How are appraisers handling time adjustments, if at all?

Time adjustments can be made as a negative or positive, depending on your current market conditions, and the adjustment is being made to the estimated market value from the date of the previous comparable sale to the present time.  The adjustment is indicating the values, of the type of property being appraised, have risen or fallen from the sale date of the comparables, to the date of the appraisal.

Technically there is no such thing as a stable market, where values remain constant each month over a period of time.  On a month to month basis, values are either increasing or decreasing, slowly or rapidly, or any combination thereof.  Therefore, always the need for time adjustments.

The biggest concern with doing time adjustments is being consistant in the method being used, and providing detailed explainations in the report for the method and the reasoning. 

In my opinion, many appraisers don't like time adjustments because they either don't know how to do them, and/or, they require more work that many don't want to do.  Anyone else involved with the transaction won't like them, because it creates a high potential of reducing the amount of their commissions.

Personally, I prefer the straight-line method over the compound method since I have it automatically calculate it in my lpsp ratio spread sheet, and I remain consistant in determining the adjustment periods that I apply for each comparable.

As usual, David did a great job with his explanation - Mine will be a lesser of his...

I say if there's a grid item in the sales comparison approach for it, there's an opportunity to adjust when necessary. 

However... underwriters would question me up and down when I would put positive adjustments on the grid (a couple of years ago when it was called for), now they question me up and down if I don't put negative adjustments.  I include an explanation in my addendum as well as our MLS sales analysis for the area with each appraisal.  That seems to work (unless the underwriter fails to fully read the report).

On Long Island, the NAR/Libor quarterly stats by zip code (I compare them year over year) combined with OFHEO HPI and Case Shiller stats as well as an sbsorption analysis of the subject market provide firm basis for market condition adjustments.  Be sure to adjust from the contract date of the comparable sale (or date of market change) to the effective date of the appraisal (or date of market change).

Kenneth

The contract date of the comparable is a good commencement date to use for the adjustment period, however, not all contracts are readily available or can be obtained for verification and/or conformation of that date and contract terms in all areas across the country.  In addition, there can also be delay periods between the "meeting of the minds" and "date of the contract" and "closing of the transaction" and "recording of the transaction" that need to be taken into consideration as well as transaction periods that carry over from one month to the next.

Point being, there are a dozen or so commencement dates that can be used, and with no specific regulations or guidelines available, it is pretty much at the discretion of the appraiser (and available resources) as to the actual, practical, and/or verifiable date to use. 

As I stated before, consistancy in the method and detailed explainations, as to the method used and reasoning, is very important and necessary in the report.

David - the OP is in my market and contract dates are readily available here.

The only "rule" is not to mislead...

Many inexperienced appraisers use the title/closing date, which can often be many months after the contract and significantly skew the adjustment.

Kenneth

I agree the only "rule" is not to mislead.

Many appraisers - inexperienced AND experienced - don't always analize the comparable contracts for changes to the contract date when there are contingencies that affect the agreed upon price.  Such as after a home inspection or appraisal where the final contract price is re-negotiated and ultimately changes the final contract date (or final meeting of the minds) from the original contract or counter offer date.  Non-disclosure States present problems also and/or may require alternative commencement dates that would be more acceptable by an appraiser's peers within their area.

Nor do many inexperienced OR experienced appraisers analize data of comparable sales within the immediate geographical area, the surrounding geographical area, ALL sales in the immediate and surrounding geographical area, or consider stats from NAR, OFHEO, Case Shiller (which only encompass major metropolitan areas such as Phoenix and have virtually no bearing on market areas outside the listed metropolitan area) all of which can skew the adjustment and may be, or could be, considered misleading by the reader of the report, client, underwriter, and/or reviewer - especially the one's out of state. 

David,

Mostly agree, but generally speaking, when a sales price is amended after the date of contract/meeting of the minds, it is because of factors unrelated to market condition/time.

Typically it would be because of physical problems at the property that the purchaser was not aware of when the SP$ was set. IE SP$ set at $300K 7/15/08 and amended to $285K 8/10/08 because purchaser discovered after appraisal and or engineers report/inspection that roof and boiler needed replacement. The market condition should (IMO) still be taken from 7/15 but using the amended SP$. The condition and/or effective age adjustment would also need revision.

It amazes me how appraisers can work for the $125 to $225 that AMCs pay in my market and do all the necessary research/due diligence to produce a credible report.

Kenneth

I see your point.  I have seen many contracts where an addendum or ammendment was added (dated and signed by buyer/seller) for a new contract price (new meeting of the minds) which in my area constitutes a new or final contract date, much the same as a counter offer dated and signed after the original written contract.  Geographical or regional differences maybe?  I also do not believe AMC appraisers do all the necessary research or due diligence - especially given the short turn times required of them.

David-

Might be a local custom issue.

In my market, Realtors/brokers generally draw up "binders" which are then given to attorneys to draw contracts. The vast majority of transactions have contracts reviewed by attorneys before they are signed.  Usually the SP$ stands unless problems are discovered by an engineer/inspector, appraiser or at final walk through...

Michelle

Since you are in the same geographical area as Kenneth, you should probably take his opinion as the norm or readily acceptable.  If you were in my geographical area then perhaps a slightly different approach could be used and/or acceptable.  However, as I stated before, consistency in your method and detailed comments for the reasoning (for what is acceptable in your geographical area) is most important.

I am using a quarter by quarter, month by month, then yearly averages to gauge market movements.  I include a chart such as this:

This would show, that although the 3rd quarter had a gain, the general trend has been declining.  The average for 2007 in this subdivision was -1.29% while 2008 continues an average of -2.38%.  Despite an uptick in the 3rd quarter, pricing is still going down.

I will then sometimes use this annual average as a monthly average (which smooths out the odd months such as during the 3rd quarter).  So in this case, I would have an average monthly decline of -2.38% or a daily decline of (2.38%/30) of 0.000793.   Then, I'll apply this to the days between the contract date and the effective date of the appraisal for my % adjustment for market decline.