Bedroom Vs. GLA Adjustment

[Nancy Heiss]

Looking over an appraisal on a 3 bedroom condo. For one sale on a 2 bedroom unit, the appraiser made a $30,000 positive adjustment for a bedroom and no adjustment for GLA (171 sf difference). The next comp, a 4 bedroom, he made no bedroom adjustment, but made a GLA adjustment of $150 psf (499 sf difference). The explanation was 'to avoid double dipping" by making both bedroom and GLA adjustments. Has anyone seen this before and how does that make sense? If you are going to make a GLA adjustment, make it for both and not for the bedrooms. Conversely, if you are going to make a bedroom adjustment, make it for both and not the GLA. To avoid double dipping.

 

[hastalavista]

The comment may seem inelegant, but the underlying fundamental may be correct.
In some markets, there is a distinct differentiation in price between 2br vs. 3br/4br homes. Simply put, the 2br homes have a different buyer-pool than 3br/4br homes.

So, on the surface, I don't see a logical fallacy of treating the 2br home as a different type of dwelling as a 3br/4br home. As such, the proper way to adjust for that difference is BR and not GLA. Likewise, I can see the logic in determining that 3br/4br homes compete to a greater degree among a similar buyer-pool; therefore, adjusting for size differences rather then bedroom count also makes sense.
It makes sense because in the case of a 2br vs. 3br home, the differentiation in value is more significant than what is adjusted for in GLA. In other words, the element of comparison between the 2br vs. 3br/4br isn't size, but bed count (utility rather than more living area).

This boils down to understanding the market (i.e., the buyers/sellers of these properties). While the adjustment differential makes logical sense to me, I'll leave it to you to determine if its application is reasonable for the specific property that the report is analyzing.

 

[bart nathan]

Makes sense to me other than the double dipping comment.
The comment about "utility" from Denis would have been better choice of explanation.

If you take away the 30,000 bedroom adjustment and apply the square foot adjustment only it probably adjusts to high or to low I would guess?
If there are any 1 beds they could possibly be a even different bed adjustment to mix thing up a little bit more.

 

[Nancy Heiss]

Makes sense to me other than the double dipping comment.
The comment about "utility" from Denis would have been better choice of explanation.

If you take away the 30,000 bedroom adjustment and apply the square foot adjustment only it probably adjusts to high or to low I would guess?
If there are any 1 beds they could possibly be a even different bed adjustment to mix thing up a little bit more.

I agree that the explanation given by Denis would have made more sense. Yes, if you applied the adjustments either by bedroom OR by GLA, they are a bit skewed. It looked to me that the appraiser was trying to hit a number (which he did) by applying an inconsistent adjustment. He had also made market adjustments to all the sales, even though one had closed only 2 months prior. Values are not increasing to that level. On the active listing he used, he made a negative adjustment, which again seems inconsistent to me. If, in his opinion/research, values are increasing, then the negative adjustment to list price would not be warranted. Other adjustments were made for location. (facing street or retail). When I did the historic research for these units, I did not see any value difference for location.

An agent who sold one of these units mentioned 'bad feng shui', for some of the units. Hard to make an adjustment for that, based on historic sales. Did not see a difference in exposure times either. Funny how a simple condo appraisal turns into something much more complicated. Fun!

 

[Tim The Enchanter]

Target hit. OK, makes sense.

 

[Nancy Heiss]

Target hit. OK, makes sense.

My thought as well. But trying to determine if I'm being cynical, (since I missed the target by $17k) or if there is validity to his adjustments. I'm still thinking he made too many adjustments to come up with the desired number.

 

[hastalavista]

We are both in California, and as a rule, condos are relatively straight-forward propositions. However, my experience is that when there is an odd-ball (due to the specifics of the unit, project, or the market) they can be more complex than what a complex SFR might be (one can always do the cost approach on a house if needed).

I appraised a condo in SF a few months ago. San Francisco, like most other high-density urban centers, has a lot of condos. Should be a no-brainer, right? Wrong!
Because of the specifics of the subject, its project, and the market at the time, I needed to use 8 comparable sales (one of which sold 9 years prior; another 4 years prior) and had about 5 pages of paired sales, graphical analysis, etc., to support my adjustments as well as an additional page and a half of commentary at the beginning of the report explaining why I did what I did in a market where, if anyone looks at the sales data, will find plenty of condominium units sold, pending, and listed.
Fortunately for me, during my pre-research of the assignment, I correctly identified why this was going to be a royal PIA. My fee and turn-time was quoted appropriately (I was actually a bit surprised when the client accepted my terms).

My point is this: In my experience, condos have a lot of moving parts (unit type, project-amenities/type, unit location, submarket and market); I find these factors can be much more discrete (requiring a deeper level of analysis to discern) and influential than the same forces (location, neighborhood, size/type) that typically influence value for an SFR.
When we are lucky enough to have a unit in a large complex or a smaller project that is consistent with other smaller projects and the unit is more or less the market standard, the assignment is simple; chances are we will have model-matches or near model-matches in that scenario.
When we are not so lucky, the analysis can quickly become complex. I typically charge more for a condo than an SFR, all other things being the same, because I find, pound for pound, they take more work.

 

[glenn walker]

IN YOUR EXAMPLE - The appraiser says he didn't want to double dip which can be a legitimate explanation except for the fact that in order for him to appraise the Subject at contract price he may have needed a $30,000 adjustment either by adjusting the 171 Sq.Ft. difference or saying the bedroom was worth $30,000. To put things into better perspective the appraiser had two choices $30K for the bedroom or make a $175.00 Per-square foot GLA adjustment ( 171 X $175=29,925 ) and guess what he may have hyper-ventilated when he realized he could never support or defend making a $175.00 gross living area adjustment *** BUT to be fair if the project will support $175.00 GLA adjustments than it really doesn't matter if he made a bedroom adjustment instead of a GLA adjustment because the number is still $30,000 and the value is adequately supported and your done.

 

[Nancy Heiss]

IN YOUR EXAMPLE - The appraiser says he didn't want to double dip which can be a legitimate explanation except for the fact that in order for him to appraise the Subject at contract price he may have needed a $30,000 adjustment either by adjusting the 171 Sq.Ft. difference or saying the bedroom was worth $30,000. To put things into better perspective the appraiser had two choices $30K for the bedroom or make a $175.00 Per-square foot GLA adjustment ( 171 X $175=29,925 ) and guess what he may have hyper-ventilated when he realized he could never support or defend making a $175.00 gross living area adjustment *** BUT to be fair if the project will support $175.00 GLA adjustments than it really doesn't matter if he made a bedroom adjustment instead of a GLA adjustment because the number is still $30,000 and the value is adequately supported and your done.

Just an FYI - The GLA adjustment he made on another comp was $150 psf. Values of these units are $440 - $475. IMO, $150 is high. They were built in 2011, decent quality construction with the typical newer built upgrades (engineered wood flooring, granite counters in kitchen, stainless steel apps).

 

[Digger88]

in a condo all your buying is square footage and maybe a view.