Don't understand this appraisal (feedback, vents, contract, value)

[twia]

There have been a lot of great posts here about determining the final value from comps. But I thought I'd share this blog that describes several of the various methods that can be used to justify that final value in case anyone else is looking as well.

How do appraisers choose the final value? | Sacramento Appraisal Blog | Real Estate Appraiser

[twia]

I discovered why comp #5 and #6 are included even though their adjusted values weren't used to figure the final appraisal value. So for anyone else wondering why some comps don't seem to factor into their own appraisal value at all, this could be why.

"ADJUSTMENTS ARE DERIVED FROM PAIRED SALES ANALYSIS WITH THE FINAL ESTIMATED VALUE BRACKETED WITH PRE AND POST ADJUSTED SALES COMPARABLES WITH ADDED SUPPORT FROM COMPARABLES #5 AND #6."

I had to look up "paired sales analysis" to find out it's the word for what we all know appraisals generally involve - assigning value to bathrooms, square footage, bedrooms, etc. to reach the adjusted value.

So even though their adjusted value didn't factor into the appraisal value, #5 and #6 were included because they were used (along with the other comps) in assigning values to the features.


So to recap the original info.

Appraised value: $390,000

The comps are:
Sale price - Adjusted sale price - Distance - Status
1. $390,000 - $393,900 - .8 miles - standard sale closed 11/13
2. $368,000 - $389,208 - .8 miles - standard sale closed 12/13
3. $435,000 - $430,000 - .21 miles - standard sale closed 3/14
4. $448,000 - $428,000 - .21 miles - standard sale closed 5/14
5. $419,900 - $406,502 - .21 miles - pending standard sale
6. $398,000 - $405,040 - .08 miles - active listing

From what I've gather from here and other sources, and using that to interpret the comments on the appraisal, the math appears to work out somewhere along the lines of this.

"COMPARABLES #1 AND #2 WERE GIVEN THE MOST WEIGHT DUE TO LOCATION AND CONDITION, COMPARABLES #3 AND #4 WERE GIVEN SECONDARY WEIGHT IN DETERMINING ESTIMATED VALUE FOR THE SUBJECT PROPERTY."

Only #1-#4 were used in final value. #5 & #6 were included just for getting feature values. Sentences across several sections of the comments, indicate that comps outside the community were chosen due to their proximity and similarity in community amenities with the subject.

No explanation in the appraisal as to why the value is so much closer to #1 & #2 than #3 and #4. Neither the mean, median, nor mode were used on those 4 numbers. By rounding (thanks to jackmichigan who pointed out that incredibly obvious thing I didn't even think about), #1 & #2 come out to $390,000, #4 & #5 come out to $430,000.

The appraiser possibly (tho not necessarily) took those rounded numbers and rather than doing any type of average, applied almost the entire weight to #1 and #2 due to their proximity and being in the same complex. (I would say no weight, but the comments state #3 & #4 were part of determining the final value.) Or possibly chose to do a combination of weighting and mode and decided that since there was no mode (2 at $390k, 2 at $430k means neither value occurs more often), that the weight of #1 and #2 justifies their value as valid for the mode.

The weighting was possibly (but unofficially) applied so strongly to #1 and #2 due to:
1. realizing that the contract price was $385,000 therefore the appraisal didn't need to come in any higher to satisfy the lender's concerns

2. due to history in the industry, appraisers prefer not to have appraisals come in much higher than the contact price
(thanks to berniekosar19 for the inside info and back story)



Seems justifiable enough. Thanks to you all (even if I didn't mention you specifically) for helping to work it out!

[Annemieke Roell]

Originally Posted by twia

The weighting was possibly (but unofficially) applied so strongly to #1 and #2 due to:
1. realizing that the contract price was $385,000 therefore the appraisal didn't need to come in any higher to satisfy the lender's concerns

2. due to history in the industry, appraisers prefer not to have appraisals come in much higher than the contact price
(thanks to berniekosar19 for the inside info and back story)

You keep bringing that up. You are wrong. Under valuing is just as bad and illegal as over valuing.

I know you have a hard time understanding your appraisal. But it is really difficult for appraisers to explain something to a non-appraiser which took us years to master.

[Residential Appraiser]

Originally Posted by twia

#2 is not the same size. It's 2 bed. This is 3. Why would the appraisal value not be closer to #1, which is the exact match?

The appraiser actually comes up with a range of value. We put it to a single point on the report for lending requirements, but no one is good enough to pinpoint an exact number, like $404K...the market isn't that precise, much less someone adjusting variances from house to house. The range of adjusted value was just under 10% variance. That's reasonable for quantitative adjustments (meaning adjustments that can be narrowed down more precisely) After that their is qualitative analysis that goes on where they look at the properties in a ranking type system.

Sounds like your sale price fell into that reasonable range of market value, so what better indicator of value to narrow it down to a single point than market participants buying that exact house that's being appraised and an identical unit in the same complex. You are market evidence too, you know.
One unit sold for 393k, an another identical unit in the same complex (yours) sold for $385k. Opinion of a point value is rounded to $390k.

What's the problem???? Sounds spot on!

There are many points of value that are equally supported. Usually it is rounded to show that there is no one "to the dollar value" that is most probable. Again, the market sways....take 50 buyer and 50 sellers...give them the same property and you'll have a 5-10% variance in prices, plus some fliers beyond that.

Question: If your condo was superior quality and condition, why did it sell for less?

[Residential Appraiser]

I think twia has left the building

[twia]

Originally Posted by Annemieke Roell

You keep bringing that up. You are wrong. Under valuing is just as bad and illegal as over valuing.

I didn't bring it up. Another poster did. My intent was just to give a summary of everything relevant to the discussion. If they were wrong, you need to take that up with that poster.

In any case, that's why I said "possibly", and it's kind of a side note to the rest.

I know you have a hard time understanding your appraisal. But it is really difficult for appraisers to explain something to a non-appraiser which took us years to master.

So is there something you take issue with on the speculations about the math that might have been used to justify the final value?

"If you can't explain it simply, you don't understand it well enough." - Albert Einstein

[twia]

Originally Posted by Residential Appraiser

The appraiser actually comes up with a range of value. We put it to a single point on the report for lending requirements, but no one is good enough to pinpoint an exact number, like $404K...the market isn't that precise, much less someone adjusting variances from house to house. The range of adjusted value was just under 10% variance. That's reasonable for quantitative adjustments (meaning adjustments that can be narrowed down more precisely) After that their is qualitative analysis that goes on where they look at the properties in a ranking type system.

Sounds like your sale price fell into that reasonable range of market value, so what better indicator of value to narrow it down to a single point than market participants buying that exact house that's being appraised and an identical unit in the same complex. You are market evidence too, you know.
One unit sold for 393k, an another identical unit in the same complex (yours) sold for $385k. Opinion of a point value is rounded to $390k.

What's the problem???? Sounds spot on!

There are many points of value that are equally supported. Usually it is rounded to show that there is no one "to the dollar value" that is most probable. Again, the market sways....take 50 buyer and 50 sellers...give them the same property and you'll have a 5-10% variance in prices, plus some fliers beyond that.

No problem here. I just wanted to know how the numbers might have been used to come up with that final number.

Thank you very much for answering that question in detail.

Question: If your condo was superior quality and condition, why did it sell for less?

I wouldn't say it was superior quality. About equal quality to the comps. It sold for less because I saw it with a sign that said "coming soon" while walking by it and got it under contract before it went onto MLS. It hadn't gone onto MLS yet because of the seller's personal situation. If it had, I don't think it would have sold for anything under $415,000. (I base that on nothing more than on my experience in the last few months trying to find a property in the area.) Though what someone else would have paid for it isn't as big of factor in my decision as that it's one of only 2 places I liked and is $15k under the average for the 2 bedrooms I've been looking at. The other place I liked I didn't offer high enough in time. It was 2 bedroom with 200 less sq ft but a great view that sold for $410,000. I had a backup offer for $420,000, but the buyer didn't fall through. If their buyer had fell through, I might have picked that one even though the price was so much higher because of its proximity to a bike trail that leads directly to my office. Actually, there was another 2 bedroom I liked. I offered $385,000, but the sellers decided they didn't want to sell.

[Residential Appraiser]

Originally Posted by twia

I wouldn't say it was superior quality. About equal quality to the comps. It sold for less because I saw it with a sign that said "coming soon" while walking by it and got it under contract before it went onto MLS. It hadn't gone onto MLS yet because of the seller's personal situation. If it had, I don't think it would have sold for anything under $415,000. (I base that on nothing more than on my experience in the last few months trying to find a property in the area.)

Thanks for getting back with me.

When you say Personal situation....are we talking possible foreclosure or short sale, relocation, death???

[twia]

Originally Posted by Residential Appraiser

Thanks for getting back with me.

When you say Personal situation....are we talking possible foreclosure or short sale, relocation, death???

Nope. Health issues. They happened while the seller was in the process of getting the place ready to list. According to his agent, he's doing well now.

[Lovehound]

Originally Posted by twia

I'm in escrow to buy a condo and just got back the appraisal. The appraisal is fine as far as the lender is concerned, because it's higher than my purchase price. But it's lower than I would have expected. I read through the entire appraisal and I don't understand how the value could be that low. Obviously only the appraiser knows for sure and I will try to ask them, but I would like some unbiased info as well. Can anyone with appraisal knowledge explain how they think the appraisal value could have been determined?

This is an old topic and possibly revived several times. The property appraised for your purchase price and you want to live in it, right?

Just do it. Appraisals are fiction. They cover the lender's axx. What kind of system is it that they give the appraiser the contract price before he sees the property??? If they wanted an honest appraisal they would send the appraiser out and tell him to do his job and not inform him of the contract price.

If you haven't seen enough properties to determine the value for yourself then you have not seen enough properties. Look at the properties you've been shown and determine which is worth what for yourself.

Appraisers are NOT there for you. They are there to protect the lender: CYA.

Oddly, I finally saw a property (a short sale) appraise for over my offer! In every other case (5 out of 6 in the last 2 years) the appraisal came in at exactly the contract price. That ought to tell you something.