Condition, Square Footage Adjustments

[Russ Kitzberger]

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...

I think you have misread the report of the analysis............ Something many appraisers accuse the users of. I answered your questions to the extent I feel is necessary to support my opinion. Feel free to develop your own analysis, to the extent you need to satisfy the level you desire.

 

[Mejappz]

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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pointerappraisal.com

Pointer nice website.

 

[Russ Kitzberger]

Pointer nice website.

Thank you, you should see the new one coming out in the next few weeks.

 

[Joe Flacco]

The best method for condition adjustment is paired sales. Hands down. Paired sales best method for any adjustment when possible really.

 

[Joe Flacco]

Regression, modeling, statistics, 30 years of data, that stuff looks fancy but one of the least reliable methods.

 

[investor]

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

That's a moronic remark

 

[sputnam]

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.

Correct....IF you are making adjustments on a per square foot basis. Most residential appraisers don't do it that way.

 

[alebrewer]

Correct....IF you are making adjustments on a per square foot basis. Most residential appraisers don't do it that way.

now that is a great topic! IMO (sometimes humble, sometimes not), I believe appraisers should be able to take into account diminishing returns - e.g. that going from 2 to 3 baths might be $7k, but going from 3 to 4 baths might only be $3k - same for GLA. On the resi side, though, underwriters' heads would spin off, roll down the hill, and eventually explode... same for the 'reviewers' at the agencies...

 

[Joe Flacco]

It always depends but comparing 1 to 2 bathrooms and 2 to 3 bathrooms, the adjustment can be large. When you have 3 bedrooms and 1 full bathroom, in many cases there is depreciation from functional obsolescence. Retrofitting a second bathroom in like a small house is probably going to cost like $40k. It is not something that is often feasible and usually only occurs with major renovation. In like the larger 80's and 90's homes, four or five bedrooms with two bathrooms were pretty common. Today the expectation in the larger homes is at least 3 full bathrooms with four bedrooms. That adjustment between 2 and 3 full bathrooms is usually going to be larger than comparing 4 BR / 3 BA with 4 BR / 4 BA. Probably no adjustment even necessary for 4/3 vs 4/4.

 

[Terrel L. Shields]

Traditionally, SF is adjusted the same per unit for each comp. That is a function, in a sensitivity analysis of the comps, of what adjustment will tighten the range of value to the closest (least squares). In reality, it is likely more a logarithmic function rather than a linear one, but the slope may be so small that over a small spread, it is inconsequential.

I see the habit of some people using very low SF adjustments like $20/SF for a house selling in the $100-150/SF range. Unless you are adjusting for rooms, appliances, differences in items, etc... I cannot justify it with any sensitivity I have run. In most instances, the SF adjustment will be at least 50% of the contribution of the GLA (sans the land and outbuildings, garage, etc.)