Looking for your opinion on adjustments

[Zoe]

I do small semi-rural hobby farms (5-acre size typical)

If one is appraising rural/multi-acreage properties, I might assume the greater value is in the land. That would make the size of the house and a GLA adjustment will have far less impact on the value. If the site is 30 acres (for example ), the site size is usually of primary importance to a buyer - if the house is smaller, it can always be expanded later. In any event, with rural acreage, if most of the value is in the land, using a bigger sf house comp and its adjustment will have only a minor impact on value. It also had a reason for being used - a similar multi-acre site size.

The OP references a 200-house subdivision. They did not specify lot size, or if the lots for 4000 sf houses are bigger than the lots for 2500 sf houses in the subdivision.

I would not use that 4000 sf with 2500 sft house in OP's situation. I would jump to another subdivision if I had to and do location adjustments if necessary.

 

[J Grant]

I would not use that 4000 sf with 2500 sft house in OP's situation. I would jump to another subdivision if I had to and do location adjustments if necessary.

I would go back in time or use a pending or listed 2500 range house. If I did choose to use the 4000 sf house as a comp, I would not massage the adjustments to bring it into line. If it adjustts way higher or lower, it shows it is a weak comp and should not be given much weight.

What I used to see as a reviewer is a superior sale or two, whether in terms of quality, size, or location, dragged in as a comp to hit value. These appraisers often did not include a more similar to subject closed sale comp.

 

[ZZGAMAZZ]

Using a much bigger house as a comp for a smaller subject, the bigger comp should normally have a larger downward SF adjustment, and adjust lower, not higher than other sales.. I might assume that it passes reviewers on the front end by a client if it makes value, because some clients will tolerate hinky methods to get there. An appraisal can be forensically reviewed later. The question is how it would fare then.

IDK if a bigger sale should be used - if your subject is 3500 sf, then a 4000 sf comp is within a reasonable range. If your subject is 2500 sf, then 4000 sf is typically not a comp.

I thought that the issue being addressed is not whether a larger DU should be adjusted downward, but whether the magnitude of the per-unit factor should change as the difference between subject and comparable changes--similar to the reason that appraisers reject a realators' reccomentation to apply the $/SqFt of a smaller SFR to a larger SFR that is the subject of an assignment. [BTW I don't understand why the AF rejects the possibility of a "sliding scale" adjustment factor to reflect "diminishing marginal returns" that theoretically could/should pertain to any quantitative factor, e.g., lot size, construction date, GLA, GBA....]

 

[TerryRohrer]

Using a much bigger house as a comp for a smaller subject, the bigger comp should normally have a larger downward SF adjustment, and adjust lower, not higher than other sales..

This suggests that one is consciously making adjustments they know do not accurately reflect market reaction. Why, if an adjustment is credible and supported, should it result in a clear departure from other market data?

 

[J Grant]

I thought that the issue being addressed is not whether a larger DU should be adjusted downward, but whether the magnitude of the per-unit factor should change as the difference between subject and comparable changes--similar to the reason that appraisers reject a realators' reccomentation to apply the $/SqFt of a smaller SFR to a larger SFR that is the subject of an assignment. [BTW I don't understand why the AF rejects the possibility of a "sliding scale" adjustment factor to reflect "diminishing marginal returns" that theoretically could/should pertain to any quantitative factor, e.g., lot size, construction date, GLA, GBA....]

First and always is comp selection. Making sliding scale adjustments just opened the door to using non-similar comps. That a comp is not similar gets shown in the adjustments, and yes, the property will show a big " price gap" -exposing its weaknesses as a comp-- which supports why it should not count much in the value reconciliation.

Appraisers reverse-engineering appraisal methods to adjust lousy comps at smaller sliding scale intervals is not peer practice for a reason.

 

[ZZGAMAZZ]

First and always is comp selection. Making sliding scale adjustments just opened the door to using non-similar comps. That a comp is not similar gets shown in the adjustments, and yes, the property will show a big " price gap" -exposing its weaknesses as a comp-- which supports why it should not count much in the value reconciliation.

Appraisers reverse-engineering appraisal methods to adjust lousy comps at smaller sliding scale intervals is not peer practice for a reason.

I just looked-up the definition of "reverse engineering" hoping to enhance my vocabulary. However, my first thought was that your response

Making sliding scale adjustments just opened the door to using non-similar comps

. . . is an example of "reverse engineering thought." To purposely maximize the distinction between subject and comp in order to emphaize the distinction IMO isn't an objective protocol, although to do so would effectively--although unnecessarily--make the point that the user was trying to make. Diminighing returns is a proven economic concept; in fact, I might even ask Nando to integrate it into his next revision of USPAP !!!!!!!!!!!!!

 

[J Grant]

This suggests that one is consciously making adjustments they know do not accurately reflect market reaction. Why, if an adjustment is credible and supported, should it result in a clear departure from other market data?

If the adjustment is correctly reflected in the market, then it is credible and supported. If a credibly supported adjustment skews the value, or makes a weak copm stick out like a sore thumb, is when some try to "correct" it.]


Their example sounds like changing the adjustment from what the market indicates to smooth out results to get the appraisal past UW.
Overriding the market reaction by massaging the adjustments to make the adjusted range of value artificially tighter. (Without seeing the appraisal, I am making an assumption)

 

[Terrel L. Shields]

thought that the issue being addressed is not whether a larger DU should be adjusted downward, but whether the magnitude of the per-unit factor should change as the difference between subject and comparable changes--similar to the reason that appraisers reject a realators' reccomentation to apply the $/SqFt of a smaller SFR to a larger SFR that is the subject of an assignment.

Traditionally, the industry wants a SF adjustment that is the same, but I agree you are correct. In adjusting sizes over a large range (say 1,200 SF to 4,000 SF) if you plotted the adjusted differences, I bet it would be a curved line, not a perfectly straight one. If the range is small, it is likely to be almost straight, but I bet over a large range then it will be a logarithmic or power law curved plot.

 

[J Grant]

Traditionally, the industry wants a SF adjustment that is the same, but I agree you are correct. In adjusting sizes over a large range (say 1,200 SF to 4,000 SF) if you plotted the adjusted differences, I bet it would be a curved line, not a perfectly straight one. If the range is small, it is likely to be almost straight, but I bet over a large range then it will be a logarithmic or power law curved plot.

They do not want it the same for every property. The expectation is that the sf adjustment be the same $ per sf on an appraisal report, which normaly uses similar a similar range of sf for the comps.

Unless there is a compelling reason, for most residential properties, an appraiser would not usually compare 1200 sf comps to a 4000 sf subject, and would not use 4000 sf comps for a 1200 sf subject.

I might be working on two condo appraisals on the same day. For various reasons, one condo shows an adjustment of $200 per sf and the other an adjustment of $50 per sf. The sf adjustment is particular to each property and to each report.

 

[Terrel L. Shields]

which normaly uses similar a similar range of sf for the comps.

As I stated when the range is small, the adjustment is rather the same, an apparent straight line. I work with some large ranches where they have large and small homes and often have 2 houses even, or they have a basement and no comp has a basement. So, you have to think outside the box.