Time Adjustments

[hal380]

I typically apply a time adjustment for sales that have occured beyond the 6 month guidline. The rate of adjustment depends upon the market area.

Here is a real situation:
sale 1 & 2 occured within 6 months prior to the effective date of my report.
sale 3 occured 8 months prior to the effective date.

Sales 1 & 2 received no adjustment
Sale 3 was adjusted at the annual rate for 2 months to bring it into the 6 month time window.

Logic: If I gave sale 3, 8 months of adjustment and no adjustment for sales 1 & 2 which occured 3 & 5 months prior I would be skewing my final adjusted values.

I really dont want to split hairs, but am open to other thoughts on this.

Regards to all

Hal

 

[liznindy]

Hal,

It depends upon your market....I typically don't apply time adjustments (even for sales over 6 months old) unless I have market evidence to support that adjustment. But when time adjustments are applied (when the market shows the appreciation) it is my opinion that these adjustments should be applied to all sales except for very recent ones........unless, of course, the market appreciation occurred only in the distant past but not in the nearer past.

Clear as mud?!

 

[Restrain]

If you adjust for 8 months but not for 6 months, it appears that you are arbitrary in your time adjustment. Either the market is appreciating at a rate requiring a time adjustment, or it's not. Example: In an appreciating market, assuming a 0.5% per month, I can see not adjusting for 1-2 months, but after that, especially on a larger home, I can see making the time adjustment even if it is less than 6 months. However, if the appreciation is 1% over 6 months, why adjust at 8 months and not at 6 months?

It all depends on the market.

FYI, I haven't made a positive time adjustment in 2 years. I have made negative time adjustments, however. Hopefully, things will turn around in the market. Right now, I see values at 1999 levels for mid-range homes ($200-450).

Roger

 

[Ghost Rider]

I try to avoid time adjustments even when they are warrented (here come the flames) simply because underwriters hate to see them, and I ALWAYS get 500 phone calls when I put them in.

When I do use them, I adjust if it closed a month ago, or 11 months ago. My basic process is this......With the commercial record here in CT, I can check to see the % rise in home sales year over year - I use this as a baseline for what my adjustment will be - For example, if the sales show an increase of 5% year over year, I take the sales price of the comparable, and figure out 5% of it, then divide by 12 - gives me an approximate monthly adjustment. Multiply that by however many months ago the property sold, and bam, I'm there.......never had an underwriter or review appraiser question me......probably can't figure out all the math!!!!!!!!

 

[Pamela Crowley (Florida)]

Wellllll.... no way I'd be using any published figures for the overall market. I would give primary weight to the newest comps or work up a proof positive trend for that particular sub-market maybe.

We have sub-markets here that are rising in values, declining in values, and stable. Keeps my brain thumping along.

 

[Ghost Rider]

Sorry, see where that was vague........they do break it down town by town, and as I said, it is still a discretionary (sp?) adjustment for me. If I don't think it's warrented, I will not use it, and esometimes, even when it looks like it is, I will still avoid using them, just because they look so damn bad on appraisals.........across the board positive adjustments?? no one likes them!!!!!!!

 

[Tater Salad]

I think I see what Hal is saying: without a sale that took place yesterday, do we know that there was any appreciation in the past 6 months or just in the 2 months between the time of sale of the older comp and the more recent comps. Is that right, Hal?

I think I would do like Pam says and just weight the newer comps more in final rec.

Man, I wish you hadn't asked this question. It never fails, whenever somebody here has a question, it happens to me in the near future.

 

[Fred]

Hal,
Leaving the issue of whether time adjustments should be avoided altogether alone, just think of adjustments in general. You should not deliberately adjusting wrong. You are sytematically biasing your own appraisal - not for someone's personal interests - but it is self biasing just the same.

 

[hal380]

I think I see what Hal is saying: without a sale that took place yesterday, do we know that there was any appreciation in the past 6 months or just in the 2 months between the time of sale of the older comp and the more recent comps. Is that right, Hal?

Yes Carol this is what I am trying to say. And I too dislike time adjustments as I feel they could be subjective and are viewed with suspicion. With our current very active market I seldom need to uses sale beyond 6 months. However recently I was doing an unusual home in an exceedingly small town here in Ct and I did have two fairly recent sales, and 1 that was 8 months out. So I did a 2 month adjustment to bring that sale within the 6 month window.

If I had given 8 months of adjustment to the one sale and the other sales 0 months I feel I would have skewed the results. Maybe adjust them all to bring them to the effective date????

Regards and thanks to all who have responded

 

[Dave Brigle]

I have to agree with Pam. I have always disliked the "assume 5% average increase" then apply the math approach. Every sub-market is different, time of the year is a big factor. I try to avoid time adjustments unless it is a spread of many months. Being a review appraiser, I can say that time adjustments would catch my attention, are they reasonable?