Adjusting for larger building size?

[HowAboutNo]

Hi,
I'm a trainee, and something confuses me about building sf adjustments for commercial properties. In other categories of comparison (site size, condition, location, etc.), a comp gets adjusted downward for being superior to the subject, but when it comes to building sf, my supervisor says to adjust a larger building upward. He says this is because increased building size usually decreases the price per square foot factor. Is that the correct way to do it?

 

[Zephyr999]

Yes. It's called the the inverse theory.
Applies to both land and building
100 acres sells for $2,000 per acre
10 acres sells for $10,000 per acre

 

[HowAboutNo]

So for commercial buildings, as a general rule, a comp with more GFA than the subject should receive a positive adjustment?

 

[Terrel L. Shields]

So for commercial buildings, as a general rule, a comp with more GFA than the subject should receive a positive adjustment?

If you use comps in the same range of size, you don't need to adjust that way.

Look at your costs - a small building - let's use a simple subject 40' x 80' vs a comp of 50' x 200' as an example. The larger building will cost less per SF.
But size matters so you have to adjust DOWN for size but be aware of the quality/cost issue. So find the nearest sized comps you can.

Also, in some properties size isn't relevant so much as the rentals. Take a warehouse of 10,000 SF renting for $5 a SF and one of 20,000 renting for $5 a SF... the adjustment is for size as it directly relates to income. Regardless the wall height, regardless the SF...

Same with AG barns. A 33,600 SF poultry barn with a $2.50/SF contract is going to be a straight forward adjustment to a 16,000 SF barn as per size. The only issue is the smaller barn is likely older and has a shorter remaining life span. So ultimately, the larger barn is more valuable per SF in that case.

 

[J Grant]

Hi,
I'm a trainee, and something confuses me about building sf adjustments for commercial properties. In other categories of comparison (site size, condition, location, etc.), a comp gets adjusted downward for being superior to the subject, but when it comes to building sf, my supervisor says to adjust a larger building upward. He says this is because increased building size usually decreases the price per square foot factor. Is that the correct way to do it?

I do not do commercial appraisals, but appraisal theory is appraisal theory ( and so few are responding - you might also want to post it in the commercial section )

Imo, this suggestion sounds very odd. I have not heard of it, though perhaps it exists in the commercial world ? If it is not commonly done outside your supervisor, then your supervisor is not in line with peer practice, and peer practice is a standard (USPAP). If it turns out your supervisor is so badly off about this one thing, are they "off " about other things ? Or just this one oddball viewpoint-

If you line up all your comps on the grid and adjust for evreything else - site, condition, location etc, then what do the adjusted prices show ? Are the larger comp prices lower, indicating a price penalty in the market for being too big? ( the extraction method ) . If so, an upward adjustment is supported. But if not, then an upward adjustment is not supported.

We get our adjustment from the market, rather then applying a generic formula. If the market is showing a penalty for larger size, then the excess sf is funct obsolescence the white elephant syndrome, a building too large for its intended use -

But if no penalty is seen in price, I do not understand the support for making an upward adjustment for larger sf building .
In residential when we have a comp that is the too big for the HBU and market, it is a super adequacy and typically no downward adjustment is made for the excess sf -rather than an upward one..

 

[nstanbru]

Hi,
I'm a trainee, and something confuses me about building sf adjustments for commercial properties. In other categories of comparison (site size, condition, location, etc.), a comp gets adjusted downward for being superior to the subject, but when it comes to building sf, my supervisor says to adjust a larger building upward. He says this is because increased building size usually decreases the price per square foot factor. Is that the correct way to do it?

Not clear about your question. Is your supervisor saying to adjust the price per square foot of the comp upward or make an upward adjustment for the difference in building area between the comp and the subject?

 

[J Grant]

Yes. It's called the the inverse theory.
Applies to both land and building
100 acres sells for $2,000 per acre
10 acres sells for $10,000 per acre

That is true, but that is a segmented breakdown of each acre or sf rather than contributory value of excess among similar properties.

The scale of 10 acres vs 100 acres difference is so great I doubt one would be a comp subsitute for the other. That would be like comparing a 1000 sf building with a 10,000 sf building. The functional utility and market of buyers is so different that they'd almost never be comps for each other.

The question might apply better to the subject is 6400 sf and the comps are 6000 -7000 sf and then one comp is 8800 sf , would you apply an upward adjustment for the 8800 sf comp?

 

[KHS445]

Most of the time in the commercial world one does not have the luxury of finding recently sold comparable properties. Depending on how rural a location you are working you may have to go back several years and travel 50+ miles for even a reasonably similar comp. As mentioned in response #2, generally the smaller the number of units the greater the price of each unit. This goes for land area, street frontage, water frontage, square footage, etc. If I make such an adjustment I will comment in my report as to why I made the adjustment and what it is was based on.

It is very important that you know your market and how it reacts to such things. As mentioned in post #4 in some areas and for some types of buildings it isn’t a factor.

 

[J Grant]

Any adjustment has to be supported regardless of how hard it was to find comps.

It seems the OP overall wants to know , is it typically seen in the commercial appraisal realm for larger sf buildings to be adjusted down?

As a trainee being stuck having to trust in and obey a supervisor that is the question commercial appraisers would be helpful to the OP for - imho)

 

[KHS445]

The question might apply better to the subject is 6400 sf and the comps are 6000 -7000 sf and then one comp is 8800 sf , would you apply an upward adjustment for the 8800 sf comp?

Exactly. Generally (and depending on the size of the subject) I will. It adjust if the subject and comparable are within 15% to 29% of each other. Something that will come under the heading functionality is eave/clear span height and how it relates to the height and width of the access. A building with a 20’ eave and a 10’ x 10’ overhead door is not that desirable. Usually you like to see a door height that is within a foot or two of the eave, with a width to accommodate the typical user. For instance a semi repair facility may be happy with a 10’ or 12’ wide door, but a machinery/heavy equipment may want a door 18’ or wider.

Rarely if ever you one find a model match in the commercial world.