Looking for your opinion on adjustments

[alebrewer]

There is a situation where you could have a GLA adjustment of $100 for one comparable and $175 for another - that would be in a tiered market. Your 3000 square house competes in a tier of similar sized homes - say 2500 - 3500. But if a lack of data forces the use of a 4900 GLA house. This 4900 GLA is in a different tier of overall prices that "gap-up" well above the the $100 per adjustment you supported in the subject tier. The "gap-up" doesnt support the $100 adjustment - it is $100 plus a premium for being in a different tier. I've seen appraisals with the same $100 GLA adjustment to the 4900 sqft house that ends up adjusting high relative to the comps in the subject's GLA tier. There is a reason it is adjusting high - the GLA difference did not account for the 'gap-up" in the pricing structure. If you look for it, you will see it.

this could also be handled via a functional adjustment, thus allowing the appraiser to apply a consistent GLA adjustment factor.

 

[shrubberyvaluation]

I just had a "chief appraiser" tell me that adjustments should not be made by comparing median price per square foot and then applying that to the living area in order to ascertain a market data driven adjustment. Further, he continued to tell me that a pool adjustment should be the same across the board.... for example a $11/sq.ft adjustment for a living area of 4400sqft should be exactly the same as that of a comparable with 3200sqft.

I dont agree at all ... if the adjustment were percentage based, would it be exactly the same across the board?

You do whatever works for your market. There can obviously be differences and market reaction based on typical market participants. Why would the difference between 500 and 600 GLA have to be the same adjustment as between 9,900 GLA and 10,000 GLA. As others have said, these shouldn't be in the same report.

Obviously it looks nicer to use rote adjustments and there are quite a few that do that instead of analyzing the market.

 

[J Grant]

You do whatever works for your market. There can obviously be differences and market reaction based on typical market participants. Why would the difference between 500 and 600 GLA have to be the same adjustment as between 9,900 GLA and 10,000 GLA. As others have said, these shouldn't be in the same report.

Obviously it looks nicer to use rote adjustments and there are quite a few that do that instead of analyzing the market.

The $ per sf for a 500-600 sf property would normally be quite different from that for a 9900-10,000 sf property.

It looks like they are talking about making different prices per sf for a specific comp or comps on an appraisal, the example being a very different size GLA comp( like using a 2000 sf comp for a 600 sf subject ) As you note, these typically should not be in the same report - but if they are, adjust the same end up with one very out of line high value comp ( which is either not weighted much or thrown out )

 

[Terrel L. Shields]

"Accrued depreciation' includes depreciation from all sources.

Yes, but nothing in USPAP means you have to address all three separately.

 

[Terrel L. Shields]

It can mean using a concept such as over-improvement or super-adequacy.

In commercial work there is often real property that is unique to the business. That might be something rare in the market place. Let's not kid anyone. The cost approach might not work for most residential assignments even when it mirrors the sales approach and provides evidence of the underlying land value. But that's because most residential appraisers are too lazy to develop the cost approach or feel it is somehow irrelevant.

I just finished 2 appraisals. Small land tract, has a shop building to store chemicals. And it is an agricultural service company in an area where the service is in demand. It has a huge bulk tank on the site. There are no comps that have sold. Only a few such operations exist in the state. They spread boric acid powder in chicken litter to reduce insects. Is that an "over-improvement"? No. It is integral to the operation and affixed to the property. This property, if sold, would almost certainly sell as an on-going operation... an orderly disposal of the business, not a forced sale. As such, the bin(s) would certainly be valuable. I know what the cost is and the only reasonable method of adding the value is a cost related method. So, I estimated a total life, deducted for the age, and added to the value of the land and building. As for the land and building, I can find a number of small tracts with similar shop buildings. This left me with an across the board adjustment in the sales grid. To call it an "over-improvement" and assume the market would be discount the bin is a great way to undervalue the property.

 

[sputnam]

Yes, but nothing in USPAP means you have to address all three separately.

That's true. USPAP also doesn't directly require you to address all three together. It does however require us to use accepted and supported methods. What were you taught in your appraisal classes? I suspect you were taught the differences between physical depreciation, long lived and deferred maintainance.... external... and functional. That is the accepted method. In your appraisal report, you may combine them into a single number... but, you certainly should explain.

 

[Webbed Feet]

There is a situation where you could have a GLA adjustment of $100 for one comparable and $175 for another - that would be in a tiered market. Your 3000 square house competes in a tier of similar sized homes - say 2500 - 3500. But if a lack of data forces the use of a 4900 GLA house. This 4900 GLA is in a different tier of overall prices that "gap-up" well above the the $100 per adjustment you supported in the subject tier. The "gap-up" doesnt support the $100 adjustment - it is $100 plus a premium for being in a different tier. I've seen appraisals with the same $100 GLA adjustment to the 4900 sqft house that ends up adjusting high relative to the comps in the subject's GLA tier. There is a reason it is adjusting high - the GLA difference did not account for the 'gap-up" in the pricing structure. If you look for it, you will see it.

Very bad way to go by representing, for example a quality of construction adjustment, by co-mingling it into one's GLA adjustment. Or, representing a location adjustment or external market conditions adjustments [or just plain using a "comp" (it's not a comp, it is a sale) that is out of the same market simply to get a recent sale date] by co-mingling them into difference in GLA adjustments. Failing to acknowledge and adjust for these things separately are why one would see the situation you describe.

 

[Terrel L. Shields]

What were you taught in your appraisal classes? I suspect you were taught the differences between physical depreciation, long lived and deferred maintainance.... external... and functional. That is the accepted method. In your appraisal report, you may combine them into a single number... but, you certainly should explain.

Why? We can know that, in fact, taught about it in a class I developed. But I've reviewed a lot of appraisals from CRs and few address anything but accrued depreciation in either the comps or the subject. I reviewed one report where the appraiser obviously adjusted the cost approach to match the sales approach and to do so, without addressing depreciation, simply stated the RCN was $50/SF at a time when construction costs were north of $80. She literally had zero depreciation of any kind. And no consideration of depreciation of comps or the subject. You cannot do one without the other. CGs are more likely to address the externalities and functional issues but again, they still tend to address only accrued depreciation rather than explicitly address both external and functional depreciations separately.

In summary, this is the Donald Epley method of extraction.

 

[ZZGAMAZZ]

Very bad way to go by representing, for example a quality of construction adjustment, by co-mingling it into one's GLA adjustment. Or, representing a location adjustment or external market conditions adjustments [or just plain using a "comp" (it's not a comp, it is a sale) that is out of the same market simply to get a recent sale date] by co-mingling them into difference in GLA adjustments. Failing to acknowledge and adjust for these things separately are why one would see the situation you describe.

IMO the Location and View adjustments often can be combined and reported as one or the other, with an explanation provided.

 

[ZZGAMAZZ]

Why? We can know that, in fact, taught about it in a class I developed. But I've reviewed a lot of appraisals from CRs and few address anything but accrued depreciation in either the comps or the subject. I reviewed one report where the appraiser obviously adjusted the cost approach to match the sales approach and to do so, without addressing depreciation, simply stated the RCN was $50/SF at a time when construction costs were north of $80. She literally had zero depreciation of any kind. And no consideration of depreciation of comps or the subject. You cannot do one without the other. CGs are more likely to address the externalities and functional issues but again, they still tend to address only accrued depreciation rather than explicitly address both external and functional depreciations separately.

In summary, this is the Donald Epley method of extraction.

1) Google describes DE as an economist. Please advise of the reference that you provide

2) Kinda curious: how did you have an opportuity to create the course content?

2) The FNMAE Cost Approach dialogue box includes the "less" cell that presumably reflects the "total anticipated economic life" as new. ACI software defaults to 50 although it can easily be revised; however, why is the M&S defult 60 years when most, or all, typical SFR's last much longer, if I am understanding the concept correctly?