GLA adjustments

[Hiccup12]

How is it that the appraiser I used wants to use a ridiculous $50/SF adjustment for GLA?

I even did the research to provide matched pairs throughout the last sales year, and he doesn't really want to look at it. I think the statement "I don't care how many sales you find that support a higher value, the going rate is $50 a foot.

My house is not really larger than a lot of homes that are in the neighborhood, just none of the larger homes have been up for sale in the last 3 years.

Here is one of the prime examples of two home sales that I presented on the same street.

2552 GLA, 2 car garage, 4 bed, 2.5 bath, .56 acres, sales price 360,000

1798 GLA, 2 car garage, 4 bed, 2 bath, .51 acres, sales price 254,000

Both interior lots in a golf course subdivision. Both homes same age. Sales recorded on SAME DAY. Larger one has a formal dining room that accounts for most of the GLA diff.

Subject house 3200 GLA. $50/SF just doesn't seem right.

What am I missing, or did he just not do any calculations and doesn't want to change his work?

Thanks.

 

[Mztk1]

What do you think the living area adjustment should be?

At $360,000 for 2552sf and 1798sf at $254,000, since they both work out to $141/sf, I am assuming you think that is what the adjustment should be, but it is not.

Or you may be extracting the $106,000 selling price difference and attributing that to the living area difference of 754sf, which also works out to $141/sf. But that is wrong too.

On the first possibility: When looking at the price per square foot of $141/sf you are looking at the entire property, not just living area, wrapped up in that price. Appraisers break the property down to several different categories including location, view, age, lot size, bath and bedroom count, etc., of which living area is just one component. So lets say a golf course lot is worth $30,000 more than one off the lot on a 2552sf house, then $11.75/sf of the total price per square foot is accounted for in the consideration of the golf course view (even if a golf course adjutment is not made because all houses on are the golf course). By the time you consider all the other factors, what is left for a gross living area adjustment is typically anywhere from $15 to $50/sf in my experience, depending on the market. It is rare to have adjustments outside of that range in typical residential work.

On the second possibility: This is technically the correct way to find out what the living area adjustment should be and is called a paired sales analysis. You look for two sales that are identical in every way except for living area, you compare their size and their sales price, and you extract the market reaction. But you have to be careful to make sure they are in the same market and are completely identical otherwise. A house that is nearly 30% larger than the one being used to extract the value is not really in the same market. A buyer interested in a big house with $350K plus to spend likely won't waste his time looking at $250K 1800sf house.

In working with a 3200sf house, I'd prefer to see my comps between 2550sf and 3850sf. Your first one is on the very lower edge, but the 1798sf is not even in the ballpark; it does not belong as part of the analsyis.

What part of Florida are in you?

 

[Hiccup12]

Actually I was thinking the appropriate way to do it is to remove the value of the garage and the lot, which is probably about 40K for the lot and I'm guessing 9K for the garage at about $20/SF. When you run those numbers it probably comes out to more like $90 per square foot of GLA. If you use the $50/ SF, right off the top of my head, you either turn the lot into a $100,000 lot or you say the garage is worth $50/SF.

I built houses for 20 years, so I'm fairly familiar with the breakdown of the costs of house and where the money is at. I mean, I could have seen it if we were only talking a little bit, but when the houses are so close to being the same, those prices really don't come close to $50

And from reading your reply, how could you get much more similar than the example pair? Those are actual sales, and there are like 3 or 4 pairs with those same results.

I would love for there to be some actual comps, but there just aren't. The largest house sold in the north end of the county last month was only 2500 SF.

I guess I thought he might actually be able to show me some justification and show me how he might have come up with the answer instead of just saying "that's the going rate" seems like he didn't actually do his job.

 

[Mztk1]

I was hoping you'd tell me where you were at so I could see if I could pull pertinant data to explain it more concretely. Instead, what I've done is taken three sales on the golf course from a golf course community here in Hillsborough County and will show you how markets change at different levels.

The houses are:

A - Golf Course 3,206sf with 2 Car Gar 4 BRs and 3 Bath closed 05/05/08 for $335,000

B - Golf Course 2,702sf with 2 Car Gar 4 BRs and 3 Bath closed 04/25/08 for $320,000

C - Golf Course 2,102sf with 2 Car Gar 4 BRs and 3 Bath closed 04/30/08 for $270,000

All have pools, all are well updated, all are about the same age (actually C is newer than A and B and A and B are both built in 1987.

Everything in these houses is the same except living area. But "C", being more than 20% smaller than "B", is in a different market. The result is that when comparing "B" to "C" the indicated difference for the 600sf is $50,000 or $83.33/sf.

Now "A" and "B" are in the same market. That is, the typical buyer who considered "A" will likely also consider "B" but not "C". "A" and "B" are competitive, or less than 20% apart in overall living area, from one one another. For their 504sf of difference the market reaction is $15,000. That is roughly $30/sf, which by the way is typical for this market.

Our living area adjustments are not broken down by cost, but are extracted from the market using the two most competitive and similar sales possible. For you to extract a price per square foot, find any two houses that are identical in your subdivision except for living area, sold recently, and are reasonably close in living area (within 20%), the closer the better. You will likely see that the market is not going to pay $90/sf.

 

[Metamorphic]

If you're at 3200 and your nearest comp is 2550 you may have super adequate GLA. One way to account for a SA, is to discount the rate at which you adjust it. If there's not much utility that comes along with that extra GLA,for instance a formal dining room in a house that already has a very nice regular dining area in a great room or something similar, that extra space can amount to very little real value for a prospective buyer. I just did a house with a very nice big detached triple RV garage which well more than doubled the garage space that was attached to the house which was already par for the neighborhood. The rate that those extra garage spaces were adjusted at, would I'm sure, be extremely offensive to the guy that wrote the check for the big detached garage. But that's the nature of super adequate amenities....they're not worth as much as they would be if they were scaled property for the property, neighborhood, and market.

 

[The Warrior Monk]

And from reading your reply, how could you get much more similar than the example pair? Those are actual sales, and there are like 3 or 4 pairs with those same results.

The scenario put forth doesn't make sense. The reason is that the adjustment for gross living area is basically same as the sales price divided by the gross living area (that ratio includes the land and improvements). That makes sense only if the land has no contributory value. I would conclude that something else is at play that we don't know about.

 

[Hiccup12]

If you're at 3200 and your nearest comp is 2550 you may have super adequate GLA. One way to account for a SA, is to discount the rate at which you adjust it. If there's not much utility that comes along with that extra GLA,for instance a formal dining room in a house that already has a very nice regular dining area in a great room or something similar, that extra space can amount to very little real value for a prospective buyer. I just did a house with a very nice big detached triple RV garage which well more than doubled the garage space that was attached to the house which was already par for the neighborhood. The rate that those extra garage spaces were adjusted at, would I'm sure, be extremely offensive to the guy that wrote the check for the big detached garage. But that's the nature of super adequate amenities....they're not worth as much as they would be if they were scaled property for the property, neighborhood, and market.

I dont' think it's super adequate GLA. The reality is that there are a lot of houses even larger than mine. I think what has happened is that the people that could afford the larger houses are stable, even many of them retired and have just not had the need or desire to sell. Of the smaller houses, there are a lot of people on the move with corporations, and many that simply bought into something they can't afford and they are having to bail out. Probably 30% of the houses are over 3000 SF. THere are even a couple of 10000 SF houses, but they actually look like they overbuilt for the neighborhood.

 

[Hiccup12]

The scenario put forth doesn't make sense. The reason is that the adjustment for gross living area is basically same as the sales price divided by the gross living area (that ratio includes the land and improvements). That makes sense only if the land has no contributory value. I would conclude that something else is at play that we don't know about.

I'm not understanding your statement. In my scenario, the price divided by the GLA is about $140. If you take out the land value and the garage value of each, and then divide the difference between difference in GLA, it comes out to I think about $90/ SF.

If there is going to be a method, then you should be able to work both directions with the calculations.

Again, I'm looking for merely a "method" that involves reproduceable steps to come up with an answer.

Step by step with the example I gave, how would you mathematically come up with the price per SF for GLA difference?

 

[athome77]

Hiccup,

In your post you cited two homes, one with GLA of 1798 and the other with GLA of 2552. I haven't seen the remainder of the original appraiser's work and would not dare to comment on his/her methodology, but... The smaller home is 42% smaller than the larger home. Given this disparity, it is difficult to come up with a hard and fast rule that will make sense. It is possible the original appraiser has considered the diminished contributory value of excess GLA given current market conditions.

In your posts you indicate the following:

none of the larger homes have been up for sale in the last 3 years.

I would love for there to be some actual comps, but there just aren't. The largest house sold in the north end of the county last month was only 2500 SF.

The reality is that there are a lot of houses even larger than mine. I think what has happened is that the people that could afford the larger houses are stable, even many of them retired and have just not had the need or desire to sell. Of the smaller houses, there are a lot of people on the move with corporations, and many that simply bought into something they can't afford and they are having to bail out.

Regardless of the reason, your examples indicate that the market for larger homes in the area may have softened, without regard to the $/sq ft employed by the appraiser.

 

[hastalavista]

I'm not understanding your statement. In my scenario, the price divided by the GLA is about $140. If you take out the land value and the garage value of each, and then divide the difference between difference in GLA, it comes out to I think about $90/ SF.

If there is going to be a method, then you should be able to work both directions with the calculations.

Again, I'm looking for merely a "method" that involves reproduceable steps to come up with an answer.

Step by step with the example I gave, how would you mathematically come up with the price per SF for GLA difference?

Assuming your method is attributing value and not cost, your method, simplified, is not that bad. :new_smile-l: And, there may be other influences which are not accounted for, but you seem to have been around the block so I will assume there isn't anything unusual that cannot be accounted for outside of the lot, the garage and the improvement (that is a big if, but I'll make it!).

However, where it runs into a problem is here:
You've compared two sales that are between 1,700sf and 2,500sf and then have established a relationship between the two in terms of living area (which we call GLA-Gross Living Area). Two points of data creates a straight-line between the two. And the best that can be said is that based on interpolation, we can estimate where a value should fall between the two points, if we are assuming that size is the determining variable.

Your house is 3,200sf. To get from the 1,700 to 2,500sf range to your house, one must extrapolate. That's risky business because there is no evidence that the line (which was created only between two points) continues straight to 3,200sf. As a rule (and I think you'd know this), the value of an incremental SF over the mean decreases as the overall size increases. There's exceptions. Move to a different neighborhood and you have a different set of value assumptions. But in the same neighborhood, this generally holds true.
It holds true because there is something called the Principle of Regression at work in most real estate markets.

To answer your question that I bolded above, one method would be to do what you did (with the smaller homes) but get some larger homes to "bracket" your house. Then calculate the slope of the line for GLA and value. Even that isn't perfect, but it is better than only relying on extrapolation.

(And, by the way. I'm not saying your conclusion about the GLA adjustment in the original report isn't correct- i.e. the report has your GLA adjusted lower than what the market indicates. What I am saying is that the analysis between the 1,700sf and the 2,500sf homes doesn't prove it.)

Good luck! :new_smile-l: