Time Adjustments

A recent review has prompted this post. It has become painfully clear that many appraisers are still unable to justify time adjustments. It appears that many believe that the MC Addendum is the “perfect” tool to justify increasing or declining prices; however, the reality is that this form was never designed to be an economic forecast model. In order to prove trends, a solid sample is required to show the price changes. Trying to prove a trend with a hand full of sales is a lot like predicting the annual rainfall in Texas based upon the observed weather patterns in Dallas for only six weeks.

Some appraisers are using some pretty wild assumptions and, in my opinion, had better be really careful not to over-analyze the data. The danger is that someone might take them seriously and actually make a lending decision based upon the prediction that they are making; values declining or rising. Either way, if the client loses money based upon this “expert” opinion, this is a lawsuit waiting to happen.

It is every appraisers responsibility to know their individual marketplace and to report prices and the direction of prices as of the date of value; thus, to carry this out, the appraiser should be looking at market areas for a few years and establish an actual trend. Then, the data within the last 12 months can be narrowed to show the subject property. This is, of course, not the only way to show market patterns, but it is one of the safest ways, because then you allow the data to speak for itself. Any adjustments can then be developed using a trend or regression analysis that will give results that are a little more reliable than the Texas weather patterns.

Just a point to ponder. See you around the water cooler!

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s