done with it. you will be happier in the end.