Appraisers' Free Forum

Hi. I am not an appraiser, so I'm hoping for some help from people here. I have made an offer on a house, and the seller provided us with an appraisal to justify their asking price (which is obviously below our offer price). I have read residential appraisals before (but not in this state) so I am somewhat familiar with the methodology, but the appraisal I was given raised some questions for me. I won't go into all the points of confusion, but here are two main questions:

1) The appraiser assumed a stable market and 0-3 month marketing time. Therefore, should there be adjustments to comps that took longer than 90 days to sell?

2) One of the comps used was not an actual sale, but a home that is for sale two doors down from the subject. I have not seen this done before and am wondering if it makes sense. In other residential appraisals, I have seen competing properties on the market listed and discussed, but not included as a comp used for calculating indicated value by the sales comparison approach.

Thanks to everyone here in advance for for any responses!

Hi there and welcome to the forum.

It will help quite a bit if you can tell us where you are located.

Oh, I'm sorry. The house is in an established non-HOA neighborhood in Scottsdale, AZ.

have a question wrote:Hi. I am not an appraiser, so I'm hoping for some help from people here. I have made an offer on a house, and the seller provided us with an appraisal to justify their asking price (which is obviously below our offer price). I have read residential appraisals before (but not in this state) so I am somewhat familiar with the methodology, but the appraisal I was given raised some questions for me. I won't go into all the points of confusion, but here are two main questions:

Afternoon and welcome to the forum. It doesn't matter too much where you're reading an appraisal, it should be basically the same.

1) The appraiser assumed a stable market and 0-3 month marketing time. Therefore, should there be adjustments to comps that took longer than 90 days to sell?

Maybe and maybe not. It could have been that listing was over priced at the first offering and then there was a price reduction. Could be various different factors that influenced the appraiser to not make an adjustment.

2) One of the comps used was not an actual sale, but a home that is for sale two doors down from the subject. I have not seen this done before and am wondering if it makes sense. In other residential appraisals, I have seen competing properties on the market listed and discussed, but not included as a comp used for calculating indicated value by the sales comparison approach.

Thanks to everyone here in advance for for any responses!

Question comes to mind: How many sales and listings were used in the analysis?

A typical appraisal requires no less than 3 sales to follow typical appraisal practice. Some appraisers include listings and pending sales as additional support and to show what is available as of that specific date.

Thanks very much for your reply.

The appraiser used a total of six comps, one of which was the home still for sale. All comps used sold in Sept. '07. My realtor gave me a list of all sales since May, '07, and there were other comparable sized homes sold in August and October, which made me even confused about why you would use a home still for sale.

You might want to look at the effective date of the appraisal. I'm not familiar with the Scottsdale market but if it's a declining market, then the opinion of value may not be valid as of today's date. Also, appraisals are not for the life of the property (in other words, they become ineffective after a certain amount of time [typically not considered applicable after 120 days for most lenders and/or investors]). If the appraisal was completed in April or May, then it's over 120 days old.

have a question wrote:I have made an offer on a house, and the seller provided us with an appraisal to justify their asking price (which is obviously below our offer price).

This comment caught my eye. Do you mean the seller's appraisal has an opinion of market value higher than your offer price? That would make more sense in this market...especially since you used the term "obviously."

Incorporating homes listed for sale & pending home sales can be very helpful, but should be given secondary consideration to closed sales (in most circumstances).

Otis makes an important point...how old is the appraisal?

1) The appraiser assumed a stable market and 0-3 month marketing time. Therefore, should there be adjustments to comps that took longer than 90 days to sell?

Not if the market is stable, say over the past year. You make a time adjustment (adjust for market conditions) only if those conditions have changed since the comp sold. You could conceivably have a 90-day market time and a stable market.

2) One of the comps used was not an actual sale, but a home that is for sale two doors down from the subject. I have not seen this done before and am wondering if it makes sense. In other residential appraisals, I have seen competing properties on the market listed and discussed, but not included as a comp used for calculating indicated value by the sales comparison approach.

If we used only closed historical sales, an appraisal could never be higher than the highest-sold property in the area. Using active listings and pending sales gives you a means to adjust for current market conditions. Although most weight is given to closed sales, the best indication of *current* value is found in current listings under contract (or "pending sales.") Now, they haven't closed, so you can't give them a lot of weight. But they sure indicate which direction the market is going.

Jim Plante wrote:

1) The appraiser assumed a stable market and 0-3 month marketing time. Therefore, should there be adjustments to comps that took longer than 90 days to sell?

Not if the market is stable, say over the past year. You make a time adjustment (adjust for market conditions) only if those conditions have changed since the comp sold. You could conceivably have a 90-day market time and a stable market.

Nice catch Jim - in my attempt to respond I didn't absorb the fact that the appraiser had indicated a stable market.

Thanks to everyone for the helpful responses.

The appraisal is current (dated 10/15/07). I understand that you can have a stable market and a DOM of 90 or more. I guess my question was that if the appraiser is valuing the property assuming a marketing period of under 90 days, would an adjustment have to be made to the comp valuations for homes that took over 90 days to sell, or is that already factored into the selling price. I don't know if I'm being clear with my question. Another way of asking is, of comp X sold for $xxxxxx but took 300+ days to sell, does value have to be adjusted to reflect a marketing time of under 90 days. Our realtor is emphasizing to us that the seller had an appraisal done to price it to sell quickly, so I guess I'm questioning if the appraisal is really valuing property that way.

have a question wrote:Thanks to everyone for the helpful responses.

The appraisal is current (dated 10/15/07). I understand that you can have a stable market and a DOM of 90 or more. I guess my question was that if the appraiser is valuing the property assuming a marketing period of under 90 days, would an adjustment have to be made to the comp valuations for homes that took over 90 days to sell, or is that already factored into the selling price. I don't know if I'm being clear with my question. Another way of asking is, of comp X sold for $xxxxxx but took 300+ days to sell, does value have to be adjusted to reflect a marketing time of under 90 days. Our realtor is emphasizing to us that the seller had an appraisal done to price it to sell quickly, so I guess I'm questioning if the appraisal is really valuing property that way.

No adjustment has to be made. As I said before, it depends upon the information obtained by the appraiser from the contacts involved in the transaction. There could be several reasons for it to take that long to sell. Without being familiar with the market, data and the information about that sale specifically, I don't think any of us could give you a specific answer to that. Now some are probably going to take exception to my next statement, but that's to be expected.

Our realtor is emphasizing to us that the seller had an appraisal done to price it to sell quickly

That is a statement I see and hear all the time. Sometimes it's true, other times....................well.

Edit to add: However, I believe it should have been discussed in the report itself.

One thing that you might not be seeing in the comps DOM is reductions in list price to get it into a reasonable price range to sell. DOM is only pertinent after its priced appropriately and any changes in list prices are considered. In a stable market with 90 day normal marketing, a comp that took 300 days was likely way over priced to begin with, and then reduced until it reached a reasonable market price. Sometimes being on the market too long at a high price also snowballs, as Realtors just ignore the overpriced comp even after price reductions, because in the back of their mind, they remember dismissing it, but forget why after a while.

Thanks for your responses.