Square footage adjustment

[Tom D]

Time adjustment. Not sure what is being used, but i do a macro of the neighborhood sales, and then a micro of the sales range that i used. They can be somewhat similar in a vanilla neighborhood. But let's you say have new construction going on in a vanilla area, you might see a different time adjustment if that market is hotter. In a gentrifying, bad word, area that can be a difference from normal c4 sales. I usually find either the macro or the micro chart to look pretty in my report.

My understanding that with the new 1004 that they would like more visual aids like chart and graphs. Makes sense, show that you did a little more thought than the average dope. My degree is in education. I took visual aids. Most report writers don't understand, or seem to care, that certain things say a lot without being wordy. People always look at visual aid instead of reading a paragraph.
And remember with the amount of data, it can be skewed, but still informative.

Below is the neighborhood graph, then the subject's competing properties graph.

 

[Terrel L. Shields]

then a micro of the sales range that i used.

I would think that risks being fooled by sheer randomness. The variation in pricing is a given in an inefficient market like real estate so, you need a large population of sales to see the overall trend. If you have only a handful of sales to determine such trends, you have a serious risk of a couple of outliers actually flipping the trend from up to down or down to up.

 

[alebrewer]

I would think that risks being fooled by sheer randomness. The variation in pricing is a given in an inefficient market like real estate so, you need a large population of sales to see the overall trend. If you have only a handful of sales to determine such trends, you have a serious risk of a couple of outliers actually flipping the trend from up to down or down to up.

Agreed that too few observations can skew the model, but to Tom's point, don't you agree that the 'market' for the property you're appraising does not necessarily reflect the macro market in the geography the property is in? Not so much now, but about 2 years ago, my 'macro' market was overall stable, but higher end properties were experiencing a soft decline and lower end properties were experiencing appreciation...

 

[shrubberyvaluation]

I also see a difference based on quality of construction and some areas with limited land. Also the difference between 1000 sqft to 1500 sqft can be different than between 4000 sqft and 4500 sqft.

 

[Terrel L. Shields]

don't you agree that the 'market' for the property you're appraising does not necessarily reflect the macro market in the geography the property is in?

Define please? Yes, Cheap houses compete with cheap houses and mansions compete with mansions. Lake side houses compete with lakeside houses. But I would say that two few samples make for a weak estimate. And if the general economy slows, then all of the classes of houses will slow appreciation or show depreciation.

 

[alebrewer]

Define please? Yes, Cheap houses compete with cheap houses and mansions compete with mansions. Lake side houses compete with lakeside houses. But I would say that two few samples make for a weak estimate. And if the general economy slows, then all of the classes of houses will slow appreciation or show depreciation.

Number of observations required for valid results aside, I'm talking about sub/micro-markets within a macro market. To use the same example I referenced earlier, properties in the $500k + 'market' experienced a soft decline (2-3% annualized) at the same time that properties in the $200k-$300k 'market' were experiencing about a 5% annualized appreciation rate. So that, just using a 'macro' trend would have resulted in understating the declines for the higher market and the appreciation for the lower market.

 

[Tom D]

I would think that risks being fooled by sheer randomness. The variation in pricing is a given in an inefficient market like real estate so, you need a large population of sales to see the overall trend. If you have only a handful of sales to determine such trends, you have a serious risk of a couple of outliers actually flipping the trend from up to down or down to up.

i have to remind everyone that i come from a very big old city where one neighborhood can be very different from the one right next to it in the same zip code. Our MLS also have a year to date price increase or decline, eash quarter. They also have a number for the whole city. So i have 4 different type of trends to look at. I have the city, the zip code, neighborhood and nearby. Within my micro search i can have 10-20 almost identical matches within 2-3 blocks of the subject with a 10-20% price range. Please don't tell me i need to look at thousands. Around here you seen 2 types of row houses, you seen them all.

But, i bet with my method and the 4 searches looked at, you ain't proving me wrong. I know, we sometimes think in only suburban or uban or rural workings. I showed one of my charts, in my report, sorta like my appraisal has the work file already showing. And without knowing my research you call it a serious risk.

And around here you better know the dividing lines. Your stats will be way off.

 

[Terrel L. Shields]

properties in the $500k + 'market' experienced a soft decline

NWA is still building these like hotcakes. Cannot figure out why... NE Okla..not so much.

 

[alebrewer]

NWA is still building these like hotcakes. Cannot figure out why... NE Okla..not so much.

Yep - we have a few pockets of upper end homes, but they're building the $300k homes as fast as they can clear the land...

 

[weird_limbs]

Agreed that too few observations can skew the model, but to Tom's point, don't you agree that the 'market' for the property you're appraising does not necessarily reflect the macro market in the geography the property is in? Not so much now, but about 2 years ago, my 'macro' market was overall stable, but higher end properties were experiencing a soft decline and lower end properties were experiencing appreciation...

Segmenting your data based on specific market parameters alone isn't sufficient, you need to make sure you have enough sales to achieve reliable results. Additionally, the risk of being too granular is that you can always find (if you wanted to) the combination of parameters that yields the results that support your preconceived market trends.
I'm not saying your method is incorrect, I'm just pointing out the risks of using "micro" vs "macro" data.