GLA Adjustment Using Sensitivity Analysis

[Deleted member 152047]

As everyone else has mentioned, you have a unique background that could translate well to this field if you leverage your knowledge. Just from what I have read on this thread, I really think you need to hook up with a specialist in this field and work your way toward a certified general (commercial) license. This will allow you to appraise more intensive agricultural operations (and charge more). Maybe @Terrel L. Shields or @Michigan CG can point you in the right direction.

Best of luck, and welcome to the Forum!

 

[ZZGAMAZZ]

I have a question regarding GLA adjustment that I am wondering if some of you experienced appraisers could help me with. I have attached my table for sensitivity analysis as I have performed it below.

Question 1: I adjusted the comparable properties for site (lot sqft), age, condition, and differences (bed, bath, garage stalls) before adjusting for GLA. I have read some old forum posts on this site which a poster had a table for GLA sensitivity analysis that I downloaded. In that document; it said to adjust for lot size, outbuildings, and garage differences before adjusting for the GLA.

Should I adjust for GLA last as I did in mine below, or should it be adjusted for before other variables? When should GLA be adjusted for?

Question 2: If you look below, you will see I used Standard Deviation of the data set to choose a square footage adjustment. Is this allowable and credible in your opinion? I also have a chart using Coefficient of Variance, which is just another side of the same coin.

In the example I had found on this site, it used Max-Min. The two numbers gave a different square footage adjustment; $45 for the StDev and $57 for the Max-Min. Should I be using Max-Min instead?

Question 3: When I create the table, should I use a smaller variable adjustment like $1 instead of $5? Is that too large of a gap?

I really appreciate any help you all can give me! I am new and if this is posted in the wrong forum, please let me know and I will correct my next posts. There will likely be a few.

About me. I am a new associate general appraiser. I am located in Iowa with an agricultural background. I graduated from college with a degree in Business Management and second major in History in 2011. I spent the past 7 years operating and administering our 6,000 acre family farm. I have an agricultural chemical business as well. Changes in our farm and structure will allow me to be more hands off which creates time to do other things. I want out of the chemical business, mostly because it requires an intensive workload for 3 months in spring and early summer, about 1,000 hours in that time frame. Also rashes... strange rashes can appear, lol.

With that background, I primarily want to focus on farmland valuation. I have a supervisor, but largely am on my own. I am fine with that; I am a self-starter, quick to learn, enjoy working, and expect quality out of everything I do. What I primarily need is help with is residential valuation and supporting all adjustments in a credible way that is acceptable to the professional standards. My questions will initially revolve around that and I look forward to learning from you all and maybe forming contacts!

Another note: I know I could have a narrower deviation, where it would actually match with the $57, if I removed comp #5. Comp #5 was included for bracketing, but perhaps I have enough with the others. It is the second closest home, but several of the others are 45-60 miles away. Small rural towns all, 2-3 bed, 2-3 bath, basements of various states of finish, 2 car garage, ranch styles built between 1976 and 2010. Subject is 1996 ranch, unfinished basement, 2 car garage (barely), 3 bed, 2 bath, C4, Q4.

View attachment 38466

Although mine is a very low brow perspective: If the SCA form line item adjustment factors are listed in descending order from the most to the least "important," wouldn't adjustments need to be made accordingly in sequence from top to bottom?

 

[Terrel L. Shields]

If the SCA form line item adjustment factors are listed in descending order from the most to the least "important," wouldn't adjustments need to be made accordingly in sequence from top to bottom?

Is that the case however? I would think, depending upon the type property, that would change. Very old houses seem to sell on the basis of condition, whereas new houses would sell more on the basis of size and quality.

 

[ZZGAMAZZ]

Is that the case however? I would think, depending upon the type property, that would change. Very old houses seem to sell on the basis of condition, whereas new houses would sell more on the basis of size and quality.

Truthfully, I don't know where I learned about the sequence of SCA factors, probably here on the AF, nor whether it is accurate...going back to my NSH premise that my lack of understanding often pertains to a naive assumption that logic rules.

From a contrarian perspective, seein' as how an appraiser's world--credibility, revenue, licensure, integrity--exists independently, within the boundaries of each report, as defined by a quantitatively meaningless sample size of, say, 9 comparable properties, does it really matter whether the lot adjustment or the GLA adjustment or the view adjustment is tweaked--remaining faithful to appraisal convention such as bracketing & matched pairs--if adjustments applied to each of the factor result in the same concluded opinion?

 

[George Hatch]

I prefer sensitivity analysis using the direct comparables because it pits the most comparable properties against each other and demonstrates what combination of adjustment factors is most effective *with that dataset*.

IMO, if I've gone to the effort to adequately qualify the the smaller set of direct comparables in my assignment then the answer to

"what's the most effective adjustment factor for all 40-yr old SFRs in this zip area"

is not as relevant to my analysis as

"what's the most effective adjustment factor for this set of direct comparables?"

The purpose of using adjustments is to refine and narrow the range of adjusted value indicators. They have no other utility and they serve no other purpose. Adjustments work for me, not the other way around.

Get off my lawn

 

[NachoPerito]

IMO, the GLA adjustment is easier to make than some of the other adjustments so I wouldn't do sensitivity analysis.

You can find this adjustment through using group sales, paired sales, or regression.

In general, if you take the price/SF for the building only and multiply by 0.57 you will be pretty close to a $/SF adjustment. For example the sales average $300,000 with 2,000 square feet and lot sales are $80,000 in the area, the building price is $220,000 or $110.00 per square foot. A reasonable adjustment is usually $63/SF ($110 x 0.57).

 

[Terrel L. Shields]

IMO, the GLA adjustment is easier to make than some of the other adjustments so I wouldn't do sensitivity analysis.

You can find this adjustment through using group sales, paired sales, or regression.

? mechanical adjustments are weak.
When you adjust SF by picking and choosing the number that creates the "best fit" you just did sensitivity analysis. But doing by trial and error leaves no paper trail...to show your work, use the simple spreadsheet and copy/paste into the report. If you use your comps then the number should be the same. But flaws I see is if not adjusting out site, outbuildings, and adjusting for age/condition, then you risk adjusting for multiple factors, which exposes you to making double adjustments.

 

[NachoPerito]

? mechanical adjustments are weak.
When you adjust SF by picking and choosing the number that creates the "best fit" you just did sensitivity analysis. But doing by trial and error leaves no paper trail...to show your work, use the simple spreadsheet and copy/paste into the report. If you use your comps then the number should be the same. But flaws I see is if not adjusting out site, outbuildings, and adjusting for age/condition, then you risk adjusting for multiple factors, which exposes you to making double adjustments.

My adjustments aren't weak.I came up with that ratio by studying new subdivisions and the effect on price of different sizes when everything else is equal. It is not always correct (e.g. when you have outbuildings or a abnormal garage), but a good starting point.

I am not doing sensitivity analysis. I was not choosing the 'best fit'. My adjustment is organic. I am fine with the numbers not coming into a tight range sometimes.

If you are leaving the last adjustment to a sensitivity analysis it assumes you have adjusted for all factors and adjusted for those things correctly. This is very difficult to do and inherently problematic IMO. You could appraise

 

[George Hatch]

I often try different sequences on a what if basis and it sometimes makes a difference. I take it as far as I can take it with the bldg area then go to site area, and then repeat the process coming from the other direction to see if it makes a difference. Sometimes I end up doing location first and other times I end up doing location last - it depends on the property type.

Usually the first sequence I choose works the best - but not always.

I just had one assignment last week where I started out thinking that the bldg area would be a primary adjustment factor except that it wasn't - the improved site area was the thing and the dataset didn't respond to adjusting the bldg area. This was not a residential property. Actually, I've had two assignments in the last couple weeks where that happened - both were site intensive uses with low lot coverage ratios used for business types that use the improved lot areas in their business operations.

I commonly use sensitivity analysis in my review work to test the reasonableness of the adjustment factors used - to see if a different combo might have been more effective in prompting convergence or yielded a significantly different value conclusion (which it normally doesn't unless the appraiser was being dumb with their adjustments).

 

[Terrel L. Shields]

The purpose of using adjustments is to refine and narrow the range of adjusted value indicators. They have no other utility

Yes.
Careful comp choices means few adjustments.