Appraisers' Free Forum

**Ter Shields**

I find it interesting that we use Discounted Cash Flow (DCF), complex cost approaches with external and functional obsolescence, linear regressions, GIM, cap rates etc. to value residential and other small properties without giving much thought to the question, "What would the buyer do?"

Truth is the buyer probably won't do DCF in a rental....most use simple multiplers (100 GRM) or 10 years payout as their 'standard'.. I think it will rent for $650 a month, therefore, I will not pay more than $65,000...

I saw 40 acres and older poultry barns recently and the buyer and seller agreed that the land was worth $5000 per acre and the buildings each worth $50,000 or 4 x 50,000 + (40 x $5000) = $400,000. And we talk about making adjustments for land types and location and blah blah blah.

So, has appraisal tried to become too much science and not enough common sense? Possibly.
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The Chinese never ask about Price. They only ask about supply. - Prince Saud, minister SABIC

WM · Posted: Fri Sep 21, 2007 8:16 am Post subject:

I've always thought residential appraising is really 99% judgment.

**Bad Hombress** · Posted: Fri Sep 21, 2007 9:23 am Post subject:

**BluMoon** · Member Joined: 12 Aug 2007 Posts: 3 Location: Midwest

Ter:

One thing which is currently driving me eye-bugging bonkers is the proliferation of 'hunting' as a H&BU. When it was just one or two sales. you'd shrug and say stoopid buyer and ignore the trash ground that was selling for 'almost as much as good cropland....

Well I am wrestling with a market where the income approach has been tossed out the window cause the 'useless' pieces of overgrazed, tree infested, weed choked rough and rocky pieces of ground are selling for 30%-70% more than the most productive crop ground in the county. And I am not talking one or two sales I am talking 1/3 of the sales in the county. Shocked

LITERALLY sure as shooting you cannot ignore this as a H&BU, but it starts to get tricky when you begin to analyze 'mixed use tracts. Confused

When you apply older methods of interpolation the results are as mixed up as the buyers seem to be in their motivations. Some of the buyers pay more for land which has some ROI in terms of production, some prefer ground which will never produce anything but a boys-n-toys getaway and shoot Bambi use! Good Deer Pheasant Turkey Prairie chicken Habitats are not created equal... and there seems to be no current logic as to how high some fools will go!

In one county I am appraising in, I honestly cannot tell you what ANY tract of land is worth unless it is a 'pure' sale of something or other.

If its got a river runnin through it is is worth more than the same types/uses of ground lacking a river... Seems to be the only 100% correlation to be found at the moment.
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If at first you don't succeed; try, try again. Then quit. No use being a damn fool about it. ~WC FIELDS~

WM · Posted: Fri Sep 21, 2007 9:49 am Post subject:

**Goodpasture** · Posted: Fri Sep 21, 2007 10:38 am Post subject:

What is funny, is that I always considered "appraisers opinion" to be based on knowledge of the market and the instincts of the appraiser.....and considered it reliable.

However, after reviewing reports where a trainee justified adjustments with "the appraisers experience" when I know full well the only knowledge this guy has of either appraising or of the market is the 60 hours at a skippy mill, I began insisting on a little more documentation.

The long term problem with this is that once you start using hard data, appraising becomes more a formula and less art. Which makes it easier for AVM's to mislead lenders......whatever can be "proven" by facts becomes reality, whether or not the reality is what they say it is.......the perspective of a market knowledgeable appraiser becomes less and less important.
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You should wake up with a smile on your face.....that way you can get it over with early before you have to deal with the world

WM · Posted: Fri Sep 21, 2007 11:00 am Post subject:

My favorite client (keeps all paper in-house) orders and gets a "scientific" report. After it's submitted, he calls for a little chat about my "gut" opinion. I think he value the latter more.

The re-selling of loans is the downfall of it all.

Smart lenders do realize that it is as much art as science. The art portion can only be gained via experience. I gained mine prior to even thinking of being an appraiser by purchasing FC auction homes.

You learn real quick when you're bidding 5-6 figures and there it not an "oops, changed my mind" clause.

Question for the masses:
How long did it take and how did you get there before you felt confident in your judgment?

Jay Trotta · Member Joined: 12 Aug 2007 Posts: 812 Location: Snowglobe

Formula's are only as good as the input "arranged" to produce an end result.

Art is a concept that one aquires over time, art is the gaining of knowledge of market perception; anyone ever hear of the; Location, Location, Location theory Question

When an agent touts that, they are aware of the market perception and the Buyers (learned perception).

To produce both aspects provides you with more insight, one without the other will always leave room for doubt; is there a necessary evil to search other similar neighborhoods, exceeding the 1 mile radius Question

Would a potential Buyer do the same Question

In our area (along the Shoreline) it is a known fact that most potential Buyers of water oriented properties may skirt several towns, to be shure they didn't miss anything, they may prefer one Town over the other, but similarily they may like one water oriented parcel over another, how can a machine interpret the market in that scenerio Confused

Our opinions are supported by the knowledge we gain on a daily basis, markets will always fluctuate, always have - being in the field, allows us to capture how diverse it is. Was listening to "Greenspan" the other night promoting his book, he noted that during his 18 years in his position, he was always "Learning" - AVM's do Not learn anything, they are fed info, who's doing the feeding Question

If there was some majical "mathmatical solution" to appraising, someone would have done it along time ago - I consider Greenspan a fairly intelligent individual and he indicated the continual need to learn the "market", I do not see us being replaced anytime soon, perhaps we will become more acceptable in the aftermath of todays dilema.

I do not have all the answers, nor even some - but I do know my market area fairly well and my contacts are wide and diverse, (like yer own private bag of diamonds).

cheers
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As President Ford said, "A government big enough to give you everything you want, is strong enough to take everything you have."

**Otis**

**Ter Shields** · Posted: Fri Sep 21, 2007 8:47 pm Post subject:

StreetGlide · Member Joined: 27 Sep 2007 Posts: 5

I think you have to replicate the market, what ever that market may be. If you have smaller investorrs who buy based on some multiplier, interview them, discuss it in your appraisal, and use it. If you are talking about large investors or REITs, I would be they do do their own very sophisticated analysis.

**Pina Colada** · Certified General Joined: 13 Aug 2007 Posts: 565

Terry