Recently, I performed an appraisal on a very unique property that sold in 2006 after a normal time on the market. Other than maintenance, the subject
did not change noticeably in nine years. This is an upper end property near Portland, Oregon; an area where such home prices have not recovered as much as lower priced and median priced properties have since the mortgage meltdown. Consequently, the
S&P/Case-Shiller Portland Home Price Index would
not be a good way to ballpark the current value or the market appreciation adjustments for this subject, because the index is derived from properties at all price levels and locations across Portland.
The Case-Shiller Portland Index was 181.02 in August of 2006 and the most recent Index (November 2014) is 170.44. Case-Shiller suggests a price decline
of roughly six percent, or that the subject’s current value should be $740,000 rounded. However, this information can confuse an appraiser, given that all of the adjusted comparable sales are pointing closer to a value of $650,000. Based on this, some appraisers
or real estate agents might think that the prior sale is not relevant at all. The problem is not with the prior sale being relevant, but that the published market data are not relevant to this property.
The Case-Shiller Index and other published market data, like multiple listing market reports, are great for looking at the overall market, but they
do not apply to most individual properties as an adjustment. Conversely, if the appraiser performs a search of only comparable sales that are similar to the subject over the past nine years, and plots them on an Excel scatter chart with a polynomial trend
line, it is easy to see that the prior sale is relevant and consistent with the adjusted comparable sales.
The Nine-Year Trend chart (above) shows that a value for the subject close to $650,000 is reasonable, and that a value at $740,000 (as suggested by
the Portland Case-Shiller Index) would not be reasonable. A value of $740,000 would be above the sales price of anything similar that has sold in the past two years. The Nine-Year Trend chart shows that when the subject last sold, it was at the upper end
of the market for similar properties, but it was not at the top of the market (nor above the market) because there were many properties that sold for more. The Nine-Year Trend chart, in addition to an appraiser’s comparable sales analysis, shows that this
subject’s prior sale is relevant after many more years than the three years that appraisers are required to analyze a prior sale.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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