This is a pretty niffty detailed chart for finding time adjustments, we are done.

[Zoe]

Sorry Danny. It is not linear.

Similar to snowflakes. They are not linear. Let me put it in simple terms. There are too many variables in real property market value for it to be linear. Each piece of real property is unique in real property rights.

Always remember you appraise real property rights.

Market value definition as defined by FNMA is key.

Jump away from MV definition and things change quickly on the appraisal problem.

 

[CGinMN]

Why does the index graphic start at +1% appreciation for January, not a baseline of 0%? The comment says, market appreciation from Jan to Dec is 7%. Wouldn't market appreciation during that period be 6%?

 

[J Grant]

No, that is not how it works. One analyzes data and then looks at the trend from that data.

View attachment 94575

In this case, the trend is shown by the blue line. The dots represent where the market was as the time each comparable went under contract. Comparing where the market was when the comp was contracted to where the market is on the effective date of the appraisal yields the indicated adjustment for each comp.

Imo, this is over-adjusting for price variances simply because they differ a bit from the overall trend. Proprietors never uniformly follow a trend, and we usually discard very low or high outliers. But a sale that was up or down in price 1 or 2%, it is not an indicator then of increasing or decreasing "values "that should be applied to its price. Over precision - there are numerous reasons why individual houses sell for a variance more or less than the trend. That is why RE is an imperfect market.

An appraiser can simply note that sale X sold for a bit higher or lower than the trend, and that might provide a reason to consider that sale more or less relevant in the market value reconciliation.


Also, wouldn't the more accurate word be increasing or decreasing prices, rather than increasing or decreasing values? The market trades in prices- value is an opinion about the price. appraisr oroudes

 

[alebrewer]

Also, wouldn't the more accurate word be increasing or decreasing prices, rather than increasing or decreasing values?

They are not the same thing, but they are VERY strongly correlated. If prices are going up, values should be going up as well.

 

[Terrel L. Shields]

easy. Example: data set is really too small to drill down to accurate month over month trends

That's the real problem. Like the data set I showed where a huge spike was created with the sale of a couple of luxury homes when you only have maybe 5 sales that month...and that was a whole county. A county with lakeside sales and few outside of the lake selling for anywhere near the average price displayed. Mind you this county is the most populus county in NE Oklahoma until you get to Tulsa County.

 

[Joe Flacco]

Yeah. Too little data makes the results unreliable and too much data makes the results unreliable for the specific property. It's complicated.

 

[Joe Flacco]

It is still important to consider the fact that change in values is not linear. There are fundamental reasons why it moves that way if you pay attention to the actual market conditions (Sales, pendings, new listings, active listings).

 

[Terrel L. Shields]

It is still important to consider the fact that change in values is not linear. There are fundamental reasons why it moves that way if you pay attention to the actual market conditions (Sales, pendings, new listings, active listings).

But unless the market is moving up or down rapidly, the difference between the linear, running average or straight numbers is relatively minor. And I would argue that unless you are smoothing that curve to some extent you risk distorting month to month numbers.

 

[Joe Flacco]

But unless the market is moving up or down rapidly, the difference between the linear, running average or straight numbers is relatively minor. And I would argue that unless you are smoothing that curve to some extent you risk distorting month to month numbers.

I don't know. But I don't think these specific requirements about how to develop an appraisal are good.

 

[Joe Flacco]

I don't think that appraisals are necessary most of the time. There are better and more efficient ways to manage collateral risk if regulations allowed. But I don't think that the decision to use an appraisal or not should be automated. It should be a manual decision made by an appraiser at the bank.