How Do I Make Adjustments In Square Footage

[Patrick Eubanks]

Can someone explain to me the proper method to use in determining square footage adjustments between the subject and comparable properties in an appraisal. At the present time, I'm working on my experience hours toward receiving my license and I find a strong contradiction between what I was taught in my appraisal classes and the method that my mentor is advising me to use in reaching the conclusion of value of the subject. I need a third party opinion to determine which method is valid. Is it also true that any square footage below 100' of the subject proper should be disavowed and no adjustment is necessary? Thank you in advance for any responces I may receive.

 

[Bill_FL]

Patrick,

There are several ways to measure the contribution value of GLA. The best way is to look for properties similar in every way, except size.

That said, sometimes it is very difficult. As far as the 100sf rule? I know some people I have heard that from. I use a different rule of thumb, as I am sure many do. But, my rules of thumb are based on my experiences, in different markets and different market levels. Conceptually, what you are asking yourself, is what is the breaking point in size differences where a buyer would be willing to pay extra for the size?

In a 5000 sf house, do you think a buyer would notice it being 4900 or 5100? Probably not. If the buyer would not notice the size, would there be an adjustment needed?

What if it was a 700sf house? Maybe so?

It depends on the market.

 

[ccooper]

Text Book Answer: Matched Paired Analysis. Find two homes that are identical with only one exception, size. We found these in new tract home subdivisions. Same builder, homes next to each other, 3bd 2ba with fireplace and 2 car. Home A sells on Monday, Home B sells on Tuesday. One is 1300 sf and the other is 1420, etc. We were able to determine a "market derived" cost per square foot differential. In a perfect world we would do this on every home across all of the quality levels. Yeh, yeh, yeh. What we realistically had to do was define that as our market derived psf $ amount and adjust upward or downward from there. Manufactured homes might use $20 in stead of $25 for above grade. "Good" or "Very Good" might use $30 or $40 instead of $25 for example. Walkout basements would only be a percentage of the above grade. Its all relative. The more unique your subject (Excellent Quality) the less accurate this becomes. The bottom line is let the market tell you. Look at your three comps, what do they tell you? I love to see condo appraisals because they are the easiest to do a matched paired analysis on.

With respect to your question about the 100 sf, I concur with previous comment. We adjust them all in our office. If the 100 sf is on a 5000 sf home, this dollar amount should only be small (%) anyways and should not be a concern with Gross and Net adjustments. If the home is 700 sf then the adjustment should be relatively larger.

Keep asking questions, after 10+ years I still do. Every situation is different so don't always try to put the square peg in the round hole. Step back and try to figure out what seems reasonable.

 

[DB]

As a general rule, in my market, we can take the median of the selling prices of the comparable properties, minus the reconciled value of the land or lot, including in-ground improvements, and divide the result by the median of the square footage of the comps and the subject.

Median of Sales = $140,000
Reconciled site value = $40,000

Median SF of subject & comps = 1600sf

Potential SF adjustment would be in the area of $60.00 per SF between the subject and the comps.

May not work every time, but will in most cases.

 

[Bill_FL]

Doug,

that is interesting, because on the surface it would look like you are treating the GLA with all of the contribution value for all of the other elements of comparison.

 

[DB]

I guess I should have gone ahead to say, all else being equal .... I dangerously presumed that we were talking about paired sales analysis within a NH of similar structures and GLA being the only difference.

 

[xm39hnu]

Doug,
Couple of questions on your method:
1) Are you also subtracting out for non-GLA amenities such as garages and porches? Is that what you meant by "in-ground improvements?"

2) Why the median? Why not the mean? How many comps do you usually have in the data set?

Sorry if these are nit-picky, but you should've known better than to summarize here. We want Self-Contained posts with all the data.

 

[Patrick Eubanks]

I would like to thank all of you that responded to my inquiry so quickly!! I have been reading this forum on a regular basis but that was my first time posting a question. With the "mentor" that I have, expect to hear a lot more from me.

My appraisal instructor uses this method for determining GLA sq. ftg. adjustments in my area (Milwaukee). As a general rule, in urban neighborhoods, with homes priced below $250,000, he assigns $10 sq. ft (based on the subject) to properties built before 1950. $15 sq. ft. for properties built between 1950 - 1970 and $20 sq. ft. on properties built between 1970 - present. He was quick to point out that there are exceptions to this rule depending on the quality of the neighborhood and the overall values placed on the properties but this would be a good starting point. Do any of you agree with this ?

Can I use this method as well as some of the other approaches that have been mentioned in determining adjustments to the Site?

 

[DB]

My example presumes that Non-GLA items are equal ... in grounds would include driveways, septic systems, patios, foundations, slabs if applicable, other underground utilities, basically anything that is of value that would be left if there were no house, for whatever reason. Maybe I should have said in ground site improvements.

Medians are what I was taught to use, ergo .....

I would love to hear other ways of doing it ..... Hit me big guy!! :rofl: :rofl:

 

[Tater Salad]

As a general rule, in urban neighborhoods, with homes priced below $250,000, he assigns $10 sq. ft (based on the subject) to properties built before 1950. $15 sq. ft. for properties built between 1950 - 1970 and $20 sq. ft. on properties built between 1970 - present.

Boy, I hate to say one way or another for a market that I don't work, but . . .

I have neighborhoods where it doesn't matter if it's 1000sf or 2000sf--size doesn't matter. Style and condition are the only things that matter. Try explaining that to an underwriter :blink: .

Most areas where it does matter, there are size points where the homes are not comparable outside of there own groups (1000-1200sf, 1200-1400sf, etc.).

Point being, blanket 'rules' for adjusting GLA can be worthless. I'd stick to paired sales. That doesn't help you, does it?