Appraiser credibility continues to decay over time. Even during the great runup in prices, and now the spotty, often rapid rundown in prices – residential appraisers mostly turned a blind eye to the need for this critical “time adjustment.” Non-residential appraisers have yet to see the coming value shifts.
Shamefully, a time adjustment, (or market price index) is one of the easiest and most reliable adjustments that can be made – if done using modern analysis!
I am told that about half of form residential appraisal reports had “zero” change in prices for market conditions, while at the same time reporting the market was increasing, and then – decreasing.
The most common avoidance used is: “I used recent comparables, so no adjustment is needed.”
A common, but unreliable method, is “paired-sales.” Often these are claimed, but not evidenced. Paired-sales of similar property transactions is a disproven method, as the fiction of “matched-pairs” is just that – a fiction! Even if there is a resale of a particular property, it will reflect an inappropriate time period, and will usually reflect differing sale conditions, or even property condition (a fixer?).
Other fictions, starting from the worst, include:
- Pretend that market price levels are “stable;”
- Consumer price index, national or regional;
- Published city or area home price indexes;
- Zip code, neighborhood or census tracts;
This fiction is that somehow, to use a geographic area is sufficient to define the behavior of a market. A market competitive to the subject. Unfortunately, geography alone never defines a CMS© (Competitive Market Segment).
As presented in the Stats, Graphs, and Data Science1 class, there is a simple requirement to define the CMS by five dimensions: Property type/rights, transaction terms, time, space, and preference features.
It is a basic foundation of modern data science that if you get the data right, a useful result is assured. With complete market facts, we get result reliability, not just a “worthy of belief” opinion.
Once the right, “truly” competitive data is defined, the analysis is straightforward.
In the CAA (Community of Asset Analysts) we share open-source software. We visualize the data with a simple scatterplot, trend line, and slope. The slope is our time adjustment and price index.
Once you have set up your MLS (or other data source) template, it takes just seconds (yes, seconds) to create the graph, check for outliers and trend shifts, and post the calculated time adjustment to each comparable within the market segment.
The math is true, the analysis is transparent, and the result is reproducible. It is factual.
The model intuitively appealing, visual, and algorithmically correct.
Best of all, it eases and improves other adjustment issues. It improves sureness and trueness of the result, (accuracy and precision).
This is the clear solution to market analysis, price-indexing, and increased appraisal reliability.
Any other method produces biased results, (opinion too high, or too low).
Valuemetrics.info, and GeorgeDell.com make the process available to all in free and low-cost webinars, and of course as fundamental core theory in the Stats, Graphs, and Data Science1 class. The class provides software, examples, templates, and practice.
April 12, 2023 @ 1:33 pm
Time adjustments are the easiest to document or support. The fee level and demands for fast delivery precludes doing what we should be doing regarding this or other adjustments. Appraisers might actually be overpaid for what they do-do but underpaid for what they should do.
If all of a sudden, every appraiser agreed to document and support their Time adjustments; how much additional time and fee would be necessary to be adequately compensated?
Add to that the direct verification of the transactional aspect of the market data being relied upon. It would hold up delivery of reports for perhaps days.
In the current market environment it is the transactional aspects of sales that are driving the prices. Not knowing and not adjusting for these factors falls short of the good appraisal valuation process and procedures that we all certify with.
When I have a client that wants a fast report, I offer to do a desk appraisal based on public records and any other information available on line for the subject and to us market data from 3rd part vendor Sources, but not do Verification of Market Data.
By this method I can come up with a value that has a 75% of certainty. If allowed the fee and time, I can do the verifications and support adjustments and come up with a value with a 95% degree of certainty.
I do not care which type of report the client wants, as long as we are paid for what we do. Having a SOW agreement for what they client wants and pays for or what we are willing to do for what they want to pay.
Sadly, our industry has gotten by without doing what we certify compliance with; instead of charging appropriate fees for what we are supposed to do.
To me, the SOW Rule was the only blessing bestowed upon us by USPAP.
April 12, 2023 @ 4:09 pm
I understand this post describes an abbreviated version of how an analyst developing their own time adjustments is done but to an uninformed reader it may appear oversimplified.
Creating the basic scatterplots and trend adjustments from those plots is fairly strait forward. Defining and creating the conforming data set is, or can often be, much more time consuming and also presents significant opportunity for error and undetected or unreconciled shifts in market composition. Either way, the anecdotal example you referenced, that half of appraisal reports had no time adjustments and, one could probably assume, if that is the quality of reports that source was provided, a good portion of the other half were unreliable or at least unsupported.
The bottom line is, that source likely accepted a majority of those reports and probably should place reliance commensurate with the fee paid for the report. For anyone else interested in reliable reports they should be looking for credible evidence to support any adjustments made or not made. The methods described in your post are certainly one way of providing evidence. Although, I’m not sure I would throw paired and particularly matched sales out with the bathwater, but I’m inclined to think you aren’t throwing them aside so much as just not placing all your eggs in that basket.