Remove Predominant Price from New Forms
Something that has ‘stuck in my craw’ or ‘frosted my cookies’ for years is the nonsense about stating a specific “PREDOMINANT” price for neighborhood homes. And then being forced to explain why the Opinion of Value is not precisely that number, and if not, why not.
Real estate is IMPERFECT. Properties, especially comparables, seldom, if ever, sell for the very same or extremely similar prices. If that is the case, how can there be an exact “PREDOMINANT” figure?
The possible exception to this are highly dense urban developments where the new construction homes are cookie cutters, and the builder sells homes in a tight range of prices. But after homes are lived in, and especially where homes are more custom or in suburban/rural areas, the exact sale price implying “Predominant” is basically unachievable.
In statistical terms, the word Mode is what substitutes for Predominant. They both mean the same thing. But even Mode/Predominant may not really accurately represent the implication of most frequent if only two homes out of multiple sales in a range of prices have the same price. Mode could be at either end of the range, or maybe if lucky, in the middle. I do this kind of analysis in every report for the comparables. Quite often the formula to compute Mode/Predominant returns “N/A” as the response. But that response cannot be used on the GSE form.
Even more frustrating (to me) is the Appraisal Institute textbook published to explain how to use the ‘new’ 2005 GSE forms (the ones we are using today!) doesn’t even mention anything specific about Predominant value, or what to enter in that form field!
But offsetting this is the little known, and almost never used, fact is per the Faannie Mae Selling Guide, the Predominant figure CAN be reported as a RANGE! Well, hot damn… wouldn’t that just be the low and high numbers shown right above the Pred field?
To further illustrate this situation, the Historical Price Trends graph below represents comparable sales from a retrospective report done in 2021. The diamonds are the sales prices corresponding to the time span.
Tell me exactly what the “Predominant” price is from this data – when the 6 sales in 2016-17 all have DIFFERENT sale prices:
The word “Predominant” should be removed from the ‘new forms’, which apparently will be dynamic in their use process. Keep the Low and High range. That’s more sensible, because normally the subject’s Opinion of Market Value figure will fall within that range. “Predominant” is CONFUSING, to appraisers, reviewers, intended users and borrowers.
When “Predominant” is removed, we appraisers won’t need to write boiler plate verbiage to explain why the Opinion of Market Value is affected or unaffected by the nonsensical “Predominant” figure.
By the way, I have a process to determine how I will report the (singular) Predominant number, which is not disclosed here, because that is outside the purpose of this article.
I have the following statement in my reports which explains the nonsense about “Predominate” price:
PREDOMINANT VALUE COMMENT:
The One-Unit Housing entry box on form page 1 indicates the low to high price range for Fee Simple homes in the Neighborhood, and also asks for a Predominant price. The implication of Predominant is ‘most frequent’ or ‘most common’ price of homes.Seldom is Predominant exactly achievable because real estate is imperfect and comparable sale prices often don’t fall into predictable patterns where a Predominant value is precisely identifiable. Evidence of this fact is shown on the Historical Price Trends page graph in this report. Therefore, for the purposes of this entry on the form, the appraiser has reported Predominant as a price within the reported range of Neighborhood sale prices.
The appraiser’s Opinion of Market Value may be above or below the Predominant price shown in the entry box. The fact that the OMV is different than the Predominant price has no adverse effect on the quality of the report, nor will it adversely affect the marketability of the subject property.
The reported Opinion of Value is over the noted Predominant Value for the Neighborhood area, but there is an established market for this type of home in this area based on active sales activity. The subject is not an over-improvement for the area.
The last two sentences above are re-written if the Opinion of Value is BELOW the so-called “predominant” price. I make this available gratis for anyone to use if it’s found to be useful.
Dave Towne on e-AppraisersDirectory.com
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Best article I have read on this site so far. Totally agree. It is like ever appraisal needs to to conform to the predominant value of a neighborhood. If not, holy crap it must be an over or under improvement. Just another key word that reviewers search to see if in the appraisal
Dave, Thank you for this article. My thought is that those who make the rules are always only thinking about urban areas. In my markets which consists of mainly suburban and rural areas my opinions hardly ever fall within the 10% range of the predominate value. Of course I explain why, but it gets tiresome.
It is PRICE NOT value on page 1. What I hate most about this is Reviewers or underwriters coming back to me asking me to clarify about the difference between the predominant “VALUE” !! They ALWAYS assume page 1 says value. I have always responded with the fact that nowhere on the form does it say predominant VALUE. I go on to say it says price then explain that price and value are two different things.
Relating the value of a property to the predominant value of a marketing area, as well as the GLA, lot size, and age of the property, is significant. Why are you reluctant to make this comparison? If the appraised value does not correspond to this comparison then you better have a coherent explanation.
If your appraised value corresponds to this comparison — for example, the appraised value ranks on the 72nd percentile for the neighborhood, and the GLA ranks on the 70th percentile, then the appraised value is supported by more than the data and analysis in the sales comparison analysis. If this is not the case, you should have an explanation. That is, you should relate the appraised value to a broad measure of the local market, as standard procedure. Think of it as incorporating an element of Big Data in your report.
Unless the appraiser includes a statement that the reported price range “excludes extremes” then it remains appropriate to provide a range within a range to achieve the “predominance” requirement. Say, for example, outliers include a $100k sale and a $500k sale, but most fall within the $300-$400k “range” then predominance would be appropriate, but NEVER can a single number be considered “predominance” unless, of course, most available sold properties that are also ideally comparable sold for exactly the same price. Show me that, and I’ll defer to appraisal as an exact science rather than a well supported opinion.
Now if we can only get rid of whether or not a house has SCREENS…
Michael Coyle, and declare the MC addendum a flawed snapshot of the current market forbidding clients from requiring it.
I’m not so sure Jerry, I for one like the MC chart. It’s easy to use and may carry meaningful data if there are consistent market trends within data subsets, aka; narrowly filtered MLS results. I’m going to keep using it regardless. Of course the scenario may be different based on cohesion and consistency of build types and sizes from any given location, but in expansive suburbia the MC quite often provides great indication of real world trends, specifically list to sale relationships, aka strength of the market, buyer acceptance, etc. Right now I’m watching some trends take a nose dive but can thankfully still use the stable market checkbox, but for how long…
It’s also a great liability protection for me personally, as if the MC results are not aligned with my perception, I can then write in additional liability protection language speculating about volatile market conditions and/or possibly dip back into research for a more pointed market data analysis window. One tries to limit final data sets which MC is derived from to like 30-50 local examples or so, however quite often that total data set figure may have substantial variance. The problem with MC is it’s too simple, without additional fields for multiple comparative data set statistical entries, including actual active versus under contract examples.
For real, who’s only performing MLS research in one simple way, or one standardized approach? I’ll always have at least 2-5 different data sets to select from. Drawing up an alternative review can often be as simple as just applying minor MLS data filtration criteria. Kick out the ranches, apply a size variance, or age of build limitation, etc, etc. That application usually then results in more cohesive and easily understandable MC trending results. That’s how one can know; finger on the pulse. I love the MC, it allows me to skip the trend and graph presentation effort. A substantial time energy and resource saver.
I routinely use several MC forms in my report Baggins with each being clearly identified with search characteristics (GLA, distance from, etc.), and with each being summarized in detail.
Most often my anchor comps will come from a narrowed and focused MC form, while my outliner odd bracketing comps (if need be) will come from an expanded search MC form.
I work from a base search criteria, expand as needed, and update the search criteria as I go.
Depending on what information in the report I’m trying to support, I refer my client to the correct MC form.
Of note, those that outsource the process to places like the Philippines so a churn and burn of 4 to 9 appraisals a day can happen, will not contain such detail and truth.
Seek the truth.
Hey, don’t be an over achiever. I’m not trying to work that hard. jk lol. One does what works I suppose. Not getting any blowback is the ultimate test, so whatever is working, if it’s working, keep at it. I’ll remain mystified why some appraisers choose to outsource when they could simply hire, train, and have a real business, a real support network. Most of us don’t own businesses, we own jobs. If we personally do not show up, nothing happens. I’m not grounded yet, somehow managed to maintain operational capacity.
The purpose of the predominate price is to establish a statistical benchmark. It’s relevant in most cases and the analysis and explanation is part of the job. One more ridiculous piece of fodder on which to write an article, beat one’s chest, grandstand, and gain attention over superfluous pet peeves.
Joyce: I don’t think the issue is removal of predominant price, which can obviously be important to the lender / client. I think the issue is any mandate for a “single number” as predominant, and this is especially true in market with few sales and a wide range of quality, condition, and selling prices where a single price (median, not predominant) would not be meaningful at all. The issue is that a predominant price RANGE is more meaningful and will not result in report rejection when the subject appraised value is above or below the single number price point.
It’s all too subjective. One appraiser will research a mile proximate or more. The next will scrape total data from an entire zip code. The next only reviewing one neighborhood. Research is often structured around an appraisers personal time management goals. Some even outsource the task. The pointed argument is how subjective the appraisers research can be. Be careful what you wish for, removing predominant value puts us on a fast track to equitable value allowance, since the specific metric of comparisons which illustrate market reaction in one location vs the next, no matter how close or far or similar or dissimilar, may become absent.
Predominant is just one metric, it’s the reviewers whom assume this is reliable end all data in the first place which is the primary problem. If only the appraisal industry would insist that only qualified licensed appraisers provide appraisal review and administrative review services. Checkbox review has never worked as intended, never will either. My solution; Post within every report, single line MLS overview pages of a myriad of performed market research for that specific assignment. Then fill MC and other general market data with the data set which best relates to the subject. Widdle the data down.
If someone wants to take the time to turn raw and truthful MLS data into visual charts, they can have at it. Appraisers in my opinion are too reliant and hooked on extracted statistical data, charts and graphs. Any given data set and subsequent market data graphic may become instantly unreliable with one too many or one too less addition of data filtration criteria based on what is often dynamic mixed property characteristics in any given neighborhood. A line on a graph bedazzles the laymen but it also alludes to forecasting towards the future, something appraisers should consciously stay away from. For instance, in these annoying new age PUD developments where there are sf att, sf det, condo flats, patios, even commercial, all within a few block area. The predominant graph could be molded to fit any narrative regardless of current market conditions.
“Should the “Predominant Price” for neighborhood homes be removed from the appraisal forms? ”
Yes
There is NOTHING wrong with citing a predominant value ASSUMING the appraiser adequately describes the search parameters, the high, low, etc. Again, this is why so many appraisals by appraisers are being replaced by AVM’s and hybrids / bifurcated products. I don’t always base my high, low and median / mean on MLS data. I usually download an entire subdivision or based on the neighborhood boundaries to Excel because, IMO, its far more relevant. It’s another great tool to identify an outlier (under improvement / over improvement). Why not pontificate on things impacting the industry that are far more worthwhile? Someone needs to create an appraisal practicality class to help appraisers get past all these assignments than can’t be totally box checked. Say what you do, and do what you say.
It’s just like, if one takes the time to really narrow in on the comps spectrum, so few adjustments are necessary. I’m more on with, we don’t even always need to go through so much market data extraction effort with the fancy tools and such. It’s the ounce of prevention is worth a pound of cure concept. Put in more research time up front, the report data and writing closes out relatively simply in a standardized manner. Cheers.