Theoretical Question

[David S. Roberson]

Be guided by the Subject's sales history in the valuation process???? What does that mean? Am I missing something here?

The Subject's sales history is not any more important than the sales history of any other COMPARABLE sale in the market.

 

[Phil Rice]

Dave says:

The Subject's sales history is not any more important than the sales history of any other COMPARABLE sale in the market.

I disagree.

The subject's sales history is more important. Don't ignore it, be guided by it in the valuation process. It is not the only thing to consider, do not ignore other market data.

 

[David S. Roberson]

Is this a joke??????

 

[Phil Rice]

IMHO, if the subject sold about a year ago, this is very important data and should have material influence on the valuation process. It may not show up on the sales grid, but it should influence the thinking of the appraiser.

Dave, you are entitled to your opinion. We just disagree. I often disagree with the thinking of other posters, but I am always glad to be exposed to other opinions. I am not suggesting that my way is the only way.

 

[Rich Hahn]

If some poor sole over paid 2 years ago and the sale was packed with concessions and it appraised over market then. SO WHAT.
And recent sale is a "good" sale. I'd laugh chalk it up to experience. Document prior sales in report and use the most similar sales NOW and let the value fall were it may. Prior sales have little to do with value NOW.
Unless you did the high appraisal and the recent sale you dont know for certain what was going on. Something fishy...

What happens when they hand you an inflated appraisal from last year, or 2 years ago. It still depends on what you feel are the best comparable sales NOW.
Not unique to see stuff like that anymore particularly in FHA priced hoods.

 

[George Hatch]

I'm with Phil and Serge on this. There is a reason for the requirement to report and analyze prior sales history, and I include listing history in the same category. It's true that the prior sales price probably will be different than the current values, and to the extent they differ the prior sale may not be a direct indicator of current value. However, if there's an overly large difference in either direction, the analysis and reconciliation of how that happened is a relevant piece of information in an appraisal. Property flips are enabled when the appraisers don't report the recent sales data and the readers don't get informed about these facts.

Let's say the property in question had a prior sale two years ago at $100,000 and now your data is indicating $150,000. Don't you think that the average reader, once informed of this sales history, is going to be curious how this happened? If the appraiser investigates and analyzes the prior sale they can fairly and accurately report if the increase is attributed to a 'good deal' in the prior sale, a recent rehab of the improvements, blazing hot price increases in the market or whatever the reason is. The point is that ignoring that prior sale is depriving the reader of vital information on the property that may affect their decision making. For example, a lender may not be that confident the increases in that market are permanent or stable and end up lowering their LTV; or they may think that the market is on the upswing and increase the LTV, again based on this information. The thing is, the information and the analysis are usually pretty easy for the appraiser to do if they'll just make an effort.

Serge is right, appraisers are getting disciplined for failure to report and analyze sales history on properties. Whether you agree with the requirement or not, or the fact that it's now three years for all properties, is no longer relevant in that respect. Take the requirement seriously.


George Hatch

 

[David S. Roberson]

George,

I agree that an analysis of prior sales is important for the reasons you state, and that it is now a USPAP requirement.

I do not agree that the Subject's sales history should influence yor opinion of current value.

 

[Frederick R. Ruffell]

Why would FNMA permit you to use the prior sale of the Subject as a comparable if it isn't relevant???


Per FNMA selling Guide (04/12/2002)
Section 406.02 – Selection of Comparable Sales


We require an appraiser to research, analyze, and consider influences that may affect value based on market evidence (such as closed sales, contract sales, and properties for sale in the market area; market studies; etc.). For example, if a property is located in a neighborhood that includes (or is close to) an airport or hazardous waste site or that has relatively high property taxes or vacant or boarded-up properties, we expect the appraiser to research, analyze and use comparable sales from the same neighborhood or affected area (whenever possible) in his or her analysis. This will assure that any effect of these value-influencing characteristics is taken into consideration in the development of the opinion of value for the property.

If a property is located in an area in which there is a shortage of truly comparable sales-either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood-the appraiser might need to use as comparable sales properties that are not truly comparable to the subject property or properties that are located in competing neighborhoods. In some situations, sales of properties that are not truly comparable or sales of properties that are located in competing neighborhoods may simply be the best comparables available and the most appropriate for the appraiser's analysis. The use of such comparables is acceptable as long as the appraiser adequately documents his or her analysis and explains why these comparable sales were used (including a discussion of how a competing neighborhood is comparable to the subject neighborhood).

The appraiser must report a minimum of three comparable sales as part of the sales comparison approach to value. The appraiser may submit more than three comparable sales to support his or her opinion of market value, as long as at least three are actual settled or closed sales. Generally, the appraiser should use comparable sales that have been settled or closed within the last 12 months. However, the appraiser may use older comparable sales if he or she believes that it is appropriate, and selects comparable sales that are the best indicators of value for the subject property. The appraiser must comment on the reasons for using any comparable sales that are more than six months old. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.

The appraiser may use the subject property as a fourth comparable sale or as supporting data if the property previously was sold (and closed or settled). If the appraiser believes that it is appropriate, he or she also may use contract offerings and current listings as supporting data. However, in no instance may the appraiser create comparable sales by combining vacant land sales with the contract purchase price of a home (although this type of information may be included as additional supporting documentation).



This stuff is really basic and it is RIGHT IN FRONT OF YOUR NOSES!!! READ THE SUPPLEMENTAL GUIDELINES YOU AGREE TO!!!!!!!

 

[Farm Gal]

ummmm...Frederick...

I am all with David and of course George on this one. Market value is all about what it is worth as of the effective date for most appraisal assignments. You find this by analyzing the MARKET, not just a single prior sale of a subject.

Of course you SHOULD analyze and comment on subject prior sales. More comment needed if the prior sale(s) seem out of line, less if in keeping with neighborhood/area trends.
~ prior sale of subject appeared to be within market norms.
OR
~ prior sale of subject date 2months ago appears to be well under/over market norms because~~whatever you found out - or even what you were unable to find out~~
...distress sale (relocation, repo, damaged by fire flood.... etc etc.)
...non-arms length transaction (family)
...factory closing (factory now reopened)
... had caught fire and was subsequently substantially remodeled.
...for unknown reasons sale appears to have closed at well above market!
lots of reasons why a subject or a comp prior sale may have occurred that spiked high or low compared to the rest of the sales in the area. Like George if I know about listings I comment on those also.

Your analysis of the SUBJECT present/market value had best be based more on what the subject is worth as of the effective date than on any past activity.

If past activity indicates 'some other factors' at play they would best be discovered and explained, but not CONSIDERED in present value unless they do in fact relate to present value!

Frederick: it is refreshing to note that some of us can find and quote USPAP and Fannie , but you gotta remember that the report is based more on your scope and certifications... what is says your mission was and how you reported it!

Doing high dollar homes where one new to town poorly advised person got stupid and paid way over market for a home does NOT a market make!!! No matter HOW much every realtor in the are wants you to believe it

Take a deep breath David. breathe. Breathe... it is damn hard to do that when you are biting your tongue, yah?!?!

 

[Austin]

This discussion is beginning to illustrate the hated act of ‘Regression’ thinking. Regression thinking forces you to account for anything that causes a property not to fit the pattern. For example, Frederick’s post about using the subject as a comp sale. If you use the subject as a comp, you adjust for physicals factors first, and the resulting graphical value pattern of adjusted sales shows whether or not all value factors have been accounted for and the gravity of the difference. The last appraisal I did I used the subject as one of the comps. The owner purchased it three months ago, totally remodeled it, it was a dog, and when I put it in as a comp with the other three sales, I use four, clearly showed that the owner added $13,000 to the value by the work she did. That does two things: It puts the original sale price in perspective and explains why the difference, and it shows how much the value was increased by the improvements. In this particular case there had been a serious drainage problem of water going under the crawl space. It answered that question too because the owner was fully aware of it when she purchased it. If a flipping scheme was involved, using the subject as a comp would nip that in the bud because you would have to explain the price difference and put a justifiable number on it. I think one of the reasons that most appraisers fear regression thinking is that they lose control of the process. If you use the correct sequence of adjustments and after you account for a few physical differences like GLA, it is clear that nothing else is affecting price, then you can’t justify things like time adjustments, design and appeal or the ‘general lets make a deal’ adjustments most appraisers use as a crutch to keep them prices going up.