Value reconsideration

[Jo Ann Meyer Stratton]

Two points, one of which has already been touched on. One closed sale does not indicate a change in the market. The other point is that any reconsideration or updated appraisal will require a trip to the subject, new photos, possibly some remeasuring, new effective date, new research, new conclusions based on current market date (which may mean your value stays the same as two months ago and not any changes what so ever). Regardless of what you decide to do follow Standard 1 of USPAP very carefully--and then decide how and if you want to proceed in reporting your conclusions (Standard 2).

 

[moh malekpour]

Jo Ann, you are right. One sale doesn’t change the market but when I am talking about the market, I am talking about general market not specific. It is a matter of supply, demand, low interest rates and some other factors that changes the market and when it does, it changes the general market which means sales of condos, single residential, units, Mobil homes and it is happening in some area now. My problem is that I don’t have enough recent sale now and I didn’t have then neither due to lack of inventory of condo units in the neighborhood. I was wondering how the listing that sold 10% percent above the market that possibly was based on the sales of 4-5 months ago was appraised. I searched the whole area at the time and there were not many condos around to sell. It is possible that it was appraised lower and the buyer paid the different or the appraiser made a time adjustments or used single-family homes as comparables. That is why I am saying that it is buyer and seller who change the market and appraiser has to go along accordingly. If this sale was in slow market or even in a normal market, I would be skeptical that something was wrong or may be there was an extra ordinary upgrade to the unit but I checked the listing and there was nothing special in there that the subject didn’t have as it was a second hand sale. Multi offer and sales above the listing price is very common at this time in this market. I used to check mark “stable” in my market analysis on URAR form and check mark 3-6 months time for sale. Now I check mark “ increasing’ and less that 30 days for the sale of a typical listing.
I may have to make another trip and visit the subject and comparables and take new photos and use my older comps and the new one and conclude my value based on new sale in the market with an explanation of market increase and demand for condos in the neighborhood. I may or may not do a time adjustment as I have limited condo sales to analize and I did not do it in my first report because my comps were not old and I did not have a high end value to rely on. My high end was the lisitng that I could not rely on it at that time. Or I may do a general market analysis and do my time adjustment based on market increase in general.

Thanks,
Moh

 

[moh malekpour]

Frederick, thank you for the hint. I have Microsoft excel and can easily get statistical results without touching a calculator. I can get standard deviation and other statistical goodies. My subject is located in Temecula Riverside that I am sure you are very well familiar whit that city as it is closer to you than to me; I am in Orange County and takes me a long time to get there. I am closer to Ocean side than to Temecula but I don’t cover San Diego County. As you know, Temecula has a lot of new residential constructions but has limited condo because land value used to be inexpensive there. It used to be an area that could offer affordable new large homes to people who couldn’t purchase their dream homes in San Diego, LA, or Orange County. Most residents in that area travel to different cities for work. The owner of my subject works in LA and drives a long distance every day. Real estate agents in that area put their listings in MRMLS or San Diego MLS or both. I am sure most San Diego appraisers specially those who cover the north county don’t mind to go there. There are cities in Riverside and San Bernardino that have limited condo or no condo at all. I had a drive by 1055 form that requires a range of value and age of condos and single family homes in the neighborhood. I checked my data sources and could not find the existence of any condo complex within the whole city. There were lots of mobile homes and manufacture built homes but no condo at all. In the area that land is inexpensive, there is low demand for condo construction. It appears that the demand and supply for condo in that area is changing and there would be more condo complexes in that area.

Thanks,
Moh

 

[Don Clark]

8)

Moh:

Lot's of good advice so I won,t be repetitive. However, to one and all........where does it say that you have to reinspect the subject property? This is a request for reconsideration of value, or so it seems. Since the closed sale was not closed at the time you did the appraisal, I would ask for a fee of 1/2 the original fee. I get these all the time, but rarely do they ask for me to consider a sale closed after the date of the original appraisal. They know that if they do, I will charge a new fee. Usually it is to do a reconsideration based on sales available as of the date of the original report. If that is the case, I will "consider" what they supply, and if necessary, I will look at the new "comps" and take photos. However, if the new "comps" are not going to make any difference, I state that in response to the request, and make no change in my opinion.

Don

 

[Larry Lyke]

Not to put too fine a point on the conversations as they've drifted away from the original post: the original appraisal was predicated on a Listing(s) to support Opinion of Value.

The subsequent reconsideration of value was generated as a result of that closing of the Listing, because the UW wants three closed sales used in the appraisal.

 

[Jo Ann Meyer Stratton]

And because the appraiser is now looking at new data (the recently closed sale) with a close of escrow since the original effective date of value, there would be a new effective date of the opinion of value. The safest action would be to take a look at the subject on a new effective date for that new effective date. Maybe the house burned down, maybe they painted it purple and green instead of the original planned white since the original date, maybe they built a 1,200 square foot house instead of a 1,600 square foot house if it was proposed or under construction or any other strange scenarios. New data that has occurred since the prior effective date--new effective date--information on the subject as of that new effective date. If the old effective date is still referred to--that comparable that has everyone excited is an active or pending listing, not a closed sale with a final meeting of minds and completion of transaction. And not acceptable to Fannie Mae as one of the first three comparables. For it to be acceptable as one of the first three comparables because it is a closed sael, then the subject needs a new observation and effective date!

 

[Tim Hicks (Texas)]

Jo Ann is correct. We can re-consider any value with new data and a new effective date. We work in fluctuating environment and that is why we have one effective date. Our crystal balls are not acceptable by FNMA, but hard data is. If they want us to consider any sale after the effective date of the appraisal, we have that option because it might influence our value opinon as of a new effective date. A seller can list his house for any price they want and they do all the time. Listings may or may not reflect the market correctly. As far as pendings go, have you ever utilized a pending sale only to find out later that the pending sale actually closed for significantly less? That is why FNMA wants us to only consider the most recent closed sales. As a side note, have you ever noticed an appraiser utilize sales over six months old to get a higher value when there are sales more recent that refelct lower values? What is your opinion of that practice?

 

[moh malekpour]

Don,
Nowhere it says that you have to reinspect the subject property when you reconsidering the value but my case is a little bit different. First, there was no “no closed sale” in my report. It was an active listing and I put it there to support my value as Larry noted. Second, I didn’t put any weight on that listing, as I was not sure that it would sell at that price. Now that the listing is a closed sale, they want me to reconsider the value due to that closed sale. To do that, I have to deal with the effective date. If I don’t change the effective date and use a sale with a closed date 2 month after effective date, I am saying that I had a psychic power and knew in advance about the date and sales price of that listing. It just doesn’t make sense. If I want to change the effective date to the date after the closing date of my new sale, I have to develop a new appraisal and to do so, I have to reinspect the subject and at least on a drive by base. Am I getting too obsessed or paranoid?

Moh

 

[Jo Ann Meyer Stratton]

Good for you Moh, I completely agree with your most recent posting.

 

[Joker]

It's been said twice before and I will agree with Bill and Jo Ann: One sale does not make the market. Besides, listings were used to support a value on the higher end of the range. Before jumping to conclusions that this one sale is an arms length transaction, try verifying the data with someone involved with the sale (I suggest the buyer). Also, Moh, are you relying solely on MLS for your data? I am not sure about in your area, but in this market, MLS can represent half of the actual market. Even if it includes 95%, there is still 5% of the market left unexplored. Sounds like the area is moving quickly, which is also good opportunity for FSBO's which are not included in MLS data. Perhaps there is more than the one sale you mentioned.
As for doing an update, have the original lender (client) release the appraisal to the new client and perform an update as per USPAP. With a new effective date, time adjustments may be supported where there were none before. I would be very cautious though, having only one sale to support my time adjustment factor (see opening statement).