Property Selection for Analysis & Statistics
The importance of proper property selection and ‘statistics’ in appraisals…
Appraisers, I would like to direct you to info written by Mr. George Dell in his latest blog post circulated on July 3, 2019. This is one of the best explanations I’ve seen him write on this topic, of how to select and analyze properties when doing appraisals, and why correct ‘statistics’ presented in reports is important.
I first became aware of the importance of proper property selection and ‘statistics’ when I attended an appraiser’s training class in 2008 in Las Vegas. The primary speakers were Mr. David Braun and Mr. Patrick Egger. Both of their presentations gave cogent reasons why statistics and property selection is critical in our work. After returning home, I began including charts and graphs in my reports, and still do. Over the years, I have attended other topical classes concerning ‘statistics’ put on by the Appraisal Institute, and by George Dell.
It is my view that for decades, appraisers have been lead down a primrose path covered and lined with thorns by entities which did not fully understand statistical procedures and correct reporting. These have negatively impacted how appraisers have observed, analyzed and used properties, and other data, in appraisals.
For decades we’ve been told to ‘just select all the properties in the neighborhood’ and “infer” from those how to apply adjustments and other details to comps to derive the subject’s Opinion of Market Value, and maybe even use them as comparables in reports.
The ‘forms’ we have been directed to use also incorrectly “infer” that this process is appropriate.
Then in 2011/2012, if you had been paying attention, the agencies who designed an awful, poorly crafted additional mandated ‘statistical’ reporting form finally realized that what they had been promoting for decades earlier was junk science. Talk about confusion among appraisers! It continues to this day.
What George teaches is to carefully examine and consider the subject’s characteristics, and then select properties to use as comparables which closely mimic the subject’s features and amenities. When you do that, you don’t have to ‘infer’ anything.
Instead, you make direct comparisons to appropriate properties that buyers probably would consider replacements for the subject when shopping for a new home.
This is the direct evidence you need and should use to make a valuation decision. And to demonstrate and visually present ‘statistics’ relating to properties used in reports.
When you do this properly, using “appropriate” properties (that word is in the Dodd-Frank law), it is extremely difficult for anyone to improperly challenge your methodology and value decision.
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Even when WE clearly define our search parameters (neighborhood, distance, design style, age, GLA variance, bedroom variance, attached, detached, age restrictions, in a PUD, not in a PUD, etc.), we are monitored, supervised, and overseen by a bunch of idiots who don’t understand the process.
In every one of my reports, regardless if I come in at value or not, I provide guidance to my client relating to any future post submittal value reconsideration requests. In short, after again providing my narrowed search parameters, if a reconsideration of value (ROV) is requested, I simply ask for confirmation that my report was read in its entirety, and to indicate as such during the ROV request. In working on three such requests this week, and perhaps a 1,000 + over my career, I have never ever received an ROV request indicating my appraisal was read in its entirety.
Yes people, this blog has a great message, but if our clients and other 3rd parties never read our reports nor understand what it is we do, then while useful if ever in front of the state board, our detailed analysis is often meaningless in saving us time in the future (ROV requests).
Seek the truth.
When you select the most comparable comparables, FANNIE will send you a letter saying that it is improbable that “all” of the sales in the neighborhood are the same condition. Think about that! Are we getting dinged for selecting the comparables that are in the same condition as the subject? Are they implying we are making up condition ratings? Then their algorithm will send you “comparables” that are NOTHING like the subject and ask why you didn’t use them. The general public has NO idea. I have requested the data from clients (AMCs) and been told “Just make a statement about them – it is in your scope of work”. WOW! Withhold the data from us, spoon feed it back and then chastise. Nice process. I know – don’t work for AMCs. I would have 1 client.
Your 100% correct Bryan. Big brother does not read the report to identify whether they agree or disagree with your parameters, but rather it’s believed they use the census tract to pull sales (perhaps not comps) that you may or may not have used. A different system and practice with varying results, imagine that.
If you ever want to have some appraiser fun, ask a buyers agent why their client chose this particular census tract to buy a home in. Better yet, start throwing around C’s & Q’s (UAD formatting), and .1 bathrooms and laugh inside at their facial distortions while they try to figure out what the hell your talking about.
Seek the truth.
In my experience interviewing agents and buyers, I’ve found they are unsure either they to buy for price and due some customizing while fixing, or buy a showcase. They are uncertain of which neighborhood. The middle school kids parents may want to center around one of several good schools. These choices will range about several census tracts, and many differences, buying a home on the golf course may be the equal of buying a house with a pool. The ideal Agent wants to narrow the script, but knows that price range prevails.
Big brother doesn’t dictate our work you”The Appraiser” writes well or doesn’t
There are dozens to perhaps hundreds of lenders whom engage in direct assignment practice and refuse to use amc’s. You just don’t know about them, because you’re too busy working discounts in order to keep the amc employees in a job.
Between the VA (12 assignment past 30 days / $600), and a few direct lenders, I’m blessed when it comes to my clients, and with the garbage appraisals I’ve reviewed for them, I think there blessed to have me. If you don’t believe in yourself, nor have the moral backbone (just saying), to call it like it is, then this profession is not for you. That being said, even direct lenders and the VA system are not immune to problems THEY should clear before it ever hits my desk.
Seek the truth.
Don’t be too complacent with the VA Appraisal gravy train lasting forever Bill. Would almost guarantee they are going to embrace AVM’s at some point just like everyone else has.
VA could VERY EASILY alter their appraiser selection criteria in the future. ESPECIALLY in San Diego County which has a very small 2.7% Zillow Zestimate Median Error.
Zillow ranks San Diego County as a 4 star market for accuracy. An artificial intelligence algorithm with access to over 1 million property transactions is not going to be easy to compete against. Be prepared for changes.
Perhaps your right SB. I don’t know the numbers, but shooting from the hip I would say that 80% of the VA loans I do are 100% financing, so a “small 2.7% Zillow Zestimate median error”, would perhaps mean many would be underwater 2.7% on day one.
As it relates to as you say San Diego being a 4 star market “what ever the hell that means”, a 2.7% error rate relating to my non VA work (average +/-$1,025,000), would result in a variance of +/- $27,675. On a national level, that same $27,675 risk to the public would results in an above 10% financial financial gamble ($277,700 median price).
Excuse my while I kill another deal, as apparently they didn’t get the 2.7% error memo.
Seek the truth.
I think the real issue is when times are good no one cares. They will eventually! The good part for them is no one will be culpable.
Wow – dozens for thousands of Appraisers. I could give a rat’s %$& about AMC employees. I work with a few AMCs and charge what we charge. We do have clients that order direct as well – they don’t pay any different. Thanks for your condescending attitude though. 26 years at this job and that hasn’t changed in our profession.
To build upon my 1st comment the following ROV scenario played out this week. In cutting value for a purchase, in part my report broke down my search parameters (attached home non-condo form of ownership), age restricted (55+), etc. and I provided guidance for my client to be able to identify like substitute properties (in case of a ROV request). In short, locally (county specific) all condos (attached or detached), have APN’s where the last 2 digits always end with numbers from 01 to 99, and as the subject ended with a 00, it’s not a condominium.
Fast forward a few days, and the ROV request makes no mention of my requirement (confirm the report was read in its entirety), nor any confirmation all parties know what they are buying, selling, nor lending on. In addition, as support for the purchase price, I was provided 11 MLS listings where you guessed it, ALL had APN’s that didn’t end with double zeros.
Again, document and detail your search parameters, but even after giving our clients the answers, without reading and understanding our reports, they often do what ever they want regardless of the extra time they ask or us.
Seek the truth MR. and Mrs. client and stop wasting my time.