Perhaps you could educate us with the correct procedure??? Please be specific.
The simple suggestion is LUDICROUS that:
If a buyer of a comparable pays $100,000 for a 2000 sq.ft. pool home on 1 acre with a 2 car garage, it would support a $50/Sq.ft. adjustment factor for that comparable.
First off, presume the comparable is new. A quick cost analysis may indicate that the land is worth $15,000, the garage $5000, and the pool $15,000, leaving the cost/value of the improvements (assuming no obsolescence or deterioration) of $65,000. Heck, if you MUST use this method, AT LEAST break it down that far. Now we would be adjusting just for the improvements size, at $32.50/sq.ft.
So I can only guess that you, too Jerry, use Riicks method... I hope you re-think that.
Matched pair analysis WILL NOT match your non-market based, non-logical $/sq.ft. method.
And we wonder how so many properties were over appraised in the mid 2000's. Apparently appraisers have been using sale price $/sq.ft. as an adjustment factor, and using 50% smaller units as comparables. Skippity do da day...
However, even that will most likely prove to be high, because that is an AVERAGE $/sq.ft for the house, skewed higher by the MUCH higher costs of small areas like kitchens and baths, water heaters, HVAC, and all those things that are very expensive, that both houses will have regardless of total size. A more realistic conclusion, if you MUST use this method, would be to discount that $32.50/sq.ft. by some factor to recognize that ballooning a house is MUCH cheaper, per sq.ft., than constructing the whole house.
In a Residential 101 book I read, Taken from an example of a residential appraisal, :
In our home appraisal example, Comparable #2 had been remodeled while the subject was in pretty much pristine 1966 condition. Therefore the appraiser subtracted $5,000 from the comparable, effectively removing the remodeling from the equation. There was substantial variation in the square footage of the house so comparables were adjusted up or down at the rate of $20 per foot. Comparable #2 slightly smaller than the subject so $440 was added (thus tacking on another 22 square feet) while Comp #3 was debited $11,000 to negate the value of its substantially larger footprint.
Remember, the cost approach had yielded a psf replacement value of $70.50 and the comparables had sold at a psf price ranging from $63 to $86. Our appraiser said that the $20 has NOTHING (my emphasis) to do with either of the other calculations. It is more a measure of impact. Buyers do not attach that much value to actual measurements, assuming the size meets their needs.
