Adjust for Heating/Cooling?

[VolcanoLvr]

Do you make an adjustment for differences in Heating/Cooling?

If so, what is your calculated basis for doing that? In other words, do you have precise market evidence that one type of heating is worth more than another type, or that AC is worth moe (in areas where AC is not built into most homes due to climate)?

The GSE's are now getting very anal about how we calculate and do adjustments. This is one of them that probably can be left unadjusted, with a '0' in the column field if there are differences.

The Reconciliation can be used to compensate in the OMV statement if an appraiser thinks the Heating/Cooling drives the value.

 

[Riick]

FWIW.... My thinking about A/C systems, multiple-zone systems, etc. is that if I can put in A/C for $3-$5,000 no one is going to pay more than that for an already-installed *used* system, ditto with different $$ amounts for multi-zone, heat-pump w/gas backup, etc., etc.
That gives you the upper limit of value.

As to real-life amounts, you should be able to extract that from MLS data.
If that number is more than cost new, there's something suspect about that MLS data.

 

[Jo Ann Meyer Stratton]

I make adjustments for cooling systems in my area. Many houses still have evaporative cooling units (me included) because during the hot, low humidity months operating costs are about half of refrigeration. Some have only the evaporative cooler. Some have refrigeration in addition to the evaporative cooler (me), which is run during the monsoon season (July and August when we get our six inches of rain for the year). Other homes have the refrigeration only (very expensive cooling bill for all hot months). Installation of an evaporative cooler can run between $1,000 to $2,000, depending on the style of excelsior pads, the foot thick ones are more expensive but are more energy efficient. Installation of refrigeration starts at over $5,000 and goes up rapidly from there. Both systems use the same ducts so the difference in costs is the equipment. So the type of cooling system does have an impact on the market.

 

[VolcanoLvr]

Right. Extract the difference for FWA vs baseboard heating in similar size and age homes.

I'm sure every appraiser does that for every assignment. Oh yeah.

Frankly, that amount of effort is not worth the eventual outcome of $1-2K or so as an adjustment.

 

[Riick]

Right. Extract the difference for FWA vs baseboard heating in similar size and age homes.

I'm sure every appraiser does that for every assignment. Oh yeah.

Frankly, that amount of effort is not worth the eventual outcome of $1-2K or so as an adjustment.

If possible -- and I doubt *that* data's there--
Do it once, if only for fun value.
Excel makes it pretty easy, if you can download significant amount of sale data from your MLS
Thereafter you can honestly say MLS data showed that......... blah blah blah.
That adjustment/amount won't change significantly for years.

.

 

[Mike Garrett RAA]

The market reaction, IN MY MARKET, to central AC vs none in a median priced property is $2,500 to $3,000. A swamp cooler will typically add $1,000 to $1,500. Paired sales analysis is the preferred method in determining an adjustment.

Should an appraiser be required to prove each and every adjustment in an appraisal report? Is data in an appraiser's work files sufficient for most common adjustments? Personally, I have never been asked to provide "proof" for my adjustments but then most of my adjustments are very comparable to what my peers use.

I have been an advocate of establishing a percentage of contribution for most common items of adjustment. In that way the adjustment can change with the price range of properties. As an example, would a third parking stall be worth the same in a $200,000 residence as opposed to, say, a $500,000 residence? The only way to develop that percentage number is by paired sales analysis of literally hundreds of sales. This is where appraiser experience, mentoring or training by peers, and competence comes into play.

In years past, our local appraiser's group (CAREA) has benefited by having numerous reviewers from FHA, VA, Fannie Mae, local banks, and credit unions discuss what they look for in an appraisal report. Just yesterday we had the chief executive of one of the largest AMCs address this very issue along with other issues as it pertains to AMCs reviewing appraisal reports.

There is no "magic list" for adjustments; however, there is a commonality to be found reviewing thousands of reports. The key question should always be..."is it reasonable?". Did the appraiser explain ANY adjustment that would be unusual? This is where an AMC can be of benefit to the appraiser. Better to discuss it BEFORE it reaches the client if it is perceived to be a red flag.

 

[Terrel L. Shields]

Most houses here without central heat and air are very old. And I find it hard to justify an adjustment when CHA has been retro'd into one. Newer homes should be equipped with CHA or I think a market reaction would be a given. But I rarely encounter that. OTOH, heat pumps do not seem to be discernible in most cases either. Even a geothermal system is very difficult to pair sales and detect a difference.

 

[Elliott]

I got one yesterday that has a some sort of certified green rating, its an REO. I'm thinking its rating didn't prevent it from becoming an REO. Looks like it has a 95% efficient furnace. I noticed based on the sign-in sheet, no one was in the house for the last year. I'm not thinking the market will view its greeness such that it will trump its REO feel.

 

[VolcanoLvr]

"That adjustment/amount won't change significantly for years."

That is precisely the rub the GSE's have with the way we adjust items.

So you're telling me that you're still making the same adjustment(s) in the amounts that you were given by your mentor 20 years ago on that yellow tablet paper?

My point is why do we continue to do this nonsense? Virtually no appraiser doing production assignments takes the time to extract every line item on the form to determine an appropriate adjustment, for every assignment. I doubt many appraisers take the time to 'play the game' once a year to see what the market is doing for those items.

When a particular item adds or subtracts .5 - 1% of the total OMV, why make that adjustment? We are not that good, and appraising is not an exact science. Appraisers just leave themselves wide open for criticism or worse when reviewed or investigated, and can't produce the documentation to support the adjustments.

The reconciliation can be used to 'adjust' the value of items without actually putting a specific number in the grid for a specific item.

 

[Doug DeMars]

Also...keep in mind that an adjustment of "0" also requires the same burden of proof as any adjustment found w/in a sales grid.

The GSEs expecting full analysis of any adjustment...including null adjustments...is more fiction than fact. That being said...there is an expectation regarding the rationale in the adjustment process.