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using active and pending to determine value

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Renee Borne

Thread Starter
Junior Member
Joined
Jan 5, 2005
Professional Status
Licensed Appraiser
State
Arizona
Now I am totally confused. I was taught that you need 3 closed sales. if their old make adjustments and support with data. Now I am reading that to use listings to determine adjustments in a downward moving market. What?

I need some one to school me. I speak with other appraisers and some say agents and home owners set listing prices and market value may not even be in the equation. Other appraisers say that listings can help with the adjustments of sale price and the downward trend.

Does anyone know of a good website or book that can explain this. I think you can use listing and pendings to support value but determine? Say: My neighbor that has a model match could list his house at $375 because he owns $375 and I could list my house for $350 because I think my house is worth that much and then another neighbor lists house for $325 because they need a quick sale. The agents are not devulging this info so what listings would you use to support value. All DOM: 40 days.

Thanks for you help. Confused in Cally
 

incognito

Senior Member
Joined
Jul 14, 2005
Professional Status
Certified General Appraiser
State
Florida
Rene,

The principle of substitution. Theory goes that no rational buyer will pay more for one home than he or she would for a functionally equivalent similar home, similar in location, site, and physical description.

In a declining market, no rational buyer is going to pay the same price Joe Buyer did 3 month ago (your comparable sales) than he could buy the same house today, which is available for sale (listed) at a lower price.

In Florida, nearly all markets are declining, and nearly ALL lenders are requiring 2 sales within 3 months, and at least 2 listings and 1 pending sale, if available, gridded and adjusted. This way, the underwriters and reviewers can understand what is available for sale that the buyer could have bought, instead of the subject (if it is a sale).

If your gridded, adjusted listings come in lower than your gridded, adjusted comparables, you got some 'splaining" to do!

I generally apply an average sale price to list price adjustment to the listing, along with the other adjustments, to give an indication of market value.

Some will argue this is not good practice because not all properties and market areas have the same ratios. True! But my MLS allows me to create a report within any specific market area, price tier, and property type, where I can get a good, accurate indication of the proper ratio.

Sure, just like cherry picking the highest comparables, an appraiser could also choose the highest listings. Some argue this is the weakness of presenting listings. I always choose the lowest 3 listings which are truly comparable, and state so.

Lastly, listing analysis can be a good tool for analyzing market declines, when trying to estimate monthly decline percentages, for your negative time adjustments.

Was that what you were looking for?
 

David Wimpelberg

Moderator
Staff member
Moderator
Joined
Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
Now I am totally confused. I was taught that you need 3 closed sales.

USPAP does not require any particular number of sales in valuing a property. Some clients, especially lenders, may have specific requirements regarding the number of sales used.

Does anyone know of a good website or book that can explain this. I think you can use listing and pendings to support value but determine?

Better introductory appraisal texts, such as "The Appraisal of Real Estate," specifically mention using listings in valuing the subject property.

Closed sales, pending sales, and listings are all necessary pieces of market data.
 

jakeboeger

Member
Joined
May 12, 2005
Professional Status
Licensed Appraiser
State
California
Now I am totally confused. I was taught that you need 3 closed sales. if their old make adjustments and support with data. Now I am reading that to use listings to determine adjustments in a downward moving market. What?

Wouldnt the active listings be good support? As far as 3 closed sales goes, it depends on the indended use/user of the appraisal.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
Yes, use a minimum of 3 closed sales. Use listings and/or pendings to demonstrate where the market is going. To determine adjustments, ya gotta use some good judgment, just like you do when you select your closed sales. Use as many listings as you need to develope how far down the market has gone. If you can do it with one listing and honestly believe that your adjusted indicated value demonstrates how much to adjust, then use one listing. If you need 3 or 5, use 3 or 5 and explain how you came up with an adjustment. Some say you can use a spread sheet. I have never done that but if that looks better to you, by all means use a spread sheet.
 

Abzntminded

Sophomore Member
Joined
Nov 21, 2007
Professional Status
Licensed Appraiser
State
California
Rene,

The principle of substitution. Theory goes that no rational buyer will pay more for one home than he or she would for a functionally equivalent similar home, similar in location, site, and physical description.

In a declining market, no rational buyer is going to pay the same price Joe Buyer did 3 month ago (your comparable sales) than he could buy the same house today, which is available for sale (listed) at a lower price.

In Florida, nearly all markets are declining, and nearly ALL lenders are requiring 2 sales within 3 months, and at least 2 listings and 1 pending sale, if available, gridded and adjusted. This way, the underwriters and reviewers can understand what is available for sale that the buyer could have bought, instead of the subject (if it is a sale).

If your gridded, adjusted listings come in lower than your gridded, adjusted comparables, you got some 'splaining" to do!

I generally apply an average sale price to list price adjustment to the listing, along with the other adjustments, to give an indication of market value.

Some will argue this is not good practice because not all properties and market areas have the same ratios. True! But my MLS allows me to create a report within any specific market area, price tier, and property type, where I can get a good, accurate indication of the proper ratio.

Sure, just like cherry picking the highest comparables, an appraiser could also choose the highest listings. Some argue this is the weakness of presenting listings. I always choose the lowest 3 listings which are truly comparable, and state so.

Lastly, listing analysis can be a good tool for analyzing market declines, when trying to estimate monthly decline percentages, for your negative time adjustments.

Was that what you were looking for?


This is by far the best explanation of the value of using listings in the current market that I've read here or anywhere.

The only thing is, I read another post that was talking about properties listed especially low in order to spark a bidding war. Since it was in Ca I figured they must be mistaken, I couldn't imagine there currently being enough buyers to do this. Then I took a CE course from an instructor who likes to scoop up small SFR's as investment properties. He insisted that's the new thing, the "foreclosure bus tour"; every foreclosed property he's made an offer on this last month had a dozen other offers. Then today the local paper had a story on the F-bus.

So now I'm no longer sure that listings will actually show what Joe Buyer can currently purchase.
 

Renee Borne

Thread Starter
Junior Member
Joined
Jan 5, 2005
Professional Status
Licensed Appraiser
State
Arizona
I saw the same story about the bus. I also went and checked out an auction. The problem I have with listings is that the agent is setting the price and they may be under pressure by the seller because the want a certain price or I have heard of agents listing for a low price to move it and spend as little as time and money marketing. I also think that if the property is listed for a long time does that show that the agent was way off or could it be other factors? I do use data to estimate my monthly decline but I do not determine value using listings.
 

Abzntminded

Sophomore Member
Joined
Nov 21, 2007
Professional Status
Licensed Appraiser
State
California
I think what you describe as the problem with listings is the same variables that happen with closed sales as well (i.e. a lazy agent might end up with a low sale but, now that it's closed, that low sale is setting the market). And then the longer the exposure without a sale, the more plausible it is that the price is too high.

I've used listings recently as Incognito described above for the reasons he sited, as a cap on the upper limit of value.

But more recently I've seen REO's listed much lower than private seller listings and these I'll avoid as being artificially low. If these become pendings (and I can get an acurate sales price from the listing agent) then they might become the upper limit (after adjustments for condition, if necessary).
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
Devils advocate question. If one makes adjustments for the listing status of the listings placed on the grid, haven't you just done a drive-by appraisal on that listing? After all, it is not a sale, it is not a contract, and the appraiser is using their knowledge to assign a potential contract price to the listing, why is that not a drive-by appraisal of that listing? Not only are the clients asking for comp checks on the subjects, but now they want drive-by values on the listings (when they demand adjustments for the listing only status). m2:
 

Joe Booth

Junior Member
Joined
Oct 16, 2003
Professional Status
Certified Residential Appraiser
State
California
Geez,

So many post about Active listings on the grid. First of all, and I just posted this on another thread, Do NOT use short sale listings!!! They are bogus. They low ball hoping to get a bidding war knowing that the bank will not accept the low end of the range. I've seen listings for nominal amounts. Interview, call, Interview, get to know, Interigate the Listing Agent. Pending sales... same thing. They WILL tell you the contract price and concessions if you are doing an REO property appraisal if you ask them the right way. Principle of Subsitution does apply in this declining market. But be SURE you have your facts STRAIGHT. Pending and active listings.... It is imperitive that you interview the Agent and get the real story!
 
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