Weighted Averages

[xm39hnu]

Originally posted by Austin said...
USPAP requires a market analysis but I bet no one that has posted on this thread has even complied.

You lose the bet. I've posted to this thread, and I comply. Inferred level A analysis or level B, I comply. Again, I ain't gonna do a level C or better for any $300 - $500 fee. (I'd have to rustle up a good CG to ride herd on that Level C, anyway.)

If a buyer pays $100,000 for a new home he is inferring by his actions that he perceives a stable economy and neighborhood into the foreseeable future.

He's implying, not inferring. The two are not interchangeable. And notwithstanding the assault on proper grammar, I disagree with the assertion. He's implying merely that he needs a house, and is darn glad he got one that cheap. And what's that dumb appraiser mean by saying it's only worth $97,000, anyway? I know darn well I got it for $3,000 less than they asked! I think you attribute more skill to the average buyer than that of which he is capable. (Damned if I'll end a sentence with a prepositiion after having sniped at your grammar )

Mike passed that pesky instrutor's exam??? Sorry I missed the post.

YAY MIKE!! Congratulations!

 

[Austin]

Jim:
I misspoke and wrote he instead of we referring to appraisers infer. I caught that after I had posted.
Second: If you attribute such little regard for the skill of the average buyer to make rational buying decisions then what is the point about arguing over averaging? Why don’t we just have a system of numbers of 1-10 based on how we feel about the final result? Better bad grammar than poor logical consistency.
Is this discussion turning into another case of I lost the argument so I will go after my opponent and destroy him. If it doesn't it will be the first time on record. That is what you get for trying to share ideas on the subject.

PS: If you think my grammar is bad, you should see my golf score. Average my golf score with my grammar grade and that just proves how off base I am wrong on appraising.

 

[Mike Garrett RAA]

Yes, God is there and he is leaning toward the Republicans! Thou shall not lie, thou shall not kill (abortion), thou shall vote republican :rofl: :rofl: :rofl:

I think I can comprehend what Austin said...I just don't care to. My approach is simplistic because I am dealing newbies (registered appraisers basic 75 hours class) therefore, I say..."thou should not average, consider all the factors and opine a value.

 

[xm39hnu]

Austin,
1) Nice save! Which...
2) makes up for your bad grammar, high golf score, and poor logic. The fallacy is false cause, or post hoc, propter hoc just to confuse Mike. You say, "He bought a house, therefore I reason that he thunk it through." I say, "He bought a house. Now, the only way I'll know why he bought it is to call and ask." You do inferential data verification in your neck of the woods?

Mike, you say "opine" a value. Question: If you ask God's help in determining that value, is it then "divined?"

 

[Mike Garrett RAA]

Depends....some questions are never answered, along with some prayers too. Example....."Lord I want to win the Powerball Lottery, bless me with Your goodness!? Didn't work! :rainfro:

 

[xm39hnu]

Sure it did! God's just looking out for you. If you'd won that Powerball, you'd be inundated with calls from charities, opportunities for "really good" investments, and other stuff that would interfere with fishing. Sometimes the answer is "No."

 

[Fred]

Alex,

Steven, You're absolutley correct when you say the adjustments are supposed to equalize the comps. And if they equalize them perfectly, you'd have no value range, just the same indicated value for every comp.

Yes, and to give them equal weight you’d be averaging. BTW, there are stlyles of adjusting that will accomplish that.

I am a USPAP instructor. But when I taught basic appraisal classes I did impart the mantra "Thou shall not average."

At least you didn't teach it as Std 11

I did that because I wanted my students to think about why certain comps are better indicators than others and apply some reasoning to their reconciliation

Maybe this hasn’t been clearly communicated. I don’t’ think anyone is advocating rote, thoughtless un-weighted-averaging on every appraisal. That said, I have seen rote weighted-average schemes presented as a one-size-fits-all solution. What's the difference? Anything "rote" is wrong - weighted or not - and to say "never average" is just another "rote" standard.

In short, averaging is only reasonable where the comps are equally similar (either before-or-after adjusting) to subject.

Pop back to Karim’s three hypothetical prices
107, 108, 93
Earlier, what I said was that if subject is like sale 3, in my view that is a one-comp appraisal. To me, sales 1 and 2 are form-fill and probably only indicate that subject's probable price is less than 107 - and nothing more. If the adjustment process is not going to "equalize" the "comps" as value indicators because they are too disparite to begin with, then why bother adjusting the daylights out of them just to abandon the effort in reconciliation by giving it the "no weight" it deserved before you started. Maybe that's why averaging seems more viable to me than others.
------------
Let’s add a wrinkle to Karim's sales set. Suppose that sale 3 and subject are in the part of the neighborhood that fronts on the highway and sales 1 and 2 are and in the interior part of the neighborhood; and location is the only observable physical differences. Let’s say the appraiser “pairs” sale 3 versus 1 and 3 versus 2:
93-107= -14 and 93-108= -15, and pardon my “averaging” to get the “location adjustment” of -14.5 (although we could call it the “median”).
Thus, the “location-adjusted” prices are
92.5, 93.5, 93

I am wondering if that is a reasonable adjustment process after which some “weight” might be given to sales 1 and 2 in reconciliation, as long as one doesn't "average?"

 

[Austin]

:usa:

 

[Caterina Platt]

Originally posted by Steven Santora@Aug 18 2004, 07:55 AM
Pop back to Karim’s three hypothetical prices
107, 108, 93
Earlier, what I said was that if subject is like sale 3, in my view that is a one-comp appraisal. To me, sales 1 and 2 are form-fill and probably only indicate that subject's probable price is less than 107 - and nothing more. If the adjustment process is not going to "equalize" the "comps" as value indicators because they are too disparite to begin with, then why bother adjusting the daylights out of them just to abandon the effort in reconciliation by giving it the "no weight" it deserved before you started. Maybe that's why averaging seems viable to me than others.
------------
Let’s add a wrinkle to Karim's sales set. Suppose that sale 3 and subject are in the part of the neighborhood that fronts on the highway and sales 2 and 3 are and in the interior part of the neighborhood; and location is the only observable physical differences. Let’s say the appraiser “pairs” sale 3 versus 1 and 3 versus 2:
93-107=14 and 93-108=15, and pardon my “averaging” to get the “location adjustment” of 14.5 (although we could call it the “median”).
Thus, the “location-adjusted” prices are
92.5, 93.5, 93

Steven's example of the 'why there is such a differential' is where the appraiser is truly earning his/her fee. The times when one can find a plausible and supportable explanation for a differential in adjusted values just makes the final product (your opinion of value) that much more solid.

As others have stated, there are often times when we don't get to see the insides of these comparables and the MLS data does not tell the whole story. Further, there are going to be personal and human circumstances involved with every sale. Sometimes atypical motivations affect these sales comparables and we cannot get to the real bottom line of truth no matter how much we try to verify with the agents.

Take your 107, 108 and 93 example. Your subject looks from the exterior much more like Sale 3. There are no locational or view problems that you can determine from the drive by inspect. But- a phone call to the agent reveals that Sale 3 was a result of divorce, or that all three bedrooms were painted garish colors and the tile in the master bath was purple. Hooray! In this case, you found the real reason Sale 3 was in the dumpster and can base your final opinion accordingly. There are going to be days when the real reason cannot be determined. Maybe there isn't a real reason other than it's an imperfect market? Now what do you do???

You break out the darts!!! (there ya go Greg!) No, honestly. At this point, weighted averaging, your knowledge of current market factors either upward or downward, considering the time frame of each sale if there's a seasonal factor in your area.....you have to make an educated estimate. This is where the 'art' comes into play. Sorry Austin. No tea leaves, no tarot cards, no studying of the constellations. Simply an industry professional's opinion at this point. It could be highly accurate, or off just a tad. I think Bobby Bucks was most honest with his answer- your final conclusion may be affected by the client's intended use. :lol:

There are cases when, in my opinion, both of your mentors' methods are correct - just not at the same time. If you cannot discern a true difference or value affecting factor between your 3 sales (or 4+ sales) beyond what you've already considered in your adjustments, perhaps wieghted averaging is going to be your most reliable method. When the one single sale is most representative of your subject, be it because of visual appeal, similar floorplan or most alike in market circumstances (both are estate sales?), then you'll go with that method.

 

[Otis Key]

Thanks Cat - I was about to do the same thing.

Kalum - One factor that I noticed that you did not include in your post was what the net and gross adjustments were. What are the similarities? What are the differences?

You have nice adjusted values, but did you have 50% gross adjustments, which then had 1% net?

Average - never

Weighted average - yes, but it needs to be "massaged" with reasoning.