Condition, Square Footage Adjustments

[Russ Kitzberger]

There are 3 generally accepted ways to support an adjustment:
Sales Comparison
Cost
Income

Under each there is a range of methods from simple to complex.

For most residential mortgage appraisals, the appraisers uses the simplest way that the lender/client will accept. The appraiser "infers", from their sales knowledge or sales data, an adjustment.

Residential lenders primary concerns are not about the quality of the project, just that it gets through their computerized system and gets the loan sold. They hire the appraiser who will do the appraisal for the fee amount they put on the loan estimate or less. The result is a very minimally supported opinion of value for residential lending appraisals, often with little information or narrative explanation. Many times they are inaccurate, however that is acceptable to the lender/client because residential lending is highly competitive. There is a lack of long-term relationships as the borrowers shop for the lowest price and rate and not the quality of the relationship.

Our office does not cater to this sort of system and our focus is on quality.

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[alebrewer]

For most residential mortgage appraisals, the appraisers uses the simplest way that the lender/client will accept. The appraiser "infers", from their sales knowledge or sales data, an adjustment.

That's a rather broad brush statement... I'm sure derived from years of reviewing residential appraisals, no?

 

[Basically Rectangular]

The difference in sale price divided by the difference in GLA (or site size, if land) will give the adjustment between two comparables.

It is best to isolate as much as possible when developing an adjustment, so removing the land value from the comparable sale price will increase the accuracy of the GLA adjustment.

I divide the difference in sale price/GLA for the comparable sales and look at each value (they will be different). I also look at a linear regression, and finally use a sensitivity analysis to apply the most appropriate adjustment. There is no magic number or formula that works every time.

However, for your purposes, I would try a simple method. Select a fairly tight range of sales; for example if your subject is 2000 sqft then you could try a range of 1800 to 2200sqft comparables recently sold within the neighborhood. Try and use the same bed & bath count.

Look at the famous average (or median) sale price per sqft for your sales. Now determine how much is attributed to land.... 28%, 30%, 35%? Multiply by the sale price per sqft for the area and you will get a range of values which you can apply. This is a simple method but perhaps can help.

 

[Russ Kitzberger]

That's a rather broad brush statement... I'm sure derived from years of reviewing residential appraisals, no?

As it turns out, yes, I have performed reviews of many residential lending appraisals. Statistically speaking, it is unlikely a residential lending appraisal will include more support than an inferred adjustment. I have interacted with hundreds of potential clients, AMC's, and mortgage originators. The majority do not require more than this to resell the loan and therefore are not interested in paying for additional service or beyond the minimally supported opinions. If the appraiser gives it to them at the amount that meets their loan estimate appraisal fee, that is the primary concern.

I have owned many dwellings, of various quality, condition levels, and locations, and had many appraisals performed for mortgages, even, despite knowing I am a litigation specialist, the appraisers have not included any support in the majority of the work. In fact, we submitted one mortgage appraisal over to appeal the taxes and when the government said this appraisal is terrible, we said I know, I can't believe you license this person!

Poorly supported appraisals, engineering, environmental, insurance claims, and construction defects keep my litigation practice going.

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[alebrewer]

Statistically speaking, it is unlikely a residential lending appraisal will include more support than an inferred adjustment.

You wouldn't have the data available to support your statistical analysis, would you?

 

[Mark K]

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?

For houses in the same subdivision with one at 2,000 and one at 3,000 sf, the larger house would typically have a lower sales price per s.f. than the smaller house.

For very large homes like your example, 9,000 - 10,000 s.f. this may not hold true. Homes that large (in this area) are high quality, custom properties and often the larger they are, the more expensive per s.f.

Condition adjustment is more subjective. For example, If the condition is due to paint and floor coverings, an appraiser might make some mental calculation that paint will cost $5,000 and flooring $10,000 and make a $15,000 adjustment compared to a recently painted home with new floor coverings.

 

[Russ Kitzberger]

You wouldn't have the data available to support your statistical analysis, would you?

Yes, from the reports I have seen on the review appraiser side, owner, and agent sides, it is far more likely that there will be inferred sales analysis for comparison adjustments than any other methodology. In fact, very few reports included more support than some level of inferred analysis. In other words, more support than inferred analysis would fall outside the bell curve for this assignment type.

Poorly supported appraisals, engineering, environmental, insurance claims, and construction defects keep my litigation practice going.

Complex Residential, Commercial, and Industrial Appraisal
Litigation Support & Expert Witness Testimony
Concierge Service, Big Firm Expertise
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Pointer Appraisal Services

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[alebrewer]

Yes, from the reports I have seen on the review appraiser side, owner, and agent sides, it is far more likely that there will be inferred sales analysis for comparison adjustments than any other methodology. In fact, very few reports included more support than some level of inferred analysis. In other words, more support than inferred analysis would fall outside the bell curve for this assignment type.

Poorly supported appraisals, engineering, environmental, insurance claims, and construction defects keep my litigation practice going.

Complex Residential, Commercial, and Industrial Appraisal
Litigation Support & Expert Witness Testimony
Concierge Service, Big Firm Expertise
Guaranteed Same Business Day Response to Clients emails and calls

http://pointerappraisal.com/[/URL

You may not understand the term 'statistical analysis'. You said that, 'statistically speaking....', inferring that you had at least 30 observations from which you performed quantitative analysis to determine that it is unlikely a residential lending appraisal will include more support than an inferred adjustment. I was asking if you had this data available to share... I'm assuming you have it in spreadsheet format, no?

 

[Russ Kitzberger]

You may not understand the term 'statistical analysis'. You said that, 'statistically speaking....', inferring that you had at least 30 observations from which you performed quantitative analysis to determine that it is unlikely a residential lending appraisal will include more support than an inferred adjustment. I was asking if you had this data available to share... I'm assuming you have it in spreadsheet format, no?

This information is a combination of confidential, personal financial data, and fiduciarily protected. Yes, my analysis is based on over 30 observations, and as stated more than inferred analysis would clearly fall outside of the normal range or probability, regardless of the analysis method. Maybe another persons data is different, but this is what I have from working over a decade in all the licensed aspects of real estate sales and valuation.

Poorly supported appraisals, engineering, environmental, insurance claims, and construction defects keep my litigation practice going.

Complex Residential, Commercial, and Industrial Appraisal
Litigation Support & Expert Witness Testimony
Concierge Service, Big Firm Expertise
Guaranteed Same Business Day Response to Clients emails and calls

Pointer Appraisal Services

pointerappraisal.com

 

[alebrewer]

This information is a combination of confidential, personal financial data, and fiduciarily protected. Yes, my analysis is based on over 30 observations, and as stated more than inferred analysis would clearly fall outside of the normal range or probability, regardless of the analysis method. Maybe another persons data is different, but this is what I have from working over a decade in all the licensed aspects of real estate sales and valuation.

Poorly supported appraisals, engineering, environmental, insurance claims, and construction defects keep my litigation practice going.

Complex Residential, Commercial, and Industrial Appraisal
Litigation Support & Expert Witness Testimony
Concierge Service, Big Firm Expertise
Guaranteed Same Business Day Response to Clients emails and calls

Pointer Appraisal Services

pointerappraisal.com

Pardon the pun, but it kind of sounds like your analysis is 'inferred' and not quantitative either - kind of like what you're accusing residential appraisers of...