Ronald Reagan was once quoted:
“I knew Thomas Jefferson. He was a friend of mine. And believe me, you are no Thomas Jefferson“. (at 1992 Republican party convention, referring to Bill Clinton)
Sometimes I read appraisal reports and I want to say to the appraiser: “you are no appraiser“.
Appraisals are based upon Comparables
So we all know that an appraisal is typically based upon comparable sales. However, the problem for the appraiser is to select the best comparables that are available in the market. Here in lies the problem-all appraisers are not created equal. Just like Thomas Jefferson and Bill Clinton (although Bill was a good enough politician that he evolved into a decent leader.
I used to teach appraisal classes. And in this classes I would refer to my own theory of comparable sales which I called “the Duck Theory“. So, the Duck Theory was easy to understand. If it looked like a duck, sounded like a duck and walked like a duck -it is a Duck!
The second thing I taught was that in order for a sales to be considered a comparable it needs to meet a simple test. That test is that if you were going to sell a property to a buyer, it needs to be one that a buyer would consider purchasing given their criteria.
Case Study
But we see a lot of swans or alligators compared to ducks in some appraisals. Let me give you an example.
Here is a picture of what adjoins some land that was the subject of a recent appraisal I was asked to look at:
So an appraiser selected the best comparable sales to compare to land. The subject property is located in Manatee County. So here is the map that shows the location of the “Comparable Sales”:
And the sales this appraiser selected are located in three Florida Counties- Hernando, Pasco and Polk. The subject property is located in Manatee County. The “comparables” were located about 35 miles to around 109 miles from the subject property as the crow flies. The transactions closed from 1 & 1/2 years to slightly over 4 years from the date of value.
What’s more, Can you imagine doing your due diligence on the purchase of a property and looking at 4 year old transactions? That simply boggles the mind. So there were no recent sales that this appraiser could find in the subject market area that occurred recently?
We were asked for our opinion of value. Here is the map of the data that the we found:
Further, all of the data selected was located in the same county within nine miles of the subject property and one sale essentially adjoined the subject property. All transactions closed from 3 months to 9 months from the date of value. The obvious question is why did the first appraiser not consider data in the same county as the subject property is located?
Common Sense and the Duck Theory
And that is why when you look at an appraisal, you ask yourself-did the appraiser apply the Duck Theory? Did the appraiser seriously think that a buyer looking for land in Manatee County would only look at properties in Hernando, Pasco and Polk Counties that occurred from 1 1/2 years to over 4 years ago and would have no interest in the current local market? Selection of comparables to use in an appraisal is quite simply common sense. The problem is common sense is not very common these days.
Finally that is why I want to say sometimes that “you are no appraiser“.