How To Determine Time Adjustments

I recently had a question come in from a follower regarding how to best make time adjustments in this crazy world of multiple offers and offers over list.  It was an excellent question and one I felt would best be dealt with on a broader scale.  Daniel’s market is probably similar to many of the markets we cover because this seems to be a current and common theme in the world of valuation right now.  

First, let’s begin with a bit of a clarification.  Time adjustments, like any adjustments, are made to the comparables and should reflect how the market may have increased (or decreased) since the comparable sold.  In other words, if the sale were to happen now – rather than eight months ago – what would it likely sell for given the way the overall, or specific market has changed?

Like with any adjustment, “proving” an adjustment is not possible.  Proof is not really a thing when it comes to the practice of valuation.  Support, on the other hand is.  What is the best evidence one can give for a justified adjustment to a sale given the passage of time?  That is where the true professional shines.  The difference between a good appraiser and a bad one is not the final value.  Rather, it is in the amount of research and proper analysis of such research – as well as the ability to properly communicate such work to the reader of the report.  

So, where does the support for (or against) such an adjustment come from?  Some appraisers might use the MC Addendum.  It might be the easy way to derive a time adjustment, but probably is not the best way.  As we have talked about before on this blog and in my podcast, the MC Addendum is not the most organized form Fannie Mae ever invented.  However, it may be a good starting point.  

Some MLS systems allow simple, statistics to be derived with a few clicks of the mouse.  You may very well be able to take averages for a neighborhood, city, or county with a few creative minutes in your MLS system.  I use five (you heard right) different MLS systems, and I have found this to be my most effective way to derive potential time adjustments.  

There are many programs out there which will also help you synthesize and analyze data.  Many of them cost money (or are an investment) and some may be free.  They are almost always worth it.  Another great resource you are probably already familiar with is the old-fashioned spreadsheet.  Learn to import the data and use formulas to see what the market is doing.  

The market IS crazy!  I am sometimes making time adjustments across the board for every one of my sales and then a positive 1-2% list to sale ratio adjustment for my listings.  Nuts, but the data supports it.  

Now more than ever, is the time for appraisers to shine.  As I hear daily, “The market is crazy!”  Performing our job to a professional level is what will separate us from AVMs and our competition.  

22 thoughts on “How To Determine Time Adjustments”

  1. William Durham

    …so true your point about “support” vs. “proof”. Making adjustments based on support is what we do. You referred to an 8 month old sale as an example. Do you make adjustments from that sale’s closing date or contract date? I believe the “meeting of the minds” (contract) is the point from which to make a time adjustment. …the conditions in place at the meeting of the minds… Do you concur?

  2. Mr. Durham, Don’t know if Harris agrees but I do. Contract date is key for me as sometimes even in this world of cash close in 15 days, things can get screwed up and escrow extended so I use contract date. Dustin good blog, although where I am at 1-2% on listings ain’t near enough, y’all must have semi normal buyers up your way. My neck of the woods 5 to 10% would be more like it…..yikes, nuts left the building about 5 months ago.

  3. Thankfully our MLS reports contract date – that is the date you use. Here is a question – do you multiply this start point times the months leading up to the the month before your valuation (ie appraising in May – multiply the months since contract up to April) – or go all the way up to date of valuation – which may lead to a 4.5 month etc multiplier for example? Just asking

  4. Regardless of how your doing it, SHOW YOUR WORK IN THE REPORT! Are you using a spread of say $1,300,000 to a now $1,425,000 over a 6 month period? What is the daily / monthly appreciation rate (show it)? How many days and or months are you adjusting for (show it)? What is the % of that adjustment (show it)? When applying that % to the comps sales price, what adjustment amount are you thus using on the sales grid (show it)?

    Seek the truth, and principles before profits.

  5. Michael McGuan

    I keep a file of sales and resales of the same properties. I do not use investment “flips”. In each appraisal report I am already completing a history of the subject and comparable sales, so resales are not difficult to find. One would be surprised at how often a property will sell twice or more over a period of just a few years. Through MLS data and photos, as well as a call to the listing agent of the resale property, I find what improvements may have been made between sales. I then analyze that data, make adjustments for improvements, and calculate a rate of appreciation/depreciation. I typically only use sales/resales if no or minimal improvements have been made between sales, and adjust a dollar amount for the minor improvements completed, then calculate the appreciation/depreciation. Rates of appreciation/depreciation vary upon differences in location, price range, property type such as lakefront versus non-lakefront, condominium, 2-unit, 3-unit, busy road, etc.. This approach to measuring appreciation/depreciation is more time consuming, but I believe it to be the most accurate.

  6. I use a daily time adjustment for comps in my reports, using two spreadsheets with MLS comps data in a process taught to appraisers by Joe Lynch, appraiser in CA. While I understand the ‘argument’ about using the Contract Date, in reality anything can happen between that date and the actual recorded close date which may change the terms of the contract. Therefore, I use the close date and recorded sale price for my calculations.

  7. William Durham

    if I do an appraisal as of May 15th (subject) and comp sold in December with a contract in November, I count from Nov to May, 6 months, thus 6/12 x 6% annual appreciation rate = adjustment of 3% x sales price of comp = $adjustment.

  8. Scott T Baczkiewicz

    Very important to understand that data and statistics are one thing, actual same home sales are the best support for price increases. I’ve seen many many resales of houses that sold a year ago, 2 years ago and the sales price does not support the median or average price increases. Realize that data and statistics may be skewed the same as the 1004 mc is skewed. Increases in sales at the top end of the market and reduced sales in lower price ranges in a market can skew data very quickly. One $1,000,000 sale takes five $200,000 sales to balance a $500K average, and lack of sales at any price point can skew the median. This is not only for when prices are increasing. If the average or median sales price drops by 20% next year it may not be an actual indicator of a value decrease of 20% and may only indicate a change in the components of the data, perhaps a flood of foreclosures at the low end of the market and a slow down in sales at the top end. I am definately not saying don’t make Market condition(time) adjustments. What I am saying is make sure the data indicates what is actually happening so we are not part of the problem of ever escalating prices. A recent comparable is the best support for market condition adjustments.

  9. Dustin, do you have a basic formula to share such as Mr. Durham did? (Thanks Mr. Durham) I remember seeing something similar to that in a CE class on adjustments.

  10. Couldn’t have been said better. Lots of ways to do it. The thing I stress most to my Trainees is every appraiser may do it differently and that’s ok as long as you SHOW IT in the report.

  11. Haven’t seen a comment yet about what to do with other adjustments after you make the mark to market (time) adjustment. Say you decide a +/- 5% adjustment is required. Say $100,000 sale price X the % adjustment. Extract the land value from that adjusted $ and base your adjustments on that $ amount.

  12. I still have trouble wrapping my head around why use contract date of comparable, rather than the sold date. It is not a done deal until it is done. So as of the closed date is the final price. I understand that the price was agreed upon at the contract date, but it still is not a completed transaction. It just does not make common sense. Can you please clarify….thank you

  13. Paul Hendricks

    Im sick of getting asked by a lender why no time adjustments were done! People writing 20k or more over list price and having the realtor come back and say you did not make a market condition adjustment!! First and for most we are using a broad seach for sales not matched pairs, so the market information is skewed in that sense. I could see if one used a match pair sale and went back three to six months to see if there was an increase. I have realtors crying about a dated sale and that no market adjustments were made, and yet that dated sale sold for more than the two most recent sales?? I alway ask a realtor, if it’s worth more, than why did you list it where it’s at?? Because the market data told you what it’s worth!!

  14. I don’t see how you could adjust from the contract date. If median sales price is the indicator for a period of time, then the sold date would be the driver for that indicator. If we relied on contract date price (which can change or not even close) then there would be no real current median sale price. By the logic of using the contract date as the date the adjustment should start to be made, then all current contract prices as of the effective date would be the current median price. So, all all sales that are current would actually be older data. It feels as if forecasting is taking place if you are adjusting from contract dates.

  15. I fully agree with Dave… As an Appraiser and Realtor, I’ve seen and heard from other agents with regards to changes in the final sale price, up till the week of closing. A housing inspection comes back, and the Buyers request to lower the price if the Sellers are unwilling to make the repairs. In today’s market of crazy bidding wars on properties, there are Buyers that will make crazy offers on a property. Only for the appraisal report to come back (typically only a week or two before the closing) below the PA. Now the Buyers and Sellers are back at the negotiation table a week before the closing, likely at a lower price.

  16. I think that if the title of your article is “How To Determine Time Adjustments” you might want to actually state how to determine time adjustments.

  17. Dave Clements

    Hey Paul,
    What do you tell the underwrites when they ask why no time adjustments were made? I have never made them before and now they are asking for them..on a report that did not meet contract..imagine that.

    Thanks for your help,

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