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GLA Adjustment Extraction?

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Lawrence R.

Thread Starter
Senior Member
Joined
Mar 27, 2007
Professional Status
Certified General Appraiser
State
South Carolina
Aside from Paired Sales Analysis(Which I never have)...

How you do you extract the $ per foot adjustment for GLA...

And no PFA please...

I had an underwriter bristle at my adjustment, stating it was too high. I didn't have paired sales, so what would you guys do? I want to see if I am in line here before I go defending my method.

I am of course looking for the most compelling argument, not a concensus.

So, to recap--no paired sales. NO sales in subdivision, period. New construction. Plenty of comparable properties nearby, just not in same S/D.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
Aside from Paired Sales Analysis(Which I never have)...

How you do you extract the $ per foot adjustment for GLA...

And no PFA please...

I had an underwriter bristle at my adjustment, stating it was too high. I didn't have paired sales, so what would you guys do? I want to see if I am in line here before I go defending my method.

I am of course looking for the most compelling argument, not a concensus.

So, to recap--no paired sales. NO sales in subdivision, period. New construction. Plenty of comparable properties nearby, just not in same S/D.
One benefit of a cost analysis would be what the structure would cost new. The GLA adjustment factor is the marginal cost to build that greater or lessor square foot. Therefore, you can test the reasonableness of your $/SF adjustment factor. Hint: for example, the cost to build new is $120/SF but the adjustment factor is going to be less than that, maybe 50% or even lower if you have depreciation.

There are statistical methods for determining the incremental $/SF. It is not just paired sales.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Here's a quick and dirty. You go through and take out the knowns (bath adjustment, site adjustment, etc). That leaves you with the unknowns. Hopefully, all you will be dealing with is square footage differential. Compare the sales, with sales price differentials divided by square footage differentials. It won't be exact, but you should end up with a value that comes in within a reasonable range.
 

Ken Youngkrantz

Junior Member
Joined
Dec 2, 2003
Professional Status
Licensed Appraiser
State
California
One quick and easy method. Take the average $ per square foot your comparables sold for. Take the average of that and then take 20% of that. Is it accurate? You didn't ask for accurate (lol). Is it acceptable? It is accepted by all of the major banks. Works good when you don't have paired sales analysis. Better than PFA (lol).
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
In an emergency you could adjust out differences in other characteristics leaving little but GLA to deal with. Then noodle around with different $/psf until you get the most even bottom line. Your bracketed property should move little while the smaller and larger homes move up and down.

I guess this would be a type of "sensitivity analysis."
 

KenRossman

Senior Member
Joined
Oct 20, 2004
Professional Status
Certified General Appraiser
State
Florida
Paired sales, IMNSHO is a fundamentally flawed technique.

It is virtually impossible most of the time to find pairs that are truly identical except for one component. There is almost always contamination with other factors that influence the value. The technique also assumes an overall market efficiency that doesn't exist in the real world.

Stated differently it assumes that all market participants all view components equally with similar expectations and motivations - that also doesn't exist.

People buy what they buy for many different reasons (motivations). Many times they buy or decide not to buy in spite of a feature that has no particular value or use to them. Almost All home purchases involve some degree of settling for a multitude of factors that often can't be quantified. Very often, MLS printouts grossly exaggerate a properties assets and/or ignore it's deficiencies. Unless you have seen the property you really don't know what's inside.

I personally try to keep adjustments to a minimum. I mostly rely on my judgment and experience as a starting point. I spent many years as Realtor and nothing has been more useful to me than observing market participants reaction and their desire to pay for or not pay for different items...

I spend quite a bit of time on every assignment talking to the homeowners or purchasers and probing them about their likes, dislikes and desires. I always inquire about the cost of new improvements and amenities. I ask if different features influenced their decision to buy. I have many Realtor friends whom I frequently use as a sounding board when I come across something atypical. Over the last year or so, I have begun to play with regression analysis, but I have a long way to go....

The starting point is a wide search to cull out those sales which are most similar and need the least adjustment...

I have begun to use regression but I haven't mastered the technique yet but I am working on it...

Here is my methodology for GLA adjustment...

I typically take the sales price of each of the comparable sales (SFREP calculates price/GLA) less the land value and divide by the GLA. Then I temper the result with a discount factor, taking into consideration the effective age (younger properties in good condition will normally return considerably more per additional sf GLA than older beat up properties in fair or worse condition) and location (a typical purchaser will generally pay considerably more per sf for that extra family room or over sized master bedroom etc. in an upper middle class executive area, than they might in a marginally stable high crime area loaded with board-ups and a wide variety of other distressed properties, etc...

I have been told that those considerations should be dealt with using location, condition and effective age adjustments. For the sake of discussion, lets say the subject and all of the comparable sales are similarly located and are of reasonably similar effective age/condition and require no location, condition or effective age adjustments.

It can be interesting to move the GLA adjustment up and down in steps (SFREP allows you to automatically set and calculate GLA and many other
adjustments) and watch the indicated values more or less converge when the right GLA adjustment factor is approached. (assuming the other adjustments are not out in left field and the comparables - hopefully at least five, properly bracket the subject GLA and their respective GLA's have been estimated accurately).

As is (depreciated) estimated value of the garage, porches, patios, decks, basements, site improvements etc are deducted along with land before tempering the price per sf with a discount loosely based on effective age and location...

In my markets the range of GLA adjustments can be huge - from $25 a sf or less for poorly maintained properties in depressed area to over $400 a sf for young properties in luxury markets. NYC condos & co-ops can run over a thousand dollars per sf.

It amazes me that many of our local sweatshops still teach their appraisers to adjust off a canned crib sheet probably dreamed up years ago with across the board GLA adjustments of $25+/- a sf.

This method has worked well for me for many years...

I never had an underwriter or reviewer that I couldn't "sell" it to...

 

NC Appraising

Senior Member
Joined
Apr 28, 2006
Professional Status
Certified Residential Appraiser
State
North Carolina
Just a thought...

Go to the builders website, or ask the on site agent, and compare the base home prices of differentiating square footage. Extract an adjustment for square footage. (I know cost doesn't equal value, keep reading).


Then go to a competing subdivision and compare their base prices. Extract a adjustment for square footage. Then in the same subdivision look for sold comps, make another comparison. Extract an adjustment for square footage.

Compare all three, any pattern?

At the very least, a starting point. Better than using "my daddy did it this way", or the good'ol $25.00 a sq-ft for everything from $60,000 to $1.2mill homes.

Most of the time it takes five minutes to do this.

Or

Does the same builder have another subdivision of the same desirability, quality of construction, and floor plans that you could goto to extract an adjustment for square footage?

Or

If that fails, are there any 1-3 year old subdivisions of the same desirability or quality of construction nearby that you could use to extract an adjustment. Of course you would have to make an adjustment for the age first.
 

Doug Wegener

Senior Member
Joined
Apr 14, 2005
Professional Status
Certified Residential Appraiser
State
Oregon
Multiple linear regression is an excellent technique for proving adjustments, especially GLA adjustments. However, you aren't going to be able to learn quick enough to make a model for your underwriter. Also he wont understand it and you wont be able to explain it.

If you have sufficient sales which are similar in most respects except GLA you can plot then out on a graph using excel. In todays market you are probably going to have to make your market condition (time) adjustments first.

It doesnt matter particularly whether they are in the same subdivision. Are you talking about the same general price range and quality? If so, you can plot them out and argue to underwriter that the principle of substitution applies. If buyers are willing to pay $75 psf in competing subdivisions for additional square footage, you can show that and use it for your adjustment.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
Really, as long as you have reasonably similar comparable sales and bracket characteristics that affect value adjustments aren't necessary.

I've only been appraising for 5 or 6 years but I've done an awful lot of reviews and read tens of thousands of posts on this forum. SFR GLA adjustments seem to universally fall in a narrow range of about $25 to $75 psf and the most common adjustments are about $35-$50 or so. I'd say if you were somewhere in that range you're probably be safe and have adequate credibility support from tens of thousands of peers and cleints.
 

Doug Wegener

Senior Member
Joined
Apr 14, 2005
Professional Status
Certified Residential Appraiser
State
Oregon
GLA

Just a thought...

Go to the builders website, or ask the on site agent, and compare the base home prices of differentiating square footage. Extract an adjustment for square footage. (I know cost doesn't equal value, keep reading).


Then go to a competing subdivision and compare their base prices. Extract a adjustment for square footage. Then in the same subdivision look for sold comps, make another comparison. Extract an adjustment for square footage.

Compare all three, any pattern?

At the very least, a starting point. Better than using "my daddy did it this way", or the good'ol $25.00 a sq-ft for everything from $60,000 to $1.2mill homes.

Most of the time it takes five minutes to do this.

Or

Does the same builder have another subdivision of the same desirability, quality of construction, and floor plans that you could goto to extract an adjustment for square footage?

Or

If that fails, are there any 1-3 year old subdivisions of the same desirability or quality of construction nearby that you could use to extract an adjustment. Of course you would have to make an adjustment for the age first.


How much was your GLA adjustment anyway? Where did you get it?
 
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