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.