Conditional/quality Adjustments

[RCA]

Why sweat it. I suppose I do appraisals the way I do for my own sake, my own game. In the rare case, I may be lucky enough to get a complaint and someone will be forced to read them. Hopefully not some dummy.

I'm pretty sure most reviewers just look at the adjustments and judge if they are intuitively reasonable. They don't go into to the details or ask questions. - Especially when the reputable bank lender is going to get pissed off by the whole charade. Well, in the most cases, that's as far as I go. I don't do reviewing and most appraisals are not particularly interesting. When someone hands me a really bad one, I figure they are trying to get me to report the poor guy and I'm even less interested.

That is to say, I occasionally get appraisals handed to me, - from time to time. I have a recent one. But so many of these. For the good ones, the value is OK to good, the appraisers experienced, cautious, conservative. When they are in a bind to get a certain value they think they need, they play this mind bending balancing act I think; - I especially see that in commercial. The more worried they are, the more dots they want to connect, until they convince themselves they've connected so many dots, their manufactured value must be real.

Umm, getting back to the residential, when the going gets a little tough this is the sort of thing I see:

1. "The adjustments were based on the appraiser's historical files and typical and/or cost to replace and value in the market place (or alternatively … and typical land values in the area").
2. "Although it is C2, it is at the UPPER end and therefore X adjustment was made".

- That's it. Period. Maybe somewhere in his workfile he has the regression and calculations. There is no mention of anything beyond the above. Who knows. The last one is down in LA, $5M homes. I ought to run a regression on it see how reasonable his adjustments are. I'm curious. But the way experienced appraisers work, they connect so many dots, they are usually (I imagine) not that far off. But I SHOULD check this intuitive feeling … maybe I'm wrong.

But in this business, who really cares? Most of the reviewers are English majors who aren't even good at math; more concerned you've specified the effective date with opinion of value, got the correct zoning, yada yada yada. Well, of course, all the perfectionists in this profession have their own idea of what perfection is. I'm sure Hibbard could go through my latest appraisal and find all kinds of things he doesn't like. [Oh yes, it occurs to me, I did forget to mention this one thing, because I just assumed it was understood, and now on second thought, noooo, bad assumption, but I'm too lazy to correct it. The report is too long anyway.].


The lender's idea of perfection, is an appraiser who doesn't create problems, who doesn't get him upset, who will do whatever it takes to get an assignment and who has just the right ummmm attitude, and costs less than the other appraisers who could also do it. And he will give out an appraisal, a real unredacted one, to get you to do the job the way he wants. In other words, if you were a lender, you'd likely be pretty much of the same mind.

It's like you have to wonder what his justification was for the historical values - other historical values?

 

[Terrel L. Shields]

It's like you have to wonder what his justification was for the historical values - other historical values

good one

 

[residentialguy]

To me the only real measure is market extraction, I.e.- reverse engineering the cost approach to estimate the age- condition (effective age) of comps so in a home estimated to have 50 yr. total life, you have 50 C ratings... and you adjust accordingly. Usually $/year diff x SF. If you accurately estimate cost, replacement costs will eliminate most functional issues (address separately) and quality is addressed within the cost book...so you may not be more accurate but at least you have quantified the issue.

Yep, but I don't think JG has a problem with Condition ratings. She seems to be stuck on quality ratings in that a house is eternally in one rating forever, regardless of upgrading. I disagree, as homes can be right on the line and can easily transform to the next level, esp in the lower quality ratings. In fact, there are homes so close to middle of 2 ratings that you could call it either and be supported.

 

[J Grant]

Yep, but I don't think JG has a problem with Condition ratings. She seems to be stuck on quality ratings in that a house is eternally in one rating forever, regardless of upgrading. I disagree, as homes can be right on the line and can easily transform to the next level, esp in the lower quality ratings. In fact, there are homes so close to middle of 2 ratings that you could call it either and be supported.

A home can easily transition within condition ratings, but not quality ratings. A C4 house with enough upgrades and replacements and remodeling can become C 3 or even C 2. But no matter how many upgrades you add to it, the C 4 house still has the intrinsic architecture, structure, ceiling height and floor plan ( builder stock/ tract quality ) The fact that there are differences of quality among homes, aside from their upgrades, is the reason quality ratings exist, to differentiate them- which is what buyers do.

What makes a house a Q 3 (if one applies the ratings properly), the house should be intrinsically superior in construction quality, design, floor plan than, a Q 4 house with the same upgrades . A buyer for a Q3 house expects not just nice upgrades, but a certain design and quality of construction and floor plan-buyers understand the difference and so should appraisers.

The grid entry for Q ratings says quality of construction, not simply "quality" .

Q3Dwellings with this quality rating are residences of higher quality built from individual or readily available designer plans in above-standard
residential tract developments or on an individual property owner’s site. The design includes significant exterior ornamentation and interiors
that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been
upgraded from “stock” standards.
Q4
Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans
are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship,
finish, and equipment are of stock or builder grade and may feature some upgrades.

It's hard to say if the writers of the Q ratings intended that a house could change rating with enough upgrades, and perhaps in some cases it can, but imo, the intention of the ratings is to differentiate not just upgrading done to a home but the construction quality and design of the home itself.

 

[residentialguy]

A home can easily transition within condition ratings, but not quality ratings. A C4 house with enough upgrades and replacements and remodeling can become C 3 or even C 2. But no matter how many upgrades you add to it, the C 4 house still has the intrinsic architecture, structure, ceiling height and floor plan ( tract quality ) The fact that there are differences of quality among homes, aside from their upgrades, is the reason quality ratings exist, to differentiate them- which is what buyers do.

A buyer for a Q 4 house, including an upgraded Q 4 house, usually is not the same buyer for a Q 3 house, because what makes a house a Q 3 (if one applies the ratings properly), the house should be intrinsically superior in construction quality, design, floor plan than, a Q 4 house with the same upgrades . A buyer for a Q3 house expects not just nice upgrades, but a certain design and quality of construction and floor plan-buyers understand the difference and so should appraisers.

The grid entry for Q ratings says quality of construction, not simply "quality"

You act as if builders build houses strictly on one quality rating. Like I said, there are houses that sit right on the line and could easily be supported as the lower rating or the next higher rating. The bones of a q5 is no different than that of a q4. A little upgrading can easily change the rating to a q4. Upgrades are all part of construction.

 

[J Grant]

You act as if builders build houses strictly on one quality rating. Like I said, there are houses that sit right on the line and could easily be supported as the lower rating or the next higher rating. The bones of a q5 is no different than that of a q4. A little upgrading can easily change the rating to a q4. Upgrades are all part of construction.

Perhaps you are not applying it correctly, because the "bones" of a Q 5 should be of lower quality than a Q4. Otherwise, why even have different categories? The Q4 and Q5 might look similar or have similar floorplans and ceiling heights but there should be a difference in the "bones", apart from upgrades.

Q4
Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans
are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship,
finish, and equipment are of stock or builder grade and may feature some upgrades.
Q5
Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a
plain design using readily available or basic floor plans featuring minimal fenestration and basic finishes with minimal exterior ornamentation
and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive, stock materials
with limited refinements and upgrades.

 

[RCA]

" ... - I especially see that in commercial. The more worried they are, the more dots they want to connect, until they convince themselves they've connected so many dots, their manufactured value must be real.

Relating back to some appraisers I worked with 16 years ago who were golfers - they would probably call this a "bogey". That is to say, there is nothing wrong with this approach, though it would be cleaner to prove a value in one clean stroke, or rather the minimal number of strokes, than having to prop it up with additional weak supports (over par strokes). Admittedly, I do this myself at times. I'm not saying they engaged in the practice - I certainly wouldn't have known it if I had seen it at that time. - as I was learning the ropes. It's the really smart and experienced appraisers at the big outfits, that will knock their brains out with this sort of thing, all kinds of round and round reconciliations between parts of the three approaches to value (Yea, the three approaches are supposed to be independent, but if you can get them all to agree somehow, to support each other somehow, then, you know, it kind of gives you a good feeling. But, I guarantee, you are going to wind up stretching things here and there and there and here, lots of little things that add up ...).

But, my opinion is that one straight linear argument to a final value conclusion, is the expert clean way to get there. The bogey hints at weakness, well relatively speaking. You don't see the bogeys until you analyze a report and start asking yourself where all the values are coming from. You will see their origins in other approaches to value, the Cost Approach and Sales Approach intertwined with the Income Approach. Look to hard and you will wind up going in circles. You had better be good at Excel.

But honestly there is a BIG difference between a residential appraiser's "BASED ON HISTORICAL VALUES ...." and what good commercial appraisers come up with. Give the commercial appraisers credit, they have to try to keep those gigantic pension funds happy. - Yet, also give the residential appraiser some leeway, he doesn't have that magnificent Income Approach to rely on.

The sharks have plenty of fish to eat though. Avoid the sharks.

 

[residentialguy]

Perhaps you are not applying it correctly, because the "bones" of a Q 5 should be of lower quality than a Q4. Otherwise, why even have different categories? The Q4 and Q5 might look similar or have similar floorplans and ceiling heights but there should be a difference in the "bones", apart from upgrades.

Q4
Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans
are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship,
finish, and equipment are of stock or builder grade and may feature some upgrades.
Q5
Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a
plain design using readily available or basic floor plans featuring minimal fenestration and basic finishes with minimal exterior ornamentation
and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive, stock materials
with limited refinements and upgrades.

Now, change that inexpensive, stock materials with limited refinements and upgrades to expensive highend material with many refinements and voila, you have a c4...maybe a C3.

My house for example. Original probably high q5 low q4 vs updated & upgraded kitchen, now q3.

 

[J Grant]

Sorry Res guy, I have to disagree. Your kitchen is beautiful and am sure it adds lots of value to your house. But the quality ( in my area ) for an upgraded kitchen in a Q3 house expectation is even higher for type of appliances or counters...and as nice as your kitchen is and maybe baths etc are, if the house floor plan, ceiling height, ext build, window size etc was q4, I would call it a Q4, though a highly upgraded Q4. - C 3 condition and consideration for upgrades ! ( which would be seen in the prices/value in area)

I think the Q ratings are supposed to encompass the whole house, it's design, floor plan and built materials , which would not change despite extensive int upgrading....imo otherwise why are the Q ratings referring to it...

My own house is a Q4 btw, I just put in a quartz kitchen counter, new expensive tile backslash, recent stainless steel appliances (original wood cabinets as ran out of $ lol but they are very nice) I remodeled a bath, replaced carpet to wood floor in bedroom etc...it's still a Q4, built 1979, low ceilings smaller window openings...I would always call my own house a Q4 no matter how much I upgrade it.

 

[residentialguy]

Sorry Res guy, I have to disagree. Your kitchen is beautiful and am sure it adds lots of value to your house. But the quality ( in my area ) for an upgraded kitchen in a Q3 house expectation is even higher for type of appliances or counters...and as nice as your kitchen is and maybe baths etc are, if the house floor plan, ceiling height, ext build, window size etc was q4, I would call it a Q4, though a highly upgraded Q4. - C 3 condition and consideration for upgrades ! ( which would be seen in the prices/value in area)

I think the Q ratings are supposed to encompass the whole house, it's design, floor plan and built materials , which would not change despite extensive int upgrading....imo otherwise why are the Q ratings referring to it...

The kitchen is an example of what the entire house is like now. Completely redone, inside and out. The design includes significant exterior ornamentation and interiors that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from “stock” standards.

So if you don't call that a Q3, then you aren't matching your ratings with the house