Summary Of Sales Comparison Approach & Reconciliation

[DEE ZEE]

Is it required to make a statement in the summary of the sales comparison approach or the reconciliation regarding placing emphasis or weight on certain comparable's?

 

[hastalavista]

What is required is for the appraisal to communicate how it reconciled to its final value if the report is an "appraisal report".

Assuming this is for a mortgage finance appraisal, if you have 5-sales, it would be expected that the report summarize how it considered the adjusted prices of those sales 5-comparables, and describe which data points or rationale it used to select the final value point-conclusion.

Assume you have 5 sales, adjusted between $600k and $630k, with two very good matches adjusting to $610k & 615k. Logic would imply, all other things being equal, that your value would be somewhere between $610k and $615k. A client would reasonably expect the report to state what comparables it considered the best indicators of value to support why it came in at the point-value it came in at.

I personally don't use the term "weight" although there is nothing wrong with it.
I'll say, "I considered Comparable #2 the best indicator due to X, Y, Z, and also considered Comparables #1 and #3, and concluded to a point value of $X". Obviously, my conclusion should be supported primarily by Comp#2 with the adjusted prices of Comps#1 and #3 providing additional support.

But, in general, yes. Your reconciliation should make it clear how you concluded the value you concluded. As a rule, that would mean discussing which comparables are the best indicators of value and how they were considered in your analysis (explain your rationale).

Good luck

 

[DEE ZEE]

But is there a guideline or rule that states you MUST mention which comparable's are given emphasis or weight? What if all comparable's used offer similar emphasis?

 

[Mr Rex]

(viii) summarize the information analyzed, the appraisal methods and techniques employed,
729 and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the
730 sales comparison approach, cost approach, or income approach must be explained;
727
731 Comment: An Appraisal Report must include sufficient information to indicate that
732 the appraiser complied with the requirements of STANDARD 1. The amount of
733 detail required will vary with the significance of the information to the appraisal.
734 The appraiser must provide sufficient information to enable the client and intended
735 users to understand the rationale for the opinions and conclusions, including
736 reconciliation of the data and approaches, in accordance with Standards Rule 1-6.
737 When reporting an opinion of market value, a summary of the results of analyzing
738 the subject sales, agreements of sale, options, and listings in accordance with
Standards Rule 1-5 is required.

 

[gregb]

Like Denis, I avoid use of the word "weight" in the reconciliation statement, prefer "consideration." As in Denis's example it may be beneficial to state which comparables correlated best to the subject, as in lower net and/or gross adjustments to these comparables. Date of sale, locational similarities as well as other applicable factors could be discussed in the reconciliation statement.

 

[hastalavista]

But is there a guideline or rule that states you MUST mention which comparable's are given emphasis or weight? What if all comparable's used offer similar emphasis?

Look at it this way (and let's keep it simple; let's just talk about the sales comparison grid and a residential property; you are only using one approach):

You have a grid and you make adjustments.
In your comments within that approach, you are going to:
(a) Describe/support your adjustments (why does Comp#3 get a 5% location adjustment? Oh, because it backs to the freeway. And, how did you arrive at that adjustment)?
(b) Discuss any additional items that are relevant to this approach (like, there was a sale right next door to the subject that you didn't use; you didn't use it because it turns out it was nasty divorce and the spouse who lived there made it next to impossible to sell; so when it did sell, it sold at a steep discount. Not a sale to use as a comp, but since it is right next door, if you don't tell the client why it isn't a comp, they are going to ask why you didn't use it).
(c) Provide your rationale for selecting the point-value you did. As I exampled, if you a model match, the expectation is that your opinion of value would give that adjusted price a lot of consideration. You would explain that you did or didn't for whatever reason.
(d) When you are done describing how you distilled your indicated value by sales comparison approach from the adjusted prices of the comparables, the reader should understand why you came in at where you came in, and why it makes sense.

The above is a reconciliation of a single approach.
In the formal reconciliation, you would also reconcile the different approaches, how you considered each (typically based on how best they reflect the specific buyer-type and also how good or not-so-good the quality of data is), and how each of those approaches are distilled into your final value opinion.

Usually, for residential mortgage work, the final value opinion is 100% dependent on the SCA. So, if you reconcile your analysis in the SCA section, you have communicated to the client/intended user why your point value is where it is at.

If you are giving each comparable similar emphasis, that would still require an explanation of why they are considered equally as opposed to one not being any better than the other.
For example, if your gross adjustment of Comparable #1 is 20%, and your gross adjustment for Comparable #3 is 2%, and you are giving them equal consideration, you would want to comment on why the comparable that required 20% gross adjustments is as good (equally good) as the one that only required 2% adjustments. There can often be a very good reason why this would be; but unless you explain it, your client/intended user may not understand (or worse, come to a different conclusion).

And that is the bottom line: Your reconciliation should make it clear in no uncertain terms why you concluded the point value you did; this would include discussing which comps are better than the others and were considered to a better degree, or why all the comps are equally good and were considered equally on a collective basis.

This is what we do in an appraisal report.
If you are doing a restricted appraisal report, then you don't have to do that.

 

[DWiley]

But is there a guideline or rule that states you MUST mention which comparable's are given emphasis or weight? What if all comparable's used offer similar emphasis?

SR 1-6 says that each approach must be reconciled. SR 2-2(a)(viii) says the report must contain a summary of that reconciliation. It is hard to imagine how one summarizes the reconciliation without addressing how much weight/consideration was given to each of the comparables.

IMO, too many try to get away with boilerplate in the reconciliation, and that is the last section of the report where one should have boilerplate.

 

[bnmappraisal]

What if all comparable's used offer similar emphasis?

Then comment on WHY they offer similar emphasis. It doesn't need to be a dissertation, but comment. I think that's what lacks in many RES reports (myself included sometimes)

 

[Dublin ohio]

What if all comparable's used offer similar emphasis?

I have had situations in condo complexes where I might have 3 model matches all sold within a tight range of sale prices with no adjustments of any kind. Would usually give most recent sale the most consideration. No real rule that you have to "weight" certain sales. But I am sure you always have some type of reasoning that you used to reach your value opinion. Whether it be similarity, sale date or proximity or whatever else you consider most relevant.

 

[DEE ZEE]

Thank you all for the insight I really appreciate the feedback