How is GBA price-per-foot determined?

[AllenB]

Hi All,

First, thanks in advance for taking these questions. Until I found this forum, I hadn't a clue how to go about asking.

--- 1st question ---

I've got a small investment property (three unit, purpose-built triplex) which I currently own outright. I'm trying to get a cash-out refinance loan but for various reasons outside the scope of this question, keep running into trouble with the details. As a result, I've had the property appraised four times in the course of three months. Each was by a different appraiser; all were ordered by lenders via AMCs.

This has been a frustrating process, in part because the values have come back as $90k, $110k, $58k, and $84k. The last of those is still "in play" and is the subject of my question.

Each of the first three appraisals uses a value of $15 per square foot of GBA to adjust the sales comps. This is on page 3 of form 72/1025. My building is larger than most three unit properties, hence these adjustments are in my favor.

The fourth appraisal uses a figure of $3 (three dollars) per square foot. In addition, some of his other adjustments (such as brick vs. frame) are significantly smaller (for example, $1000 versus $5000) compared to what others have done.

It seems to me that this is just plain wrong, not merely a difference of opinion. I don't know what factors went into determining the $15/foot value but all three of the first appraisers used it, so apparently it is accepted for the area or otherwise known to be valid. My bank appealed this via the AMC but it was left untouched.

If anyone can give me an idea of what happened here, and what strategy we might take to try and get it corrected, I would really appreciate the help. It seems that the AMCs have made it extremely difficult to argue any facet of an appraisal.

--- 2nd question ---

On a related note, the $58k appraisal uses a different method of calculating GBA than do any of the others. My building is on a corner. Street level on the "main"s street is actually the middle floor, and has entrances to the middle and upper apartments. The "side" street slopes down, such that the ground floor (lower) apartment is entered at street level from that side. That apartment occupies about half the floor area (completely above ground) while the other half of that floor is unfinished basement.

This particular ($58k) appraisal completely ignores the lower level for purposes of figuring GBA. This results in both the lower apartment and the basement being ignored. My understanding is that this is incorrect. If that is true, could someone point me toward a fannie/freddie or other document which specifies the method of figuring GBA?

Any help which you are able to provide is much appreciated. My back is somewhat against a wall here, and I could really use some solid data to use in trying to straighten things out.

Btw, I am located in in-town Atlanta, GA.

Thanks again,
Allen

 

[Michigan CG]

............all were ordered by lenders via AMCs.......

.............My bank appealed this via the AMC but it was left untouched..........

.............It seems that the AMCs have made it extremely difficult to argue any facet of an appraisal.........

There is a pattern with many folks including you. Who is the bank? I would tell the bank that they have an obvious awful AMC that hires the cheap and untrained appraisers considering the wide range of values. At least three of them are clueless.

Take your money out of the bank and go to a bank that doesn't use the cheap AMCs. If you are doing business with Bank of America or Wells Fargo they have additional incentive to hire cheap appraisers considering they OWN the AMCs they use.

Many of us don't work for AMCs and your bank and AMC are most likely not looking for the most qualified appraiser, but the cheap idiot.

Take all of the appraisals to a local competent appraiser and have them all reviewed. The appraiser can advise you of what actions to take after the reviews are complete.

To find a good local appraiser I suggest www.appraisalinstitute.com.

 

[Lobo Fan]

Appraising income property can be interesting. The $/SF issue comes from the market. There is a range of value that it may fit. Such as 30-70% of the $/SF of the comps. For a triplex, I would work the income approach very hard. That is really the reason someone would buy the property. Take a look at that portion of the appraisal. The GRM and the market rent should be fairly consistent. $/SF is a dangerous method for measuring value, and is really only good for an overview. Appraisers rarely consider this method of value.

The below grade issue is a common misunderstanding. Many of us use ANSI as the standard which states that if any portion of the area is below grade, then the entire area is technically basement. The issue is how you market values such spaces. Some markets treat them as basements, while in my market, walk out bsements are valued at almost par with the above grade areas.

One of the roles of an AMC is to sheild the appraiser from frivolous complaints. While most appraisers consider AMCs to be evil, they do have a role in the process. If you can document actual errors then you may be able to get a reconsideration of value. Without knowing you market, I cannot determine of the $15/SF or the $8/SF is more accurate. It may be that the lower value is the actual market derived value.

Good luck with yur loan. The reconsideration of value route is your best bet to get the value changed. It will require that you provide proof of factual errors, or can supply overlooked comparable sales that are more recent, more proximate, and more similar than the ones used.

 

[Thomas Fiehler]

Allen-One point that you might wish to address is the GBA vs. GLA statdards. GLA referrs to single family houses and the area includes living areas above grade level. The GBA isfornon-residential property, such as yours, and allows for the finished lower levels to be included in the total area. Also, IMHO, any appraiser that adjusts for differences in size at $3 per SF is applying the SWAG method (simple wild ***** guess). The market is just not that exact.

 

[Mztk1]

On your first question, adjustments are market derived, but they are subjective. An appraiser must base his adjustments on market data. There may be pairings in the market that support a $15/sf adjustment, there may be other pairings that for some reason the other appraiser believe as more reliable, that show $3/sf. Or, the gross building area could be a function of cost less depreciation in one report, and based on market pairings in another. For cost less depreciation, lets say you house cost $60/sf to build just the shell (excluding the baths, upgrades and other features that are adjusted for separately the grid), and it losses 35% of value due to physical depreciation and 40% due to economic depreciation, the appraiser can justify a $15/sf adjustment that way, as long as the data can support the adjustment made. So, adjustments, as much as we wish they were more objective, are not. Appraisers can disagree and neither be wrong. On the other hand, some appraisers just pull adjustments out of their butts.

On the second part, the entire building's square footage is gross building area. For some markets, though, the market reacts to gross living area and not gross building area. In the $50K appraisal the appraiser provided gross living area, not building area. This means it is that appraiser's opinion that the market does not react the same to a below grade area as it does the above grade area (if any part of a story is below grade, the entire story is considered below grade and not part of living area). An appraiser does not have to be married to the form and can depart from what it says, such as using GLA instead of GBA, but it should be 1. openly disclosed in the report, and 2. an accurate depiction of the market. Did any comparable in the other reports have similar below grade space? Did the $50K appraisal use sales with below grade use that it counted as a basement? One of the problems with the multi-family form is that the sales comparison approach calls for GBA and then also has a separate line adjustment for the basement. This results in different interpretations and methods for solving the problem.

In the end, the only person who can sort this out for you is, as Michigan said, a well qualified appraiser from the local market. I wouldn't discount any because they work for Rels or LandSafe, though.

 

[EDWARD BERRY]

Good Advice To Let A Trusted Appraiser Review.

The Sf Adjustments Should Be What The Market Recognizes In The Difference Of Size, Not The Cost Or Total Sp/sf.

The Review Should Be Able To Explain The Reports.

Good Luck, You Came To The Right Place.

 

[hastalavista]

Hi All,

First, thanks in advance for taking these questions. Until I found this forum, I hadn't a clue how to go about asking.

--- 1st question ---

This has been a frustrating process, in part because the values have come back as $90k, $110k, $58k, and $84k. The last of those is still "in play" and is the subject of my question.

There's obviously a grouping above. The $110k and $90k are one group, the $90k and $84k are another group, and the $84k and 58k are the final group. It is possible that, depending on the market, much of the discrepancy can be explained by the dates of the appraisals. For that to be possible, one would expect significant declines over the period, with the higher-value appraisal being completed further back in time.

Each of the first three appraisals uses a value of $15 per square foot of GBA to adjust the sales comps. This is on page 3 of form 72/1025. My building is larger than most three unit properties, hence these adjustments are in my favor.

I find the consistency of the adjustments to be unexpected. I would expect to see some variance. But, let's assume that $15/sf is appropriate. If that is the case, then the $3/sf is certainly an outlier... except (again) if there has been a significant change in the market, it might be reasonable (such a drop in values would be newsworthy).

In addition, some of his other adjustments (such as brick vs. frame) are significantly smaller (for example, $1000 versus $5000) compared to what others have done.

Such adjustments are difficult to extract (calculate) from the market with precision. What I think most would find is there is a reasonable "range" for such differences and that the adjustment, to be credible, be within that range. Is $1k vs. $5k within the reasonable range? I don't know; you'll need some local expert to analyze that one.

On a related note, the $58k appraisal uses a different method of calculating GBA than do any of the others. My building is on a corner. Street level on the "main"s street is actually the middle floor, and has entrances to the middle and upper apartments. The "side" street slopes down, such that the ground floor (lower) apartment is entered at street level from that side. That apartment occupies about half the floor area (completely above ground) while the other half of that floor is unfinished basement.

This particular ($58k) appraisal completely ignores the lower level for purposes of figuring GBA. This results in both the lower apartment and the basement being ignored. My understanding is that this is incorrect. If that is true, could someone point me toward a fannie/freddie or other document which specifies the method of figuring GBA?

There will be an argument about so-called "above grade" and "below grade" areas and how they are used to calculate GBA. Here's the definition from The Dictionary of Real Estate Appraisal (4th ed.)

GBA
Gross building area
The total floor area of a building, including below-grade space but excluding unenclosed areas, measured from the exterior of the walls. Gross building area for office buildings is computed by measuring to the outside finished surface of permanent outer building walls without any deductions. All enclosed floors of the building including basements, mechanical equipment floors, penthouses, and the like are included in the measurement. Parking spaces and parking garages are excluded. See also area.

When I measure a triplex, my measurement scheme follows the above definition. My experience in 2-4 units is that there is minimal area that is not part of one of the unit's living area (other than garage space). In the case you describe, I would have measured and included the partial below-grade area as part of the GBA but, if it is not part of the living unit, I would not include it in the break-down of unit living-area that is presented in the appraisal report.

Should the basement be adjusted at the same rate as the entire building which includes rentable area of the units (and which, presumably, has more value in the market)?
Unless all the comps are similar, and the argument is made that the adjustment to GBA reflects the values of basement and unit areas, probably not. So, the question is this: Do the comps used in the appraisals have similar basements? One would want to make sure that the comparables are being "evaluated" on a like-for-like basis, and the adjustment to the entire building reflects like-for-like.

My parting question to you is this: Is the spread in values (and, more importantly) the direction sequentially linked to the effective dates? In other words, is the highest appraisal ($110k) the earliest and the lowest appraisal ($58k) the most recent?

 

[Webbed Feet]

GBA= Gross Building Area. GLA - Gross Living Area

<......snip.....> This is on page 3 of form 72/1025. <...snip....>If that is true, could someone point me toward a fannie/freddie or other document which specifies the method of figuring GBA?

Any help which you are able to provide is much appreciated. My back is somewhat against a wall here, and I could really use some solid data to use in trying to straighten things out.

Btw, I am located in in-town Atlanta, GA.

Thanks again,
Allen

Assuming that 72/1025 form is version dated 2005, I personally consider it to be a screwed up mess. The reason why is the form is really a design meant to be used by residential appraisers within the scope of the practice of their licenses or certifications. The problem is too many appraisers in this catagory are "Form" appraisers that blindly follow what is on "forms" without obtaining the proper kinowledge to correctly interprete forms that have been created in a messed up way for the intended use of the forms.

Let me explain the above. The prior version 1025 form with version date 10/94 on it (1994) never referenced "GLA" per unit as the newer version from 2005 does. This looks very lovely to many commercial appraisers that GLA was added to the 2005 year version, only the prior 1994 version defined GBA, while the 2005 version fails to define either the GBA used on it or the GLA used on it. Along comes a residential appraiser not trained as they should be, possibly never having ever seen or used the prior 1994 verision, and not comprehending that in the analyses of 2-4 family income properties ALL "finished" space should be included in the analyses of the entire building as GBA. As the typical SFR standard for "GLA" is that basement area is not included in GLA even if finished, the lacking residential appraiser proceeds to not include below grade (basement) finished areas in the "GLA" or the "GBA" both on the 2005 version of the 1025 form. How am doing? Do you follow? Because in the prior 1994 version it was understood, and instructed, that all finished area, even below grade (basement) units were to be included in the analyses of what was only then GBA on that form, a form that made no reference at all to GLA at that time. My guess? Your last appraiser followed standards for single family residential GLA incorrectly while doing an analyses of a 2-4 family income property.

Many General Certified appraisers like the 2005 version of the form and defend it. I think it sucks in this regard of introducing GLA, as a term, into a 2-4 family analyses that should have stuck with referring only to GBA due to the assignment type. Because the 2005 year version labels all individual "Units" as GLA, then poorly trained appraisers find a basement unit and mess up the assignment as they think, correctly, that GLA cannot be in a below grade basement. Only they don't get it the assignment is not a SFR one, and rental income from that basement unit must be considered per the GBA standard of measurement that includes finished basement units.

Old Fannie form 1994/72-1025... GBA: "Gross Building Areas (GBA) is defined as the total finished area (including all comon areas) of the improvements based upon exterior measurements." This definition includes any and all finished below grade (basement) areas.

You can also find a good review appraiser at ...
http://www.naifa.com/

or off of this forum or many other places.

P.S.. Like your post Brother DeSaix... as always..

 

[Terrel L. Shields]

the entire building's square footage is gross building area.

GBA: "Gross Building Areas (GBA) is defined as the total finished area (including all comon areas) of the improvements based upon exterior measurements." This definition includes any and all finished below grade (basement) areas.

The reason the last appraiser used $3 is probably he had a number in mind and to achieve that goal, he/she are forced to use very small adjustments using the comps he had. Cynic I am, incompetence is one thing. But this is a sure sign of poor appraising that steps over the issue of competence into the issue of deliberately working the numbers...i.e.-fraud.

And I am in hearty agreement that any bank who uses and AMC is using the cheapest (read worst) appraisers available who are stupid enough to do a commercial property for a low fee....and btw the fee you paid the AMC is probably about 2.5 x the fee that the appraiser actually got. Anyone who has been in the brokering business knows that any broker who gets to keep over 20% of the total cost is cutting a fat hog. AMC's get to a full 50 - 75% cut routinely.