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Weighing Adjusted Sale Prices

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Keith

Sophomore Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
I recently did a review where the adopted market value was equal to the average of the adjusted sale prices. The appraiser explained that he weighted all comps equally.

If we weigh each adjusted price at 0.333 percent each, isn't this the SAME as averaging? Or just as WRONG as averaging? It's looks like the same thing to me!

Secondly, how does weighing the comps with a multiplier show a better indication of "most probable price?"
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Semantics. :D Actually, weighting the comps is correct and if each comp is reasonably similar, giving each one the same weight in the final estimate of value is not averaging. If you want to give Comp 1 60% of consideration and Comps 2 and 3 20% each, then that's a mathmatical way of weighting the comps. It's valid, just as much as "oh, it's worth that much".

Roger
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Actually, where one would have, as an example, 4 good comps but no "True Comp" i.e. same size house in the same neighborhood built by the same builder, using the weighted adjusted sales price of all comps is, IMNSHO, the best refection of the the market that one can come up with.

If all comps are equal, they will be weighted the same in the calculation. If they are not the same, the comp with the least required gross adjustment with be given the greatest weight in the calculation. This is far from "averaging", a term I was told very early on in my training that is anathema to an appraiser.

I more often than not will use the weighted adjusted sales price of all comps as an indicator of the sales data approach in the URAR. Then, I will make my final opinion of value adjustments in the reconciliation based of such things as the Cost Approach, the non-adjustable items such as linkage, appearance and setting, etc.

If you are not really sure what the Weighted Adjusted Sales Price is all about, I would suggest you do some studying on this as it is an extremely usefully tool in forming an opinion of value. We alamode used have a built-in calculation that not only calculates the weighted adjusted sales price but the orders the comps in the sales grid from most weight (i.e. least adjustment) to least weight.
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
If you used weighted averaging in lieu of extracting adjustments form the market you are not appraising you are an AVM operator. My forms software program has four built in options, but one of them is left up to the appraiser as opposed to the other three that are for AVM operators. One makes a size adjustment using $75 per square foot from out of the blue, one method uses something like 2/3rd of the average price per square foot and one has some other algorithm. If the machine makes the adjustment the machine is an AVM. If the AVM operator does not come up with the program algorithm answer the checker will warn the operator to CYA in the addenda.
PS: Using equal weighted averages is the same as averaging. How can it not be if you come up with the same number?

Keith: Just for fun, do you have the data from that review available like GLA, actual prices, and adjusted prices handy? I would like to do something with those numbers just to illustrate a point. Same for any one esle, reach in your file and give me that information from one of your reports.
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
No one ever told me that "averaging" is a bad thing.

If you have a range of adjusted values (almost always the case on my appraisals), you need some method of arriving at a specific value. If you choose not to average, I have no problem with that. IMHO, it would be wrong to review someone else's work and take a negative inference of the appriaser becuase they "averaged" the adjusted values, no matter what they called it.

Richard, what the heck is linkage? I have never heard of that one either.

My mentor taught me that once I had an adjusted value range it was up to me to place the subject in that range, and I could do it any way I wanted, there is no "right" or "wrong" way to do it. I have never seen anything in a text book, or article, etc, that says averaging the adjusted values is wrong or inferior to any other method. If such a tect or article exists, I would like to read it.

I now have a client that has a hard and fast rule, the subject value must be equal or less than at least 2 of the adjusted comps (it is ok to use 4 or more comps, but at least 2 must "support" the final value conclusion). They don't argue or question my adjustments very often, but they check the "bottom" line on my sales grid every time. This seems odd to me, but I have learned to just accept it and make the adjustments to keep them happy.
 

Bobby Bucks

Elite Member
Joined
Jan 27, 2002
Professional Status
Real Estate Agent or Broker
State
North Dakota
Lord William, my hero, mentor and goat roping Texican told me that for appraisal purposes it is best to eliminate the word "average" from your vocabulary and replace it with "mean".
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Phil:

Linkage is a term we use to describe the subject's proximation to schools, services, shopping, business, employment, etc. Here is a notation from a recent appraisal from the neighborhood factors that may better show what I mean:

SUBJECT IS LOCATED WITHIN THE LAKES OF THE NORTH RESIDENTIAL/RECREATIONAL DEVELOPMENT, 13 MILES W S/W OF GAYLORD, THE AREA'S ECONOMIC/BUSINESS CENTER. LINKAGE TO SHOPPING/SCHOOLS/EMPLOYMENT IS SLIGHTLY BELOW AVERAGE BUT DOES NOT INHIBIT NORMAL MARKETABILITY. ACCESS TO MAJOR ROAD/HIGHWAYS IS ACCEPTABLE IN THE MARKET.

If the subject were located N/E of Gaylord where one had to transverse or skirt part of the 93,000 acre Pigeon River Forest on gravel roads, that linkage could have an effect on marketability.

Linkage generally determines if I use rural or suburban. If the linkage is acceptable and the distance necessary to travel for normal shopping, services, etc. does not measurably effect value, I call the location suburban. Only when distance begins to effect value do I in fact call it rural.
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Thanks Richard, I try to learn something new every day. In my area, linkage is not an issue.

Everywhere I go has shopping and services within a mile or 2. Around here, people pay extra to be far away from civilization!!

If Bobby Bucks says don't use the word "average", that is good enough for me.
 

Wally Jones

Senior Member
Joined
Jan 23, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Phil said: "I have never seen anything in a text book, or article, etc, that says averaging the adjusted values is wrong or inferior to any other method. If such a tect or article exists, I would like to read it."

Here ya go:

"In final reconciliation the different value estimates are not averaged. No mechanical formula is used to select one indication over the others; rather, the appraiser relies on the application of appraisal judgment and experience. The appraiser's judgment, experience, and proper application of appraisal techniques are critical in final reconciliation." - Appraising Residential Properties, Third Edition, Appraisal Institute, pg. 388.


"The reconciliation process that leads to the appraiser's opinion of market value is an ongoing process throughout the appraiser's analysis. In the final reconciliation, the appraiser must reconcile the reasonableness and reliability of each applicable approach to value and the reasonableness and validity of the indicated values and the available data, and then must select and report the approach or approaches that were given the most weight. The final reconciliation must never be an averaging technique." - Fannie Mae Selling Guide, Part XI, 409.

And, of course, even if it weren't in any texts, "cause Bobby sez so" should be good enough for us mortals! :mrgreen:
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Wally:
Those 3rd edition and FNMA quotes are great with one little problem; What is the definition of market value those rules are trying to answer? Read the definition of market value on the FNMA form. It says "most probable price." You don't find the most probable price by averaging (usually depending), reconciling, quessing, using judgment, most similar to the comp, linkage, weighted average, out of the blue $/sf adjustments, or any other method of avoiding the problem. Most probable has but one meaning and that is the price with the highest degree of probability. It can't mean anything else and there is only way to solve the problem and it ain't none of the above.
 
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