How much is too much for adjusting?

[Keri]

Okay,

Here's another question from a newbie:

How much is too much?

I am appraising a frame home in a res/commercial zoned area. The home sits on 0.84 acres, with an auto body shop across the street, a house on the left and a glass shop on the right. Pretty. I searched the assessor's office, MLS, two realtor's offices and even made a friendly visit to the State Board of Realtors. I found only 3 comps within the past 18 months of similar quality and style. Of these 3 comparables, only 2 are a similar size, but are located in residential neighborhoods on typical residential lots. The 3rd comp is located in (amazingly enough) a competing res/commercial neighborhood on 1.5 acres. I'm sort of confused about what protocol to follow. I read earlier that an appraiser shouldn't compare homes on residential lots to homes on acreages. That leaves me with one comp, which is my second problem. The comp that is very similar (on an acreage, same type neighborhood) is 916 square feet. The subject is 1400 square feet. The adjustments for square footage (made at 50% of price per square foot) on this smaller property equals 24%. The adjustments on the other (in town) properties (both are 1400-1500 square feet) are under 10%.

I know that I'm probably stressing out over something simple, or I'm missing something that is obvious - but I can't quit worrying about it. I don't want to do something stupid or unethical. If anyone has some advice (other than RELAX), I would greatly appreciate it.

Thank you,

Keri

 

[Pamela Crowley (Florida)]

Welcome Keri,

This is obviously a unique property and #1 for me is to make sure you are charging a much larger fee for all of the additional work a property like this takes to properly appraise. Are you qualified for this type of assignment? What does your state say regarding this zoning and your license? Is there another appraiser in your area that is experienced in this type of appraisal that you can get together with to help you learn? Make sure you are keeping within USPAP and your state guidelines/rules.

Next, take a few deep breaths and get ready to be a real appraiser! It sounds like you've already done a good job researching for sales. Extend your search to 2 years or more. Now that you have the only sales available - you start your research to be able to determine and explain your adjustments. I would use the 3 you have with the one with the same zoning as comp 1. Grid them. Now you're ready to start with the adjustments and go line by line to do them. Be prepared for 2 or 3 additional comps if at all possible.

This is a situation where regression analysis becomes very beneficial but, without that, try to do paired sales. Using all sales for the past 3+/- years in the residential area, calculate the various necessary and justifiable adjustments for these properties. Next, using all sales for up to 5+/- years in the subject zoning, do the same thing. Figure out the land as though vacant for each property you are using as a comp. Be prepared to explain all adjustments and everything you do.

Once you believe you have the adjustments figured out, go through the grid and do the adjustments. Sit back and look at the bottom line and see where you end up. IGNORE the total net and gross. They don't have much meaning right now as it's a given they will be high. Look at each line item and determine if the adjustment really does make sense for that item and start your addendum explaining each line item, what you did to determine the adjustment.

At the end, if it makes sense to you and you are at least not toooo uncomfortable with your conclusions, make comments regarding exceeding FNMA guidelines due to the complex nature of the subject, it's market area and the scarcity of any newer, nearer or more similar comparable sales. Give them the total number of sales in the subject market area, (not just MLS, include ALL sales) break them down by zoning and tell them that what you considered the most comparable of all sales available were used in your appraisal and report.

If you are comfortable with what you have done, feel confident you have completed this with all necessary due diligence and fully explained it, send it in and let the fur fly! I've now started adding a statement that says: This Appraisal and Report is considered complete. Any further explainations and/or additional information requested will be completed at the hourly rate of $***. Put this in the report and on your invoice.

Something like this is a great learning experience and separates the appraisers from the wannabes. It's frustrating, time consuming and fascinating. Try to have fun with it and good luck!

 

[JeffMann]

See Pamela’s 1st paragraph. Most important is that you should try to extract a higher fee for this type of complex assignment or you can chalk it up to “learn while you earn.”
One point that I noted that was missing was HABU – Highest and Best Use. What is the subject zoning? Residential or Commercial? Should this be a commercial site rather than a residential site? You need to do some checking on this matter.
All in all, good luck!! Better you than me on this assignment.

 

[Pamela Crowley (Florida)]

Thanks Jeff. I wrote that this morning, previewed it, kept having that little nagging feeling that I was forgetting something. You hit it. Highest & Best Use. Comes right after that higher fee thing and makes a huge difference in the selection of comps.

 

[Keri]

Pamela and Jeffman,

I followed Pamela's suggestions and, after many hours spent pulling out my hair, I think I did the best I could. And yes, I did check the zoning and made certain to note EVERYTHING in the report. Thanks to you both for taking the time to answer my question. Love, love, love this forum and the wonderful people on it.


Keri

 

[Pamela Crowley (Florida)]

Keri,

Getting through one like that and feeling you've done a good job is one of the all time best feelings! Congratulations!

Let us know what the responses are from the client.