Is it still comparable?

[SnowDog2112]

I recently received a commercial appraisal for a 100,000 SF flex-industrial building in my company's portfolio. 3 of the 5 sales comps required adjustments of 25% or more. Are these properties actually comparable? I am a commercial RE asset manager with 30-yrs in the business, who had a short appraisal internship many years ago with a former head of C&W's Northeast Appraisal division. He would not have allowed the use of such a comp. "If a comp needs 25% adjustments, then it isn't" was his mantra. Is this still valid?

 

[Joe Flacco]

Depending on the specifics it can be argued that transactions with larger amount of adjustments are less reliable indicators of value but saying that it is not a comp is a bad rule. You can have 100% adjustment and it is still relevant data. Maybe not as good as the transaction that requires no adjustment.

 

[Terrel L. Shields]

On ranch properties and many warehouses, a 25% adjustment is quite modest. I've had 100% adjustments. After all, you have to use what is available. So, if I have warehouses of 40,000 SF, 20,000 SF, and 15,000 SF to compare to a 24,000 SF subject and the comps are in a town of 70k, and not much else is available do I use them? Or, go 100 miles west to Tulsa, OK? 200 South to Little Rock? I don't think so. Those are different markets and I'd rather adjust for size than some nebulous "location".

 

[Gobears81]

Every market is different, and that might be the best data that they are working with. Outside of markets with an abundance of recent sales data, having the 25% cap mindset will result in the appraiser struggling with the "comparability" of sales on nearly every report.

Some appraisers will opt for smaller adjustments and wider ranges to avoid these types of conversations. It is unfortunate that if appraisers utilize market-supported adjustments that are larger, they are often the ones that receive greater scrutiny, but such is the industry that we work in.

Nothing wrong with circling back to the appraiser with questions about certain adjustments, or the thought process was in determining the best sales available. Perhaps their parameters were quite rigid in determining the location, time frame, etc. - as much as we try to make this into solely a science, there will always be the art element in every facet of the process.

 

[TerryRohrer]

FNMA had a guideline for a long time that required residential appraisers to comment if their line item, net, or gross adjustments were higher than arbitrary levels. When they collected sufficient data, and analyzed it, they found that many appraisers were modifying their adjustments (or not making adjustments that were warranted) to remain within those guidelines, rather than adjusting by the amount market data suggested was appropriate. They immediately removed those guidelines.

As others have noted, no such requirements can be achieved in all circumstances. More problematic is that they are entirely arbitrary and subjective and have no basis for being. Often, less adjustment is better, but that has to be tempered by the actual subject market and the available data. Anyone who doesn't trust the appraiser they are relying on should rely on a different appraiser, but measuring reliability by arbitrary benchmarks will serve no purpose and is more likely than less to ensure unreliable results.

 

[Fernando]

FNMA had a guideline for a long time that required residential appraisers to comment if their line item, net, or gross adjustments were higher than arbitrary levels. When they collected sufficient data, and analyzed it, they found that many appraisers were modifying their adjustments (or not making adjustments that were warranted) to remain within those guidelines, rather than adjusting by the amount market data suggested was appropriate. They immediately removed those guidelines.

Case of Appraisers outsmarting Fannie.

As others have noted, no such requirements can be achieved in all circumstances. More problematic is that they are entirely arbitrary and subjective and have no basis for being. Often, less adjustment is better, but that has to be tempered by the actual subject market and the available data. Anyone who doesn't trust the appraiser they are relying on should rely on a different appraiser, but measuring reliability by arbitrary benchmarks will serve no purpose and is more likely than less to ensure unreliable results.

Is there explanation why these comps with large adjustments were used? Since you have questions, appraiser did not convey a convincing report to you.

 

[Dublin ohio]

Case of Appraisers outsmarting Fannie

Actually a case of appraisers not having a pair.

Is there explanation why these comps with large adjustments were used? Since you have questions, appraiser did not convey a convincing report to you.

Actually you can't make that assumption based on the op

 

[Fernando]

Actually a case of appraisers not having a pair.

I never cared about Fannie's percentage guidelines. And I got called out in the past and I just had to explain my reasoning. Or had to get an additional comps (I meant sale) with less adjustments. Ugh.

Actually you can't make that assumption based on the op

One time I reviewed an appraisal for a takeover for a piece of my commercial property (forgot what the term for government taking private land) which was done by assessor.
I knew it was hard to do and the comps were so far away. It wasn't convincing but I let it go and accepted the money.
I didn't think it was worth it and my time to fight county over my small piece of land.

 

[sputnam]

Whether they are suitable comparables or not depends on the data set that is available for the market and effective date. Sometimes, the best available aren't very good.

 

[Fernando]

Whether they are suitable comparables or not depends on the data set that is available for the market and effective date. Sometimes, the best available aren't very good.

When there are not suitable comparables, each appraiser can argue their point of view and can't come up with common agreement.
In my case, I was an advocate for myself, and county was advocate for themself.