How Do You Arrive At Bath Or Bedroom Adjustments?

[Doug in NC]

Determining a justifiable bath or bedroom adjustment is really tough to pin down, especially when you are dealing with properties in the $500,000+ range. I always use comp sales with the same bedroom/bath counts when possible, but is there a good method for justifying the value of an additional bath or bedroom? Paired sales is the first method I would attempt to try, but it rarely seems to define an appropriate well-defined adjustment (especially if other factors had to be adjusted for first like square footage, quality, garages, etc.). In a recent "adjustments" class I took, the instructor used mass data comparing multiple 3 bedroom homes to 4 bedroom homes. Makes sense, but I wonder what other factors contributed to any value difference found (factors that weren't considered because every sale in the data set was not analyzed individually).

 

[Terrel L. Shields]

In a 500K house, I probably wouldn't adjust for bathrooms unless a master bath was some monster that is about the size of my house (I've seen those and wondered what kind of adjustment would be justified) I would not adjust because of the problem you allude to. How do you parse a difference of something that may not be 1% of the value? Age-condition, SF adjust, any difference in garage capacity, and the rest is likely difficult to parse.

 

[Tom Woolford]

I use a spreadsheet that calculates paired sales and aggregate sales, and estimates sensitivity. Like Terrell said, generally there is no statistical significance to extra baths or beds beyond any required GLA adjustment. My hardest lesson was refraining from trying to divine an adjustment just because a feature was different. Frequently it is not credibly measurable, or may best be addressed as a quality issue (fireplaces, patios, summer kitchens(on porch), etc. .

 

[J Grant]

I make all the other adjustments if I want to isolate one out, the one that's left, make an adjustment for that factor, see how the values line up.

I rarely adjust for bedroom count in a 500k home, especialy when sf is within a similar range (though there are times that I might of course). I typically will adjust for baths, as a bathroom, especially in a higher value house costs a lot more $ to install than a bedroom, and additional baths really do add utility to a house, and buyers typically will pay more for them.

 

[Mr Rex]

Recently did a 6000sf house that had 9 full baths and 2 half baths including basement areas. All the comps had 3-4.5 baths. So I considered the extra baths over-improvements and made nominal adjustments +/-1/2 what I would normally consider.

 

[Don Clark]

I don't adjust for bedrooms as that is already adjusted for in square footage. But bathrooms are adjusted as they have additional fixtures. Sometimes, but not every time a abthroom may be evident by market reaction since buyers generally pay more for a house with the same footage as subject if there is an additional bathroom.

 

[DWiley]

Bath and bedroom adjustments are best supported by paired sales, grouped data, and/or sensitivity analysis. Regression does not tend to work well for these items because of the relationship they have to GLA.

 

[Tim Hicks (Texas)]

Around here, a bedroom count adjustment can be hard to determine for 3-5 bedroom homes because agents will tend to call any room a bedroom including a study off the entry or some bonus room in the upstairs, enclosed patio or garage. However, a two bedroom home in a three/four bedroom market will show a difference in price.

 

[Doug in NC]

Around here, a bedroom count adjustment can be hard to determine for 3-5 bedroom homes because agents will tend to call any room a bedroom including a study off the entry or some bonus room in the upstairs, enclosed patio or garage. However, a two bedroom home in a three/four bedroom market will show a difference in price.

I can't think of an instance in recent years when it appeared necessary to adjust for a 5 bedroom vs. 4 bedroom home or 3 bedroom vs. 4 bedroom. I guess that is largely because any adjustment may have already been considered in the square foot adjustment. On the other hand, I agree with you about the 2 bedroom vs. 3 bedroom; I usually expect to make a positive adjustment for a 2 bedroom house in a predominantly 3 bedroom market.

 

[NC Appraising]

Doug,

Using mass data from the MLS can help. I agree, the higher the price point the harder it is to derive an adjustment.

I disagree somewhat with others on here. GLA is GLA. Floor plan, room count, room size, bath count, etc. is more important. Appraisers put most on the GLA as it is the easiest to adjust and if they step out of the GLA the red flags at the AMC's and UW's start to go crazy. That is why you never see a functional obso adjustment.

Try this:

Take out as many variables as you can and make the search as similar as possible. Just do not do a search for 3 or 4 bath homes.

For example, same Zip Code, subdivision or neighborhood. Similar price points, 1990-2005 year built, GLA 3,000-3,500 SQFT, similar site size, garage count, etc. Then do one search for 4 baths and another search with 5 baths. PLAY with the data and do it multiple times in different areas. Narrow the search also. You will get a range....that is your support. Now use your experience to what the adjustment will be. Experience for an area does matter....not just what stats or numbers are.

As others have said, what is typical for the market area? A $500k price point and is a newer home (1990-present) I could see 3-4 full baths being typical. So if a home had 2.1 baths, I can see a larger adjustment. 5 baths...over-improvement?

What about cost and some sort of discount to support your adjustment, along with support from matched pairs, etc.?

Some have noted that they do not adjust for bedrooms as they are usually accounted for in the GLA. This is true sometimes, but not all of the time. In my PUD, if you have a 1,800 sqft home with 3 bedrooms and a 1,900 sq ft home with 4 bedrooms or 3 bedrooms and a bonus room; the 1,900 sqft home sells for $6,000-$9,000.

Now if you would only have adjusted for GLA, the adjustment would have been +-$3,500. In my PUD, buyers pay more for 4 bedroom or 3 bedroom with a bonus room home. Most use the bonus room or the 4rth bedroom as a home office or a media room. Most buyers need that extra room as most are working at home or need that media room for their big screen tv. Most families are 4, so they need at least 3 bedrooms and a bedroom/bonus room.