• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Scenario Questions

Status
Not open for further replies.

Peggy Wright

Sophomore Member
Joined
Mar 16, 2003
Hi all.

Wanted a general theory question responded to, please.

Theoretical: We have a subdivision where homes are all pretty cookie cutter, same amenities, etc. If someone is willing to pay $120K for a house 6 mo ago, and we know from analizing that the going rate of inflation is 2%, would you allow for an increase in value of the subject - 120 x .01 for inflation? My super doesn't do adjustments for time unless it is over a year. But, if you have someone willing to buy at that, doesn't that indicate market is willing to pay? What about in the refinance world-how much time do you all allow to elaps before you allow for inflation increases (assuming your area is increasing). Just curious how the rest ofyou do it.

Also, what is the best most accurate way to evaluate your market for inflation/deflation of real estate? I'm talking actual methods here. Thanks.
 

David S. Roberson

Senior Member
Gold Supporting Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
To tell the truth, I can't remember the last time I've adjusted for inflation. If you need to adjust for inflation, your sales are probably out of date.
 

Dale Smalley

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
It is just a appraisal theory to justify going over the highest market sale. No serious underwriter would give it any weight over actuall sale prices. It just sounds good on paper.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
If the market is moving and appreciating so fast in your neighborhood, then I would dig for the most recent sales (within 1 month) and look at the current inventory or listings. Sure, you can expect some price increases in a new S/D as the developer/builder moves along in the project. But in my experiences, that has to do more with supply/demand than inflation.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
Peggy,

IMHO the going rate of inflation (I assume you are talking about the national average) does not reflect the local market inflation for houses. There are some areas that the local housing market is increasing faster than inflation, others that the housing market is stagnet, and still others that the housing market is decreasing. Placing the national inflation rate into the local housing market IMHO is not good appraisal practice. You need to find the local indicators. IE.. SD clones on 10/01/02 sold for $110K on 01/01/03 sold for $111K on 03/01/03 sold for $113K then on 05/01/03 sold for $114K. This would give you the local market area growth rate for housing market (all things being equal).

But, if you have someone willing to buy at that, doesn't that indicate market is willing to pay?

Just because someone is willing to pay a certain amount does not make it market value. Plenty of appraisers here can tell you of stories that people were willing to pay more for a house than the market value of a house. Out of town buyers.

The job of the appraiser is to analysis the market and if the time adjustments are warranted by the market then they are warranted and supported. Not just using the national inflation average index.

Ryan

PS. Again I am assuming that you are using the national inflation index. That is how I read your post.
 

Pine Tree

Junior Member
Joined
Aug 19, 2002
Professional Status
Certified Residential Appraiser
State
Maine
This also reminds me to review the definition of Market Value... By the folks who's forms we commonly use ... which begins " the most probable price .... "

Peace. Wendy :unsure:
 
Joined
Jan 28, 2003
Professional Status
Certified General Appraiser
State
North Carolina
Good advice from Ryan.

I would avoid using only one paired sale to estimate this market conditions/time adjustment. There are risks of inbreeding of your data and one paired sale is just not enough to hang your hat on unless it's all you can find.

As for the minimum amount of time elapsed, I would say there is none. It is possible for values to increase or decrease significantly within a month or less, especially when there is an unexpected event which affects the market. An extreme example would be a Chernobyl type situation - radiation way up and values way down. However, if appreciation rates in your market are, say just 1% per year, adjusting for one month will be pretty irrelevant.

Good sources of market conditions adjustment would be a homogeneous product with many sales. For example, a large condo project with identical units and many sales over a certain period.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Yeah Wendy!!!!

Reading the Definition of Market Value that we sign that we've appraised to is an excellent suggestion.

Along with 'most probable price' is 'the buyer and seller, each acting prudently, knowledgeably...' and 'both parties are well informed or well advised...'

That definition is a hot button for me!!!! I quote it often, especially to Realtors.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Peggy posted
My super doesn't do adjustments for time unless it is over a year. But, if you have someone willing to buy at that, doesn't that indicate market is willing to pay?
I’m with you. If your analysis indicates, X and you report something else…what is the sense in that?

And "what is the best most accurate way to evaluate your market for inflation/deflation of real estate? I'm talking actual methods here."
More than one way to skin this cat. Lots of re-sales where you know about intervening upgrades probably “simplest.” You could just track rents, which is OK for the short run. I like to use rents and implied rent multipliers together in an “index” for a longer run view. This also covers more transactions and property types. You can also separate into categories.

You also should have some idea about measuring housing demand for the area, changes in employment, population, existing stock, new construction to show that what you perceive a price changes at a micro level has a basis in reality at the macro level. For example, if the big factory where everyone works just closed and there are for rent and for sales signs everywhere, then you probably should not be finding skyrocketing prices.

You will have to weight your economic curiosity against the practical.
Your fellow appraisers tend to be very suspicious of ANY time adjustments. It is not common to see actual macro data for adjustments to residential appraisals. The market is just as willing to pay for subjective “best guess” adjustments. So, expect to get thumped in the head a lot and enjoy a lower rate of profit for your troubles.
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
An appraiser who is willing to make time adjustments in an increasing market had better be prepared to make time adjustments in a declining market (how many 'time adjusters' do that?). I've done both on those occasions where the data demonstrates a clear trend to justify it. One way I do this is that I list all my sales data chronologically and I always try to find a pending sale as an extra comp; if there is a trend among that data it becomes pretty clear. If there is no demonstrable trend within that data set then I don't consider the time issue to be a significant factor. These days I usually avoid the use of time adjustments, per se. Instead of making quantitative adjustments for any of these demonstrable trends, I usually just consider them in my reconciliation and rank my subject accordingly, a la qualitative analysis. It's a lot less hassle and much easier to defend to a skeptic.

It's like any other influence on value; the comparable data either demonstrates a specific trend or they don't. No proof or other reasonable and applicable basis = no adjustment. We're not supposed to get emotionally involved with the value on an appraisal. The difference between what we do and what the salesfolks do is that we have to be able to demonstrate why our opinions are reasonable.

No offense intended here, but the argument that Market Value is defined by what a specific buyer will pay for the property is most commonly heard from salesfolks and mortgage brokers, not appraisers. We know for a fact that there are regular exceptions to that definition, particularly when it comes to SFRs. Emotions and non-logical thinking do occur more often in those markets. It's not our job to perpetuate it.


George Hatch
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks