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So am I the teacher or student on this one?

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Caterina Platt

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Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
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New Mexico
Considering I'm in here asking all my peers, it would appear 'student' no matter which way it ends up. Well, at any rate, here it is:

Retrospective review from the latter 2005 time frame. Remembering fondly those days of many assignments...it was also a time when the values 'didn't go down, and you better move now cuz tomorrow's more expensive....'

It's a condo in a 16 unit new conversion of an older commercial building downtown. At the time of the report, 13 units were under pending contract (not including the subject) and 2 were still active. We have no closed sales within the immediate project, but lots of pending in the building and lots of irrational exuberance and optimism.

The original appraiser 'made value', but did a bit of soul selling to get there. I'm about 9% lower in my estimate. I've used 3 closed from other complexes that were also 1 bedroom, which adjusted between $236K and 201K. The most similar is the higher valued unit. I also provided 3 pending sales from the immediate development which adjusted between $225K and $266K with the latter higher value being the most recent contract signing. My estimate of value was $250K and I gave them this explanation.

The above additional comparables were all pending contracts at the time of the original report, and from the subject's project. From the contract date analysis, as well as area data from the time period, values were indeed rising, however no closed sale data, nor pending sale data could quite support the subject's contract price. Some emphasis is placed on these pending contracts, particularly since the contract data likely could have been supplied to the original appraiser. The subject's contract appears to have taken place at the area's market peak which gave the appraiser a perspective of rapidly increasing market prices in an already relatively aggressively priced development that had no completed transactions at the time. Speculation and trends at the time were strongly upward, with 4 of the 6 sales absorbed from inventory in less than 60 days and the subject's project had been sold out rather rapidly. The upper range of indicated values was chosen considering those factors. Obviously, in retrospect, one can look at the data from that time frame and quite easily come to a different conclusion, however in latter 2005, most analysts did not see the end of the rising value trends.

Reviewer for the client comes back with this:

I received a field review for the above referenced property; however, the appraised value is not within the range of the sold comparables. The pending sales cannot be factored as they were not closed as of 10/25/2005. Please have the appraiser correct this.

My response would be: Oh yes they can! In times of rising value or decreasing values, your pending and actives must be analyzed and weighed if applicable. Considering there wasn't a closed sale in my subject project, yet many pending, and considering that values went nowhere but up and quite fast I might add.... (of course I'll compose it more eloquently, but....)

What say ye??
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
My question would be ... in 2005 did you include pending sales in your typical appraisal assignment?
If you are doing a field review .. why do you have a value at all in this? Shouldnt it be simply a review?
I guess Im not really sure what your assignment is.
 

Mztk1

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Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Time adjustments. If your pending sales are higher than the closed sales to the point where the estimate of market value is above the closed sales adjusted price but not the pending sales adjusted price, you are missing the market condition adjustment.

Review contract dates for each, estimate market growth at the time, and make the adjustments.

Remember, you can't add what you know now. If the general opinion at the time was that the market was ticking upwards and your pending data supports that movement, you can't look from a December of 2008 standpoint and say, no, the market stopped then and time adjustments are not appropriate. You have to view it from the date of the original report. Not easy to do.
 

Caterina Platt

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Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
Considering the seller of the subject was also the seller of the other pending sales, as an appraiser for the sale, would I have asked the builder/developer for data on those pending sales? You bet, and I'm sure many of us would have. The first rule in condo sales comps is pick from your subject's complex first. We had no closed sales, but darn near everything else was under pending status and had sold out fairly quickly. The appraiser very likely had access to this data and should have utilized it. It was right in our MLS. A call to the developer would have been quite simple. If the builder didn't see the way clear to disclosing the contract pricing, then at least reflect them as additional information (4-6) and state so.

Remembering back to that time frame, PE and I would often be talking on the phone about how we were handling this crazy market. Upward time adjustments still weren't all that well received. We were simply trying to stick to sales within 3-4 months time frames for the best accuracy. Today, we use them on a downward basis fairly regularly, but to extract time adjustments from pending contracts? Did we really do that? I suppose the best resources for that answer might be from our colleagues in California, Florida, Arizona, etc. where the bubble was the most active. I was never personally faced with the need or situation, even at the height of our market. Granted, I don't do builder tract new construction appraising much and I'm sure that's where the most pressure for such rapidly increasing values was experienced. I believe that pressure is precisely why I don't do them. :leeann2:

I put myself in this appraiser's shoes while doing the review. Upward market, rapidly absorbed inventory, and looked at the pending info at the time. The future was bright, no doubt, but there was still an amount of greed in this sale. Nothing pending even supported the price. This appraiser fudged several non existant upward adjustments and slighted the bed/bath count downward adjustment (subject is 1 bed/1 bath) and hit the number.

What the client's reviewer is telling me to do is weight only the closed sales from outside complexes. I don't believe there are guidelines that state this is the protocol one must follow. Were it, there would never be a sale of a condo in a new development any higher than historic sales data from surrounding projects. In a rapidly rising market, that simply isn't practical or truly reflective of the market. There was plenty of market support for acceptance of the subject complexes higher pricing structure right in the pending sales data. Not as high as the contract, but certainly higher than the three closed sales. Incidentally, they all ended up closing at list price. Again, a simple phone call to the developer.....but then, she still wouldn't have hit the number without fudging. I suppose she figured, 'What's the use? I'll use all closed sales so as not to attract any attention and get it through underwriting'.
 
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PropertyEconomics

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Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
Considering the seller of the subject was also the seller of the other pending sales, as an appraiser for the sale, would I have asked the builder/developer for data on those pending sales? You bet, and I'm sure many of us would have. The first rule in condo sales comps is pick from your subject's complex first. We had no closed sales, but darn near everything else was under pending status and had sold out fairly quickly. The appraiser very likely had access to this data and should have utilized it. It was right in our MLS. A call to the developer would have been quite simple. If the builder didn't see the way clear to disclosing the contract pricing, then at least reflect them as additional information (4-6) and state so.

Remembering back to that time frame, PE and I would often be talking on the phone about how we were handling this crazy market. Upward time adjustments still weren't all that well received. We were simply trying to stick to sales within 3-4 months time frames for the best accuracy. Today, we use them on a downward basis fairly regularly, but to extract time adjustments from pending contracts? Did we really do that? I suppose the best resources for that answer might be from our colleagues in California, Florida, Arizona, etc. where the bubble was the most active. I was never personally faced with the need or situation, even at the height of our market. Granted, I don't do builder tract new construction appraising much and I'm sure that's where the most pressure for such rapidly increasing values was experienced. I believe that pressure is precisely why I don't do them. :leeann2:

I put myself in this appraiser's shoes while doing the review. Upward market, rapidly absorbed inventory, and looked at the pending info at the time. The future was bright, no doubt, but there was still an amount of greed in this sale. Nothing pending even supported the price. This appraiser fudged several non existant upward adjustments and slighted the bed/bath count downward adjustment (subject is 1 bed/1 bath) and hit the number.

What the client's reviewer is telling me to do is weight only the closed sales from outside complexes. I don't believe there are guidelines that state this is the protocol one must follow. Were it, there would never be a sale of a condo in a new development any higher than historic sales data from surrounding projects. In a rapidly rising market, that simply isn't practical or truly reflective of the market. There was plenty of market support for acceptance of the subject complexes higher pricing structure right in the pending sales data. Not as high as the contract, but certainly higher than the three closed sales. Incidentally, they all ended up closing at list price. Again, a simple phone call to the developer.....but then, she still wouldn't have hit the number without fudging. I suppose she figured, 'What's the use? I'll use all closed sales so as not to attract any attention and get it through underwriting'.


The interesting thing would be to have you go back to your assignments back then .. and I would bet dollars to donuts (heard that one before? hahaha) that you didnt use pending sales in your analysis. Im just guessing ... I know I didnt.
 

Mike Kennedy

Elite Member
Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
I put myself in this appraiser's shoes while doing the review. Upward market, rapidly absorbed inventory, and looked at the pending info at the time. The future was bright, no doubt, but there was still an amount of greed in this sale. Nothing pending even supported the price. This appraiser fudged several non existant upward adjustments and slighted the bed/bath count downward adjustment (subject is 1 bed/1 bath) and hit the number.

Cat - was the appraiser provided the number to hit ?


 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
I put myself in this appraiser's shoes while doing the review. Upward market, rapidly absorbed inventory, and looked at the pending info at the time. The future was bright, no doubt, but there was still an amount of greed in this sale. Nothing pending even supported the price. This appraiser fudged several non existant upward adjustments and slighted the bed/bath count downward adjustment (subject is 1 bed/1 bath) and hit the number.

Cat - was the appraiser provided the number to hit ?


Of course Mike .. it was a sale ... that dreaded CONTRACT REVIEW ...

And as good a case as any to further your contention that Contract Review should be abolished ... I have to admit that.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Nothing pending even supported the price. This appraiser fudged several non existant upward adjustments and slighted the bed/bath count downward adjustment (subject is 1 bed/1 bath) and hit the number.

This makes for a different situation. If the pending sales did not support the price, and the closed sales did not support the price, and then fudged adjustments, you have a seriously flawed report and I doubt I'd go the extra mile for the guy.

It is very difficult to get back into a market from years ago. Market adjustments up, supported by pending sales, were necessary in 2004, but by late 2005 the market was on the decline in Florida in most of my territories. Any adjustment up in the second half of 2005 on would seem like a push, here. This is especially true in the condo-conversion projects where straw buyers, out-of-area investor buyers, and relatives of the builder-buyers to keep him from going under, began showing up purchasing well above market.

I don't know NM, but in FL if I didn't do a bunch of condo-conversions in 2002 to 2006, I wouldn't do reviews on them. There was a lot, and still is a bunch of weird stuff going on that only my old notes may still verifiy - like $50,000 sales agent bonuses on $180,000 sales; or guaranteed rent 2X that of market rent plus furniture paid from the real estate agents 6% commission instead of 3%. Funky stuff, really.
 

Caterina Platt

Thread Starter
Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
Mztk1,

Actually, it would appear the funny stuff is taking place right now with the REO broker who has it listed. Long story, but I could not access the interior. There's an access card for the elevator, and he 'couldn't' get in. To show his own listing? WTF? When I finally got the property management rep to call me back, I was hearing all sorts of oddities like the neighbor said he stole the appliances, and the agent owed $$ to the HOA for the utilities. The developer still has a commercial space on the first floor of the complex. After several unreturned phone calls from their representative, I finally started simply hitting random extension numbers when the Silicon Sally phone system receptionist answered and got the owner. He was fairly cagey, and strange. Claimed the covenants were very explicit about access and only the HOA could grant access to the building.

As for the original sales, this is the only one that appears to have gone REO per MLS. (one of the beauties of the retrospective perspective). I tend to peruse public records with the developers name and some of the subsequent owners, then compare things against MLS and see if I can trace out flips, REOs, straw buyers, etc. on these retro assignments pretty regularly looking for strange stuff. This one amazingly turned up fairly clean.

There is only one of these units advertised on the typical downtown property management companies for rental, and any found in MLS for sale appeared to be occupied.

I hear you on the going the extra mile. But at the same time, I'm trying to be a fair and honest.

PE,

As for the pending sales, was it typical in 2005? No. But would I use them in a pinch? Yes, especially in a situation like this one which screamed for the data from the subject complex for support. I remember a certain grouchy guy taught me this trick when I worked for him. Schmooze the listing agent a bit, and get that data. I can't say it was as common as it is now, but certainly I would in situations that called for additional data and generally it was for bracketing purposes. Something closer, something with 4 bathrooms, whatever.
 
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Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
FWIW, look at the Fannie guidelines regarding the use of sales data from parties with a financial interest in the property (pending sales by the developer). Also, did the pendings close after the date of the appraisal?
 
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