Location adjustment

[Fernando]

Most residential appraisers don't follow the proper "sequence of adjustments" and the GSE's separated the two attributes on our primary form. The users of residential appraisals can easily understand how one neighborhood could have a predominantly higher value than the other one and why one view is demonstrably superior/inferior to the other. If you just plug some arcane figure in for "location" derived from "site value analysis" it would require the reader to refer to some other page to figure out how you came up with that figure. If, on the other hand you told them that a comparable dwelling in one neighborhood sells for 10% more than the other neighborhood in the subject market segment then it's concise, accurate & easily understood. If you tell the reader that your subjects superior "canyon view" typically adds 10% to value in that market segment versus its next-door neighbor with the "prairie view" then its concise, accurate and easily understood. In nondisclosure states land purchases are generally closely held secrets and details are not disclosed to third parties, we would be doing our client a disservice if we based our adjustments & valuations on factors that are not verifiable or accurately quantifiable.

I never approve of appraisers going out of neighborhood. Neighborhood adjustments are very difficult and should be avoided at all cost if possible. Never understood why lazy appraisers go out when there are comps or sales in subject's area.
When I do have to get comps outside neighborhood, they're usually Comp #4 & #5 and given less weight but used to support appraised value.

 

[Mike Ault]

I think most residential appraisers understand that location and view are a function of the site. There is a golf course community in my area. Where you don't have a clear view of the golf course unless you have a site on the course. The only other possible golf course "view" is looking between the houses that have golf course lots. So I do not make a view adjustment if I am making a location adjustment for not being on the golf course. The view does not exist without the location. But what is the "proper sequence"

If I am comparing two properties that have similar "views" in different subdivisions that exhibit higher/lower predominant values then that market recognized difference would be reflected as a "location adjustment". If I am appraising two properties similar in all locational aspects except "views", one being inferior/superior then the market recognized difference would be reflected as "view adjustment". Similarly, when appraising homes around a lake all locations might be on the waterfront however the "view" might be "shallow end" versus "deep end", or "fishing end" versus "ski end" with market recognized differences best reflected as such. The sequence of adjustments is examined in this article, it used to be endlessly debated on this forum.

https://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2007/09/sequence-of-adj.htm.

People in nondisclosure states don't have access to 95% of the land sales which occur and typically avoid starting with "site value" for that reason. This is pure heresy to cost approach aficionados such as Terrell but most of us don't complete them unless necessary due to shortcomings in site valuation. Why would I place my client at risk of a GSE "repurchase demand" unless it is necessary. That's how one major lender operated during the last downturn, every time they foreclosed on a property they would send the appraisal supporting the loan package directly to the state alleging "possible USPAP violations". That way the state did their review and they would invariably find deficiencies in the "site value portion" of the cost approach which shouldn't have even been completed anyway. Then, armed with that "USPAP violation finding" from the state obtained for free, they could force a repurchase from the origination broker. AMCs and lowlife clients that simply want that information for insurance purposes should be forced to sign a disclosure acknowledging that the "free cost approach information" they are requiring has been and will continue to be the weakest point of most appraisals and invariably generates a defect in their loan file waiting to be discovered.

 

[Mike Ault]

I never approve of appraisers going out of neighborhood. Neighborhood adjustments are very difficult and should be avoided at all cost if possible. Never understood why lazy appraisers go out when there are comps or sales in subject's area.
When I do have to get comps outside neighborhood, they're usually Comp #4 & #5 and given less weight but used to support appraised value.

I'm not surprised that you're able to operate within your neighborhoods so well. You have been bragging for some time now on how you define your neighborhoods "the Fernando Way".

 

[Fernando]

If I am comparing two properties that have similar "views" in different subdivisions that exhibit higher/lower predominant values then that market recognized difference would be reflected as a "location adjustment". If I am appraising two properties similar in all locational aspects except "views", one being inferior/superior then the market recognized difference would be reflected as "view adjustment". Similarly, when appraising homes around a lake all locations might be on the waterfront however the "view" might be "shallow end" versus "deep end", or "fishing end" versus "ski end" with market recognized differences best reflected as such. The sequence of adjustments is examined in this article, used to be endlessly debated on this forum.

On same street on a hilly, one house downslopes and other backs to hill. The downsloping lot has superior unobstructed views and the house backing to hill have inferior views. There are view adjustment and location adjustment. Best way to avoid such adjustments is to get comps with similar views and topography. Best location is an all useable lot with excellent views. Those sell at very high premium.

https://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2007/09/sequence-of-adj.htm.

People in nondisclosure states don't have access to 95% of the land sales which occur and typically avoid starting with "site value" for that reason. This is pure heresy to cost approach aficionados such as Terrell but most of us don't complete them unless necessary due to shortcomings in site valuation. Why would I place my client at risk of a GSE "repurchase demand" unless it is necessary. That's how one major lender did it during the last downturn, every time they foreclosed on the property they would send the appraisal supporting the loan package directly to the state alleging "possible USPAP violations". That way the state did their review and they would invariably find deficiencies in the "site value portion" of the cost approach which shouldn't have even been completed anyway. Then, armed with that USPAP violation from the state obtained for free, they could force a repurchase from the origination broker. AMCs and lowlife clients that simply want that information for insurance purposes should be forced to sign a disclosure acknowledging that the "free cost approach information" they are requiring has been and will continue to be the weakest point of most appraisals and invariably generates a defect in their loan file waiting to be discovered.

 

[Mike Ault]

On same street on a hilly, one house downslopes and other backs to hill. The downsloping lot has superior unobstructed views and the house backing to hill have inferior views. There are view adjustment and location adjustment. Best way to avoid such adjustments is to get comps with similar views and topography. Best location is an all useable lot with excellent views. Those sell at very high premium.

What do you do if you have to go to different neighborhoods to find such "similar view" comparables? How have you been deriving your location adjustments?

 

[Dublin ohio]

If I am comparing two properties that have similar "views" in different subdivisions that exhibit higher/lower predominant values then that market recognized difference would be reflected as a "location adjustment". If I am appraising two properties similar in all locational aspects except "views", one being inferior/superior then the market recognized difference would be reflected as "view adjustment". Similarly, when appraising homes around a lake all locations might be on the waterfront however the "view" might be "shallow end" versus "deep end", or "fishing end" versus "ski end" with market recognized differences best reflected as such.

I have never even thought of the above as being a proper "sequence". To me it was pretty much common sense. Or if you prefer, logical.

 

[Dublin ohio]

What do you do if you have to go to different neighborhoods to find such "similar view" comparables? How have you been deriving your location adjustments?

You know that the Fern would just expand his "neighborhood". Problem solved

 

[Fernando]

What do you do if you have to go to different neighborhoods to find such "similar view" comparables? How have you been deriving your location adjustments?

You don't look at one number. I look at the median price and $/sf because different neighborhoods have different size homes. Hopefully there is a quantifiable difference to work with.
Again they're my 4th or 5th comp and "magically" support my appraised value.

 

[Mike Ault]

I have never even thought of the above as being a proper "sequence". To me it was pretty much common sense. Or if you prefer, logical.

It becomes important when you're trying to solve for the "unknown factor", hopefully being the residual. Like you, I believe "common sense" trumps "sequence of adjustments theory" any day.

 

[Fernando]

You know that the Fern would just expand his "neighborhood". Problem solved

I expand the area for 1004MC only. It's only use is an analysis for a trend in market.
1004 should stay in same neighborhood.