Condition, Square Footage Adjustments

[Joe Flacco]

With size of the house if a house is too big people don't want that. You could have a 20,000 SF house sell for the same as a 10,000 SF house because people don't want a 20,000 SF house. But that preference can change. Just because that is the case now doesn't mean it was always like that or will always be like that. It always depends.

 

[Joe Flacco]

Based on what I have seen, land related adjustments are often the most overlooked. There is a lot going on with land and it always depends.

 

[alebrewer]

raditionally, 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.

exactly. Even doing a regression for GLA vs Sales Price (GLA being the independent variable), a logarithmic relationship almost ALWAYS exists over a wide range of values (again, due to diminishing returns), but a linear relationship generally tracks pretty well over a short range.

 

[RCA]

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.

My protocol for determining adjustments is the most complex, but generally, by far, the most accurate:

Sample Valuation - Intangible Value Containment Approach

This is a heavily redacted report that was created using the Subjective Value Containment Approach

valuationengineer.com

I use MARS regression to determine adjustments and it often comes out with different adjustments for different ranges of GLA. In this particular sample, it turns out there is just one adjustment for the entire range ... but most often that is not the case. Generally, there are 2-3 ranges of GLA with different adjustments and we find the adjustment greatest in the lower range, e.g. 500-1200sf, then 1200-3000sf is less per sf, and >3000 sf the least. That is not always the case of course and it really depends on the neighborhood. If you have houses that span the break in adjustments, then your calculations for the GLA adjustment will be more complex. I invariably leave this to the computer to figure out, using Excel or C#.

I am working on a program that will automate the process. Rather a complex program, I'd have to say, and nowadays with the advancing technology, development for one engineer can be a slow and time-consuming process:

Name: MaxTask (TM), (c) 2020, Pacific Vista Net
Software: Desktop WPF, .RabbitMQ, Net Core 3.1, SQL Server, Sqlite, PostGRES SQL, DevExpress Ultimate, Autofac IOC, Entity Framework Core, C#, Blazor, Serilog, Microsoft Office, RabbitMQ, ...
Statistics: MnitTab SPM (Salford Predictive Modeler) MARS
Expected release: Late 2021. WIth earlier partial releases, YouTube and models.

 

[Basically Rectangular]

Diminishing returns is true but larger homes that are higher quality may actually have large GLA adjustments as compared to tract homes due to quality. I recently did a 6000 sf home and was surprised at how high the GLA adjustment.

 

[sputnam]

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...

Appraisers can absolutely do that. I'm not bothered by exploding heads. You need to have support, be willing to write enough to explain what you did and be willing to explain it again to someone who either didn't bother to read your explanation or didn't understand it. Unfortunate as it is, that's part of being a professional appraiser.

 

[alebrewer]

Appraisers can absolutely do that. I'm not bothered by exploding heads. You need to have support, be willing to write enough to explain what you did and be willing to explain it again to someone who either didn't bother to read your explanation or didn't understand it. Unfortunate as it is, that's part of being a professional appraiser.

Technically, appraisers can do whatever they'd like. Adjusting in this manner is just a quick way to find yourself on the DNU list of whatever client you deliver that report to... (right or wrong).

 

[Artemis Fowl]

Technically, appraisers can do whatever they'd like. Adjusting in this manner is just a quick way to find yourself on the DNU list of whatever client you deliver that report to... (right or wrong).

I did it with explanation and it wasn't an issue. It didn't come up much because I tried to avoid comps that needed it. IMO better to do it right and explain to the ignorant than to do it wrong to avoid them...that won't work anyway.

 

[sputnam]

Technically, appraisers can do whatever they'd like. Adjusting in this manner is just a quick way to find yourself on the DNU list of whatever client you deliver that report to... (right or wrong).

While it's probably true that you might get on the DNU list... I don't remember anything in USPAP that says you can consider continued employment in your valuation analysis. You should always use the best data and methods available to you... and explain what and why you did what you did.

 

[alebrewer]

While it's probably true that you might get on the DNU list... I don't remember anything in USPAP that says you can consider continued employment in your valuation analysis. You should always use the best data and methods available to you... and explain what and why you did what you did.

Do you apply different GLA adjustments to different comps? Again, I think that, in some situations, it may be appropriate - although I'd think those situations would be far and few between - as I'd think the only time it would be necessary would be when a sale is not truly a comparable (i.e. the GLA difference is larger than typical), but nonetheless - (a) you're just asking for a ton of headaches, and (b) the overall impact on the analysis is probably not worth the effort it would take to support the adjustment(s). To each his own, though.