Is the sale price the best indicator of value for appraisers? A recent study[1] includes a graph which shows that some 90% of appraisals hit the sale price exactly, or were higher, while only some 10% were below the sale price (when the sale price is known). Is this a bias on the part of […]
Everyone talks about the “market,” but no one tells us exactly what it is. The Dictionary of Real Estate, 5th ed. Appraisal Institute, defines “Real Estate Market” as “Buyers and sellers of particular real estate and the transactions that occur among them.” Close, but no kewpie doll prize. I have had at least three graduate […]
Could the very definition of market value hold bias? Let’s look. First, we need to figure out what types of bias there might be. There are two major categories: 1) analytical bias; and 2) human bias. And there may be some overlap! Analytical bias generally comes from two places: Error in data selection; Error in […]
Market value for home loans in the United States is precisely defined. The understanding of “market value” is the single most important concept defining what appraisers do. Buyer/seller are prudent, knowledgeable, well informed or advised, and ‘typically’ motivated; there is no ‘undue’ stimulus; and the sale is in cash terms, with normal exposure, and “unaffected […]
Is it “Obvious”, like some people have “common sense”? Or is it counter-intuitive? We compared price versus value in Part I. (There, the leading paragraph defines “market value” as per USPAP Advisory Opinion 22.) The Appraisal Foundation opinion goes on for a full page to explain the explanation of the definition, and the importance of […]
“Appraisal is market analysis!” is the title of a 1975 journal article by Richard Ratcliff, MAI. Freddie Mac Chief Appraiser Scott Reuter recently noted pervasive market analysis deficiencies in appraisal opinions. Specifically, discrepancies from actual contract prices. For appraisers, this disparity is easily accounted for by two reasons: Failure to implement time adjustments to the […]
The transaction zone is a range within which a sale price might occur. Yet our definitions of value nearly all define a “most probable” price. In prior issues, we have discussed how vintage appraisal practice is vulnerable to accusations of bias. The “appraisal process” is most vulnerable at the beginning of the analysis, wherein “good […]
Editor’s Note: Is the Definition of Market Value Outdated? is a Guest Post from Bruce Hahn, SRA, MAI, CRE, CCIM. Why has the current definition of market value been around without change for so long? Many decades in fact! Not much of it seems applicable to the realities of at least the last decade nor […]
Market, the word, is used over 2500 times in The Appraisal of Real Estate. And over 650 times in the current (2021-2024) version of USPAP. “Market” must matter! But what is it? “Market” has two main meanings which correspond to the definitions in The Dictionary of Real Estate Appraisal. One is a system to bring […]
Market value, of course! Or is it? The great recession, and things like that, which come around every 12-15 years, all concur with the ‘accepted’ definition of market value, as written in the USPAP book Advisory Opinion 30. In short, the definition requires: Most probable price Competitive and open market Prudent and knowledgeable consumers No […]
Everyone knows value. Of course! It’s easy! Value is what I can sell something for. Well, sorta. No, wait – value is what I am willing to pay for something. Editor’s Note: This is Part 2 of Market Value or Other Value. I have an apple. You want one. I threaten to take a bite […]
In Part One we asked why the current definition of market value has been around without change for so long? We focused on item 4 in the current definition of market value which says: “payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto” Editor’s Note: […]
Editor’s Note: This is Part 3 of Bruce Hahn’s series on Is the Definition of Market Value Outdated? In Part One and Part Two we asked why the current definition of market value has been around without change for so long? We focused on item 4 in the current definition of market value which says: […]
We’re gonna crash! Now What? An appraiser’s job is to reflect the market. A couple of questions: What is “the” market? And how do I reflect? I like to divide consumer behavior into two thought patterns: Micro and Macro thinking. Micro thinking is under the assumption that the buyer is buying for personal use – […]
Market value or comparable value? What does that mean? It means we form market value opinions. Specifically, credible market value opinions. Credible in this case must mean more than merely “…worthy of belief…” since USPAP contains no indication of who’s belief we seek. It means, therefore, worthy of the market’s belief since the market is […]