Appraisers' Free Forum

They're not analyzing the market because they haven't been taught how to do it. It's at best a self-study, and undertaken only after a newbie realizes that there's something missing.

Market analysis is the starting point--the cornerstone, if you will--of any market value appraisal. Yet it's not given significant emphasis in the initial qual-ed classes. It's only after you're headed for certification that Residential Market Analysis and Highest and Best Use becomes a required class--and that class is deficient!

Even the Res MA&HBU class taught by AI needs more work. It's a good class on theory, but people taking that class want to see how it works in practice. The course should have sufficient time available to take a local area, define the neighborhood, decompose the aggregate statistics, download and analyze the properties, and develop conclusions about supply, demand, and absorption. You cannot do that in a two-day course. At the very least, there needs to be a two-day case-study follow up to the theory they now teach.

Only after the qual-ed improves can we expect to be able to take anything back from the lenders.

I'd start with defining the neighborhood and the market area. Most URAR's Neighborhood Boundaries texts read something like this:
"Hillsborough Road (N); Interstate 240 (W); Mississippi State Line (S); and US Hwy 388 (E)."

No other explanation or rationale for the boundaries is given. That needs to change.

So if that's the neighborhood, why? And what's the market area? And why? Inquiring underwriters and investors want to know.

Edd Gillespie wrote: Which is more relevant to appraising and why? Is the market revealed by sales prices or by the value of the amenities?

The short answer is "Yes"

the sales price is what purchases the amenities. Therefore the quality, utility, and scarcity of the amenities are what establishes value. The level that one person values something is what dictates its price. Where the sale price is where the value to the purchaser is greater than the value of the money he is exchanging for it. When you search for what $150,000 has bought then search for commonalities, you might miss the market trend of those commonalities. You might unknowingly, through using price, be analyzing a less than arms length transaction. However if you search for all units that have that amenity then you have the opportunity to review the whole range of prices paid, allowing you to establish averages, trends, and giving you the opportunity to weigh the relative sales as they relate to the subject.

Ergo. Price is not value, notwithstanding both are expressed in dollars. Tricky.

Price is value under certain conditions, Edd. The definition of Market Value is "The most probable price..." under a set of constraints. So it is untrue that price is never value. Wonder if there are conditions under which cost is value.

Jim Plante wrote: Wonder if there are conditions under which cost is value.

Of course there are. But, usually, it's cost plus profit equals value. Otherwise, GM would be owned by the government by now. ooops.

GP's method, I think. At least it is less subject to accusations of bias or appraising to a predetermined value. Either method will get you there in most cases. But using Steve's method, you'll miss pockets of similar houses selling for more because of a good school district that ends across the street. You might also miss pockets of distress sales near the factory that just closed, too. Overall, I like GP's method, and will stick to it for my own purposes.