Gross Living area adjustment on comparable grid

[HeartofDixie]

Help!

I am a trainee in the process of trying to upgrade my license. After submitting a few of the appraisals I have worked on for review, I was told I need a more USPAP guided method for determining the GLA adjustment in the sales comparison approach grid.

The reviewer told me to use the depreciated cost method so I applied it to my example and it came to $89 per ft vs. the $30 per ft I had originally used. The reviewer thought it was too high and talked with someone else who told me to try this method:
Make all your adjustments across the grid except the GLA. Subtract the adjusted price of the comparable from the original sales price and divide by the difference in GLA (comp vs. subject). I have tried this method numerous times and keep getting weird numbers like 165 or 301, etc.

An appraiser posted somewhere that her mentor told her to add the price per ft of your three comparbles/divide by 3/multiply by .25 which actually comes out to be more accurate than any other method I've tried but I doubt it's USPAP approved. Another appraiser said he simply uses 1/3 of the price per ft in the cost approach.

I have always used a $20-$30 adjustment except maybe in super expensive homes I would use $50. No real method as to how or why, was taught this number and used it for years.

After all of that, my question is this: Do any of you have a standard USPAP approved aka board approved method for determining your GLA adjustment in the sales comparison grid. I prefer simple vs. something that takes a massive amount of time to figure out. Thanks in advance for your help

 

[CANative]

Matched pair analysis.

Your comps are the matched pairs (after they're adjusted for everything except the living area.) You can then do "iterations" until you find the right $/sf adjustment which results in the least variance of the adjusted values. This is really easy to do in a form report because it does all the calculating.

 

[Michigan CG]

http://appraisersforum.com/showthread.php?p=1652673

 

[Peter LeQuire]

Mark Ratterman's Valuation by Comparison: Residential Analysis and Logic, a publication of the Appraisal Institute might be of help.

 

[Mountain Man]

Help!
After submitting a few of the appraisals I have worked on for review, I was told I need a more USPAP guided method for determining the GLA adjustment in the sales comparison approach grid.

Personally, I'd invite the "reviewer" to show me where in USPAP it has a guide for determining a GLA adjustment.

 

[Terrel L. Shields]

Do any of you have a standard USPAP approved aka board approved method for determining your GLA adjustment in the sales comparison grid

It does not exist. But arbitrary percentages or depreciated costs tend to be pretty poor methods...a better case to be made for Depreciated costs if forced to make that choice.

Paired sales works. I would say most times when I do the calculation by any method the most logical numbers fall just above 50% of the amount you can actually allocate for the house.

When pairing sales, it is my preference to subtract the land value, subtract any outbuilding or garage value and then you are focused on the gross living area alone. That's what you are adjusting...

$200,000
- 40,000 (land)
- 20,000 (garage)
$140,000 (2000SF)

v.

$185,000
- 50,000 (land)
- 15,000 (garage)
$120,000 (1,500 SF)

$20,000 ÷ 500 SF = $40/SF

Ratterman's sensitivity adjustment is preferable. PM (check the personal message function) me and I will send you a simple xls (Excel) file. Play with it. When it gives you "bad" numbers, then something isn't adjusted elsewhere correctly, or the comps are either so far or so close in size as to render the adjustment meaningless. I actually use an age adjustment if there is an issue there to calculate the age adjustment to apply in the SF adjustment.

 

[jimmyfrank]

Personally, I'd invite the "reviewer" to show me where in USPAP it has a guide for determining a GLA adjustment.

Good, Mountain Man< I have worked in markets where GLA is not given a great deal of consideration by the buyer (if it is fairly close in size.) This is especially true in Lake locations. The market is more concerned with other physical characteristics such as b/rs, baths, decks, kit, view and etc. Just my experience. Jimmy

 

[Terrel L. Shields]

Just my experience

My experience is that a 50 + year old house in a small town with 1 bath and 3 bedrooms can be 1,200, 1,400 or even more SF and it's not going to matter. Ditto for a 2 sty with 2 bath and 4 bed. Size doesn't make much difference, if any. Condition and "curb appeal" may be hard to vet but it is the way the market is viewing those old homes. I can't even find a significant difference between one with CHA and space heat/window air in those old houses.

 

[sputnam]

USPAP doesn't specify methods of determining adjustments (other than saying that you must support your adjustments and you must use accepted methods). There are a number of ways you can support an adjustment. Any adjustment, not just GLA. The one that is best in a particular analysis will depend on the quality and quantity of data available. "Just my experience" is probably accurate a lot of the time... but, it's not supportable. Some of the ways that are supportable are paired sales analysis and linear regression. In the absence of enough or good enough data, you can also credibly derive GLA adjustments based on mean/median per square foot sales prices or depreciated cost per square foot.

 

[J Grant]

Generally GLA adjustments are treated as contributory value, not cost to build, though a percent based on depreciated cost, if it is equivalent to what market is paying for additional sf in a residence can become a way to develop or check validity of the GLA adjustment. All USPAP says is be credible and not create misleading results. If you develop a method or methods that work , such as paired sales and then looking at a ratio of % cost to build, that should be credible. GLA adjustments can never be "precise" as even if one separates out all other value features and leaves only sf, the intricacy quality of each house and variations of price will skew it a bit. If you adjust for sf your best estimate and the final range seems a bit "off", then tweak the adjustment a bit which is actually a market extraction till the best estimate is found.