Underappraisal Disparities and Time Adjustments to Comparable Sales Prices in Mortgage Appraisals

[Joe Flacco]

I am working on an older house with small acreage rural setting. I just searched the entire county for the past year had it gave me ONE comp...one outside of the city subdivisions. I checked sales for the previous year (actually 11 months prior) and got 8 so I went back another six months and got 18 ... 1 in 12 months vs 24 in the previous 17 months. Can I support a drop in prices? No. Can I support an increase? No. I have to pull up the city sales in that county to estimate perhaps an increase of 3% during the previous 11 months. Is that really meaningful?

You could depending on what supply and demand is looking like today versus the 12-24 and 24-36 month periods and what the trend was then. If you have no change in the last 12 months then the trend from 24-36 to 12-24 continues.

Market conditions analysis should put more emphasis on the study supply and demand more than just trying to calculate rate of change.

 

[Joe Flacco]

Majority was wrong because not looking at supply and demand.

 

[Sadie]

And they included in stats based on minority ownership. Are there really appraiser's making chaning market conditions adjustments when warranted unless the borrower is a minority...I'm skeptical to say the least.

Because there is a box to check for the borrower's race on page 1, right?

 

[George Hatch]

The way I heard it (a few months back) appraisal reports with mkt conditions adjustments are far more prevalent when there's a sale than when the assignment involves a refi. To the point where some of the appraisers are doing differently depending on whether or not there's a sale.

I would characterize that as a rumor at this point, so we should probably take that tidbit with a pinch of salt. But if true that might contribute to the recent focus on market conditions adjustments. If an appraiser is marking "increasing" for the pricing trends in the neighborhood section but not making adjustments in the SC that might be a problem unless there's a good explanation for such.

 

[OSU Beavers]

What the graphic shows is that the national year-over-year house price growth was around 5% year but the reason that only 10-15% of appraisals had time adjustments during the 2015-2020 period is because prices were not increasing in majority of the country during that time frame. Prices increased rapidly throughout most of the country during the 2021-2022 pandemic years.

What it shows is that prices were increasing at a not insignificant rate in 10-15% of the country. It's not all property prices were increasing 5% per year but only 10%-15% of appraisals chose to make adjustments, which is what they are trying to imply.

1) Real estate is local. Your neighborhood my vary.
2) Hindsight is 20/20, especially when MLS stats are 1 to 13 months behind.

 

[Joe Flacco]

The way I heard it (a few months back) appraisal reports with mkt conditions adjustments are far more prevalent when there's a sale than when the assignment involves a refi. To the point where some of the appraisers are doing differently depending on whether or not there's a sale.

I would characterize that as a rumor at this point, so we should probably take that tidbit with a pinch of salt. But if true that might contribute to the recent focus on market conditions adjustments. If an appraiser is marking "increasing" for the pricing trends in the neighborhood section but not making adjustments in the SC that might be a problem unless there's a good explanation for such.

Sometimes you would check the increasing value box and not have to make any adjustments. It might be 50/50 if necessary mainly based on the time of year. Seasonality should be common knowledge and shouldn't have to be explained to people involved with residential real estate.

 

[shrubberyvaluation]

The way I heard it (a few months back) appraisal reports with mkt conditions adjustments are far more prevalent when there's a sale than when the assignment involves a refi. To the point where some of the appraisers are doing differently depending on whether or not there's a sale.

I would characterize that as a rumor at this point, so we should probably take that tidbit with a pinch of salt. But if true that might contribute to the recent focus on market conditions adjustments. If an appraiser is marking "increasing" for the pricing trends in the neighborhood section but not making adjustments in the SC that might be a problem unless there's a good explanation for such.

I just marked one increasing and made no adjustments for market conditions. But also all of my comps sold within 3 weeks of the effective date.

 

[Fernando]

View attachment 94173

Majority was wrong because not looking at supply and demand.

Most Appraisers are terrible forecasters of future real estate values. They analyze past data.

 

[George Hatch]

I always look at sale/list ratios on my comps and try to include a pending sale so that my (consummated) sale date range exceeds my effective date. If I can't find a pending then I usually use an active instead.

 

[bsilver]

I reviewed around thirty appraisals this year. They weren't purchase or refi valuations, they were for government program documentation. Narratives but with form sections in many. Bottom line these were prepared by folks claiming extensive knowledge and experience. They were embarrassingly replete with errors and poor methodology. But to the topic at hand, in particular, the market condition analyses were just simply absent. I could be preaching to the choir here. These reports I was looking at were prepared in 2022 and 2023. The property types were infrequently transferred. This resulted in, among other things, a long research time period. Many had sales from 2018 to 2023. This a rather unusual handful of years as we all recall, in terms of the value of the dollar, real property transfer frequencies, etc.

So, there would be like five comps usually. Spread all over time. Sizes were also pretty wide differentials. So the per acre prices were relatively tight, lets say. But The older sales were much smaller than the more recent ones. The entire market conditions analysis would be a sentence that said the collected data showed no indication for market condiution adjustment. Or something along those lines. I mean the dollar had fallen like 17% or something between some of these sales, and you could eyeball that sizes differences were muting the time differential, at least there should have been a suspicion! Saw this in report after report. I kept asking myself if maybe they didn't mention this in preparation for the license tests any longer.

I can understand if you've real comparable data, real close geographically, and real close sale prices, all real recent, probably ok with saying no market con adjust. But if you know there's inflation galore, your sales are from three four years apart, and prices are close but there are some differentials, do you stop there or do you do some market condition analysis. What sort of analysis is considered adequate support to apply an adjustment, how much is enough to reject it. What data sources do you study? I don't know if this article has hit on something, but i definitely noticed this trend this year.