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Best Method To Determine Location Adjustment?

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Gulf Coast

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Feb 4, 2013
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Florida
I was curious as to what method you have found to be the best when trying to determine a location adjustment. If lots sell for $1 per square foot in one community but $1.50 per square foot for the same size lot in another community, would that mean a 50% location adjustment or would you just make the adjustment in the lot field? If homes sell for $50 per square foot in one community but $60 per square foot in another community for the same type/size/condition house, would that mean a 20% location adjustment?
 
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glenn walker

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Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
No I think you may be confusing land cost and building cost or quality of construction with location adjustments.
 

DWiley

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Apr 4, 2007
Professional Status
Certified Residential Appraiser
State
Tennessee
In my experience what happens with site sales may not be correlate exactly with what happens with improved sales. So, I would do everything I could to avoid relying on analysis of site sales.

Methods one might try:

Paired sales (yes, I know how difficult that can be :))
Grouped sales analysis (compare sales for 20-30 properties in one area with a similar data set from another area)
Regression (but only if you are really trained in it and its application to the appraisal process)
Sensitivity Analysis (which is really just a simplified variation on paired sales and regression)

Of those, grouped sales is the most effective one that I see often neglected by appraisers. It is fairly simple to do, most readers can understand it, and it is often very effective for location adjustments.
 

A K

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Certified Residential Appraiser
State
Maryland
I wouldn't think about the lots on a per sf basis. Difference in site value for the same size lot between the two locations is the best way to develop that kind of adjustment.
 

bnmappraisal

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Nov 9, 2011
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Certified Residential Appraiser
State
Florida
Are you asking about the Location or the Site adjustment??? To me, from the way you ask the question, you're asking more about site
 

A K

Elite Member
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Jul 31, 2013
Professional Status
Certified Residential Appraiser
State
Maryland
In my experience what happens with site sales may not be correlate exactly with what happens with improved sales. So, I would do everything I could to avoid relying on analysis of site sales.

Methods one might try:

Paired sales (yes, I know how difficult that can be :))
Grouped sales analysis (compare sales for 20-30 properties in one area with a similar data set from another area)
Regression (but only if you are really trained in it and its application to the appraisal process)
Sensitivity Analysis (which is really just a simplified variation on paired sales and regression)

Of those, grouped sales is the most effective one that I see often neglected by appraisers. It is fairly simple to do, most readers can understand it, and it is often very effective for location adjustments.

In order to develop the adjustment based on grouped sales like you describe you would have to be sure that the two groups consist of very similar homes.

The reason that you probably find that site value comparison doesn't correlate with improved sales is probably because the improvements are not the same.
 

Michigander

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Oct 23, 2003
Professional Status
Certified Residential Appraiser
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Michigan
Grouped data, grouped data, grouped data. Very simple and easy to support.
 

DWiley

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Apr 4, 2007
Professional Status
Certified Residential Appraiser
State
Tennessee
In order to develop the adjustment based on grouped sales like you describe you would have to be sure that the two groups consist of very similar homes.

Sure. The smaller the data sets used, the more important that is.

The reason that you probably find that site value comparison doesn't correlate with improved sales is probably because the improvements are not the same.

YMMV, but I have found that even when the improvements are very similar, what happens with the lots may differ from what happens with completed homes.
 

Michigander

Senior Member
Joined
Oct 23, 2003
Professional Status
Certified Residential Appraiser
State
Michigan
Here is a simple example, using I think 3-years worth of data (it is from an appraisal about a year ago, can't remember it now, just thought I would show how you can lay them out, everyone will do them differently).
 

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George Hatch

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Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Group sales over time, and I mean going back 10 years or more.

If the subject has a prior sale that's a great reference point for seeing how that location actually did compared to others that sold during the same time frame. I *usually* analyze the prior sales of my subject in comparison to other transactions from that time period, regardless of when that previous transaction occurred.


Site sales are out as a primary measure because they're completely different buyers.
 
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