Appraisers' Free Forum

First of all, no claim of Standard 3 from me as this is in the Appraisal Review section of this forum, just thought you might find it as amusing as I did.

A certified appraiser was asked to reconcile the subjects rather significant increase in value from a previous sale just over 2 years ago, in what the report described as a currently stable market.

The response was that the increase was due the market inceasing 5% to 7% per year for the past 5 years and that it continues today. He went on to explain that as the rate of increase was steady at 5% to 7% for this time period, property values are stable.

I responded that stable is defined as no change, and would he make the same argument for values being stable if property values had been decreasing at 5% per year, for 5 years and continuing today, would he still consider the market stable.

No reply yet

lies, damn lies, and statistics

Good point.


I want to be a reviewer when I grow up.

I want to specialize in reviews as soon as I am certified. (Sorry TC .... hope you will still love me).

I once argued in a class that if overall inflation was increasing by the same amount as the real estate values, then the market was stable. My point... that you should not look at markets in a vaccuum. Therefore, it would theoretically be possible for a market to be increasing in nominal value, but still decreasing in actual value.

That didn't carry much weight with the instructor. She pointedly told me that Fannie wants the box marked "increasing" if the number is larger than it was last year.

Steve Owen wrote:I once argued in a class that if overall inflation was increasing by the same amount as the real estate values, then the market was stable. My point... that you should not look at markets in a vaccuum. Therefore, it would theoretically be possible for a market to be increasing in nominal value, but still decreasing in actual value.

That didn't carry much weight with the instructor. She pointedly told me that Fannie wants the box marked "increasing" if the number is larger than it was last year.

Frankly, I don't think your instructor had much to back her up, at least in the argument you were having. Yours is by far the more cogent approach when value is the issue. But, then she did have the bully pulpit. A tempting hazard for an instructor in a profession that flaunts arrogance.

You see, the secret the Fannie folk kept is the reference points. Increasing as compared to what and over what period of time? Your instructor's attention should likewise be called to understand Fannie is asking about values and then next asks about prices.

Dale Hill wrote:I responded that stable is defined as no change, and would he make the same argument for values being stable if property values had been decreasing at 5% per year, for 5 years and continuing today, would he still consider the market stable. No reply yet.

He has taken pity on you. Be thankful.

Edd Gillespie wrote:Frankly, I don't think your instructor had much to back her up, at least in the argument you were having. Yours is by far the more cogent approach when value is the issue.

I believe that mine was the best argument from a stricly economic viewpoint. However, the instructor's point was that Fannie wants it a certain way... nominal values increasing means "increasing" to them.

Steve Owen wrote:However, the instructor's point was that Fannie wants it a certain way... nominal values increasing means "increasing" to them.

And what supports that point? Maybe, Fannie defers to her?

There seems to be a lot of CE teaching going on that has mostly to do with developing skill in assembling a paying and captive audience. I've tried to pay and not go and I've tried to go and not pay. Gotta do both.

Steve Owen wrote:

Edd Gillespie wrote:Frankly, I don't think your instructor had much to back her up, at least in the argument you were having. Yours is by far the more cogent approach when value is the issue.

I believe that mine was the best argument from a stricly economic viewpoint. However, the instructor's point was that Fannie wants it a certain way... nominal values increasing means "increasing" to them.

It would seem that the instructor did not understand the distinction between price and value.

Yes. Or, perhaps, if she was correct, it is Fannie and Freddie who do not understand the difference between price and value. For what it is worth, the lines on both the old form (in use at the time of the discussion) and the new forms say "property values." However, this instructor, I believe one of the better ones, said that Fannie and Freddie want to know whether house "prices" are increasing, stable, or decreasing... basically that the larger economic issues of "value" based on comparison of house prices and general economic trends is an analysis for longer term trends than the single year (or shorter) that appraisers usually consider.

I suspect that she was right. Nice that they make is so confusing, huh?

Well, Steve, if you consider that an annual inflation rate is applied to the whole dataset of sales over the past year, then it uniformly affects all properties, and the selling price is as good an indicator of trend as the inflation-adjusted price. If I were doing, say, a three or five year analysis trying to spot seasonal trends, applying an inflation adjustment might be kosher.

It just irritates me when instructors are imprecise, or fail to explain the minor details that can have a major effect. Still, it's easier said than done. Good instructing is an art in itself.

Steve Owen wrote:For what it is worth, the lines on both the old form (in use at the time of the discussion) and the new forms say "property values."

Fannie asks for both values and prices. She wants to know whether neighborhood SFR values are declining, increasing or stable ans she wants to know the hi, low and predominate prices for SFR. Course she fails indicate prices or values over what period of time or as compared to what for values. So do you get to pick, or just come up with something relevant to appraising?