Adjustment Support Request

[GWISC]

In my area, we do not have paired sales. Paired sales are like Big Foot; Only a precious few have ever seen one in the wild.

Market Conditions or Time:
This one is appraising 101. Just utilized your MLS to figure out the median sale prices either utilizing the MC report which can be added to your report, or go month by month and track the median sale price within your submarket. Include this chart or data in your appraisal.

Site:
For specific adjustments such as site size, I utilize a few land sales of similar utility to my site. Larger site size minus smaller site size, then larger price minus smaller price. Then price difference divided by site size difference gives you a reasonable starting point for adjusting for site size per sf or acre. I try to get at least 3 land sales. And yes, I include the land sales and calculations in my report.

for example:
Site A: 10 acres sells for $100,000, or for $10,000 per acre.
Site B: 5 acres sells for $ 75,000, or for $15,000 per acre.
Result 5 acres $25,000

$25,000/ 5 acres = $5,000/acre adjustment for surplus land.

I keep a copy of each MLS or other sales sheet of each land sale I use in my report's workfile.

For GLA:
I utilize the price/sf from Marshall and Swift PRIOR to all the add-ons (roof type, number of plumbing fixtures, etc..). The based cost per/sf is then multiplied by your market's typical developers profit, then you deduct physical depreciation as based on your estimate of effective age on page 1 divided by whatever number you are using for a typical total life of a house in your market and submarket. And yes, I indicate the cost/sf from Marshall and Swift and keep a copy of this in my workfile.

Most of the rest of the adjustments are depreciated cost.

Survey:
I also use survey. Really. Call some real estate agents that you know well and ask them how much the market is paying for additional full baths and bedrooms, even additional garage bays. Make sure to survey as many submarkets as you can while you have them on the line. I keep a copy of this survey in my workfile. It gets updated every few years. BTW, 5% seems to be the adjustment for the number of bedrooms and full baths, at least in my market (that adjustment/bedroom and bathroom is also applied to basement finish bedrooms and baths as well).

So far, I have not subscribed to a data crunching service. I reviewed a report which relied on one. The report simply indicated the data service indicated a likely adjustment between (A) and (Z) and that the adjustment was determined to be (K). That was all of the discussion. There was no discussion as to if the results were from inputted data only from the subject submarket, or from the entire market spectrum. Nor was there discussion as to why the specific adjustment, within the wide range, was used. It would have been more enlightening to have a discussion as to why more weight was put on one end of the range or the other, but alas there was no discussion.

Sensitivity Analysis:
Sensitivity analysis is applied to fine tune to the above adjustments only after I have determined the adjustment range for the element in question. It is not used as a tool by itself for any one element of comparison.

Summary:
Showing your work takes time and effort. This is why some appraisers take 1 to 2 days to complete an appraisal, and why some appraisers (who likely don't do this kind of research) can pump out two reports a day (including inspections).

 

[ZZGAMAZZ]

In my area, we do not have paired sales. Paired sales are like Big Foot; Only a precious few have ever seen one in the wild.

Market Conditions or Time:
This one is appraising 101. Just utilized your MLS to figure out the median sale prices either utilizing the MC report which can be added to your report, or go month by month and track the median sale price within your submarket. Include this chart or data in your appraisal.

Site:
For specific adjustments such as site size, I utilize a few land sales of similar utility to my site. Larger site size minus smaller site size, then larger price minus smaller price. Then price difference divided by site size difference gives you a reasonable starting point for adjusting for site size per sf or acre. I try to get at least 3 land sales. And yes, I include the land sales and calculations in my report.

for example:
Site A: 10 acres sells for $100,000, or for $10,000 per acre.
Site B: 5 acres sells for $ 75,000, or for $15,000 per acre.
Result 5 acres $25,000

$25,000/ 5 acres = $5,000/acre adjustment for surplus land.

I keep a copy of each MLS or other sales sheet of each land sale I use in my report's workfile.

For GLA:
I utilize the price/sf from Marshall and Swift PRIOR to all the add-ons (roof type, number of plumbing fixtures, etc..). The based cost per/sf is then multiplied by your market's typical developers profit, then you deduct physical depreciation as based on your estimate of effective age on page 1 divided by whatever number you are using for a typical total life of a house in your market and submarket. And yes, I indicate the cost/sf from Marshall and Swift and keep a copy of this in my workfile.

Most of the rest of the adjustments are depreciated cost.

Survey:
I also use survey. Really. Call some real estate agents that you know well and ask them how much the market is paying for additional full baths and bedrooms, even additional garage bays. Make sure to survey as many submarkets as you can while you have them on the line. I keep a copy of this survey in my workfile. It gets updated every few years. BTW, 5% seems to be the adjustment for the number of bedrooms and full baths, at least in my market (that adjustment/bedroom and bathroom is also applied to basement finish bedrooms and baths as well).

So far, I have not subscribed to a data crunching service. I reviewed a report which relied on one. The report simply indicated the data service indicated a likely adjustment between (A) and (Z) and that the adjustment was determined to be (K). That was all of the discussion. There was no discussion as to if the results were from inputted data only from the subject submarket, or from the entire market spectrum. Nor was there discussion as to why the specific adjustment, within the wide range, was used. It would have been more enlightening to have a discussion as to why more weight was put on one end of the range or the other, but alas there was no discussion.

Sensitivity Analysis:
Sensitivity analysis is applied to fine tune to the above adjustments only after I have determined the adjustment range for the element in question. It is not used as a tool by itself for any one element of comparison.

Summary:
Showing your work takes time and effort. This is why some appraisers take 1 to 2 days to complete an appraisal, and why some appraisers (who likely don't do this kind of research) can pump out two reports a day (including inspections).

Very detailed, succinct description of the methodology that you favor, with corresponding rationale described [without forcing ur opinions or bashing others]. AWESOME POST!!!

 

[sputnam]

Respond with this.
"USPAP does not require the appraiser to provide internal notes, proprietary calculation sheets, draft analyses, or other workfile materials unless required by law, due process, or a duly authorized professional peer review. Workfile contents beyond what is included in the report itself are not part of what is provided to clients."

That being said, you should have the data to support the adjustments.

That's true however, USPAP is the minimum requirement. If your Client specifed at the time of your engagement, that you would provide that sort of data to them and you accept the assignment then, you do it.

 

[GWISC]

That's true however, USPAP is the minimum requirement. If your Client specifed at the time of your engagement, that you would provide that sort of data to them and you accept the assignment then, you do it.

I agree.

To me, it is just easier to include all of your supporting work in the body of the report rather than just a summary of the support contained in the workfile. I suppose there are many that would CLAIM the support is in their workfile, but that is their decision to do so. I would caution using statements saying you have paired sales as a support for your adjustments. Paired sales analysis are not very common, at least in my market, and I suspect in most other markets as well. To be honest, I have never even seen one in the wild. If I am reviewing a report that makes that claim of paired sale analysis support, but see no worksheet showing such, I would be suspicious that it exists.

If you truly did all that work determining an adjustment via paired sales, then why would you not include the worksheet into the addendum? My goodness, If I found that rarest of the rare paired sale set showing a quantifiable difference in any one element of comparison, I would definitely show if off in the body of the report. Also, you can save that work to utilize on other reports with similar adjustment requirements.

I find if you provide the support in the body of the report, you won't have to provide it later when the underwriter requests your support to show your work. Including support for adjustments in the body of the report creates longer write-ups, but it cuts call-backs to zero.

Also, when you show that much effort into support for adjustments, your report suggests more credibility and a reliable value conclusion.

I would caution you. Please do not claim paired sales as support for adjustments if you don't have any. If you do, include it in your report. To me, claiming paired sales is a red flag, at least in my markets.

 

[J Grant]

I agree.

To me, it is just easier to include all of your supporting work in the body of the report rather than just a summary of the support contained in the workfile. I suppose there are many that would CLAIM the support is in their workfile, but that is their decision to do so. I would caution using statements saying you have paired sales as a support for your adjustments. Paired sales analysis are not very common, at least in my market, and I suspect in most other markets as well. To be honest, I have never even seen one in the wild. If I am reviewing a report that makes that claim of paired sale analysis support, but see no worksheet showing such, I would be suspicious that it exists.

If you truly did all that work determining an adjustment via paired sales, then why would you not include the worksheet into the addendum? My goodness, If I found that rarest of the rare paired sale set showing a quantifiable difference in any one element of comparison, I would definitely show if off in the body of the report. Also, you can save that work to utilize on other reports with similar adjustment requirements.

I find if you provide the support in the body of the report, you won't have to provide it later when the underwriter requests your support to show your work. Including support for adjustments in the body of the report creates longer write-ups, but it cuts call-backs to zero.

Also, when you show that much effort into support for adjustments, your report suggests more credibility and a reliable value conclusion.

I would caution you. Please do not claim paired sales as support for adjustments if you don't have any. If you do, include it in your report. To me, claiming paired sales is a red flag, at least in my markets.

Paired sales are very common. In fact, paried sales are the comps right there on the grid, with applied adjustment.

MATCHED paired sales are uncommon. Paired sales simply means that sales have adjustments applied to minimize the differences, resulting in a narrower adjusted value range. It then becomes easy to reconcile the MVO from that range.

Regression and larger datasets are useful for time adjustments or for certain trends. But the actual adjustments make more sense when extracted from the local market, similar to subject comps, and it is right there on the grid for a user, reader, or client to see and understand. The heart of a credible appraisal is choosing the right comps, and that takes time and local market knowledge, both of which the AMC's and GSE's want to discount.

The algorithms and regression models for large datasets face a problem: as more data is introduced with dissimilar properties, the results become distorted. But it looks slick and shiny, with charts and graphs. Thus, I is perfect for churn-and-burn appraising, to data-dump, with "proof" of (misleading) support. A non-appraiser can use the same software tools. And THAT is the ultimate goal - if the profiteers can swap out non-licensed PDC collectors to "inspect", then the rationale will go- appraisers are using data software tools on properties they never saw, so then a trained "data analyst" can use these same software tools.

.

 

[GWISC]

Paired sales are VERYY common. In fact, paried sales are the comps right there on the grid, with applied adjustmemt.

I Understand J. I like reading your comments. Based on your comment, I can conclude that they really do exist in the wild, just none happen in my neck of the woods.

I did qualify most of my statements with "... in my market". In my market, they simply do not exist. We have very little cloned housing except in condos. We do not have a large condo market in my area. Still, it is very rare for two condos to have sold, with the same views, floor level, etc.. to sell at nearly the exact same time which would cleanse away any doubt about time adjustments. Also, you have to make sure each sale in the pair are at market level and arms-length.

I am glad you have paired sales in your Florida market. If I had what you had for a market, I would include paired sale analysis worksheets for support for every element of comparison as needed.

 

[J Grant]

I Understand J. I like reading your comments. Based on your comment, I can conclude that they really do exist in the wild, just none happen in my neck of the woods.

I did qualify most of my statements with "... in my market". In my market, they simply do not exist. We have very little cloned housing except in condos. We do not have a large condo market in my area. Still, it is very rare for two condos to have sold, with the same views, floor level, etc.. to sell at nearly the exact same time which would cleanse away any doubt about time adjustments. Also, you have to make sure each sale in the pair are at market level and arms-length.

I am glad you have paired sales in your Florida market. If I had what you had for a market, I would include paired sale analysis worksheets for support for every element of comparison as needed.

But if you put sales on the grid, you have just paired the sales !! Once again, MATCHED PAIRED sales are "clones" . Normal sales paired to compare to the subject are NOT clones ! They are simply the most similar property sales found.

Properties that are paired to apply and thus extract adjustments do not have to be clones !! Where do people get that idea?

Some of my comps are similar, while others have a series of smaller or larger differences from the subject, including in condos- even units in the same building - one is on a higher floor, one a lower floor, one has a great open view, another a blocked view, one is remodeled, the other has minimal upgrades and so on. .

 

[J Grant]

Do people not understand the difference between paired sales and matched-pairs sales?

 

[J Grant]

Here is what I fear in res mortgage loan appraising. USPAP has a standard of peer practice. As more and more appraisals are done by AMC's, who are the ones who need churn and burn, and AMC;s use hybrids and PDC collections - thus they want big data/slick "support" from computer programs - charts, graphs, and statistics that "support" the adjustments will become the expectation, even if the results are misleading or awful. Even if the appraiser simply dumped the data and clicked a few prompts to get it.

As soon as the GSEs asked for that kind of illustration of support, the board saw a flood of posts asking what "button to push" to show support and what software they could buy to make the adjustments and even to choose the comps.

When appraisers give over their agency to that, the argument becomes, who needs the appraiser to click on software to do the work when anybody with a short training course can use the software?

 

[TerryRohrer]

Do people not understand the difference between paired sales and matched-pairs sales?

Maybe it is just you.
"Paired sales (or matched-pairs) analysis is a quantitative real estate appraisal technique used to determine the market value of specific property features by comparing two nearly identical properties that differ by only one characteristic, such as a garage or a pool. The difference in sale price between the pairs directly measures the contributory value of that feature. "

"Paired sales and matched-pairs sales analysis are generally considered synonymous techniques in real estate appraisal, both aimed at isolating the value of a specific property feature by comparing two nearly identical properties that differ by only one characteristic."