Mike
Almost without exception these are not "typical transactions".
As you pointed out, it is important to be wary of any property that might have been flipped or sold within a very short time of its prior sale. However, quite contrary to the apparent gist of your statement, I find in my market, that past sales of current comps turn out to be typical transactions most of the time (about 90 percent). Our MLS allows me to go back about ten years and I always do so, with every single subject and comp I work with. (Remember that USPAP requirement for sales history for the last year for a one to four family subject is a
minimum not a maximum.)
I have also used your method and found the results to be similar, but not identical; doing the type of research you suggest from time to time is important, particularly because it can help to isolate atypical neighborhoods and it can also help you to know relatively quickly where the market is going. But, there is one major problem with the method and that is it does not take into account value growth caused by new construction or improvement. It is possible for that data to indicate an increasing market, because of new improvements, even if sales and resales are showing stability or decline. Of course, building permit data is available from many towns, and a kind of composite can be provided by our county assessor. But, it is somewhat difficult to sort it out, especially by neighborhood. That is why I believe the best way to get a feel for where appreciation is going to research the past sales history of every subject and comp.
In doing that research, you also often see properties that were put on the market more than once. You can often tell if a property was listed at an unrealistically high price and then re-listed at a more reasonable price after the first listing expired. This is important, because if you start seeing a lot of properties that expired several times before eventually selling near the original list price it can mean that exposure times are longer than the average DOM from the MLS would indicate (and I believe that this is the case in my market).
Concerning divorce, I have appraised quite a few of these sales. In my market they are typically sold at or near market value, often without more time pressure than exists for other sales. Many times people who sell property are under some pressure to do so, but they are part of the market, regardless of whether the pressure is from divorce, job transfer, or other typical factors. However, when you do see one that is sold for quick sale value it is usually quite apparent. In other words, divorcing couples are part of your market, and I believe that, in most cases, they should be treated as such.
In neighborhoods where there is a lot of re-lo or REO competition, it can cause a downward pressure on prices, and this becomes quickly apparent if you do sale and resale research on every property you work with. If large numbers of re-lo’s cause downward price pressure, as they have in the recent past, in one of my market neighborhoods, that is still the market. The properties in this neighborhood were not appreciating as rapidly as the rest of the area, and it is my responsibility to be aware of that fact. Just because it is re-lo pressure apparently causing the low appreciation does not keep the low appreciation from being fact.
Whenever any past sale is outside the normal expectations, I try to find out more; sometimes you can and sometimes you can't. But, by doing it over and over again, you begin to get a feel for the market that you simply cannot get any other way. Additionally, it is not particularly difficult or time consuming; I estimate that doing this research and reporting it in the past sales grid adds an average of only about fifteen minutes to each of my appraisals (even including those nasty, out-of-the ordinary ones where you have to call parties involved to find out what happened).
As an example of the fallacy of relying exclusively on the type of research you described, there is one area of my town where properties are often bought for renovation and then resold at a much higher price, usually within a few months. These stick out like a sore thumb when you do prior sales research on each individual property that sold and was later sold again. However, if you were just doing an MLS search of all the sales in that neighborhood compared with the previous six months of sales, it would look like the neighborhood was appreciating in value rapidly. In fact, when you look at sales and resales within that neighborhood and remove those that were remodeled from consideration, it proves that the neighborhood values are quite stable over the last few years.
I believe that what is required of you is to report is the typical appreciation of property with normal maintenance, not remodeling. And, I believe that the best way to arrive at that conclusion is through continually doing past sales research.
