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Chief Appraiser Blog |
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Recent PostsArchivesCategories« It Is What It Is! | Home | Market-Tested, Appraiser-Approved » Knowing What It’s NotBy Bill Waltenbaugh, SRA | March 2, 2010 Sometimes, before you can tell what something is, you first need to determine what it is not. It is common practice these days for lenders to request an appraiser to provide a couple listings in their reports. In fact, FHA requires appraisers to provide two listings when the market is identified as declining. As we all know, listings are not going to tell us what a property is worth but they can, with reasonable market exposure, assist us in estimating what the property isn't worth. This is valuable information! Especially in declining markets. Let me explain. When current listings are included and adjusted to the subject they provide a ceiling for the subject's value. Given the principle of substitution, when several similar homes are available, the one with the lowest price will attract the greatest demand. This is the primary concept on which the cost and sales comparison approaches to value are based. As such, similar listings (active and pending), are very beneficial in bracketing the top end of the subject's value. However, if listings bracket the top, what about the bottom? How do we bracket the lower end? In the twenty years I've been appraising, I've never seen as many distressed sales as there are these days. In many markets, they are literally in every neighborhood and price band. I'm not suggesting these transfers be gridded and adjusted on every assignment but they shouldn't be ignored either. Take some time and study these properties. If they best represent the subject, use them. If not, allow them to provide some insight as to the bottom of the market. Bracketing the subject, both qualitatively and quantitatively, with similar listings and recent distressed sales provides us with a ceiling and floor. After we know what the subject isn't worth, it's a lot easier to support and narrow our opinion on what it is actually worth. Topics: Uncategorized | 7 Comments » 7 Responses to “Knowing What It’s Not”Comments |
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March 2nd, 2010 at 12:41 pm
Bill,
I don't usually respond to broadcast emails and frankly, I rarely read them through.
That being said, I find your emails both informative and less "Corporate" than alot of the
stuff floating around. You strike me as a guy who knows what it's like in the trenches and
I just wanted to say that it is refreshing. Keep up the good work.
March 2nd, 2010 at 4:22 pm
If I give listings in an appraisal today and those listings are lowered tomorrow what have the listings accomplished.
March 2nd, 2010 at 4:52 pm
Good observations. I'm a broker and appraiser. I recently completed an appraisal for Appraiser Loft, assignment to determine market value, included 6 sales and 3 listings which were all pending (or short sale contingent) soon after coming to market. The listings were somewhat lower in list price than the comps. In our area it's important to understand the market: not enough inventory, quick sales, but low pricing. Lack of supply should increase prices given demand is high, but prices do not seem to be increasing. You could write an Econ thesis on the local market. For perspective I do a study of list price versus sale price on recent closed sales and include the data in the appraisal report for the reader. In this case the average sold was well over 100% of the list. So, no discount, probably a higher eventual close price than list. You cannot just assume that there is a discount,or even a sale at full price as we used to see.
March 3rd, 2010 at 3:33 am
I fully agree with your comments. I refrain from using "active" listings as much as possible, and even "back-up" listings. I feel the pending sales and most recent sales give the best analysis. This gives me a lower ceiling and a higher floor.
May 12th, 2010 at 9:48 am
One bad thing about being an appraiser is having to do business with dirt balls like you and unfortunae there are to many like you
May 12th, 2010 at 10:01 am
The way your market is completely opposite from mine is perfect proof lenders should not box an appraiser in a corner and demand listings with negative adjustments. Everyone needs to understand we know our markets let us appraise.If half the people that call asking for "quality assurance issues" would take time to read the reports before calling relentlessly I could cut 20 plus hours a week from my job.
May 12th, 2010 at 11:40 am
Sorry if I don’t remember but I’m not sure we ever met.
If we did and I acted like a “dirt ball”, I apologize.
I typically try to keep from being a “dirt ball” even when I don’t see eye to eye with others.
Sorry