USPAP Question About Value Estimate In Relation To Recent Sale

[residentialguy]

When the predominant market has those same motivations those motivations should not be adjusted for up, to meet an appraiser imposed ideal that MV means a house should get a higher price.

Wrong. If the sales of REOs are higher, then that sale would be adjusted lower.

 

[J Grant]

Wrong. If the sales of REOs are higher, then that sale would be adjusted lower.

What? We adjust sale prices if their sale terms or financing terms or concessions affected it's price, not because we think their prices should have been lower or higher.

 

[J Grant]

What's the typical height of Americans? Is there an external benchmark or is "typical' used in relationship to the group in question?
What's the typical exposure time for real estate? Is there an external benchmark or is "typical' used in relationship to the group in question?
You can frame the question in the same terms for virtually any type of group and the answer will always be related to the group in question and not to some arbitrary and immovable external point.

Exactly. And what is norm, or typical in one situation or market is not so in another. A coach looking for basketball players looks for tall.. 6 feet would be "short" for a basketball player, but tall for a regular metric. Gymnastic coaches look for athletes shorter or mid height because of body mechanics for the sport. A six foot height man is "tall" for a gymnast. Each sport has it's own relative level of comparison just as each house does.

Every property, unless it is unmarketable, has a set of typically motivated buyers for it, and a set of similar property sellers it competes with. The theory of appraisal is the typically motivated buyers for a property type compares it to similar properties, and sales end, a property competes with similar properties for the buyers. The resulting intersection of buyers and sellers for the properties result in the transactions which produce the range of prices.

After we identify typically motivated pool of buyers and sellers for a property, we consider how the market cycle and available financing/ rates ,S/D /other aspects affect prices. Where MV falls in all that is an opinion when providing an opinion of MV is the appraisal purpose. .

 

[residentialguy]

What? We adjust sale prices if their sale terms or financing terms or concessions affected it's price, not because we think their prices should have been lower or higher.

Exactly. If something in the conditions of the sale (as stated in the def of MV) affected the price...lower or higher....you adjust. It's not just about raising the price, as you claim I'm doing. It's about adjusting that sale to reflect a presumed sale of MV. If concessions made it sell higher, you adjust it down. If motivations caused the price to be higher or lower, you adjust it up or down to reflect a sale without that stimulus or stigma affecting the price. So if anything about that divorce sale, estate sale, REO sale, or sale of the house that is next to mommy is has affected the price, you adjust it to what typical Joe Schmo and Plain Jane would have agreed to have sold it for with conditions reflecting those stated in the definition of Market Value.

 

[Carnivore]

Reading this thread reminds me of other threads/topics where the participants begin to overthink the issue or problem to be solved and a bias is inserted into the problem.

Let me explain by giving you an example. Pick any property for discussion and create a few scenarios:

123 Happy Street, Smallville, anywhere USA

1. Man & Wife, two kids and a dog live at the house above. They decide to sell because they want to get a larger home. Market Value $100,000
2. Same family but he lost his job and they need to sell and move into an apartment of lower monthly cost. Market Value $
3. Same family but the couple is transferring to another state for new job Market Value $
4. Vacant House but prior occupant is #3 above and they already have moved away Market Value $
5. Same family but they have a 1st and 2nd mtg and can't afford the house anymore Market Value $
6. Vacant/occupied House but you as an appraiser do not know anything else other than its vacant/occupied Market Value $

Common Denominator:

a. Same effective date
b 1004 definition of value
c. Exposure time is the same
d. Same RE Company/Agent and they don't have it listed in MLS(in other words you don't know a price)

Is my premise correct? We appraise RE property without Bias

 

[J Grant]

Reading this thread reminds me of other threads/topics where the participants begin to overthink the issue or problem to be solved and a bias is inserted into the problem.

Let me explain by giving you an example. Pick any property for discussion and create a few scenarios:

123 Happy Street, Smallville, anywhere USA

1. Man & Wife, two kids and a dog live at the house above. They decide to sell because they want to get a larger home. Market Value $100,000
2. Same family but he lost his job and they need to sell and move into an apartment of lower monthly cost. Market Value $
3. Same family but the couple is transferring to another state for new job Market Value $
4. Vacant House but prior occupant is #3 above and they already have moved away Market Value $
5. Same family but they have a 1st and 2nd mtg and can't afford the house anymore Market Value $
6. Vacant/occupied House but you as an appraiser do not know anything else other than its vacant/occupied Market Value $

Common Denominator:

a. Same effective date
b 1004 definition of value
c. Exposure time is the same
d. Same RE Company/Agent and they don't have it listed in MLS(in other words you don't know a price)

Is my premise correct? We appraise RE property without Bias

Good example, except I'd use the term "price" affected or not affected rather than MV ( since they are comps- see last paragraph)

There are so many motivations of sellers and we cant' possibly know them all. We can't elect seller # 1 as THE MV seller, because the reality is that # 1-6, and a bunch more seller motivations are out there- banks holing REO, national builders, spec home builders, property flippers etc.

All of them have varying degrees of motivation but they share a common interest- they want and in most cases need to sell the property. A builder in that sense is not that much different than a bank - the bank has 100 REO houses in an area and builder has 100 houses- builder, though they have a fancy office and furnished models, needs to get them "off the books " same as a bank does/ So who is a MV seller ? All of them, as long as they list and or otherwise expose their properties to the open market and allow a reasonable marketing time. It's the TRANSACTION that might affect the price , not just the seller motivation. Because the seller's property once on the market is exposed to the universe of buyers for it and their motivations, and their motivations are also influenced by available financing , rates, supply of other similar properties etc. So it;s the buyer and seller meeting in the transaction that produce a sale and the terms may or may not be "perfect" MV terms, but that's the real world out there, only if any of the terms or financing affects price do we adjust. " Typically motivated" has a wide range within the buyer and seller pool of properties identified, do we adjust for every financial nuance, and personal and company and marital situation ?

I rarely adjust for seller or buyer motivation as an isolated component unless I see it very much affected price ( at that point I may not use it as a comp). I might weight the comp less if the price was somewhat affected but if it is very affected it's probably not a comp at that point.

We also use the MV definition terms more rigorously to vet our subject presumed/hypothetical sale than we do the comp sales, because we are appraising the subject, not the comps. The SUBJECT fake" sale in the SCA has to meet the MV terms 100%, not those of the comps. We are not appraising the comps, aka trying to get them to "market value". We are only adjusting their prices for terms of financing / concessions / atypical transaction terms such as buyer allows seller to remain in property 4 months after closing.. The purpose of it is to bring the comp prices to an equivalent unaffected level for financing/other terms, not to bring the price of very comp to "market value"

 

[DWiley]

And what problem do you have with giving an additional appraisal opinion??? What "line" is the appraiser crossing as if something bad is going to happen to the appraiser?

There is nothing inherently wrong with an appraiser providing a value opinion. That is why we are hired The complication arises from the fact that the 1004 is labeled as an Appraisal Report, not a Restricted Report. That means that support must be provided for appraisal opinions reported in that format. See SR 2-2(a)(viii).

So, for example, if one says that a prior sale was at below market value, then one has communicated an appraisal opinion via reference to a benchmark, and then one takes on the obligation of providing a summary of the analysis and data that supports that (retrospective) value opinion.

It is not the communication of a value opinion that is the issue. Rather, the issue is that in most (nearly all) such cases the statement is presented without the required supporting commentary.

 

[J Grant]

Typically motivated varies according to property type and market cycle, the great equalizer for the range of individual motivations being the reasonable exposure to open market, where, no matter the seller's individual situation or level of motivation the property meets teh univers of buyer pool for it and they react.

Imo the "weak link" and what needs to be clarified in a USPAP FAQ and a paper is what constitutes "undue stimulus", and at what point it occurs. since a MV caveat is price unaffected by undue stimulus. What is "undue" ? What does that mean for appraisal purpose? Res Guy actually dug up a definition (I forget the source) , and "undue stimulus" was described as undue pressure to act , Sounds pretty good to me, but then when is "undue pressure " typical of a market , or unique to a transaction, such as multiple bidding wars in a hot market or REO sales in a slow market?

 

[J Grant]

There is nothing inherently wrong with an appraiser providing a value opinion. That is why we are hired The complication arises from the fact that the 1004 is labeled as an Appraisal Report, not a Restricted Report. That means that support must be provided for appraisal opinions reported in that format. See Sr 2-2(a)(viii).
So, for example, if one says that a prior sale was at below market value, then one has communicated an appraisal opinion via reference to a benchmark, and then one takes on the obligation of providing a summary of the analysis and data that supports that (retrospective) value opinion.
It is not the communication of a value opinion that is the issue. Rather, the issue is that in most (nearly all) such cases the statement is presented without the required supporting commentary.

Agree about providing the support- in a report it is commentary , but in appraisal development it could be the analysis itself.. Because the other part of the question Res Guy asked "What line is the appraiser crossing as if something bad is going to the appraiser?"

It's also about what "bad" might happen to the Appraisal results and conclusions. Such as if appraiser's own MV internal benchmark to exclude REO sales because they "sold lower than MV" If they are lucky, nothing bad will happen to the appraiser, but something bad might happen within the appraisal,- he might over value a subject due to decision to exclude REO sales as comps.

While REO sales might deserve to be excluded as comps in an appraisal, it should be because of relevant to assignment market data and trends, not an unsupported benchmark pre determined MV claim extending to a universe of properties ....

Note, usually "nothing bad happens to the appraiser" with an unsupported MV claim such as prior sale sold below market value,) because most clients/UW / readers don't understand the appraiser just did a benchmark appraisal with that statement / even if a reviewer understands, they usually let it go because they are more interested in value opinion and other report content, and don't have the heart to ding an appraiser for it, but technically they could...fwiw.

 

[residentialguy]

The complication arises from the fact that the 1004 is labeled as an Appraisal Report, not a Restricted Report. That means that support must be provided for appraisal opinions reported in that format.See SR 2-2(a)(viii)

The appraisal report is intended for the subject, as the assignment clearly states. Inserting an opinion on another property for clarification does not jettison it as the intended assignment, thus is not applicable to the intent of SR 2-2(a)(viii).

Rather, the issue is that in most (nearly all) such cases the statement is presented without the required supporting commentary.

Obviously, any adjustment must be supported, whether it's a sale that sold below market value or a sale that sold lower due to lower quality.