GLA Adjustment Using Sensitivity Analysis

[Elliott]

Before or after? Reducing the degrees of freedom is better. If one comp has a barn, it would follow to adjust that influence out before isolating the influence of GLA.

 

[RCA]

Welcome to the forum. I still maintain my Iowa CG license. Not sure where you are located as Des Moines and the Quad Cities are different from the remainder of the state. You state that you have been involved with the family 6,000 acre family farm. I would bet you have more knowledge about farms than most people can even imagine (I do farm work).

I strongly suggest you pursue this avenue and take classes (if you can find them) from ASFMRA. You most likely know things that would take years to teach a new appraiser about farms. I am guessing you know a lot about soil types, drainage, drain tile, slope and productivity. This is stuff that takes years to learn.



I have appraised residential properties in three states and rural residential properties in three states. You are NEVER going to convince me that you can derive any meaningful adjustment for bedroom count.........never, unless the subject property is in Des Moines and then I am still going to doubt that adjustment.

Sensitivity analysis is not typically derived from regression but you can do it that way.

Generally, sensitivity analysis is attributed to Mark Ratterman, MAI, SRA from his multiple books that are published by the Appraisal Institute. His two latest books are Value By Comparison which was just updated in 2018. I STRONGLY suggest you but the latest edition. The guy is considered the premier writer of residential books.

........now...........

STOP with the regression; you are doing it wrong!!!

You need 30 data points otherwise the data is completely MEANINGLESS. If you are working in a rural part of Iowa you will have very little success or credibility with regression. If you want to take the BEST class about stats take the Appraisal Institute class (Stats and Finance)........ The author and instructor of that class is great; I last took it on-line. I assure you, you will throw out all that regression you have posted here as it is completely worthless and whoever taught you that also needs to take that class.

Couple of points:

1. If you are using non-parametric methods that do not rely on assumptions about the underlying distribution, you don't need a minimally sized set of data. For example, for a basic set of features, such as GLA, Lot Size, Age, Data of Sale, you can often get by with 10-12 sales (the number of sales is necessarily dependent on the number of independent features you are using for comparison.

2. Regression may wind up explaining only part of the variance in prices, - but what it does explain can be removed (est. sale price from regression model - actual sale price), leaving residuals which can be analyzed separately (likely subjectively) with respect to other features. This reduces error and uncertainty in the final result.

3. Also, many nowadays prefer larger rooms to more rooms. Bedroom count in conjunction with GLA can be an indication of room size, and I often see a decrease in the value contribution of bedrooms for homes with more than 3 or 4 bedrooms. That is to say, the model states that they value of a home will go down when there are more than three or four bedrooms - all other things being equal. So, what you should understand, is that regression can indicate a value difference based on some feature (such as bedrooms) as a counterweight to its simpler adjustment to some more general feature such as GLA. That, I am sure, is what confuses many: They see that regression suggests an adjustment for some feature and assume therefore it is stating that that particular feature unit is worth an "additional" value of that amount - when in fact it is in conjunction with another feature ... after all, it is likely not fed with some feature such as "average size of bedroom". Invariably when viewed in this way, the model suggested by regression can run counter to common sense - people don't pay more for fewer bedrooms - directly (only indirectly). Of course, it depends on how "smart" your regression software is. My problem with the current Salford Systems MARS is that it can generate models with regression coefficients that are actually too high (e.g. 0.99 when I KNOW that the input variables cannot possibly account for more than 80% of the price variance) by figuring out combinations of adjustments to input features to get a nice fit. It can do this by over-fitting - and I have to constrain it (e.g. by making variables "non-transform" [linear], increasing observations between knots, increasing the penalty for additional basis functions, or restricting the maximum number of basis functions) - to producing simpler models that make more sense, then deal with the residuals through a second/third stage of analysis.

With respect to over-fitting, MARS has ingenious ways to perform this "naughty" behavior. Its simplest strategy is to find some particular feature value of a home that doesn't fit the model, and that it does not share with any other home in the data set - and then make an exception adjustment by creating a new basis function. It's more sophisticated ways are playing with a combination of adjustments that have the same effect, essentially isolating misfitting instances. It's easy enough to see, when your plots are for example steep up and down adjustments to value contribution based on lot size or GLA. You can fix the problem telling MARS, that if it is going to adjust by some feature such as GLA or Lot Size, it needs at least N sales to make a change to the model, or that the model simply has to be linear - although there are other ways.

MARS in Automate mode with Bootstrapping, is particularly powerful in generating models with high R2 values.

 

[Terrel L. Shields]

I used Standard Deviation of the data set to choose a square footage adjustment

Interesting but should work.

should I use a smaller variable adjustment like $1 instead of $5? Is that too large of a gap?

The extra precision is unnecessary. Note between $35 - $65 your range is pretty flat, so really, any number close won't skew you much.

You need 30 data points otherwise the data is completely MEANINGLESS.

​

you don't need a minimally sized set of data

I agree with Bert here.

So ... what residential qualities are typically worth adjusting for?

Land or site value, outbuildings, etc. of course, but as for the dwelling, I concentrate on age-condition (aka effective age) and size, attempt to avoid homes of different quality, a very difficult parameter to adjust for without lots of comps. Central heat and air, fireplaces, etc. seem invisible in most regressions.

P.S. Something to prove I farm: This is my sprayer one morning on Memorial Day Weekend. It was awful muggy and hot that weekend, there is still a haze in the air at that time and I had to wait for the inversion to lift. I was spraying Status, a safened Dicamba, and a generic glyphosate for rr resistant waterhemp and shattercane in some v4 corn. The inversion can make the dicamba get up and walk around, but the haze makes for a pretty picture, like an add for Deere! lol

2 4 D will do the same. They recommend spraying now with light breeze instead of dead calm due to drift. Calm is usually an inversion (& most posters here don't have a clue what we're talking about)

FYI - you seem a perfect candidate for commercial agricultural appraiser. I recommend you look into ASFMRA, take their courses, I am certain you'd have a bright future especially if you specialized in CAFO ops - cattle, hog, chicken as well as farmland.

 

[bnmappraisal]

Welcome to the Forum!

I strongly suggest you pursue this avenue and take classes (if you can find them) from ASFMRA. You most likely know things that would take years to teach a new appraiser about farms. I am guessing you know a lot about soil types, drainage, drain tile, slope and productivity. This is stuff that takes years to learn.

(my bold) Yyyyyyyyyup!

There are many avenues when it comes to appraising, and even though I'm a Certified Residential appraiser (in FL) ... I couldn't tell you JACK about farms!
And just to prove I don't know JACK about farm/farming:

P.S. Something to prove I farm: This is my sprayer one morning on Memorial Day Weekend. It was awful muggy and hot that weekend, there is still a haze in the air at that time and I had to wait for the inversion to lift. I was spraying Status, a safened Dicamba, and a generic glyphosate for rr resistant waterhemp and shattercane in some v4 corn. The inversion can make the dicamba get up and walk around, but the haze makes for a pretty picture, like an add for Deere! lol

Even though I'm fluent in German ... I have no idea what this all means! lol

That being said, Terrel may have a valid point

FYI - you seem a perfect candidate for commercial agricultural appraiser. I recommend you look into ASFMRA, take their courses, I am certain you'd have a bright future

Best of luck to you!

 

[ltyrni]

Overfitting or what I would call "finding a correlation where I want one to exist" is what I am afraid of with the use of linear regression. I am reading this stat book for appraisers as a refresher. I don't remember a lot from Stat 130 and 230, or whatever they were called, 10 years ago in college. You gave me many a things to google and look into though! I would like to probably get deeper into it, I like understanding the underlying formulas. Using excel alone currently, but I don't know if I would need a stronger statistics program like your MARS as I really wouldn't expect to do more than 50-100 homes a year in my market area. They can have such a degree of variance too, which may inhibit the usefulness of regression.

The pool from sales in towns in my market area (1,900 mi2) from Jan 1-Dec 22 only had 438 total sales on the MLS. There would be a few more if I went to the assessor and recorder offices and gathered data like I do for farms, but I don't know if it's worth it or not. Those 438 is where I started getting my regression adjustments from. The average home size is 1388 sqft, built in 1946 (1stdev of 36!), and the mean sale price of those is $91,000 and median is $78,000... It's a long-term depressed market, very stagnant and economically obsolescent...

You are much more advanced than I in this Bert, do you think I would be able to draw meaningful statistical analysis from such a small and variable market?

Thanks

 

[ltyrni]

Land or site value, outbuildings, etc. of course, but as for the dwelling, I concentrate on age-condition (aka effective age) and size, attempt to avoid homes of different quality, a very difficult parameter to adjust for without lots of comps. Central heat and air, fireplaces, etc. seem invisible in most regressions.

2 4 D will do the same. They recommend spraying now with light breeze instead of dead calm due to drift. Calm is usually an inversion (& most posters here don't have a clue what we're talking about)

FYI - you seem a perfect candidate for commercial agricultural appraiser. I recommend you look into ASFMRA, take their courses, I am certain you'd have a bright future especially if you specialized in CAFO ops - cattle, hog, chicken as well as farmland.[/QUOTE]

Hi Terrel, you were the poster I got the sensitivity analysis post off of from several years ago, so thanks for posting it back then! (thumbs up emoji)

So if an appraiser routinely adjusted only based on site, outbuildings, age (condition), and size, you think that would be credible?

I mentioned above to Bert that there just aren't that many home appraisals in this area. I would expect to perform 50-100 a year once really going, while I would think 100+ farm appraisals a year. So homes aren't where my bread would be buttered in this endeavor, but I still want to do good work.... At least without overthinking it.

ASFMRA is definitely an organization I will belong to. I will checkout their offerings in that area. The windmills and hog barns are a very prevalent improvement in this area, and I actually have a state certified pesticide storage building and anhydrous ammonia tank (bullet) that I constructed myself, so there is a familiarity with the commercial ag side. Honestly, there are a lot of family farms anymore that are beginning to have all of the improvements only a cooperative would have had a generation ago; things like dry fertilizer buildings, truck scales, seed treatment equipment, legs and pits, etc. So commercial ag facilities and CAFO's are a great competency to work towards!

Yes on the light breeze. Most label's read 3-10mph anymore, some will go up to 15, but never under 3. Tempting as it might look, when a person sprays in the dead calm, you can notice vaporized particles just hanging in the air, and if it's warm and the heat is rising from the earth, you can even notice them floating upwards! I would prefer the 2,4D over Dicamba, it's a much safer chemical for vitalization. I am big on the Enlist program, been going to the meetings for years and have been a Dow seed buyer anyway, but their failure to get approval for import into China has really stunted the potential of that program. Even the cotton growers down your way have been relatively safe around 2,4D Choline; a million times better than the Extendimax program anyhow! I digress... People may not know this, but if they have had their yard sprayed for weeds, like dandelion, it was 2,4D that went on. I don't know what they charge a lot of places, but the chemical itself to spray a 10,000 sqft yard would cost about $1.00 ($18/gal 6#, 2pt/acre rate)....

Thanks for your help!

 

[ltyrni]

Thanks for the help and replies everyone!

Glad to find a knowledgeable place with people willing to give advice!

 

[Terrel L. Shields]

So if an appraiser routinely adjusted only based on site, outbuildings, age (condition), and size, you think that would be

It could very well be. In some slummy towns really condition is all that matters. Where simple extractions can be made, I save those sales for support for three years or more.

Our state bans 2 4 D in the tomato growing counties. Ton of suits over Dicamba. Drift in such humid country is chronic issue.

 

[KHS445]

Ityrni - It is a wise decision to lean towards appraisals (agricultural) that others won't. You have the advantage of direct knowledge plus a ton of hands on experts you can contact to discuss specific information, trends, undisclosed sales, etc. Because this discipline is so familiar to you, you need to be careful that you don't under bid/discount your time or knowledge. As mentioned over the years you have acquired a good deal of knowledge that many of us don't have and now is the time to get paid for it. I am not saying you should gouge the client, just make sure you are being paid properly for the work being performed. If it takes you 20 hours vs someone else needing 40 hours to complete an assignment, good for you.

I can see where there may be good potential in the sales/lending market, but where I really see opportunity for you is in the estate/estate planning, divorce, partnership formation/dissolution, tax assessment, etc. Non-lending work is much more stable. These opportunities would exist all over the State and possibly beyond should you work towards multiple State licensing or obtaining a temporary license when needed.

I know one individual located to my north that specializes in hotels/motels and travels all of Michigan and sometimes adjoining States. I have respected his work and expertise for years and often referred people to him when I was doing commercial lending and do the same now for anything other than a local mom and pop operation. I have also worked on several occasions with a person who specializes in golf courses. He travels the entire country doing golf course appraisals and I know in talking with him if the weather is right he will usually play the courses a couple of times (comped) while there just to get the feel for them.

 

[Digger88]

I am actually reading the PDF version of "An Introduction to Statistics for Appraisers" presently. I ordered that along with several others from AI today because I thought everything I was doing in these adjustments regression was a load of BS... So in addition to that, I have a couple on AVM's and Market Analysis for RE coming as well. I looked up the one you suggested and will order it too. I do like to read and learn, so I appreciate the suggestion! I also planned on signing up for that very class as well, in the January 15th period after I could read and digest that Intro book and hopefully the others as well.

So in your experience as a rural appraiser, what residential qualities are typically worth adjusting for?

I really want to make it to some of the ASFMRA courses. They had some in DSM, but they stuck them in the last week of June, which I absolutely could not make at the time because of my spraying obligations. They do have an education week scheduled for late July in Omaha that I saw. I intend to contact them about it and see what they will be offering. I am actually pretty interested in the Farm Management Accreditation as well.

I am very knowledgeable about production agriculture, both cow-calf and row-crop. I can tell a person about the components of soil: silt, sand, clay, and loam; soil taxonomy and modifiers, what the cation exchange capacity conveys, soil ratings like CSR2 or NRCS's Soil Capability Classification (which I am currently using for cost approach), what a conservation plan is, different farm programs, difference between a narrow-based, grass back, and broad-based terraces, pattern tiling, implements of husbandry, growth stages in corn and soybeans, estimating yields, costs of production, green-tagging, artificial insemination, heterosis in cattle or crops, death loss, germ rates, the differences in cash and futures markets, basis and merchandising, how to use the board of trade as a risk management tool, futures and options, technical analysis, forward contracting, hedge to arrive, grain bins, legs, conveyors, dryers, axial flow or centrifugal flow, WASDEs and Cattle on Feed reports, the balance sheets of major commodities, how ethanol or trade impacts farm profitability and thusly effective purchasing power, in my specific area, recreational properties and the economic importance of the white-tail deer, lol, or a hundred other things. It's not all relevant to the task of an appraiser, but to be immersed in agriculture at a scale definitely makes me very comfortable with the idea of appraising farm values and assessing the forces that can impact value.

That's great you are still certified in Iowa! I am actually on the prowl for additional supervisors... There are a mere 3 Certified Generals within 60 miles of me... I'm lucky my supervisor even took me on, but I don't know how motivated he is to have an associate... I am to the south of Des Moines: Osceola, Creston, Leon, Mt. Ayr, area is my primary market if you are familiar with that part of the state. My mother was a long-time Farm Loan Manager for the FSA in several counties and I am very familiar with many of the bankers in the area. It's all small community banks down here where I can speak with the bank president himself. There are actually as many farm appraisals, between transactions, trust valuations, and refinance, as there are home appraisals in this area. Not to hock myself out or anything, but I am definitely looking for some knowledgeable mentors to split fees with and help me develop better methodology and consistency in approach. I can get business.... But I digress, another time.

Thanks for your suggestions and advice Sir!

P.S. Something to prove I farm: This is my sprayer one morning on Memorial Day Weekend. It was awful muggy and hot that weekend, there is still a haze in the air at that time and I had to wait for the inversion to lift. I was spraying Status, a safened Dicamba, and a generic glyphosate for rr resistant waterhemp and shattercane in some v4 corn. The inversion can make the dicamba get up and walk around, but the haze makes for a pretty picture, like an add for Deere! lol

View attachment 38470

the real question is why do farm fields have low weeds and my stupid home garden gets overgrown with weeds the minute i plant to where 1/2 way into growing season they have taken over and my garden is screwed? its impossible to weed as fast as they grow.