Opinion of value

Average in an Opinion of Value

Dear H2,

On a current appraisal, after all adjustments are made in the sales comparison grid of the URAR, the end adjusted values are as follows: Comp1: \$125,000 - Comp 2: \$127,000 - Comp 3: \$124,000. I am unable to accord weight to any one of the comparables and would like to give weight to all of them, using an average that is in the middle of the indicated value range (\$124,000-\$127,000). I would like to add all three indicated values, and divide by three (= \$125,333 average) and then reconcile the values to be \$125,000.

However, I’ve been told many times not to derive an opinion of value using a mathematical method such as this one. Yet I have seen a few appraisals of my peers that do use this method, where appropriate. Of course, I want to be in compliance with Fannie/Freddie and USPAP. What's your opinion?

Brooke

Dear Brooke,

If you are using a URAR form, the format calls for you to describe each comparable sale and then adjust it for any significant differences between it and the subject property. However, there is nothing in the USPAP that requires you to analyze comparables this way. In more complex appraisals (usually reported in a narrative appraisal report format), I have seen large sets of comparable data adjusted using averages. What you plan to do is fine, but the final value estimate of the subject should be based upon a reconciliation that, in your judgment considers everything about the subject, market and comparables that you think is significant.

The reason an "average" is not usually used by appraisers in the reconciliation process is that it is a statistical term that implies that you took a random sample of all the available comparable sales, and that the sample was large enough (usually a minimum random sample is at least 18 items). You would then also need to state if the average you obtained is the mean, median or mode.

Extraordinary Assumptions, Retrospective Appraisals

Hello Henry,

I am developing a retrospective field review with an opinion of value for investigative purposes. The effective date is 4-1/2 years prior and the subject and all (three) comparables were investor rehabs/resales in an economically distressed neighborhood, with price increases of 50 - 60% within 3-9 months.

The main issue with the report under review is data verification and the credibility of the comparables' cash equivalent sales prices. Primarily, no 3rd party verification sources were cited and it does not seem that financing concessions were properly verified or adjusted for if they did exist. Seller-assisted financing was common in the market at that time. Most weight was given to Sale #1 which did not have an MLS listing. Sale #2 had a potentially unsupported 8%+/- upward condition adjustment for 'avg' vs 'good' condition; this sale had a "blank" listing #, but also had a 60% price increase within nine months, indicating that it may have rehabilitated in a manner similar to the subject. My research has revealed two sales that support the original value that have no MLS listings; and other "blank" MLS listings that appear to have been investor rehab/resales. I cannot verify these sales or the conditions of the sales in the normal course of business after an elapse of 4-1/2 years. Is it acceptable to use these sales in developing my OMV with the extraordinary assumption that they had no sales concessions that affected their prices? Or by using these unverifiable sales would I be committing the same poor practices found on the original report i.e., the pot calling the kettle black??

Thank you for your time,

Michael A. Ciaccio
Certified Residential Appraiser RD6539
macappraisals@gmail.com

Dear Michael,

I can only give you some general advice, as it is my policy not to comment on specific appraisals.

1. It is up to the appraiser to select the most comparable sales. There are no USPAP restrictions on how this is done.
2. It is up to the appraiser to make whatever adjustments are needed, keeping in mind that using unsupported adjustments can lead to trouble as the USPAP requires that the appraisal be credible.
3. The USPAP has specific instructions about using "Extraordinary Assumptions" (2010-11 USPAP U-3 & U 18). From what you say, they may be appropriate in this instance. Be sure to follow the disclosure requirements.
4. You must decide if your report is credible. If there is a reasonable doubt in your mind about its credibility, you should not make the appraisal, as it would violate USPAP to do so.