INTRODUCTION
Consider the lowly box-and-whisker (B&W) graph. From any spreadsheet program, it is easy to make (it is part of the graphing function). You’ll find it easy to read, too. Clients generally understand it since it so clearly announces its own purpose. From it, the appraiser gets an instant picture of the high and low extremes of a neighborhood’s comparable and competitive sales, as well as where most of those sales lie within an indicated range.
WHAT A B&W GRAPH DOES
Use of a B&W graph aids the appraiser to communicate what the 1004 form wants in the neighborhood analysis. This is a quote directly from Fannie’s Selling Guide (Trends of Neighborhood Property Values, Demand/Supply, and Marketing Time):
“…lenders must confirm that the appraiser analyzes listings and contract sales as well as closed or settled sales, and uses the most recent and similar sales available…When completing the One-Unit Housing Trends [the appraiser] must reflect those properties from the same segment of the market as the [subject]. This ensures that the analysis being performed is based on competitive properties…” (italics added).
This means, as part of the appraiser’s analyses of the neighborhood, as part of the analysis of one-unit housing trends, Fannie wants to know what’s going on with properties competitive with the subject. She in far less interested in the sale and purchase of other types of properties or from non-competitive segments of the subject’s market
A B&W graph, properly set up (i.e., including only those sales comparable to and competitive with the subject), graphically shows those extremes. And it is that graphic illustration that is its beauty. Not only does it show the high and low extremes of the subject’s competitive market. It also shows the market’s center. All other things being equal, this is where the subject’s value will reside. Use of a B&W graph will not, in and of itself, indicate the subject property’s market value. It will show you, however, the range in which it probably lies.
WHAT A B&W GRAPH DOES NOT DO
A box-and-whisker graph is not a “silver bullet”. It does not solve all appraisal problems. For example, in a rapidly changing market, a B&W graph will reflect the market as it was when those sales occurred. Since its data are historical, it therefore cannot reflect the market as it is as of the appraisal’s effective date. Nonetheless, with a simple market-to-market adjustment, that problem goes away.
You can also use a B&W graph to shut-up that busybody Realtor©. For some reason, s/he thinks that by giving you a bunch of bogus and incompetently high “comps”, s/he can influence your value conclusion in favor of his/her commission. Wrong! You know where the market lies, since your analyses of the market and the B&W graph show it to you. You know where the irrelevant outliers are (the sales the Realtor© provides to you) since the B&W graph shows them to you. Therefore, the proper and relevant use of a B&W graph shows you to be the professional. It shows you as the professional on top of the market. You become the one who has conquered the market’s facts. As a result, you are competent, independent, impartial and objective. Are AVMs competent, independent, impartial, and objective?
CONCLUSION AND CALL TO ACTION
As you use a box-and-whisker graph, there are other advantages, too. When I can help you with these, please feel free to consult with me. I’m available for consultation on a one-time basis. I’m also available on a coaching/mentoring basis, too. Contact me for details at tim@theappraisersadvocate.com. It will be an honor to work with you!
Hi Tim, Thank you and sharing this.
Do you have 1-2 visual image examples of what you’re describing?
Bill, Thanks! I sent you under separate cover materials on B&W graphs and look forward to working on them with you!
Hi Tim,
I am not able to find the B&W graphs in my excel program. Can you clarify?
Mary
Hi, Mary! Feel free to call. We’ll walk thru it together! Thanks! My Best!
Hi: I am disturbed that you would write about a particular type of graph without including an example! “A picture is worth a thousand words.”
Richard, thank you for your comment! I appreciate the suggestion. I purposefully do not include examples, so appraisers will have the opportunity to call me. That way, we can go over these matters in person. Feel free to call me with any questions you have: 561/635-5265. Again, thank you! My Best to you and all of yours!
A little confused on one point Tim, and it may be my interpretation of the wording. FNMA makes clear that the 3 lines on page one under One Unit Housing Trends is to be relative to the subject. They also make clear that the remained of the neighborhood data is relative to the defined neighborhood, such as the price range, age range, predominates, and land use breakdown. Providing information in this section that is only relative to competitive properties would render the neighborhood study meaningless to the users of the report as it would make every subject property seem to be typical to that area. Are we on the same page?
Steve, Thanks for your note! I’ve tried to get you on the phone, but have had no luck. When all of the fires from this morning are out, I’ll get back with you. Thanks, again! Be safe and well!