GLA Adjustments

[Tim Hicks (Texas)]

Shouldn't you let the market dictate your adjustment. I know some appraisers that still adjust $20 per foot no matter what. I let each individual market dictate the GLA adjustment. We are the land of cheap real estate Yet, a home would almost always have be under $50,000 to get a $20-25 GLA adjustment or a manufactured home on land. I just looked and most of my GLA adjustments range from $50-80 per foot based on the market reaction for each individual neighborhood. Homes here range from $80-150 per foot in price range in typical neighborhoods depending on the age and location of the neighborhoods. One city averages about $120 per foot while the city next to it averages about $100 a foot in price per square foot. My GLA adjustments would be different depending on which city and some houses are less than a mile apart. It depends on each individual neighborhood and what the market reaction shows to bring the best adjusted sales price range. I found when reviewing the automatic $20 per foot appraisers would have a wider adjusted sales price when a $50 adjustment would have made a much smaller adjusted sales price range. It doesn't make sense to adjusted $25 per foot for a home selling for $150 a foot unless it is mostly land value. Most of the time these appraisals I would review would use smaller adjustment figures to avoid exceeding lender guidelines. Why do you think Fannie removed the 15 and 25% guidelines? So, appraisers would make proper adjustments.

 

[Terrel L. Shields]

I know some appraisers that still adjust $20 per foot no matter what.

I'm convinced most appraisers who do that are picking comps by price, not bracketing size. A small adjustment means the adjustment remains small regardless the size of the home. I find it rare that a GLA adjustment is less than 50% of the DCN/SF.

 

[Joyce Potts]

Shouldn't you let the market dictate your adjustment. I know some appraisers that still adjust $20 per foot no matter what. I let each individual market dictate the GLA adjustment. We are the land of cheap real estate Yet, a home would almost always have be under $50,000 to get a $20-25 GLA adjustment or a manufactured home on land. I just looked and most of my GLA adjustments range from $50-80 per foot based on the market reaction for each individual neighborhood. Homes here range from $80-150 per foot in price range in typical neighborhoods depending on the age and location of the neighborhoods. One city averages about $120 per foot while the city next to it averages about $100 a foot in price per square foot. My GLA adjustments would be different depending on which city and some houses are less than a mile apart. It depends on each individual neighborhood and what the market reaction shows to bring the best adjusted sales price range. I found when reviewing the automatic $20 per foot appraisers would have a wider adjusted sales price when a $50 adjustment would have made a much smaller adjusted sales price range. It doesn't make sense to adjusted $25 per foot for a home selling for $150 a foot unless it is mostly land value. Most of the time these appraisals I would review would use smaller adjustment figures to avoid exceeding lender guidelines. Why do you think Fannie removed the 15 and 25% guidelines? So, appraisers would make proper adjustments.

Who's arguing with you?

 

[Artemis Fowl]

Who's arguing with you?

Good question...

 

[Deleted member 130081]

Unfortunately, there are appraisers out there who are on their soap box that using 'good judgement' and years of experience is both a USPAP and FNMA violation. It's either mathematical support or nothing.

If the market data is out there, I get it - but there are those properties that you're never going to have a strong support market support or evidence of a range, much less a dollar amount for an adjustment.

Amen. If adjustments could be extracted/calculated credibly with math alone, computers would have been programmed to do this already and we would all be using them. Computers have been programmed to this already, however the results are not credible. In fact, the math actually shows how adjustments can not be credibly extracted from the data available, in so many cases, you can justify saying always. The part that continues to shock me, is that with the data so readily available for any and all to see, anyone would continue to beat the drum of mathematical extraction. The problem are the yahoos who continue to claim all of this is actually possible, in a way that is reliable and credible, and I'm talking about appraisers. The OP has a request from the reviewer to show their work. Maybe the reviewer knows the adjustments are impossible and is calling the OP's bluff. I might do that too, but instead I know that Standard 3 calls for the reviewer to provide support for their difference in opinion, and when it comes to adjustments, that's a farce.

To the OP - The first thing I don't do is claim I used some method that I didn't. If that is what you did, maybe you should try to save face by responding you made a mistake with your boilerplates - you will have some egg on your face either way. As far as how I handle adjustments, I explain adjustments, along with the approaches in the body of the narrative. My reports include an explanation of what the approaches are, which ones were used, and what the strength and weaknesses of each were. Then I add some comments about the quantity and quality of data that was available and how that will affect the credibility of the appraisal - adjustments are just one piece of this. I do not provide "support" for adjustments in the sense I provide graphs and and tables and data and blah, blah, blah because, that would suggest to the reader that these methods were credible and I relied on them, which they aren't and I don't. Ill let you in on a little secret, supporting adjustments is an underwriter/loan decision issue, not an appraiser/appraisal issue. If you don't believe me, try to cite the part of the form you sign that says you extracted adjustments from the market and provided support for them in the appraisal? That's right, its not in there. What you do sign, is you have adequate comparable sales data to develop the sales comparison approach. You sign that you provided the most physically, functionally and locationally similar sales. The whole support your adjustments thing is an underwriter thing, and as underwriters love to do and are immensely successful with, they brainwash appraisers into thinking its an appraiser problem. My advice is to never say you did something you did not, or do something because a client instructs you to, despite the fact doing it is not credible. Instead, one-up the underwriter by showing you know what you are doing better than anyone else, including them. You asked for specific examples, so here are some excerpts from my boilerplates:

"The Reconciliation & Support Of The Value Opinion Included:

In the course of this assignment I utilized numerous comparable sales and other market data from which to develop an opinion of market value. Three of these sales have been reported upon the URAR sales grid, serving to provide market evidence for the opinion of value, but are not the only sales that were considered in the development of the value opinion, and not the only support for value that exists in the appraiser work file. The three comparable sales are however, selected with an emphasis as the best over-all picture for market support the current market can offer.

*Note - Because no two homes are ever identical, the sale prices of comparable sales have been adjusted on the sales grid to compensate for the likely differences between the subject and sales in terms of dollars. The intended use of sales grid adjustments is to provide a better picture of the market to the reader as seen by the appraiser and these estimates are not intended for use as investment tools or cost estimates, nor are to be relied upon for any other use."

By explaining what adjustments actually are, I don"t get many requests asking for the math behind them. As far as how I got them, I keep it simple and say this:

"Description of Adjustments:

Adjustments were extracted from market data and developed using a trends analysis and/or matched pairs analysis as possible. DNMR is an abbreviation for Differences Not Market Recognized. The rate of adjustment was as follows:

$0 - Sale Terms
$Dollar For Dollar - Concessions
$6% - Date of Sale/Time
$0 - Location
$0 - Leasehold/Fee Simple
$0.50 per sf - Site
...........and so on"

So I do not provide "support", but I do provide an explanation, so the reader knows what I adjusted for and what the rate was. Further in my narrative I write:

"Sales Comparison Approach To Value:

This approach determines a subject’s market value by analyzing the sale prices of similar properties and making the reasonable assumption that a subject property would sell for the same price as a comparable property. The Sales Comparison Approach is considered the most reliable method available when an opinion of market value is desired. While this approach is considered reliable, it is not without limitations."

When clients come back and start asking specific questions like they are with you, I point out that extracting adjustments credibly is one of the limitations of the approach.

I have found you have to lead these people into the warm fuzzy they are looking for. Credible support for adjustments does not exist. Available support for dollar adjustments is marginal at best, and in every case includes a heavy dose of appraiser judgement. That is their problem, not ours. When appraisers make it their problem and come up with all sorts of outrageous BS to simply please the client desire, they are participating in fraud. I would advise to not do that.

Again, in this day and age, with all the data out in the open for all to see, I cant believe appraisers still openly state they can extract adjustments credibly, using the "recognized" methods, rather than employing experience and judgement. Of course, that leads to a discussion on what credible means. IMO, experience leads to credible judgement, but not everyone agrees with that.

I find I am too good at math and analysis, and too honest, to succeed as an appraiser. Frankly, it angers me.

 

[Deleted member 130081]

I have been around for 12 years and have a new client that is requiring that the calculations be shown in the report. How my GLA adjustment was obtained (sometimes its $25 others it's $50). I must have missed that class! How would you, the brain trust, answer this within a report??

Hopefully, you will find comps similar enough in size, where a GLA adjustment is not necessary. I try to avoid GLA adjustment as much as possible. If you you do not have these comps, do you have adequate sales data in the first place? Food for thought. I added some text I use in post #45. Good luck.

 

[hastalavista]

I'm convinced most appraisers who do that are picking comps by price, not bracketing size. A small adjustment means the adjustment remains small regardless the size of the home. I find it rare that a GLA adjustment is less than 50% of the DCN/SF.

(My bold)

I would say that is market-specific.

 

[Terrel L. Shields]

would say that is market-specific.

Perhaps, but I plotted a lot of residential properties in the past for the GLA (excluding land, garage, etc.) and the adjustment was generally just above 50% but I think if you trended it out by size, then the SF adjustment would actually decrease as the size of the house. I would surmise that perhaps in high land cost areas, the GLA adjustment would also decrease.
Also when the SF of the comps are very close in size, the "flat curve" problem exists where the SF adjustment at $30 isn't substantially different from that of $80 per SF in the overall scheme of things. Sensitivity requires enough spread to make sense.

 

[hastalavista]

Also when the SF of the comps are very close in size, the "flat curve" problem exists where the SF adjustment at $30 isn't substantially different from that of $80 per SF in the overall scheme of things. Sensitivity requires enough spread to make sense.

Which would be a strong argument to not adjust for size differences within a certain range. It isn't material.

 

[Artemis Fowl]

Unfortunately, there are appraisers out there who are on their soap box that using 'good judgement' and years of experience is both a USPAP and FNMA violation. It's either mathematical support or nothing..

Nobody but you said mathematical or nothing. STATING that judgement and experience is support likely is a violation...it's the "because I said so" method. DEMONSTRATING good judgement and experience as qualitative support by explaining the why and how of an adjustment is not. My boilerplate verbiage does not differ significantly from yours.