Conditional/quality Adjustments

[Deleted member 128537]

Yes, so far with rural market appraisals, I've learned bracketing a key feature like $50-$100k in outbuildings a lot of times results in significant adjustments to the home improvement.

I'd be very careful about making $50,000 to $100,000 adjustments for outbuildings; unless it's a farm or something. I've not seen those kinds of values in my area. But then again yours might be different.

 

[J Grant]

I'd be very careful about making $50,000 to $100,000 adjustments for outbuildings; unless it's a farm or something. I've not seen those kinds of values in my area. But then again yours might be different.

True. And newer appraisers will learn over time, that adjustments typically make sense proportionally along price ranges. A 50-100k adjustment for an out building might be appropriate for a 500k- 1 million range property , but way out of proportion for a 250k property. Which might be why his large out building adjustment is throwing his values off so greatly.

 

[sebridges]

I don't make separate line adjustments for condition and quality. Some do, but I find an explanation (which you have to do anyway) is sufficient. Also I often need the grid space. I do lots of shoreline homes and most of my clients want a separate line for the shoreline frontage. Then by the time I get other amenities in there like ADU's, pools, fireplaces, outbuilding, etc. it gets a bit full. The advantage of a separate line adjustment is that when you save the comparable it's saved in the grid. So it's a personal decision based upon your market. I know I have a friend that makes effective age adjustments on a separate line. Again, no one right way to do it. I see pros and cons either way.

But I never include the outbuilding in the condition of the property or the quality of the property. That's a separate item. Then one has to decide how a higher quality outbuilding is going to affect the value compared to a lessor quality outbuilding. I always say, "Good luck with that!" It's very difficult to discern that because there isn't enough data. And I find that most of the time one is tempted to make too large of adjustment for outbuildings. For example I am putting up a 18x36 outbuilding for my RV. I already have a 3 car garage. I know I'm not going to get the cost back in resale. I might get 50% at best. But I knew that going into it. But I want the convenience and the protection for my Airstream which is expensive. The fact is not many buyers will want my house, with my floor plan, on my lot, with an RV garage. So I'd be very careful in adjusting outbuildings. I just did a house with a 6600sf outbuilding. It was incredible. But I made no adjustment from that building to a 50x60. Who the heck needs a 6600sf outbuilding?

I seldom make design adjustments unless it's pretty clear. For example I know that log homes (of a certain quality) tend to bring more money in my market due to it being a recreational second home market. And it's really evident when one starts to grid them. On other's it's not so clear. At that point I deal with it in the reconciliation.

Outbuildings can be tough, but there can be quite a bit of difference in them (metal or wood frame construction, insulation, plumbing/electricity). Then there is the marginal utility factor as you mentioned. Three 6,600sf outbuildings can be very useful on a 200 acre parcel and have significant value, but the same will have limited utility and value on a 5-10 acre parcel.

 

[sebridges]

I'd be very careful about making $50,000 to $100,000 adjustments for outbuildings; unless it's a farm or something. I've not seen those kinds of values in my area. But then again yours might be different.

Oh no.......outbuilding value reality comes quick to those that decide to build $100k in new outbuildings and then decide to have the property appraised. In a blink of an eye, the $100k spent on the building is instantly transformed into about $30-$35k in gained market value........and that's if there is enough land to support their use.

 

[Terrel L. Shields]

Working RE magazine has a number of articles pertinent to this thread....not to mention an article that makes me want to vomit, called "a very credible napkin"

 

[Overimprovement]

I

It seems that about half the time we use a adjustments on properties with similar conditional/quality ratings that we get kick-back from the AMCs. The claim will be that they simply aren't allowed. I can understand if they wanted further explanation/justification for the adjustment and it would be easy enough to further comment on certain features amongst the properties and the varying economic ages or levels of quality.

How common is it for these types of adjustments or is this an over-analysis that should be avoided?

I frequently adjust within the same Q or C value. I also have a detailed addendum where I explain/support all my adjustments. I rarely get any kickback, when I do, its because they missed the addendum. The problem is that there is not enough granularity in the ratings, especially if following the strict guidelines in the report definitions.

There have been multiple threads on the AF, feel free to search them.

Condition ratings: C6? Only for distressed usually. C5, same thing. C4 and C3 are common. C2 typically is only on newer or completely renovated homes. For me, that means down to the studs if its an older home before even thinking about C2. My area's median age is 61, and there is little new development, so very few C2s for me. C1 is never been lived in, so again, very rare for me. So 95% of my reports are C3 or C4. That's a HUGE range of conditions to not adjust within a rating.

Quality is same thing--Q6 is basically duct tape and spit, always gets kicked back, may not be code anyway. Q1 and Q2 simply are not in my area--well a handful, I've only been in one I would say maybe Q2. There are about 100-200 Q3 homes, again by strict definitions. So again, 90-95% of my assignments are Q4 or Q5. Pretty wide range of differences there too.

I hope the next iteration of forms actually give some room (without needing an addendum) for some quality and condition discussion. Maybe they can make room by getting rid of the wood stove and screens lines in the improvement section!

I continue to think that quality, condition, and location are the three subjective items that will keep AVMs and hybrids from putting too much of a dent in the market. They will displace some appraisers for sure, but not wipe out the industry. If you give me the adjustments for those three, I think an AVM could be a very reliable predictor of value. But they can't now, and I don't think they will in our lifetimes.

Just as an example, one area I serve has a section where a ONE block difference in location can affect value by about 20%. I know this, and I know why, but no AVM does.
Condition is similar, and I continue to hold (though I may be in the minority even on this forum) that a personal inspection of the subject by the signing appraiser is of great importance. There are simply small details that a trained eye will see (in regards to quality as well) in a full inspection that may not at all be evident from 10 maybe clear, maybe not pictures delivered by a trainee or 'inspector'.

Maybe functional and external obsolescence are another thing AVM's will never capture. I saw a 5BR, 1.0BA house listed the other day. Good luck!

 

[Terrel L. Shields]

5BR, 1.0BA house

but its a really big bathroom, with stalls.

 

[Tim Hicks (Texas)]

Never been questioned for making Q3 to Q3 adjustments. I just explain why (hard wood floor upgrades, granite, commercial grade kitchen, etc) and how the adjustment was supported. Many new homes have similar quality everything except for flooring or kitchen amenities and are reflected in their sales price. The same goes for re-sales of existing homes. Many appraisers confuse condition with quality. Think of it new home terms. If they are both new, there is no condition adjustment, but there can be quality adjustments based on upgrades. You can have a ten year old home with new carpet, paint, etc and another ten year old home with new carpet, paint, etc, but it also has hard wood floors, granite, brick, stone elevation, etc and this is reflected in quality adjustments. Just a few minor upgrades does not necessarily change home from Q4 to Q3 or Q3 to Q2. It would have to be a sizeable amount of upgrades in a homogenous neighborhood to be different quality ratings. Then there is the question of being overbuilt for the neighborhood. In any case, the comparable sales should support any Q rating adjustments and typically do. It is possible there could be no adjustment in some neighborhoods.

 

[Overimprovement]

but its a really big bathroom, with stalls.

And that awesome pink tub and tile.

 

[sebridges]

but its a really big bathroom, with stalls.

How about a really nice 1000sf Q3 built in 2016 where the owner decided to add a 3 car detached garage, 1200sf pool house built to the same quality specs as the house less a kitchen, and a 20x40 in-ground pool. Now he is expecting to refinance it all in one bundle........and apparently he was informed by the lender that the 1200sf pool house that is 200sf bigger than the house would count in GLA for the appraisal. Yikes!