Condition, Square Footage Adjustments

[investor]

I'm a residential real estate agent. The most common adjustment I see on appraisals is on the interior square footage (GLA) of a home. How do appraisers arrive at a figure for the adjustment per square foot? I would think the adjustment per square foot would be different for 2 houses that have 2000 and 3000 square feet, respectively, versus 2 that have 9000 and 10000. Is that so?

Condition seems to be another common adjustment. I'm aware of the C1-C6 codes, though it's a challenge trying to determine which code applies to a given house. Where could I find the best definition of these codes? Is it common practice to adjust on a percentage basis between codes? So, for example, a C3 could be worth 10% more than a C4, other factors being equal.

Thanks for any help.

 

[DWiley]

Link to definitions

https://selling-guide.fanniemae.com...nstruction-of-the-Improvements-04-15-2014.htm

 

[alebrewer]

Regarding GLA adjustments (gross living area), you would normally expect the adjustment factor to increase as the price point increases. IOW, the adjustment factor for a $100k home would most likely be much less than the adjustment factor for a $1M home. Another point to remember is that living area is not adjusted at the overall PPF (price per foot) for at least two reasons: (1) the site value and value of the site improvements (flatwork, fencing, decks/patios, carports, pools, storage buildings, etc.) are included in the overall PPF, and (2) the law of diminishing returns is typically in play - i.e. there is a limit to how much the market will pay for that extra (or marginal) foot of living area.

 

[sputnam]

Since the goal is to determine the cash equivalent value, adjustments are made in a particular order. After financing concessions and time, each adjustment should be made as if the comparable is identical to the subject in every way... except for the feature being adjusted.

You are correct that larger dwellings typically sell for less per square foot than smaller dwellings.....IF everything else is equal. It never is.

 

[alebrewer]

You are correct that larger dwellings typically sell for less per square foot than smaller dwellings.....IF everything else is equal. It never is.

Larger homes typically do sell for less PPF than smaller homes - again, due primarily to the law of diminishing returns (as well as the fact that the site value is distributed among more feet in the larger home), but the adjustment factor goes the other way (assuming, of course, that larger homes translate into more expensive homes). IOW, there is typically an inverse relationship between the GLA adjustment factor and PPF - again, assuming that price/value increases with size.

 

[Jerry Bone Jr]

I'm a residential real estate agent. The most common adjustment I see on appraisals is on the interior square footage (GLA) of a home. How do appraisers arrive at a figure for the adjustment per square foot?

I use single linear regression with SF as the input and price as the output. The slope is the adjustment figure. y = mx + b

 

[alebrewer]

I use single linear regression with SF as the input and price as the output. The slope is the adjustment figure. y = mx + b

But a bivariate regression won't give you a strong GLA adjustment factor, will it? It's just a predictor for what a property 'should' sell for, given a particular GLA, right? In order to gain a good idea of what the GLA adjustment factor should be via regression, wouldn't you have to use a multi-variate regression to account for the other predictor variables?

 

[Jerry Bone Jr]

But a bivariate regression won't give you a strong GLA adjustment factor, will it? It's just a predictor for what a property 'should' sell for, given a particular GLA, right? In order to gain a good idea of what the GLA adjustment factor should be via regression, wouldn't you have to use a multi-variate regression to account for the other predictor variables?

You are 100% correct. I dumbed it down for the Realtor.

 

[Jerry Bone Jr]

You are 100% correct. I dumbed it down for the Realtor.

So easy... a Realtor can do it.

 

[Bobby Bucks]

So easy... a Realtor can do it.

Real-a-tors are people too.